Contents

2 Who We Are 14 Route Map

4 Message to Shareholders 16 Our Fleet

8 Board of Directors 18 Our Products

10 Senior Management 24 2017 Highlights

and Consultants
35 Financial Statements
12 Key Operating Statistics
and Financial Highlights
OUR MISSION

Cebu Pacific: The most successful

low-cost carrier in the world.
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.

2
OUR VISION

Why everyone flies.

To bring 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.

3
Message to Shareholders
2017 was another remarkable year for your Company.
Philippine GDP grew a robust 6.7%, among the fastest-
growing economies in Asia, and the demand for air travel
remained resilient. Statistics from the Civil Aeronautics
Board (CAB) show that the combined number of
Philippine and international passengers grew 8.8% to
49.2 million in 2017, from 45.2 million in 2016. Domestic
passengers grew 5.9% year-on-year to 24.8 million, while
international passengers grew 11.9% year-on-year to 24.4
million in 2017.

Still, 2017 was not without its challenges. We faced an

increase in average jet fuel prices of 23.6% from previous
year, a 6.1% depreciation of Philippine Peso against the
US Dollar, heightened competition, and infrastructure
constraints, all of which did not work in our favor. Amidst
these challenges, Cebu Pacific stood strong, as we
performed well ahead of the industry.
Lance Y. Gokongwei
PRESIDENT AND CEO At 15% Operating Margin, Cebu Pacific
sat among the World’s Profit Leaders
We are pleased to note that despite the increase in our
costs driven mainly by jet fuel price hike and depreciation
of Philippine Peso against the US Dollar, your company
produced stellar results and remained to be sitting
among world aviation’s profit leaders. We carried 19.7
million passengers for the year, 0.6 million passengers
more than 2016. Our sustained operational efficiency of
12.5 block hours per day utilization rate for our Airbus
fleet, together with strong passenger and cargo demand,
led Cebu Pacific to posting consolidated revenues of
P68.03 billion in 2017, 9.9% higher than previous year.
Passenger revenues grew 7.2% to P49.9 billion, while
ancillary revenues grew 14.9% to P13.5 billion. Cargo
revenues grew the fastest at 29.2% to P4.6 billion as we
carried 179.0 million kilos of cargo, up 15.4%, coupled
Ricardo J. Romulo
CHAIRMAN

4
with 11.9% improvement in cargo yields. This
brought CEB’s 2017 Earnings Before Interest
and Taxes to P10.1 billion, for an EBIT margin
of 15%, one of the highest in the global airline
industry.
Robust BalanceSheet Supports Growth
Cebu Pacific’s financial position likewise
remained solid, with strong cash flows and
conservative net gearing. Total assets as at
December 31, 2017 increased to P109.0 billion
from P100.5 billion in 2016, as we added 1 new
Airbus A330 and 6 new ATR 72-600 aircraft,
less 3 A319 aircraft that we sold during the year.
We ended the year with a hefty cash balance of
P15.6 billion which translated to 23.0% of full
year revenues. Calculated gearing kept our net
debt level healthy at 64% of equity. We intend
to continue to leverage on our robust financial
condition to support further growth.
Strengthened International Market
while Maintaining Leadership
in the Domestic Market
We made the tough decision in 2017 to
suspend operations of three of our long-haul
routes in the Middle East as we struggled with
overcapacity and intense competition in these
markets. Re-deploying the capacity into Asian
destinations proved to be the right move as
we continue our efforts to grow this circle of
strength that is beyond the Philippines.
With the redeployment of our long-haul into
short haul routes, Cebu Pacific’s short-haul
international traffic grew 12.4% in 2017, as we
With the redeployment
of our long-haul into short
haul routes, Cebu Pacific’s
short-haul international
traffic grew 12.4% in 2017...
not only added frequencies, but also utilized
our larger, A330 aircraft for redeployment into
several short haul international destinations.
This resulted to notable passenger growth
in several markets such as Narita, where our
passengers grew 70%, and Incheon, where our
passengers grew 34%. We also saw notable
passenger growth in Taipei and Bangkok while
Hong Kong and Singapore continue to be our
largest international markets. The expansion,
together with strengthened tourism promotions,
aided the growth in these markets. Meanwhile,
Cebu Pacific captured the lion’s share for both
passenger and cargo traffic between Sydney and
Manila in 2017. Based on data from Australia’s
Bureau of Infrastructure, Transport and
Regional Economics, Cebu Pacific garnered 40%
market share for passengers and 39% for cargo
carried between these two cities. Our consistent
growth in the Australian market bodes well for
the launch of our direct service between Manila
and Melbourne this coming August 2018.
Meanwhile, in the domestic market, CEB
remained the market leader with 55% market
share based on CAB statistics. CEB defended
its leadership on all important metrics – most
5
passengers, most seats, most destinations
and routes, and daily flights. We flew 14.6
million passengers domestically, up 1.7%, for
a seat load factor of 86.8%, as we expand our
inter-island routes particularly in Visayas and
Mindanao through our newly delivered ATR
72-600 aircrafts. Among the new domestic
routes introduced in 2017 were Manila to
Siargao, Masbate and Tablas, Cagayan de Oro to
Tagbilaran and Bacolod, Cebu to Busuanga and
Cotabato, and Davao to Tagbilaran.
At the end of 2017, we flew to 62 destinations
through 113 routes and more than 2,000 weekly
flights.
CEB Doubled Up on
Customer-First Efforts
We are likewise happy to report that in 2017,
Cebu Pacific was among the first airlines in Asia
to invest in an integrated facility and technology
for social intelligence and customer engagement.
Cebu Pacific’s 24/7 Customer Command Center
is equipped with social monitoring, publishing
and engagement tools that allow CEB to better
address passenger concerns by providing
relevant and timely information and updates.
Since the facility was put online, response time
on CEB’s official social media accounts went up
from two days to hours, even as fast as eight
minutes.
Also in 2017, Cebu Pacific invested in
a customer-facing Information and
Communication Technology solution designed
to make airport operations more efficient. Called
the MAX Airport Suite, this technology speeds
up the necessary steps at check-in, lessen the
pain points for the customers, thereby reducing
occurrence of flight delays caused by these
time-consuming procedures and improving the
airline’s on-time performance.
On safety, we made several investments on
through technology, one of which is the world
leading Runway Overrun Protection System,
an alerting system that reduces exposure to
6
runway overrun risk, which we started installing
on our A320 family fleet. We also rolled out
iPads containing the pilot’s Electronic Flight Bag
containing a variety of aviation data such as
weather patterns, maps and charts; and perform
basic calculations like fuel consumption. The
iPads were enhanced with navigation and
situational awareness capabilities to simplify
preparation and in-flight procedures, which are
critical during times of high air traffic congestion
or poor visibility.
We flew 14.6 million
passengers domestically,
up 1.7%, for a seat load
factor of 86.8%, as we
expand our inter-island
routes particularly in
Visayas and Mindanao
through our newly delivered
ATR 72-600 aircrafts.
Finally, Cebu Pacific jump-started 2018 with
much optimism and vigor, as we launched a
direct flight daily between Manila and Batanes.
Batanes emerged as the most requested
destination in CEB’s crowdsourcing campaign,
#CEBFlyMeTo– the first of its kind in Philippine
Aviation. Through this online campaign,
Filipino travelers were given the opportunity
to participate in the selection process for a
new destination in the Philippines. With over
2 million netizens that participated in the
campaign, CEB was able to bring communities
together to voice out their thoughts and push
for their hometowns to become one of CEB’s
destinations. Other popular choices included
Daet, Camarines Norte; Mati, Davao Oriental;
Bantayan Island, Cebu; and San Vicente,
Palawan.
It is our hope that through these customer-
first airline-wide initiatives driven by data,
technology and a lot of heart, we can build a
lasting relationship with our customers.
Fleet Outlook
We completed the sale of our Airbus A 319
fleet, as we delivered out our 10th and last
Airbus A 319 aircraft this March 2018. Known
as the aircraft that ‘started it all,’ the A 319 fleet
propelled us to greater heights and its exit
paves the way for growth with the new Airbus
A 321 model into our fleet. Also in March 2018,
we took delivery of our first Airbus A 321 CEO,
bringing our fleet to 62 aircraft. We are looking
forward to transition into a larger, more fuel
efficient, and longer range A 321 as we take
delivery of 6 more Airbus A321 CEO, our first
Airbus A 321 NEO, plus 3 more ATR 72-600
turboprop planes this year. And in between 2019
and 2022, 31 A 321 NEO and 4 ATR 72-600 are
slated to arrive. We will maintain our disciplined
approach in expanding our fleet to reinforce our
growth strategy while actively managing our
capacity to allow us to meet expected demand.
Helping Future Filipino Pilots
Reach their Dreams
We are very excited to support our long term
fleet expansion growth with our very own Cadet
Pilot Training Program, aimed at addressing
CEB’s expansion requirements over the next 5
years. This program, conducted in partnership
with Flight Training Adelaide in Australia (FTA),
will create 240 professional pilots who will
subsequently join the corps of pilots of Cebu
Pacific. This will allow Cebu Pacific to train
homegrown Filipino pilots with best-in-class
international standards and enable it to have
a continued access to a pool of highly skilled
aviators that would support your Company’s
growth. Last April, we sent our first batch of
Cadet Pilots to the 52-week intensive aviation
training program. The entire program will be
financed by Cebu Pacific, enabling everyJuan to
achieve their dream of becoming a pilot.
Our Gratitude and Appreciation
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. We also thank our management
team and our dedicated employees for their
unwavering passion and dedication to Cebu
Pacific. We faced a difficult year but your
invaluable contributions helped us in weathering
the challenges and ultimately propelled us to
success. Lastly, our deep gratitude goes to all
our loyal passengers who choose to fly with
us throughout these years and to our future
patrons who motivate us to keep improving
our processes at a low cost. We affirm our
commitment of providing you with our
trademark year-round low fares, safe and fun
flights, and effective service. We are looking
forward to serving all of you, here and abroad, in
the years to come.
Once again, maraming,
maraming salamat po.
Lance Y. Gokongwei
PRESIDENT AND CEO
Ricardo J. Romulo
CHAIRMAN
Board of Directors

John L. Gokongwei, Jr. Lance Y. Gokongwei

DIRECTOR PRESIDENT AND CEO

Ricardo J. Romulo James L. Go

CHAIRMAN DIRECTOR

8
Robina Y. Gokongwei-Pe Wee Khoon Oh
DIRECTOR DIRECTOR

Jose F. Buenaventura Antonio L. Go

DIRECTOR DIRECTOR

Frederick D. Go
DIRECTOR

9
Senior Management and Consultants
L-R: Ian Wolfe (Executive Adviser, Engineering & Fleet Management), Rick Howell (Chief Operations Adviser), Andrew Huang
(Chief Finance Officer), Joey Macagga (VP – Fuel Procurement & Facilities), Laureen Cansana (Chief Information Officer),
Titit Menchaca (VP – Inflight Services), Rhea Villanueva (VP – Human Resources), Robin Dui (VP – Comptroller)
L-R: Atty. JR Mantaring (VP – Corporate Affairs), Capt. Sam Avila III (VP – Flight Operations), Nik Laming (General Manager,
Getgo), Jomar Rodriguez (VP – Safety & Quality), Candice Iyog (VP – Marketing & Distribution), Alexander Lao (President & CEO,
Cebgo), Michael Ivan Shau (VP – Airport Services), Alex Reyes (VP – Cargo Operations), Mike Szucs (Chief Executive Adviser)
Key Operating Statistics
Years Ended December 31 2017 VS 2016

2017 2016 2015 Inc (Dec) % change

Passengers carried (‘000) 19,745 19,130 18,376 615 3.2%

Available seats (‘000) 23,492 22,251 22,248 1,241 5.6%

Seat load factor 84% 86% 83% - 2.0 ppts

RPK (million) 21,301 21,220 19,872 81 0.4%
ASK (million) 26,233 25,989 24,898 244 0.9%

Number of sectors flown 136,849 132,056 132,360 4,793 3.6%

Fleet size at period end 61 57 55 4 7.0%

12
Financial Highlights
Years Ended December 31 2016 VS 2015

(PHP Million) 2017 2016 2015 Inc (Dec) % change

Total revenues 68,029 61,899 56,502 6,130 9.9%

Total operating expenses 57,895 49,648 46,801 8,247 16.6%
Operating income (loss) 10,134 12,251 9,700 - 2,117 -17.3%
Net income (loss) 7,908 9,745 4,387 -1,846 -18.9%

Pre-tax core net income 9,036 11,373 8,746 - 2,337 - 20.5%

EBITDAR 22,818 23,625 19,700 -807 -3.4%

Total assets 109,077 100,514 84,829 8,563 8.5%

Total liabilities 69,291 67,009 59,873 2,282 3.4%
Equity 39,786 33,505 24,955 6,281 18.7%

Basic/diluted earnings
per share (Php) 13.05 16.10 7.24 -3 -18.9%

13
International Destinations
Australia (Sydney), Brunei, Cambodia (Siem Reap), China (Beijing, Guangzhou, Shanghai, Xiamen),
Hong Kong, Indonesia (Bali, Jakarta), Japan (Fukuoka, Nagoya, Narita, Osaka), Korea (Incheon),
Macau, Malaysia (Kota Kinabalu, Kuala Lumpur), Singapore, Taiwan (Taipei), Thailand (Bangkok),
United Arab Emirates (Dubai), United States (Guam), Vietnam (Hanoi, Ho Chi Minh)
Route Map and
Destinations Domestic Destinations
Bacolod, Boracay (Caticlan), Busuanga
(Coron), Butuan, Calbayog, Cagayan
de Oro, Camiguin, Cauayan (Isabela),
Cebu, Clark, Cotabato, Davao, Dipolog,
Dumaguete, General Santos, Iloilo,
Kalibo, Legaspi, Manila, Masbate,
Naga, Ormoc, Osamiz, Pagadian,
Puerto Princesa, Roxas, San Jose
(Mindoro), Siargao, Surigao, Tablas,
Tacloban, Tagbilaran, Tandag,
Tawi-Tawi, Tuguegarao, Virac, and
Zamboanga

15
Our Fleet
CEB finished 2017 with 61 aircraft, comprised of eight Airbus A330, 36 Airbus A320,
one Airbus A319, eight ATR 72-600, and eight ATR 72-500 planes. Cebu Pacific operates
one of the youngest fleets in the world with an average age of 5.01 years as of end of 2017.

Airbus
Cebu Pacific ended 2017 with eight Airbus A330,
36 Airbus A320, and one Airbus A319 turbofan
aircraft.
The Airbus A330 leads CEB’s Airbus fleet with
a 436-seat capacity, followed by the A320 with
180 seats, and the 156-seater Airbus A319. Aside
from having one of the most modern engines,
Cebu Pacific’s brand-new Airbus A320 is also
equipped with Sharklets—the newly designed
large wing-tip devices that enhance the aircraft’s
eco-efficiency, reducing fuel burn by up to
4% on longer sectors. These “Sharklets” are
made from lightweight composites and are 2.4
meters with the latest avionics from Honeywell,
Thales and Rockwell Collins, all global leaders in
aviation electronics.
Between 2018 and 2022, Cebu Pacific will take
delivery of 32 Airbus A321neo (New Engine
Option) and seven Airbus 321ceo (Current
Engine Option).
ATR
In 2017, CEB took delivery of an additional six
of the 16 ATR 72-600 High Capacity aircraft it
ordered at the 2015 Paris Airshow. CEB ended
the year with 16 in its ATR fleet, eight of which
are its existing 72-500 aircraft.
These turboprop aircraft manufactured by
Avions de Transport Regional (ATR) in Toulouse,
France, are known for their reliability, ease
of maintenance, and ability to land on short
runways—making the ATR the top choice in the
turboprop class.
Equipped with the high-density Armonia
cabin, the new high-capacity 72-600 also has
78 slimline seats and wider overhead bins with
30% more stowage space when compared to
the 72-500 model. The new 72-600 model is
also known to have a more efficient fuel burn,
which translates to more affordable fares for
everyJuan.
Cebu Pacific’s additional 72-600 aircraft are
used to widen the CEB network through inter-
island routes, flying to some of the airline’s
newest destinations like Masbate and Tablas,
and boosting new city pairs between hubs.
Between 2018 and 2022, Cebu Pacific will take
delivery of eight more ATR 72-600 to be utilized
for more connectivity between the Philippines’
many islands.
17
Our Products
CEB Fare Bundles
CEB Fare Bundles offer a simple solution for guests looking to
book their travel essentials in one easy step. Different options
are now available to guests with different travel preferences and
requirements: “Fly” is for airfare only, “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.

GetGo
GetGo is CEB’s lifestyle rewards program that allows guests to
accumulate points with their Cebu Pacific and Cebgo flights,
as well as with their everyday expenses and transactions with
GetGo partners. With enough accumulated points, members may
redeem free flights. For more information, guests can visit the
GetGo website: www.GetGo.com.ph.

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.

18
Fast Check-in Options
Cebu Pacific provides an enhanced check-in experience by offering various digital check-in
channels, so guests can get their seat and boarding pass even before they get to the airport.

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

Guests can check-in via the
official Cebu Pacific Mobile
App from seven days up to
four hours before international
flight departure, and up to
one hour before domestic
flight departure. With the
Cebu Pacific Mobile App,
there is no need to get a paper
boarding pass for flights to
and from select domestic and
international destinations.
Guests can simply flash the
Boarding Pass from their app
and board the flight.
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 seven
days up to four hours before
international flight departure,
and up to one hour 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 eight hours up to
an hour before departure.

Prepaid Baggage
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.

Seat Selector
Every time guests book a flight online, seats can be selected for
a minimum fee. Guests can select Preferred Seats, located at
the exit rows, for additional leg room. Seats closer to exits are
available through the Standard Plus seat option. Standard seats
are all other available seats.
Payment Centers
Cebu Pacific guest who are not credit card holders can book flights through the website and pay via
the airline’s payment centers:

• Cebuana Lhuillier • PayRemit • Over-the-counter at

• 7-Eleven • Abu Dhabi Travel Bureau Robinsons Bank, Bank of the
• ECPay • SM Business Services Center Philippine Islands, Metrobank,
• Bayad Center • Robinsons Department Store Banco de Oro, and Banco de
• Caesars Travel Group • ATM transactions using Oro Remittance Centers in
• Al Rais Travel Bancnet and Megalink Hong Kong and Macau
• UAE Exchange member banks

Payment Options
Cebu Pacific guests can also book online
and pay using their credit cards.

Paypal
Cebu Pacific is the first airline in the Philippines to offer the global
payment platform as a payment option.

Alipay
Cebu Pacific facilitates online booking and payment in China
through Alipay. Alipay is one of the largest payment channels in
China, with more than 160 financial institution members and
around 800 million registered account users.

Fun Shop Inflight Duty Free

Fun Shop Inflight Duty Free is available on international flights
to and from Manila. A wide range of world-class 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, Ferragamo, and Bulgari, among others.

Airline branded souvenir items such as blankets, model airplanes

and stuffed toys are also available in Cebu Pacific’s Fun Shop.

20
TravelSure
Cebu Pacific offers TravelSure travel insurance underwritten by Malayan Insurance Co., Inc. in
partnership with international insurers to provide guests with maximum protection. TravelSure
allows worry-free travel for guests from one to 65 years old. Guests above 65 but not older than 70
years old can also avail of TravelSure when they are travelling from the Philippines, Japan, China,
Taiwan, South Korea, and Macau.

TravelSure covers: • Recovery of travel expenses or reimbursement

• 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
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

Fun Café
Cebu Pacific’s Fun Café presents
a wide variety of flavorful buy-
on-board snacks and drinks fit
for everyone’s taste. Hearty rice
meals and specialty snacks are
exclusively available for pre-order
at cebupacificair.com.

21
Car Rentals
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

touchpoints within the Cebu Pacific website.

CEB Cargo
Cebu Pacific is the leading 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.

The Cebu Pacific Air group is the largest domestic cargo carrier,
representing 47% of the market, with over 131.4 million kilos
delivered to domestic destinations in full year 2017. It services
more than 2,000 accounts, tailor-fitting products to the
clients’ domestic and international cargo needs. This includes
express cargo service, seamless transshipment, and 30 interline
partnerships for worldwide reach.

CEB Sports Equipment

Guests can avail of Cebu Pacific’s sports equipment handling
service for a minimum fee upon booking, or up to four hours
before departure. 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
• Bowling balls

CEB Surfboard
Surfboards may be checked-in as baggage, as an additional
baggage allowance on top of guests’ prepaid baggage. The CEB
Surfboard product covers body boards covers body boards,
surfboards, wakeboards, long surfboards and/or paddle boards.
Passengers are allowed one surfboard per passenger per flight.
 CEB Transfers
Cebu Pacific and Cebgo guests can now avail of CEB Transfers,
safe and seamless transfer service available in Boracay and in
Palawan. Passengers can book CEB Transfers from the Caticlan
or Kalibo airports to the guests’ hotel or resort in the island of
Boracay, and also to and from El Nido and Sabang (via Puerto
Princesa) in Palawan. The CEB Transfers service is in partnership
with Southwest Tours Inc. (Boracay), and Lexus Shuttle Services
(Palawan).

CEB BIZ
CEB BIZ, the corporate program of Cebu Pacific Air, lets
companies optimize their travel budget through exclusive features
tailor-fitted to meet companies’ business travel requirements.
Companies can book Cebu Pacific Air flights using an online
booking facility, get corporate fares, waiver on admin fees,
discounts on baggage, various forms of payment, transferrable
bookings and volume-based incentive scheme among other perks.

Smile and Waytogo

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. Its online counterpart, waytogo.cebupacificair.
com, is also a treasure trove of destination guides and insightful
travel features.

Bright Skies for EveryJuan

Cebu Pacific Air and Worldwide Fund for Nature – Philippines (WWF) have been joining forces
since 2008 for Bright Skies for EveryJuan. This lets travelers contribute to climate change adaptation
programs for the communities near the Great Philippine Reefs (Tubbataha and Apo Reefs) namely
Cagayancillo, Palawan and Sablayan, Occidental Mindoro, respectively, while booking for flights.
2017
Highlights
On March 8, 1996, Cebu Pacific took to the skies for its first Manila-Cebu-Manila flight on
a McDonnell Douglas DC-9-30 plane. It was a fleet of four then, plying a handful of routes
within the country.

At the close of 2017, that same airline of humble beginnings marked the milestone of having
flown 150 million passengers since its inception. A few weeks shy of celebrating its 21st
anniversary celebration, it had just beaten its record number of passengers flown in a single
day. In 2017 alone, Cebu Pacific flew 19 million passengers.

CEB closed 2017 with 61 aircraft, reaching 37 domestic and 25 international destinations.
The airline is steadfast in its mission to fly everyJuan, opening more and more of the
Philippines to opportunities for commerce and tourism.

In 21 years, Cebu Pacific has not only revolutionized air travel for the average Filipino,
it has also contributed to nation-building.

The CEB Effect

Just in time for the summer,
CEB, through its wholly owned
subsidiary Cebgo increased flight
frequencies to Siargao, long
renowned for being the Surfing
Capital of the Philippines. When
CEB launched its first flight to
Siargao in 2009, it had only been
a twice weekly service to and from
Cebu. In 2017, it has expanded to
serve 14 flights between Cebu and
Siargao. Siargao has proved to be
a prime destination of demand to
those seeking its surfing thrills and
laidback island charm. So much
so that on December 2017, Cebu
Pacific launched its twice weekly
service from Manila to Siargao.
Siargao is one of Cebu Pacific’s
greatest success stories and a
showcase of how inter-island
connectivity can boost travel,
which in turn, brings with it
business and tourism.

Route optimization
Cebu Pacific continuously reviews
its route network and operations
to ensure maximum coverage of
all its areas of service.
Where possible, CEB capitalizes on
the opportunity to mount evening
flights once airports operated by
the Civil Aviation Authority of the
Philippines are night-rated. With
this development in Dumaguete,
CEB mounted night flights to this
in-demand route.
Another in-demand route,
Boracay (Caticlan) started night
flights in 2017.
Building on this optimization
principle, Cebu Pacific continued
on its momentum of route
expansions throughout the year.
In July, flights from Manila to
Cauayan, Legazpi and Virac,
previously serviced by turbo-
prop aircraft upgraded to
the 180-seater Airbus 320s,
translating to over 130% more
capacity or about 102 additional
seats on every flight. Additional
flights were mounted to key Cebu
Pacific destinations in the Visayas,
Iloilo and Bacolod.
In a strategic move meant to
ensure CEB’s viability, CEB ceased
regular scheduled operations of
three long-haul routes in mid-
2017. The second half of the year
saw the closure of operations to
Doha (Qatar), Riyadh (Kingdom
of Saudi Arabia), and Kuwait. This
move served to rationalize CEB’s
aircraft utilization, reallocating its
436-seater Airbus 330s to serve
other high traffic routes, boosting
MICE (Meetings, Incentives,
Conferences and Exhibitions)
travel and group tours.
The A330s were redeployed to
Hong Kong, Cebu, and Davao. This
increased capacity by an average
of 18% in each key destination.
In November 2017, Cebu Pacific
also became the first Philippine
carrier to land on Singapore’s
brand-new Terminal 4 at Changi
Airport.

25
CEB inaugurates two new routes from Clark International Airport. CEB cabin crew flank (L-R) Angeles City Councilor Joseph Ponce; Angeles City Vice
Mayor Bryan Nepomuceno; Department of Tourism Assistant Secretary Daniel Mercado; Clark International Airport Corporation President Alexander
Cauguiran; CEB Vice President for Corporate Affairs JR Mantaring; and Pampanga provincial board members Fritzie Dizon, and Benjamin Jocson.

New routes
With the existing routes pushing to greater capacity,
the airline was looking towards bringing everyJuan to
more new destinations. The first of its two new routes
were launched in February 2017, further expanding
its network to fast-rising areas in Luzon, Masbate
and Tablas.

Tourism and leisure travel propelled the opening

of more routes out of the Clark and Cebu hubs.
Catching the tail end of the summer, Cebu Pacific,
through Cebgo opened the Clark to Caticlan
(Boracay) flights, as well as Clark to Busuanga. This is
a testament to Cebu Pacific’s commitment of making
safe, convenient and affordable air travel available to
all, particularly those who are residents of Central or
even Northern Luzon.

The Cebu hub contributed to stronger inter-island

connectivity with its services to Busuanga and
Cotabato.

On the second half of the year, CEB further expanded

its Visayas and Mindanao network with five new
routes. Through wholly-owned subsidiary Cebgo,
CEB started flights between Cebu and Masbate,
Davao and Dumaguete, Zamboanga and Cotabato,
Cagayan de Oro and Zamboanga, and Davao and
Tacloban. The new routes stem from requests from
stakeholders, particularly in Mindanao, to improve
the connectivity of key cities.

26
CEB’s 7th hub: Cagayan de Oro
CEB announces its
seventh hub, Cagayan
de Oro. (L-R) Chairman
and Secretary of the
Mindanao Development
Authority (MinDA)
Abul Khayr Dangcal
Alonto; Department of
Transportation (DoTr)
Secretary Arthur Tugade;
President Rodrigo Roa
Duterte; President and
CEO of Cebu Pacific Air
Lance Y. Gokongwei;
Presidential Adviser
on Mindanao Affairs,
Secretary Jesus Dureza;
and Cebu Pacific cabin
crew

Cebu Pacific continued in its
effort to contribute to nation-
building by naming Cagayan
de Oro’s Laguindingan Airport
as its seventh hub. Located
in Misamis Oriental province,
Laguindingan Airport serves as
gateway to Northern Mindanao,
catering Cagayan de Oro City and
neighboring areas, including Iligan
City, Marawi City, and Bukidnon
province. The airport complex
currently has a 7,200 square
meter passenger terminal and a
2,100 meter runway, capable of
four takeoffs and landings per
hour. Since it opened in 2013, the
airport has become the sixth-
busiest in the country, serving over
1.7 million passengers per year.
The expansion of the CEB
domestic route network served
to increase the carrier’s capacity
and reach for cargo service. This
means faster and more efficient
movement of goods across the
country.
What once was Cebu Pacific’s
fourth destination has grown
to become an important hub of
operations in Mindanao, serving
a total of nine connections to and
from Laguindingan Airport—
Manila, Bacolod, Caticlan, Cebu,
Dumaguete, Iloilo, Tagbilaran,
Davao, and Zamboanga.
Since it opened in 2013,
the airport has become the
sixth-busiest in the country,
serving over 1.7 million
passengers per year.

New aircraft
Cebu Pacific marked its 21st year of operations
by welcoming the 59th aircraft of its fleet, a new
ATR 72-600. This was the fourth of 16 firm orders
of the ATR 72-600 that CEB made in 2016. The
brand-new aircraft was in line with the airline’s
expansion plans in the Philippine archipelago.

The airline placed an order for seven additional

Airbus A321CEO (Current Engine Option)
aircraft, for delivery beginning March 2018.
This was conservative approach to meeting the
increased capacity demand of both domestic and Cebu Pacific ended the year with a fleet of 61: four Airbus
international operations, as CEB deferred the A319, 36 Airbus A320, eight Airbus A330, eight ATR72-
orders of A321NEO (New Engine Option) towards 500, and five ATR 72-600 aircraft.
the fourth quarter of 2018.
27
CUSTOMER FOCUS
A key strategy in Cebu Pacific’s growth is to center efforts on delighting everyJuan—the
Cebu Pacific customer. In 2017, the airline developed products and services that centers on
the passenger and aims to create a pleasant overall Cebu Pacific experience from pre- to
post-flight, one that reflects the Cebu Pacific brand of fun.

Customer
Command
Center
Cebu Pacific went all-out in its
customer-first initiatives with
the unveiling of its Customer
Command Center. CEB is among
the first airlines in Asia to invest
in an integrated facility and
technology for social intelligence
and customer engagement.

Tasked to assist travelers on their

concerns and inquiries, the 24/7
command center is equipped CEB President and CEO Lance Y. Gokongwei receives a briefing from Customer Care Director Jackie
Lou De Paz at the Customer Command Center.
with social monitoring, publishing
and engagement tools. The CEB
command center, which went
online last August, is manned by
a 55-strong integrated customer
care team. Aside from CEB’s
official Facebook and Twitter
pages, they also handle schedule
changes through the hotline. The
team also works closely with the
airline’s Network Control Center,
especially during weather or other
flight disruptions, so it can provide
passengers with the most updated
information and options.

The integrated CEB Customer
Command Center has created a
heightened awareness of customer
needs. Since the facility was put
CEB’s Customer Command Center is manned 24/7 by an integrated customer care team monitoring
and engaging with passengers and guests on social media, responding to queries, and assisting in
passenger handling during schedule changes.
online, response time on CEB’s customer care team to better
official social media accounts went address passenger concerns by
up from two days to hours, even providing relevant and timely
as fast as eight minutes. information and updates. The
Aimed at improving and facility makes it easier to engage
personalizing communications customers and understand how
with customers, the Customer CEB services are resonating
Command Center allows CEB’s with them.
CEB invests in facilities for persons with reduced mobility.

Services
for PWDs
In line with this transformation of
delivering quality customer care
and passenger experience, Cebu
Pacific allocated over P100 million
for 35 Disabled Passenger Lifts
(DPL)—the first carrier to invest
in facilities that cater to the needs
of Persons with Disability (PWDs)
and Persons with Reduced
Mobility (PRMs). The DPLs will
allow PWDs and PRMs to board
and deplane aircraft safely, easily
and more comfortably.

Further, Cebu Pacific has

implemented the 20% discount,
on top of the exemption from
the 12% Value-Added Tax (VAT),
on airfare for PWDs across all
booking systems. This means that
bookings of Cebu Pacific flights
by eligible PWDs, whether done
via ticket office, call center, online
...Cebu Pacific allocated over P100 million for
35 Disabled Passenger Lifts (DPL)...
via the CEB website, or through The same implementation is
the CEB mobile app, now reflect extended to Senior Citizens, who
the applicable discounts on the are entitled to these discounts and
base fare for flights within the exemptions.
Philippines.

29
 For the OFW
In 2017, Cebu Pacific implemented the International
Passenger Service Charge (IPSC), or the Terminal Fee
exemption at the Ninoy Aquino International Airport
(NAIA) for Overseas Filipino Workers (OFWs) flying
to their job site. The airline has worked hand in hand
with the Manila International Airport Authority to
make the benefit available to OFWs, the first carrier
to do so.

More offerings for everyJuan

In addition, Cebu Pacific has
also incorporated the Domestic
Passenger Service Charge (DPSC),
or the terminal fee into the cost of
its tickets for all domestic flights
operating out of airports managed
by the Civil Aviation Authority
of the Philippines (CAAP). The
integration of the terminal fee
DPSC across all booking systems
took effect on September 15, 2017.
The year saw Cebu Pacific unveil
new meals on its inflight menu.
Ranging from rice meals, pasta
and noodles, and premium
sandwich packs, the new Cebu
Pacific inflight menu was created
exclusively for the airline to
cater to the varied tastes and
preferences of the CEB flier.
Cebu Pacific’s new on-board
pleasers are all Halal-certified,
and adhere to the Hazard Analysis
Critical Control Points (HACCP)
system for international food
safety. Moreover, these dishes
come with nutritional and product
information as reference, for an
increasing number of health-
conscious passengers on CEB.
For a limited period, CEB offered
an extra 25kg baggage allowance,
free of charge, to all passengers
...the new Cebu Pacific
inflight menu was created
exclusively for the airline
to cater to the varied
tastes and preferences
of the CEB flier.
who purchased 40kg baggage
allowance and were travelling
from the Middle East. The
25kg extra baggage allowance
is extended to the domestic
flight legs of guests who were
connecting, provided their flight
itineraries were booked under one
reference number only.

30
Investments in advanced avionics technology
Cebu Pacific further moves towards a paperless cockpit
technology, through the deployment of iPad devices for
its pilots. The iPad contains the pilots’ Electronic Flight
Bag (EFB), an information management device that
will help flight crew perform tasks necessary to fly and
navigate an aircraft.

While the iPad EFBs is primarily aligned towards the

airline’s investment in systems that enhance safety and
efficiency in flight operations, the use of iPad EFBs is
also an initiative to reduce environmental footprint and
manage operational costs. Going paperless has helped
CEB to reduce anywhere from 30 to 50 pounds’ worth of
flight manuals, charts and other documentation that are
traditionally on paper. Less weight reduces cumulative
aircraft fuel burn, and consequently, carbon emissions.

Along with this initiative towards operational efficiency,

and to achieve more effective service delivery, CEB
also invested in customer-facing information and
communications technology solutions. CEB began to
implement digital platforms designed to make airport
operations more efficient; and poured investment into a
software system that verifies passengers’ international
travel documentation, via a real-time database of visa
CEB equips its frontliners with iPads that are loaded with software
requirements of various countries. designed to make airport and inflight operations more efficient.

CEB VP for Flight Operations Capt. Samuel Avila II hands an iPad to flight crew during the
paperless cockpit rollout.
SOCIAL RESPONSIBILITY
With 21 years of operations, Cebu Pacific is looking towards the future, pouring efforts
towards sustainability and corporate citizenship. It is taking strides towards nation-building,
environmental protection and enabling the next generation through strategic partnerships
and building programs with like-minded institutions.
Marawi
relief efforts
On May 23, 2017, what would
become a heavily armed conflict
in Marawi City, Lanao Del Norte
began between the Philippine
government’s security forces
and militants identified with
the Islamic State of Iraq and the
Levant, including the Maute and
Abu Sayyaf Salafi groups.
In the next five months, Cebu
Pacific extended its assistance
to the Armed Forces of the
Philippines through free-of-
charge deployment and bringing
back home of troops, including
baggage allowance. Since the
conflict in Marawi broke out, Cebu
Pacific has been providing airlift
support for cargo of relief goods
for affected Marawi residents,
notably for the Department of
Social Welfare and Development
and the Philippine Business for
Social Progress.
32
Further, CEB supported
#OGOPMarawi program of
the Philippine Army, enabling
the delivery of PureIt water
purifying devices. The water
purifiers, donated by Unilever,
were used in relief operations for
displaced residents of Marawi
City. Ogop, the local word in
Marawi for “help,” aims to help
internally displaced residents and
Wish grants for children
CEB is no stranger to giving
chances to children to achieve
their dreams. At Christmas,
CEB welcomed children with
thalassemia, an inherited blood
disorder, to experience the fun
and wonder of being inside a
real aircraft. CEB pilots had
casual, informative chats with
the children to satisfy curious
questions about their work. Cabin
CEB does its part
in supporting the
Armed Forces of
the Philippines
throughout the
armed conflict in
Marawi. CEB flies
AFP personnel free
of charge upon
their deployment
and when they are
called back home.
give morale support to soldiers
deployed in Marawi.
In addition to carrying relief
goods free-of-charge in aid of
Marawi relief, CEB also worked
with the Philippine Red Cross to
transport blood and life-saving
organs at no cost. Total cargo
support amounted to almost
P850,000.00 in 2017.
crew assisted the children in trying
their hand at operating inflight
equipment.
The whole experience opened new
possibilities, inspired the children
to dream bigger, and encouraged
them to look at the future with
hope and promise.
Children of Bobon, Samar and CEB cabin crew surround UNICEF Celebrity Advocate for Children Anne Curtis in a light moment during a visit to the
UNICEF Change for Good beneficiary community.
UNICEF Change for Good
Cebu Pacific strengthened its partnership with
the United Nations Children’s Fund (UNICEF)
to reach millions of undernourished children in
the country. The endeavor is part of the global
organization’s Change for Good program which
accepts contributions from passengers on board
flights of partner airlines. Proceeds contribute to the
UN children’s agency’s First 1,000 Days campaign
which provides optimal nutrition, from a mother’s
pregnancy to a child’s second year of life.
Since July 1, 2016, CEB began accepting contributions
of all currencies from passengers. The contributions
are being used to fund nutritional supplements
distributed to poor households with pregnant mothers
or malnourished children. A portion of the funds
also support barangay-level information drives on
nutrition in UNICEF’s focus areas in Northern Samar,
Zamboanga, and Maguindanao.
Initially launched on all flights to and from Manila,
CEB’s Change for Good program expanded to include
accepting contributions from flights to and from Iloilo
and Cebu beginning April 1, 2017.
Donations of passengers of Cebu Pacific to and from
Manila have so far provided nutritional supplements
to over 31,000 poor households with pregnant
mothers and over 27,500 children, 6-23 months of age
at risk of developing micronutrient deficiencies in the
Philippines this year.
Cebu Pacific is the first and only partner of UNICEF
for this initiative in the Philippines and its launch
partner in Southeast Asia.
33
Efforts for the environment
The airline takes its responsibility towards the
environment very seriously. Through its continued
partnership with the World Wildlife Fund (WWF),
CEB involves passengers in the effort to reduce
carbon emissions, in the form of donations to the
Bright Skies Program upon booking a flight.
Apart from this, Cebu Pacific engages its employees
to contribute to greening in partnership with Haribon
Foundation. On July 15, 2017, active CEB volunteers
participated in a tree-planting activity of Haribon’s
Rainforest Organizations and Advocates (ROAD) to
Cadet Pilot Program
Cebu Pacific launched its Cadet Pilot Program, in
partnership with Flight Training Adelaide (FTA)
in late 2017. This represents CEB’s substantial
investment in future Filipino aviators and aimed at
addressing the airline’s expansion requirements.
The Cebu Pacific Cadet Pilot Program is a 52-week
program that recruits candidates from ab initio,
and puts them on integrated flying training, flight
theory and education course to become licensed
Commercial Pilots. After completion of the program,
the cadet-pilots become First Officers at CEB, and
join the corps of aviators at Cebu Pacific, flying
domestic and international routes.
Cadet-pilots are enabled to study and train at flight
school now, and then they can amortize the payment
for the course while they are employed. The entire
program will be financed by Cebu Pacific, with
successful cadet-pilots guaranteed employment with
CEB upon graduation. They will then pay for the
cost of the program through salary deduction over a
maximum of ten years.
Sixteen candidates will be chosen per batch, with
CEB sending three batches of cadet-pilots per year.
The screening process for applicants begins with an
online screening, followed by an on-site screening
for core skills and pilot aptitude tests, among
Cebu Pacific’s 21st year is one of improving upon its best strengths to grow
as an airline, while bringing the focus back to its main reason for success:
everyJuan who CEB has had the absolute privilege to fly.
34
2020 program. This is part of the airline’s commitment
to help in Haribon’s reforestation efforts. The airline
donated 500 seedlings in 2016 that are planted in the
Mt. Banahaw-San Cristobal Protected Landscape,
Brgy. Bukal, Nagcarlan, Laguna.
2017 marked the third year of a committed five-year
support to the Philippine Eagle Foundation in a
bid to conserve the Philippine Eagle. CEB adopted
Mindanao in 2015, supporting it in its total care while
retained in its breeding facility.
CEB, in partnership with Flight Training Adelaide, will send prospective
pilots as scholars under the Cadet Pilot Program. (L-R) CEB Vice President
for Flight Operations Capt. Samuel Avila II; CEB President and CEO Lance
Y. Gokongwei; Owner of Flight Training Adelaide Steven Young; and Chief
Executive Officer Johan Pienaar.
other examinations where a fee of AU$425.00
(PHP17,000.00) will be charged. CEB and FTA will
jointly select the final list of candidates.
The successful candidates will then be sent to the
FTA campus in Adelaide, Australia for 52 weeks.
There, they will undergo learning modules and
training and earn diplomas in Aviation. The cadet-
pilots will move on to training on a flight simulator,
and acquire flight time on an actual aircraft, to
complete the licensing requirements to become a
Commercial Pilot. The cadet-pilots then return to
Manila for a four-week training to obtain
a Pilot’s License under the Civil Aviation Authority
of the Philippines.
Financial Statements
 SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 December 14, 2015, valid until December 31, 2018
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-4 (Group A),
Philippines November 10, 2015, valid until November 9, 2018

INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of Directors

Cebu Air, Inc.

Opinion

We have audited the consolidated financial statements of Cebu Air, Inc. and its Subsidiaries (the Group),
which comprise the consolidated statements of financial position as at December 31, 2017 and 2016, and
the consolidated statements of comprehensive income, consolidated statements of changes in equity and
consolidated statements of cash flows for each of the three years in the period ended December 31, 2017,
and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of the Group as at December 31, 2017 and 2016, and their financial performance
and their cash flows for each of the three years in the period ended December 31, 2017 in accordance with
Philippine Financial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Consolidated Financial Statements section of our report. We are independent of the Group in
accordance with the Code of Ethics for Professional Accountants in the Philippines (the Code of Ethics)
together with the ethical requirements that are relevant to our audit of the consolidated financial
statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with
these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. For each matter below, our
description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to respond to our assessment of
the risks of material misstatement of the consolidated financial statements. The results of our audit
procedures, including the procedures performed to address the matters below, provide the basis for our
audit opinion on the accompanying consolidated financial statements.

36

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Recognition of Passenger Service Revenue, Baggage Fees and Other Ancillary Fees

Passenger service revenue is earned when the service has been rendered to the passengers according to
flight schedule. The amount of passenger bookings for which the related transportation service has not
yet been rendered at the end of the reporting period is recorded as unearned transportation revenue in the
consolidated statement of financial position. Baggage fees and other ancillary fees are non-refundable
fees which are recognized when the services are provided. Refer to Notes 5 and 21 of the consolidated
financial statements.

We considered the recognition of passenger service revenue, baggage fees and other ancillary fees as a
key audit matter because of the materiality of these accounts to the consolidated financial statements and
the high volume of transactions being processed and captured from various distribution channels and
locations. In addition, the determination of the earned and unearned passenger service revenue is highly
dependent on the Group’s information technology (IT) systems.

Audit response
We included internal specialist in our team to assist us in understanding and testing the controls over the
Group’s IT systems and revenue recognition process which includes passenger service revenue, baggage
fees and other ancillary fees. This includes testing the controls over the capture and recording of revenue
transactions, authorization of rate changes and the input of these information to the revenue system, and
mapping of bookings from unearned to earned passenger service revenue when passengers are flown. We
assessed the information produced by the Group’s IT systems and tested the reports generated by these
systems that are used to defer or recognize passenger service revenue, baggage fees and other ancillary
fees. Also, on a sample basis, we tested journal entries related to these accounts through inspection of
underlying source documentation.

Estimation of Asset Retirement Obligation

As of December 31, 2017, the Group operates nineteen (19) aircraft under operating leases. Under the
terms of the operating lease arrangements, the Group is contractually required under various lease
contracts to either restore certain leased aircraft to its original condition at its own cost or to bear a
proportionate cost of restoration at the end of the contract period. Refer to Notes 5, 19 and 30 of the
consolidated financial statements.

Management estimates the overhaul, restoration and redelivery costs and accrues such costs over the lease
term. The calculation of such costs includes management assumptions and estimates in respect of the
anticipated rate of aircraft utilization which includes flying hours and flying cycles and calendar months
of the asset as used. These aircraft utilization and calendar months affect the extent of the restoration
work that will be required and the expected costs of such overhaul, restoration and redelivery at the end of
the lease term. Given the significant amounts of these provisions and the extent of management judgment
and estimates required, we considered this area as a key audit matter.

37

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Audit response
We obtained an understanding of management’s process over estimating asset retirement obligation for
aircraft held under operating leases and tested the relevant controls. We recalculated the asset retirement
obligation and evaluated the key assumptions adopted by management in estimating the asset retirement
obligation for each aircraft by discussing with the Group’s relevant fleet maintenance engineers the
aircraft utilization statistics. In addition, we obtained an understanding of the redelivery terms of
operating leases by comparing the estimated costs and comparable actual costs incurred by the Group
from previous similar restorations.

Other Information

Management is responsible for the other information. The other information comprises the
SEC Form 17-A for the year ended December 31, 2017 but does not include the consolidated financial
statements and our auditor’s report thereon, which we obtained prior to the date of this auditor’s report,
and the SEC Form 20-IS (Definitive Information Statement) and Annual Report for the year ended
December 31, 2017, which is expected to be made available to us after that date.

Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with PFRSs, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless management either intends to liquidate the Group or to
cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

38

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Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with PSAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these consolidated financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

∂ Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.

∂ Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.

∂ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

∂ Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as a
going concern.

∂ Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.

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∂ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the audit. We remain solely
responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.

From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Narciso T. Torres, Jr.

SYCIP GORRES VELAYO & CO.

Narciso T. Torres, Jr.

Partner
CPA Certificate No. 84208
SEC Accreditation No. 1511-A (Group A),
October 1, 2015, valid until September 30, 2018
Tax Identification No. 102-099-147
BIR Accreditation No. 08-001998-111-2018,
February 4, 2018 valid until February 13, 2021
PTR No. 6621336, January 9, 2018, Makati City

March 23, 2018

40

A member firm of Ernst & Young Global Limited

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

December 31
2017 2016
ASSETS
Current Assets
Cash and cash equivalents (Note 8) =15,613,544,506 =
P P10,296,242,304
Receivables (Note 10) 1,900,482,578 2,126,793,862
Financial assets at fair value through profit or loss (Note 9) 454,400,088 441,773,905
Expendable parts, fuel, materials and supplies (Note 11) 1,613,690,533 1,190,056,987
Other current assets (Note 12) 2,108,954,919 1,096,270,685
Total Current Assets 21,691,072,624 15,151,137,743
Noncurrent Assets
Property and equipment (Notes 13, 18, 30 and 32) 81,279,292,387 81,890,303,497
Investments in joint ventures and in an associate (Note 14) 840,972,438 805,801,372
Goodwill (Notes 7 and 15) 566,781,533 566,781,533
Deferred tax assets - net (Note 25) 891,004,853 1,073,499,679
Other noncurrent assets (Notes 7 and 16) 3,807,544,443 1,026,818,459
Total Noncurrent Assets 87,385,595,654 85,363,204,540
=109,076,668,278 =
P P100,514,342,283

LIABILITIES AND EQUITY

Current Liabilities
Accounts payable and other accrued liabilities (Note 17) =14,182,785,839 =
P P12,583,636,942
Unearned transportation revenue 9,050,351,455 8,141,752,728
Current portion of long-term debt (Notes 13 and 18) 5,969,257,624 7,040,253,460
Due to related parties (Note 27) 38,716,423 37,689,554
Income tax payable 4,746,325 24,152,004
Total Current Liabilities 29,245,857,666 27,827,484,688
Noncurrent Liabilities
Long-term debt - net of current portion (Notes 13 and 18) 35,012,953,128 35,770,184,170
Retirement liability (Note 24) 636,961,076 568,769,315
Other noncurrent liabilities (Note 19) 4,395,317,042 2,842,631,591
Total Noncurrent Liabilities 40,045,231,246 39,181,585,076
Total Liabilities 69,291,088,912 67,009,069,764
Equity
Common stock (Note 20) 613,236,550 613,236,550
Capital paid in excess of par value (Note 20) 8,405,568,120 8,405,568,120
Treasury stock (Note 20) (529,319,321) (529,319,321)
Remeasurement loss on retirement liability (Note 24) (147,193,496) (186,025,376)
Retained earnings (Note 20) 31,443,287,513 25,201,812,546
Total Equity 39,785,579,366 33,505,272,519
=109,076,668,278 P
P =100,514,342,283

See accompanying Notes to Consolidated Financial Statements.

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

Years Ended December 31

2017 2016 2015

REVENUE
Sale of air transportation services
Passenger P
=49,931,290,735 P
=46,592,511,272 P
=42,681,069,939
Cargo 4,603,543,430 3,563,752,865 3,461,136,749
Ancillary revenue (Note 21) 13,494,297,261 11,743,014,755 10,359,447,828
68,029,131,426 61,899,278,892 56,501,654,516

EXPENSES
Flying operations (Notes 11 and 22) 23,861,060,267 19,694,348,716 20,916,360,534
Aircraft and traffic servicing (Note 22) 7,706,352,539 6,577,984,803 5,847,099,305
Repairs and maintenance (Notes 11 and 22) 7,552,583,483 6,530,857,486 5,240,478,648
Depreciation and amortization (Note 13) 6,839,363,607 5,998,695,417 5,111,543,724
Aircraft and engine lease (Note 30) 4,635,003,450 4,253,724,294 4,024,599,732
Reservation and sales (Note 22) 3,674,592,703 3,211,696,086 2,625,456,497
Passenger service 1,515,192,403 1,567,730,427 1,483,746,337
General and administrative (Note 23) 2,110,704,952 1,813,043,477 1,552,148,933
57,894,853,404 49,648,080,706 46,801,433,710

10,134,278,022 12,251,198,186 9,700,220,806

OTHER INCOME (EXPENSES)

Interest income (Note 8) 182,952,825 113,672,171 83,006,926
Equity in net income of joint ventures (Note 14) 140,330,649 178,308,842 35,418,498
Gain (loss) on sale of aircraft (Note 13) 102,574,043 (962,608,741) (80,267,191)
Hedging gains (losses) - net (Note 9) (132,570,164) 1,587,708,081 (2,931,215,906)
Foreign exchange losses - net (797,976,543) (2,281,932,689) (2,205,258,151)
Interest expense (Note 18) (1,421,536,504) (1,170,181,141) (1,073,109,693)
(1,926,225,694) (2,535,033,477) (6,171,425,517)

INCOME BEFORE INCOME TAX 8,208,052,328 9,716,164,709 3,528,795,289

PROVISION FOR (BENEFIT FROM)

INCOME TAX (Note 25) 300,205,703 (37,971,487) (858,430,586)

NET INCOME 7,907,846,625 9,754,136,196 4,387,225,875

OTHER COMPREHENSIVE INCOME (LOSS),

NET OF TAX
Other comprehensive income (loss) not to be reclassified to profit
or loss in subsequent periods:
Actuarial gains (losses) on retirement liability (Note 24) 55,474,114 11,211,184 (83,002,333)
Provision for (benefit from) income tax (Note 25) 16,642,234 3,363,357 (21,097,422)

38,831,880 7,847,827 (61,904,911)

TOTAL COMPREHENSIVE INCOME P

=7,946,678,505 P
=9,761,984,023 P
=4,325,320,964

Basic/Diluted Earnings Per Share (Note 26) P

=13.05 P
=16.10 P
=7.24

See accompanying Notes to Consolidated Financial Statements.

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

Remeasurement
Capital Paid in Gain (Loss) on Retained Earnings
Excess of Par Retirement
Common Stock Value Treasury Stock Liability Appropriated Unappropriated Total
(Note 20) (Note 20) (Note 20) (Note 24) (Note 20) (Note 20) Total Equity
Balance at January 1, 2017 = 613,236,550
P = 8,405,568,120
P (P
= 529,319,321) (P
= 186,025,376) = 14,516,762,000
P = 10,685,050,546
P = 25,201,812,546
P = 33,505,272,519
P
Net income – – – − – 7,907,846,625 7,907,846,625 7,907,846,625
Other comprehensive income – – – 38,831,880 – – – 38,831,880
Total comprehensive income – – – 38,831,880 – 7,907,846,625 7,907,846,625 7,946,678,505
Reversal of appropriations – – – – (14,516,762,000) 14,516,762,000 – –
Appropriation of retained earnings (Note 20) – – – – 18,300,000,000 (18,300,000,000) – –
Dividends paid (Note 20) – – – – – (1,666,371,658) (1,666,371,658) (1,666,371,658)
Balance at December 31, 2017 = 613,236,550
P = 8,405,568,120
P (P
= 529,319,321) (P
= 147,193,496) = 18,300,000,000
P = 13,143,287,513
P = 31,443,287,513
P = 39,785,579,366
P

Balance at January 1, 2016 =613,236,550

P =8,405,568,120
P (P
=529,319,321) (P
=193,873,203) =7,916,762,000
P =8,742,821,010
P =16,659,583,010
P =24,955,195,156
P
Net income – – – – – 9,754,136,196 9,754,136,196 9,754,136,196
Other comprehensive income – – – 7,847,827 – – – 7,847,827
Total comprehensive income – – – 7,847,827 – 9,754,136,196 9,754,136,196 9,761,984,023
Appropriation of retained earnings (Note 20) – – – – 6,600,000,000 (6,600,000,000) – –
Dividends paid (Note 20) – – – – – (1,211,906,660) (1,211,906,660) (1,211,906,660)
Balance at December 31, 2016 =613,236,550
P =8,405,568,120
P (P
=529,319,321) (P
=186,025,376) =14,516,762,000
P =10,685,050,546
P =25,201,812,546
P =33,505,272,519
P

Balance at January 1, 2015 =613,236,550

P =8,405,568,120
P (P
=529,319,321) (P
=131,968,292) =6,916,762,000
P =6,264,525,130
P =13,181,287,130
P =21,538,804,187
P
Net income – – – – – 4,387,225,875 4,387,225,875 4,387,225,875
Other comprehensive income – – – (61,904,911) – – – (61,904,911)
Total comprehensive income – – – (61,904,911) – 4,387,225,875 4,387,225,875 4,325,320,964
Appropriation of retained earnings (Note 20) – – – – 1,000,000,000 (1,000,000,000) – –
Dividend declaration (Note 20) – – – – – (908,929,995) (908,929,995) (908,929,995)
Balance at December 31, 2015 =613,236,550
P =8,405,568,120
P (P
=529,319,321) (P
=193,873,203) =7,916,762,000
P =8,742,821,010
P =16,659,583,010
P =24,955,195,156
P

See accompanying Notes to Consolidated Financial Statements.

43
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31

2017 2016 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax P
=8,208,052,328 P
=9,716,164,709 =
P3,528,795,289
Adjustments for:
Depreciation and amortization (Note 13) 6,839,363,607 5,998,695,417 5,111,543,724
Interest expense (Note 18) 1,421,536,504 1,170,181,141 1,073,109,693
Provision for asset retirement obligation (Note 19) 1,209,416,327 1,121,100,139 863,960,835
Unrealized foreign exchange losses - net 214,663,356 1,672,077,988 1,709,750,714
Hedging losses (gains) - net (Note 9) 132,570,164 (1,587,708,081) 2,931,215,906
Loss on disposal of property and equipment (Note 13) 1,057,537 54,239,864 9,122,533
Loss (gain) on sale of aircraft (Note 13) (102,574,043) 962,608,741 80,267,191
Equity in net income of joint ventures (Note 14) (140,330,649) (178,308,842) (35,418,498)
Interest income (Note 8) (182,952,825) (113,672,171) (83,006,926)
Operating income before working capital changes 17,600,802,306 18,815,378,905 15,189,340,461
Decrease (increase) in:
Receivables 206,671,372 (342,022,523) 143,435,357
Expendable parts, fuel, materials and supplies (423,633,546) (270,938,944) (239,802,973)
Other current assets (1,067,415,685) 1,257,913,940 (430,603,370)
Increase (decrease) in:
Accounts payable and other accrued liabilities 1,598,242,475 1,163,682,731 932,068,099
Unearned transportation revenue 908,598,728 1,169,998,030 598,009,959
Retirement liability 68,191,761 22,288,601 116,841,632
Amounts of due to related parties 1,026,869 (426,249) (1,793,699)
Other noncurrent liabilities 343,269,122 (10,320,610) (108,048,329)
Financial liabilities at fair value through profit or loss (145,196,347) (1,297,560,962) (2,748,280,664)
Net cash generated from operations 19,090,557,055 20,507,992,919 13,451,166,473
Interest paid (1,389,252,059) (1,184,693,893) (1,078,011,092)
Income tax paid with creditable withholding taxes (Note 31) (82,385,107) (112,546,224) (60,766,659)
Interest received 176,304,913 111,505,087 82,638,335
Net cash provided by operating activities 17,795,224,802 19,322,257,889 12,395,027,057
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (Note 13) (14,776,336,747) (19,126,054,236) (13,047,934,091)
Proceeds from sale of property and equipment 8,643,672,392 2,235,195,623 1,012,448,386
Investments in shares of stocks in joint ventures and an associate – (225,118,923) –
Dividends received from a joint venture 124,720,940 61,625,190 101,133,997
Decrease (increase) in other noncurrent assets (2,780,725,984) (5,531,937) 129,307,803
Net cash used in investing activities (8,788,669,399) (17,059,884,283) (11,805,043,905)
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt:
Availments (Notes 18 and 31) 8,903,267,500 10,683,840,000 6,466,895,200
Payments of long-term debt (Note 18) (10,984,079,753) (6,405,748,273) (5,518,293,249)
Dividends paid (Note 20) (1,666,371,658) (1,211,906,660) (908,929,995)
Net cash provided by (used in) financing activities (3,747,183,911) 3,066,185,067 39,671,956
EFFECTS OF EXCHANGE RATE CHANGES
IN CASH AND CASH EQUIVALENTS 57,930,710 261,593,568 112,522,272
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,317,302,202 5,590,152,241 742,177,380
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 10,296,242,304 4,706,090,063 3,963,912,683
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 8) P
=15,613,544,506 P
=10,296,242,304 P
=4,706,090,063

See accompanying Notes to Consolidated Financial Statements.

44
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), Boracay Leasing Limited (BLL), Surigao Leasing Limited (SLL),Vector
Aircraft Leasing Limited (VALL), Panatag One Aircraft Leasing Limited (POALL), Panatag Two
Aircraft Leasing Limited (PTALL), Panatag Three Aircraft Leasing Limited (PTHALL), Summit A
Aircraft Leasing Limited (SAALL), Summit B Aircraft Leasing Limited (SBALL) and Summit C
Aircraft Leasing Limited (SCALL). CALL, BLL, SLL, VALL, POALL, PTALL and PTHALL are
SPEs in which the Parent Company does not have equity interest. CALL, BLL, SLL, VALL, POALL,
PTALL, PTHALL, SAALL, SBALL and SCALL acquired the passenger aircraft for lease to the
Parent Company under finance lease arrangements (Notes 13 and 30) and funded the acquisitions
through long-term debt (Note 18).

On March 20, 2014, the Parent Company acquired 100% ownership of CEBGO, Inc. (CEBGO)
(Note 7). The Parent Company, its ten (10) SPEs and CEBGO (collectively known as
the Group) are consolidated for financial reporting purposes (Note 2).

In May 2017, the Parent Company lost control over Ibon Leasing Limited (ILL) due to loss of power
to influence the relevant activities of ILL as the result of sale of aircraft to third party (Note 13).
Accordingly, the Parent Company derecognized its related assets and liabilities in its consolidated
financial statements.

Effective April 2018, Cebu Aircraft Leasing Limited (CALL) and Sharp Aircraft Leasing Limited
(SALL) will be dissolved due to the sale of aircraft to third parties (Note 13).

On March 1, 2018, the Parent Company incorporated 1Aviation Groundhandling Services

Corporation (a wholly-owned subsidiary).

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).

45
 In 1991, pursuant to Republic Act (R.A.) No. 7151, the Parent Company was granted a franchise to
operate air transportation services, both domestic and international. In August 1997, the Office of the
President of the Philippines gave the Parent Company the status of official Philippine carrier to
operate international services. In September 2001, the Philippine Civil Aeronautics Board (CAB)
issued the permit to operate scheduled international services and a certificate of authority to operate
international charters.

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

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 R.A. No. 9337 or the
R-VAT Act of 2005. The R-VAT law took effect on November 1, 2005 following the approval on
October 19, 2005 of Revenue Regulations (RR) No. 16-2005, which provides for the implementation
of the rules of the R-VAT law. Among the relevant provisions of R.A. 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; and
e. Increase in the VAT rate imposed on goods and services from 10.00% to 12.00% effective
on February 1, 2006.

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

2. Basis of Preparation

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

The consolidated financial statements of the Group are presented in Philippine Peso (P
= or Peso), the
Parent Company’s functional and presentation currency. All amounts are rounded to the nearest
Peso, unless otherwise indicated.

46
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with Philippine
Financial Reporting Standards (PFRSs).

Basis of Consolidation
The consolidated financial statements as of December 31, 2017 and 2016 represent the consolidated
financial statements of the Parent Company, the SPEs that it controls and its wholly owned subsidiary
CEBGO. Consolidation of CEBGO started on March 20, 2014 when the Group gained control
(Note 7).

The Parent Company controls an investee if, and only if, the Parent Company has:

∂ Power over the investee (that is, existing rights that give it the current ability to direct the relevant
activities of the investee);
∂ Exposure, or rights, to variable returns from its involvement with the investee; and
∂ The ability to use its power over the investee to affect the amount of the investor’s returns.

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

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

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

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

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. If the Parent Company loses control over a subsidiary, it derecognizes the related
assets (including goodwill), liabilities, non-controlling interest and other components of equity, while
any resulting gain or loss is recognized in profit or loss. Any investment retained is recognized at fair
value.

47
3. Changes in Accounting Policies and Disclosures

The Group applied for the first time certain pronouncements which are effective beginning on or after
January 1, 2017. Except as otherwise indicated, the adoption of these pronouncements did not have
any significant impact on the Group’s financial position or performance.

∂ Amendments to PFRS 12, Disclosure of Interests in Other Entities, Clarification of the Scope of
the Standard (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle)
The amendments clarify that the disclosure requirements in PFRS 12, other than those relating to
summarized financial information, apply to an entity’s interest in a subsidiary, a joint venture or
an associate (or a portion of its interest in a joint venture or an associate) that is classified (or
included in a disposal group that is classified) as held for sale.

∂ Amendments to Philippine Accounting Standard (PAS) 7, Statement of Cash Flows, Disclosure

Initiative
The amendments require entities to provide disclosure of changes in their liabilities arising from
financing activities, including both changes arising from cash flows and non-cash changes (such
as foreign exchange gains or losses).

The Group has provided the required information in Note 31 to the consolidated financial
statements. As allowed under the transition provisions of the standard, the Group did not present
comparative information for the year ended December 31, 2016.

∂ Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized
Losses
The amendments clarify that an entity needs to consider whether tax law restricts the sources of
taxable profits against which it may make deductions upon the reversal of the deductible
temporary difference related to unrealized losses. Furthermore, the amendments provide
guidance on how an entity should determine future taxable profits and explain the circumstances
in which taxable profit may include the recovery of some assets for more than their carrying
amount.

4. Summary of Significant Accounting Policies

Current versus Noncurrent Classification

The Group presents assets and liabilities in the consolidated statement of financial position based on
current or noncurrent classification.

An asset is current when it is:

a. Expected to be realized or intended to be sold or consumed in normal operating cycle;

b. Held primarily for the purpose of trading;
c. Expected to be realized within twelve months after the reporting period; or
d. Cash or cash equivalent, unless restricted from being exchanged or used to settle a liability for at
least twelve months after the reporting period.

All other assets are classified as noncurrent.

48
A liability is current when:

a. It is expected to be settled in normal operating cycle;

b. It is held primarily for the purpose of trading;
c. It is due to be settled within twelve months after the reporting period; or
d. There is no unconditional right to defer the settlement of the liability for at least twelve months
after the reporting period.

The Group classifies all other liabilities as noncurrent.

Cash and Cash Equivalents

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

Financial Instruments - Initial Recognition and Subsequent Measurement

Classification of financial instruments
Financial instruments within the scope of PAS 39 are classified as:

a. Financial assets and financial liabilities at FVPL;

b. Loans and receivables;
c. Held-to-maturity investments;
d. Available-for-sale financial assets; and
e. Other financial liabilities.

The classification depends on the purpose for which the investments were acquired and whether they
are quoted in an active market. The Group determines the classification of its financial instruments at
initial recognition and, where allowed and appropriate, re-evaluates at every reporting period. The
financial instruments of the Group as of December 31, 2017 and 2016 consists of loans and
receivables, financial assets and liabilities at FVPL and other financial liabilities.

Date of recognition of financial instruments

Financial instruments are recognized in the consolidated statement of financial position when the
Group becomes a party to the contractual provision of the instrument. Purchases or sales of financial
assets that require delivery of assets within the time frame established by regulation or convention in
the marketplace are recognized using the settlement date accounting. Derivatives are recognized on
the trade date basis.

In case where fair value is determined using data which is not observable, the difference between the
transaction price and model value is only recognized in profit or loss when the inputs become
observable or when the instrument is derecognized. For each transaction, the Group determines the
appropriate method of recognizing the Day 1 difference amount.

Fair Value Measurement

The Group measures derivatives at fair value at each reporting period. Also, for assets and liabilities
which are not measured at fair value in the consolidated statement of financial position but for which
the fair value is disclosed, are included in Note 29.

49
 The fair value is the price that would be received to sell an asset in an ordinary transaction between
market participants at the measurement date. The fair value measurement is based on the
presumption that the transaction to sell the asset or transfer the liability takes place either:

∂ In the principal market for the asset or liability; or

∂ In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Group. The fair value of an
asset or liability is measured using the assumptions that market participants would use when pricing
the asset or liability assuming that market participants act in their economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable inputs
and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a whole:

∂ Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
∂ Level 2: Valuation techniques for which the lowest level input that is significant to the
measurement is directly or indirectly observable.
∂ Level 3: Valuation techniques for the lowest level input that is significant to the fair value
measurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements at fair value on a
recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy
by re-assessing categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.

Financial assets and financial liabilities at FVPL

Financial assets and financial liabilities at FVPL include financial assets and financial liabilities held
for trading purposes, derivative instruments or those designated upon initial recognition as at FVPL.
Financial assets and financial liabilities are designated by management on initial recognition when
any of the following criteria are met:

∂ The designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on
a different basis; or
∂ The assets or liabilities are part of a group of financial assets, financial liabilities or both which
are managed and their performance are evaluated on a fair value basis, in accordance with a
documented risk management or investment strategy; or
∂ The financial instrument contains an embedded derivative, unless the embedded derivative does
not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be
separately recorded.

Financial assets and financial liabilities at FVPL are subsequently measured at fair value. Changes in
fair value of such assets or liabilities are accounted for in profit or loss. The Group uses commodity
swaps, zero cost collar and foreign currency forwards to hedge its exposure to fuel price fluctuations
and foreign currency fluctuations, respectively. Such are accounted for as non-hedge derivatives.

50
An embedded derivative is separated from the host contract and accounted for as a derivative if all of
the following conditions are met:

∂ The economic characteristics and risks of the embedded derivative are not closely related to the
economic characteristics of the host contract;
∂ A separate instrument with the same terms as the embedded derivative would meet the definition
of a derivative; and
∂ The hybrid or combined instrument is not recognized at FVPL.

The Group assesses whether an embedded derivative is required to be separated from the host
contract when the Group first becomes a party to the contract. Reassessment of embedded derivatives
is only done when there are changes in the contract that significantly modifies the contractual cash
flows.

The Group’s financial assets and liabilities at FVPL consist of derivative assets and derivative
liabilities as of December 31, 2017 and 2016, respectively.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments and
fixed maturities that are not quoted in an active market. Loans and receivables are recognized
initially at fair value, plus transaction costs that are attributable to the acquisition of loans and
receivables.

After initial measurement, loans and receivables are subsequently carried at amortized cost using the
effective interest rate (EIR) method, less allowance for credit losses. Amortized cost is calculated by
taking into account any discount or premium on the acquisition, and fees or costs that are an integral
part of the EIR and transaction costs. Gains and losses are recognized in profit or loss, when loans
and receivables are derecognized or impaired, as well as through the amortization process.

This accounting policy applies primarily to the Group’s cash and cash equivalents (excluding cash on
hand), receivables and certain refundable deposits.

Other financial liabilities

This category pertains to financial liabilities that are not held for trading or not designated as at FVPL
upon the inception of the liability. These include liabilities arising from operations and borrowings.

Other financial liabilities are initially recognized at the fair value of the consideration received, less
directly attributable transaction costs.

After initial measurement, other financial liabilities are measured at amortized cost using the EIR
method. Amortized cost is calculated by taking into account any discount or premium on the
acquisition and fees or costs that are an integral part of the EIR.

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

Offsetting of Financial Instruments

Financial assets and liabilities are offset and the net amount is reported in the consolidated statement
of financial position if there is a currently enforceable legal right to offset the recognized amounts and
there is an intention to settle on a net basis, or to realize the asset and settle the liability
simultaneously. The Group assesses that it has a currently enforceable right to offset if the right is
not contingent on a future event, and is legally enforceable in the normal course of business, event of
default, and event of insolvency or bankruptcy of the Group and all of the counterparties.

51
 Derecognition of Financial Instruments
Financial asset
A financial asset (or, when applicable, a part of a financial asset or part of a group of financial assets)
is derecognized (that is, removed from the Group’s consolidated statement of financial position)
when:

∂ The rights to receive cash flows from the asset have expired;
∂ The Group has transferred its rights to receive cash flows from the asset or has assumed an
obligation to pay the received cash flows in full without material delay to a third party under a
‘pass-through’ arrangements; and either:
ƒ The Group has transferred substantially all the risks and rewards of the asset; or
ƒ The Group has neither transferred nor retained substantially all the risks and rewards of the
asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of
ownership. When it has neither transferred nor retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to
the extent of its continuing involvement. In that case, the Group also recognizes an associated
liability. The transferred asset and the associated liability are measured on a basis that reflects the
rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at
the lowest level of the original carrying amount of the asset and the maximum amount of
consideration the Group could be required pay.

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

Impairment of Financial Assets

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

For financial assets carried at amortized cost, the Group first assesses whether impairment exists
individually for financial assets that are individually significant, or collectively for financial assets
that are not individually significant. If the Group determines that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, it includes
the asset in a group of financial assets with similar credit risk characteristics and collectively assesses
them for impairment. Assets that are individually assessed for impairment and for which an
impairment loss is, or continues to be, recognized are not included in a collective assessment of
impairment.

52
The amount of any impairment loss identified is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows that is discounted at the asset’s
original EIR.

The carrying amount of the asset is reduced through the use of an allowance account and the loss is
recognized in the profit or loss. Receivables, together with the associated allowance are written off
when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the
estimated impairment loss increases or decreases because of an event occurring after the impairment
is recognized, the previously recognized impairment loss is increased or reduced by adjusting the
allowance account. If a write-off is later recovered, the recovery is credited in profit or loss.

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

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

Expendable Parts, Fuel, Materials and Supplies

Expendable parts, fuel, materials and supplies are stated at lower of cost and net realizable value
(NRV). Cost of flight equipment expendable parts, materials and supplies are stated at acquisition
cost determined on a moving average cost method. Fuel is stated at cost on a weighted average cost
method. NRV is the estimated selling price in the ordinary course of business less estimated costs to
sell.

Property and Equipment

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

Subsequent costs are capitalized as part of ‘Property and equipment’ account only when it is probable
that future economic benefits associated with the item will flow to the Group and the cost of the item
can be measured reliably. Subsequent costs such as actual costs of heavy maintenance visits for
airframe and engine are capitalized and depreciated based on the estimated number of years or flying
hours, whichever is applicable, until the next major overhaul or inspection.

Generally, heavy maintenance visits are required every five (5) to six (6) years for airframe and
ten (10) years or 20,000 flight cycles, whichever comes first, for landing gear. All other repairs and
maintenance expenses are charged to profit or loss as incurred.

53
 Pre-delivery payments for the construction of aircraft are initially recorded as Construction
in-progress when paid to the counterparty. Construction in-progress are transferred to the related
‘Property and equipment’ account when the construction or installation and related activities
necessary to prepare the property and equipment for their intended use are completed, and the
property and equipment are ready for service. Construction in-progress is not depreciated until such
time when the relevant assets are completed and available for use.

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

Passenger aircraft* 15 years

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

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

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

The methods of depreciation and amortization, EUL and residual values of property and equipment
are reviewed annually and adjusted prospectively.

Fully depreciated property and equipment are returned in the account until they are no longer in use
and no further depreciation or amortization is charged to profit or loss in the consolidated statement
of comprehensive income.

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 has not capitalized any borrowing costs for the years ended December 31, 2017 and 2016
as all borrowing costs from outstanding long-term debt relate to assets that are ready for intended use.

54
Business Combination and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred measured at acquisition date fair value and
the amount of any non-controlling interests in the acquiree. For each business combination, the
Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as
incurred and included under ‘General and administrative’ account in the consolidated statement of
comprehensive income.

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

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

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

After initial recognition, goodwill is measured at cost, less any accumulated impairment losses.

Investments in Joint Ventures and an Associate

A joint venture (JV) is a contractual arrangement whereby two or more parties undertake an
economic activity that is subject to joint control. A jointly controlled entity is a JV that involves the
establishment of a separate entity in which each venturer has an interest. An associate is an entity in
which the Parent Company has significant influence and which is neither a subsidiary nor a joint
venture.

The Parent Company’s 60.00%, 49.00% and 35.00% investments in Philippine Academy for Aviation
Training, Inc. (PAAT), Aviation Partnership (Philippines) Corporation (A-plus) and SIA Engineering
(Philippines) Corporation (SIAEP), respectively, are classified as investments in joint ventures. The
Parent Company’s 15.00% investment in Air Block Box Asia Pacific Pte. Ltd. (ABB) is classified as
an investment in associate. These investments in JVs and an associate are accounted for under the
equity method. Under the equity method, the investments in JVs and an associate are carried in the
consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share
of net assets of the JVs, 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 JVs. Dividends
received are treated as a revaluation of the carrying value of the investment.

55
 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.

Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is their fair value at the date of acquisition.
Following initial recognition, intangible assets are carried at cost, less any accumulated impairment
loss.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually,
either individually or at the cash-generating unit (CGU) level. The assessment of indefinite life is
reviewed annually to determine whether the indefinite life continues to be supportable. If not, the
change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognized in the
profit or loss when the asset is derecognized.

The intangible assets of the Group have indefinite useful lives.

Impairment of Nonfinancial Assets

The Group assesses, at each reporting date, whether there is an indication that an asset may be
impaired. If any indication exists, or when annual impairment testing for an asset is required, the
Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of the
asset’s or CGU’s fair value less costs of disposal (FVLCD) and its value-in-use (VIU). The
recoverable amount is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets. When the carrying
amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is
written down to its recoverable amount.

In determining FVLCD, recent market transactions are taken into account. If no such transactions
can be identified, an appropriate valuation model is used. These calculations are corroborated by
valuation multiples, quoted share prices for publicly traded companies or other available fair value
indicators. In assuming VIU, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are
prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These
budgets and forecast calculations generally cover a period of five years. A long-term growth rate is
calculated and applied to project future cash flows after the fifth year.

For nonfinancial assets excluding goodwill, an assessment is made at each reporting date to determine
whether there is an indication that previously recognized impairment losses no longer exist or have
decreased. If such indication exist, the Group estimate the asset’s or CGU’s recoverable amount. A
previously recognized impairment loss is reversed only if there has been a change in the assumptions
used to determine that asset’s recoverable amount since the last impairment loss was recognized. The
reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount,
nor exceed the carrying amount that would have been determined, net of depreciation and
amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is
recognized in profit or loss.

56
Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that
the carrying value is impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group
of CGU) to which the goodwill relates. When the recoverable amount of the CGU is less than its
carrying amount, an impairment loss is recognized. Impairment loss relating to goodwill cannot be
reversed in future periods.

Intangible assets with indefinite useful lives are tested for impairment annually as at December 31 at
the CGU level, as appropriate, and when circumstances indicate that the carrying value may be
impaired.

Aircraft Maintenance and Overhaul Cost

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

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

Asset Retirement Obligation (ARO)

The Group is contractually required under various lease contracts to either restore certain leased
aircraft to its original condition at its own cost or to bear a proportionate cost of restoration at the end
of the contract period. The event that gives rise to the obligation is the actual flying hours, flying
cycles or calendar months of the asset as used, as the usage determines the timing and nature of the
overhaul and restoration work required or the amount to be contributed at the end of the lease term.
For certain lease agreements, the Group provides for these costs over the terms of the leases through
contribution to a maintenance reserve fund (MRF) which is recorded as outright expense. If the
estimated cost of restoration is expected to exceed the cumulative MRF, an additional obligation is
accounted on an accrual basis. Regular aircraft maintenance is accounted for as expense when
incurred.

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

Advance payment for materials for the restoration of the aircraft is initially recorded under ‘Advances
to suppliers’ account in the consolidated statement of financial position. This is recouped when the
expenses for restoration of aircraft have been incurred.

The Group regularly assesses the provision for ARO and adjusts the related liability.

Liability Under Lifestyle Rewards Program

The Group operates a lifestyle rewards program called ‘Getgo.’ A portion of passenger revenue
attributable to the award of Getgo points, which is estimated based on expected utilization of these
benefits, is deferred until utilized. The fair value of the consideration received in respect of the initial
sale is allocated to the award credits based on its fair value. The deferred revenue is included under
‘Other noncurrent liabilities’ in the consolidated statement of financial position. Any remaining
unutilized benefits are recognized as revenue upon redemption or expiry.

57
 Common Stock
Common stock is classified as equity and recorded at par. Proceeds in excess of par value are
recorded under ‘Capital paid in excess of par value’ account in the consolidated statement of financial
position. Incremental costs directly attributable to the issuance of new shares are shown in equity as a
deduction from the proceeds.

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

Retained Earnings
Retained earnings represent accumulated earnings of the Group, less dividends declared.
Appropriated retained earnings are set aside for purposes of the Parent Company’s re-fleeting
program. Dividends on common shares are recognized as liability and deducted from equity when
approved and declared by the Parent Company’s Board of Directors (BOD), in the case of cash
dividends; or by the Parent Company’s BOD and shareholders, in the case of stock dividends.

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

Sale of air transportation services

Passenger ticket and cargo waybill sales, excluding portion relating to awards under Lifestyle
Rewards Program, are initially recorded under ‘Unearned transportation revenue’ account in the
consolidated statement of financial position until earned and recognized under ‘Revenue’ account in
the consolidated statement of comprehensive income when carriage is provided or when the
passenger is lifted.

Ancillary revenue
Revenue from services incidental to the transportation of passengers such as excess baggage, inflight
sales and rebooking and cancellation fees are recognized when the services are provided.

Interest income
Interest on cash in banks, short-term cash placements and debt securities classified as financial assets
at FVPL is recognized as the interest accrues using the EIR method.

Expense Recognition
Expenses are recognized when it is probable that decrease in future economic benefits related to a
decrease in an asset or an increase in a liability has occurred and the decrease in economic benefits
can be measured reliably.

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

58
Foreign Currency Transactions
Transactions in foreign currencies are initially recorded in the Parent Company and subsidiaries’
functional currency using the exchange rates prevailing at the dates of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated at the functional currency using
the Philippine Dealing and Exchange Corp. closing rate prevailing at the reporting date. All
differences are taken to the profit or loss. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the prevailing closing exchange rate as of the
date of initial transaction.

Retirement Costs
The Group maintains defined benefit plans covering substantially all of its employees. The cost of
providing benefits under the defined benefit plans is actuarially determined using the projected unit
credit method. The method reflects services rendered by employees up to the date of valuation and
incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are
conducted with sufficient regularity with the option to accelerate when significant changes to
underlying assumptions occur.

Retirement expense comprises the following:

a. Service cost; and

b. Net interest on retirement liability.

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

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

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

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

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

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

59
 Income Taxes
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected
to be recovered from or paid to the tax authority. The tax rates and tax laws used to compute the
amount are those that are enacted or substantively enacted as of the reporting date.

Management periodically evaluates positions taken in the tax returns with respect to situations in
which applicable tax regulations are subject to interpretations and establishes provisions, when
appropriate.

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

Deferred tax assets are recognized for all deductible temporary differences with certain exceptions,
and carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT)
over regular corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the
extent that it is probable that sufficient taxable income will be available against which the deductible
temporary differences and carryforward benefits of unused tax credits from excess MCIT over RCIT
and unused NOLCO can be utilized. Deferred tax assets, however, are not recognized when it arises
from the initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of transaction, affects neither the accounting income nor taxable profit or loss.

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

Deferred tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred tax liabilities associated with investments in subsidiaries, branches and
associates, and interests in joint arrangements are not recognized if the Group is able to control the
timing of the reversal of the temporary difference and it is probable that the temporary difference will
not reverse in the foreseeable future.

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

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

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

60
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the
arrangement at inception date, and requires an assessment of whether the fulfillment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right
to use the asset. A reassessment is made after inception of the lease only if one of the following
applies:

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

Where a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for (a), (c) and (d) scenarios above, and at the
date of renewal or extension period for scenario (b).

Group as lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to
ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased
property or, if lower, at the present value of the minimum lease payments and included under
‘Property and equipment’ account with the corresponding liability to the lessor included under

‘Long-term debt’ account in the consolidated statement of financial position. Lease payments are
apportioned between the finance charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance charges are charged
directly to profit or loss.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated
over the shorter of the EUL of the asset and the lease term.

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.

A sale and leaseback transaction includes the sale of an asset and the leasing back of the same asset.
If the leaseback is classified as an operating lease, then, any gain is recognized immediately in the
profit or loss if the sale and leaseback terms are demonstrably at fair value. Otherwise the sale and
leaseback are accounted for as follows:

∂ If the sale price is below the fair value, then, the gain or loss is recognized immediately other than
to the extent that a loss is compensated for by future rentals at below market price, then the loss is
deferred and amortized over the period that the asset is expected to be used.
∂ If the sale price is above the fair value, then, any gain is deferred and amortized over the period
that the asset is expected to be used.
∂ If the fair value of the asset is less than the carrying amount of the asset at the date of the
transaction, then that difference is recognized immediately as a loss on the sale.

61
 Group as lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the
assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases
are added to the carrying amount of the leased asset and recognized over the lease term on the same
basis as the rental income. Contingent rents are recognized as revenue in the period in which they are
earned.

Provisions and Contingencies

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

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

Earnings Per Share (EPS)

Basic EPS is computed by dividing net income applicable to common stockholders by the weighted
average number of common shares issued and outstanding during the year, adjusted for any
subsequent stock dividends declared.

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

For the years ended December 31, 2017, 2016 and 2015, the Group does not have any dilutive
potential ordinary shares.

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

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 notes to the consolidated financial
statements, when material.

62
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. Classification of leases
Management exercises judgment in determining whether substantially all the significant risks and
rewards of ownership of the leased assets are transferred to the Group. Lease contracts, which
transfer to the Group substantially all the risks and rewards incidental to ownership of the leased
items, are capitalized.

The Group also has lease agreements where it has determined that the risks and rewards related to
the leased assets are retained with the lessors (e.g., no bargain purchase option and transfer of
ownership at the end of the lease term). The Group determined that it has no risks relating to
changing economic conditions since the Group does not own the leased aircraft. These leases are
classified as operating leases. These lease agreements also include aircraft from sale and
operating leaseback transactions entered by the Group as discussed in Note 30.

b. Consolidation of SPEs
The Group periodically undertakes transactions that may involve obtaining the rights to variable
returns from its involvement with the SPEs. These transactions include the purchase of aircraft
and assumption of certain liabilities. In all such cases, management makes an assessment as to
whether the Group has: (a) power over the SPEs; (b) the right over the returns of its SPEs; and
(c) the ability to use power over the SPEs to affect the amount of the Parent Company’s return,
and based on these assessments, the SPEs are consolidated as a subsidiary or associated company.
In making these assessments, management considers the underlying economic substance of the
transaction and not only the contractual terms. The Group has assessed that it will benefit from
the economic benefits of the SPEs’ activities and it will affect the returns for the Group. The
Group is directly exposed to the risks and returns from its involvement with the SPEs. Such
rights and risks associated with the benefits and returns are indicators of control. Accordingly,
the SPEs are consolidated.

Upon loss of control, the Group derecognizes the assets and liabilities of its SPEs and any surplus
or deficit is recognized in profit or loss.

c. Determination of functional currency

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

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

Management determined that Philippine Peso is the functional currency for the Group, after
considering the criteria stated in PAS 21.

63
 d. 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 internal counsel
handling the defense in these matters and is based upon an analysis of potential results. The
Group currently does not believe that these will have a material adverse effect on the Group’s
consolidated financial position and consolidated financial performance. It is possible, however,
that future financial performance could be materially affected by changes in the estimates or in
the effectiveness of the strategies relating to these proceedings (Note 30).

e. Allocation of revenue, costs and expenses for registered and non-registered activities
Revenue, costs and expenses are classified as exclusive and common. Exclusive revenue, cost
and expenses such as passenger revenue, cargo revenue, baggage revenue, insurance surcharge,
fuel and oil expense, hull/war/risk insurance, maintenance expense, depreciation, 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 allocates based on activity factors that
closely relate to the earning process of the revenue.

f. Classification of joint arrangements

The Group’s investments in JVs are structured in separate incorporated entities (Note 14). Even
though the Group holds various percentage of ownership interest on these arrangements, their
respective joint arrangement agreements require 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 JVs through the terms of the contractual arrangements.

g. Assessment of intangible assets with indefinite useful lives

The Group has intangible assets representing costs to establish brand and market opportunities
under the strategic alliance with CEBGO (Note 7). Management assessed that these assets have
indefinite useful lives because there is no foreseeable limit to the period over which these assets
are expected to generate net cash inflows to the Group.

Estimates and Assumptions

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

a. Recognition of deferred tax assets

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

As of December 31, 2017 and 2016, the Group has deferred tax assets amounting to
P
=3,399.1 million and =
P4,015.7 million, respectively (Note 25).

b. Estimation of Asset Retirement Obligation (ARO)

The Group is contractually required under certain lease contracts to restore certain leased
passenger aircraft to stipulated return condition or to bear a proportionate 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

64
 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, 2017 and 2016, the cost of restoration is computed based on the Group’s
assessment on expected future aircraft utilization.

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

As of December 31, 2017 and 2016, the Group’s ARO liability (included under ‘Other noncurrent
liabilities’ account in the consolidated statement of financial position) has a carrying value of
P
=3,675.1 million and = P2,465.7 million, respectively (Note 19). The related repairs and
maintenance expense for the years ended December 31, 2017, 2016 and 2015 amounted to
P
=1,209.4 million, =P1,121.1 million and = P864.0 million, respectively (Note 22).

c. Impairment of goodwill and intangible assets

The Group determines whether goodwill and intangibles with indefinite useful lives are impaired
at least on an annual basis. The impairment testing is performed annually as at December 31 and
when circumstances indicate that the carrying amount is impaired. The impairment testing also
requires an estimation of the recoverable amounts, which is the FVLCD or VIU of the CGU
whichever is higher, to which the goodwill and intangibles with indefinite useful lives are
allocated.

In determining the recoverable amount of these assets, the management estimates the VIU of the
CGU to which goodwill and intangible assets are allocated. Estimating the VIU requires
management to make an estimate of the expected future cash flows from the asset or CGUs and
choose a suitable discount rate in order to calculate the present value of those cash flows.

As of December 31, 2017 and 2016, the Group has determined that goodwill and intangibles with
indefinite useful lives are recoverable based on VIU. Goodwill amounted to P
=566.8 million as of
December 31, 2017 and 2016 (Notes 7 and 15). Brand and market opportunities, which are
recorded under ‘Other noncurrent assets’ account amounted to P
=852.2 million as of
December 31, 2017 and 2016 (Notes 7 and 16).

d. Fair values of financial instruments

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

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

65
 e. Fair values of aircraft at sale and operating leaseback transaction
The Group determines the fair values of its aircraft by relying on a third party’s valuation which
has a global view of all area of the market which brings essential context of changes in the market
and the opportunities and risks. The judgment includes determination whether the difference
between the fair value of the aircraft and its selling price should be accounted as immediate gain
in the profit or loss or be deferred over the operating lease term. The Group entered into sale and
operating leaseback transactions in 2017 (Notes 13 and 30).

f. Estimation of useful lives of property and equipment

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

As of December 31, 2017 and 2016, the carrying values of the Group’s property and equipment
amounted to =
P81,279.3 million and =
P81,890.3 million, respectively (Note 13).

The Group’s depreciation and amortization expense amounted to P=6,839.4 million,

P
=5,998.7 million and =
P5,111.5 million for the years ended December 31, 2017, 2016 and 2015,
respectively (Note 13).

g. Estimation of allowance for credit losses on receivables

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

The balances of receivables and allowance for credit losses as of December 31, 2017 and 2016
are disclosed in Note 10.

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

The Group’s estimates of the NRV of expendable parts, fuel, materials and supplies are based on
the most reliable evidence available at the time the estimates are made, of the amount that the
expendable parts, fuel, materials and supplies are expected to be realized. In determining the
NRV, the Group considers any adjustment necessary for obsolescence, which is generally
providing 100.00% for nonmoving items for more than one year. A new assessment is made of
NRV in each subsequent period. When the circumstances that previously caused expendable
parts, fuel, materials and supplies to be written-down below cost no longer exist or when there is
a clear evidence of an increase in NRV because of a change in economic circumstances, the
amount of the write-down is reversed so that the new carrying amount is the lower of the cost and
the revised NRV.

The related balances as of December 31, 2017 and 2016 are discussed in Note 11.

66
 i. Estimation of liability under the Lifestyle Rewards Program
A portion of passenger revenue attributable to the award of lifestyle reward program points,
estimated based on expected utilization on these benefits, is deferred until utilized. The points
expected to be redeemed are measured at fair value which is estimated using the Peso value of the
points. Deferred revenue included as part of ‘Other noncurrent liabilities’ account amounted to
P
=720.2 million and = P377.0 million as of December 31, 2017 and 2016, respectively (Note 19).
The rewards program started in 2015. Any remaining unredeemed points are recognized as
revenue upon expiration.

j. Estimation of retirement costs

The determination of the obligation and cost of retirement 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 retirement liability amounted to =

P637.0 million and P
=568.8 million as of
December 31, 2017 and 2016, respectively (Note 24).

6. Segment Information

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

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

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

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

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

2017 2016 2015

Revenue =68,454,988,943
P =63,778,967,986
P =56,620,079,940
P
Earnings before interest, taxes,
depreciation, amortization, and
rent (EBITDAR) 22,818,061,406 23,624,718,036 19,700,325,097
Depreciation and amortization 6,839,363,607 5,998,695,417 5,111,543,724
Interest expense 1,421,536,504 1,170,181,141 1,073,109,693
Interest income 182,952,825 113,672,171 83,006,926
(Forward)

67
 2017 2016 2015
Earnings before interest and taxes
(EBIT) P
=10,134,278,022 P
=12,251,198,186 P
=9,700,220,806
Pre-tax core net income 9,036,024,992 11,372,998,058 8,745,536,537
Net income 7,907,846,625 9,754,136,196 4,387,225,875
Capital expenditures 14,776,336,747 19,126,054,236 13,047,934,091
Hedging gains (losses) - net (132,570,164) 1,587,708,081 (2,931,215,906)
Share in net income of JVs 140,330,649 178,308,842 35,418,498
Income tax expense (benefit) 300,205,703 (37,971,487) (858,430,586)

Pre-tax core net income, EBIT and EBITDAR are considered as non-PFRS measures.

Pre-tax core net income is the operating income after deducting net interest expense and adding
equity income/loss of joint venture.

EBIT is the operating income before interest and taxes.

EBITDAR is the operating income after adding depreciation and amortization, provision for ARO
and aircraft and engine lease expenses.

Capital expenditure is the total paid acquisition of property and equipment for the period.

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:

2017 2016 2015

Total segment revenue of reportable
operating segment P
=68,029,131,426 P
=61,899,278,892 P
=56,501,654,516
Nontransport revenue and
other income 425,857,517 1,879,689,094 118,425,424
Total revenue =68,454,988,943
P =63,778,967,986
P =56,620,079,940
P

Nontransport revenue and other income include interest income, share in net income of JVs, fuel
hedging gains and gain on sale of aircraft.

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:

2017 2016 2015

Total segment income of
reportable segment P
=10,134,278,022 P
=12,251,198,186 P
=9,700,220,806
Add (deduct) unallocated items:
Nontransport revenue and
other income 425,857,517 1,879,689,094 118,425,424
Nontransport expenses and
other charges (2,352,083,211) (4,414,722,571) (6,289,850,941)
Benefit from (provision for)
income tax (300,205,703) 37,971,487 858,430,586
Net income 7,907,846,625 9,754,136,196 4,387,225,875
Other comprehensive gain (loss), net
of tax 38,831,880 7,847,827 (61,904,911)
Total comprehensive income =7,946,678,505
P =9,761,984,023
P =4,325,320,964
P

68
 The Group’s major revenue-producing assets are the aircraft owned by the Group, which are
employed across its route network (Note 13).

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

7. Business Combination

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

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

Amount
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

The goodwill arising from this business combination amounted to P =566.8 million (Note 15). The
Parent Company also identified intangible assets representing costs to establish brand and market
opportunities under the strategic alliance with TAH (Note 16). The related deferred tax liability on
this business combination amounted to P =185.6 million (Note 25). The total purchase price after
closing settlement date amounted to = P488.6 million.

8. Cash and Cash Equivalents

This account consists of:

2017 2016
Cash on hand P
=31,950,406 =32,366,174
P
Cash in banks 3,757,409,913 2,582,114,836
Short-term placements 11,824,184,187 7,681,761,294
=15,613,544,506 P
P =10,296,242,304

69
 Cash in banks earns interest at the respective bank deposit rates. Short-term placements, which
represent money market placements, are made for varying periods depending on the immediate cash
requirements of the Group. Short-term placements denominated in Peso earn an average annual
interest of 3.30%, 2.35% and 2.35% in 2017, 2016 and 2015, respectively. Moreover, short-term
placements in US dollar (USD) earn interest on an average annual interest rate of 1.96%, 1.31% and
0.77% in 2017, 2016 and 2015, respectively.

Interest income earned on cash in banks and short-term placements, presented in the consolidated
statements of comprehensive income, amounted to = P183.0 million, P
=113.7 million and P
=83.0 million
in 2017, 2016 and 2015, respectively.

9. Financial Assets at Fair Value through Profit or Loss

This account consists of derivative financial assets and liabilities in as of December 31, 2017 and
2016 that are not designated as accounting hedges. Derivative assets amounted to P =454.4 million and
P
=441.8 million as of December 31, 2017 and 2016, respectively.

As of December 31, 2017, this account consists of zero cost collars and a foreign currency forward
contract. As of December 31, 2016, this account consists of commodity swaps and zero cost collars.

Commodity Swaps and Zero Cost Collars

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 charges against or credit to profit or loss. As of December 31, 2017 and
2016, 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 and collars can be exercised at various
calculation dates with specified quantities on each calculation date. The collars have various maturity
dates through December 31, 2019.

For the years ended December 31, 2017, 2016 and 2015, the Group recognized net changes in fair
value of derivatives amounting to =
P135.9 million loss, P
=1,581.1 million gain and =P2,945.8 million
loss, respectively. These are recognized in ‘Hedging gains (losses) - net’ account under the
consolidated statements of comprehensive income.

Foreign Currency Forwards

In 2015, 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. On the same year, the Group pre-terminated all foreign currency
derivative contracts, where the Group recognized realized gain amounting to P=14.6 million. For the
year ended December 31, 2015, such realized gain is recognized in ‘Hedging gains (losses) - net’
account under the consolidated statements of comprehensive income. In 2016, the Parent Company
entered into foreign currency forward contracts which were pre-terminated in the same year, where
the Parent Company recognized realized gain amounting to P =6.7 million.

In 2017, the Group entered into foreign currency forward transactions with one of its counterparties
where it recognized realized gain of =
P14.1 million.

70
 Fair Value Changes on Derivatives
The changes in fair value of all derivative financial instruments not designated as accounting hedges
follow:

2017 2016
Balance at beginning of year
Derivative assets P
=758,876,862 =–
P
Derivative liabilities 317,102,957 2,443,495,138
441,773,905 (2,443,495,138)
Net changes in fair value of derivatives (132,570,164) 1,587,708,081
309,203,741 (855,787,057)
Fair value of settled instruments 145,196,347 1,297,560,962
Balance at end of year P
=454,400,088 =441,773,905
P
Attributable to:
Derivative assets P
=454,400,088 P758,876,862
=
Derivative liabilities P
=– =317,102,957
P

The net changes in fair value of derivatives is inclusive of the realized gains on foreign currency
forwards amounting to = P3.3 million, =
P6.7 million and =P14.6 million in 2017, 2016 and 2015,
respectively.

10. Receivables

This account consists of:

2017 2016
Trade receivables P
=1,512,258,048 =1,667,078,389
P
Due from related parties (Note 27) 121,520,658 124,270,740
Interest receivable 10,192,032 3,544,120
Others 594,502,513 663,230,536
2,238,473,251 2,458,123,785
Less allowance for credit losses 337,990,673 331,329,923
P
=1,900,482,578 =2,126,793,862
P

Trade receivables are noninterest-bearing and generally have 30 to 90-day term.

Interest receivable pertains to accrual of interest income from short-term placements.

Others include receivable from insurance, employees and fuel hedge counterparties.
The changes in the allowance for credit losses on receivables follow:

2017
Trade
Receivables Others Total
Balance at beginning of year =8,511,194
P =322,818,729
P =331,329,923
P
Unrealized foreign exchange gain on
allowance for credit losses 5,734 6,655,016 6,660,750
Balance at end of year =8,516,928
P =329,473,745
P =337,990,673
P

71
 2016
Trade
Receivables Others Total
Balance at beginning of year =8,438,558
P =307,971,526
P =316,410,084
P
Unrealized foreign exchange gain on
allowance for credit losses 72,636 14,847,203 14,919,839
Balance at end of year =8,511,194
P =322,818,729
P =331,329,923
P

11. Expendable Parts, Fuel, Materials and Supplies

This account consists of:

2017 2016
At NRV:
Expendable parts P
=1,226,659,598 =823,992,795
P
At cost:
Fuel 349,633,742 299,341,207
Materials and supplies 37,397,193 66,722,985
387,030,935 366,064,192
P
=1,613,690,533 =1,190,056,987
P

The cost of expendable parts amounted to P

=1,247.1 million and P
=844.5 million as of
December 31, 2017 and 2016, respectively. The allowance for inventory write down amounted to
P
=20.5 million as of December 31, 2017 and 2016. There are no additional provisions for inventory
write down in 2017, 2016 and 2015. No expendable parts, fuel, material and supplies are pledged as
security for liabilities.

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, 2017, 2016 and 2015 amounted to P =587.9 million,
P
=419.9 million and =
P374.4 million, respectively (Note 22). The cost of fuel reported as expense
under ‘Flying operations’ account amounted to P=19,595.0 million, =
P15,821.3 million and
P
=17,659.1 million in 2017, 2016 and 2015, respectively (Note 22).

12. Other Current Assets

This account consists of:

2017 2016
Advances to suppliers P
=1,434,662,986 =651,602,385
P
Prepaid rent 432,121,335 343,971,042
Prepaid insurance 45,458,573 7,092,843
Deposit to counterparties – 5,516,247
Others 196,712,025 88,088,168
P
=2,108,954,919 =1,096,270,685
P

72
Advances to suppliers include advances made for the purchase of various aircraft parts, service
maintenance for regular maintenance and restoration costs of the aircraft. Advances for regular
maintenance are recouped from progress billings, which occurs within one year from the date the
advances arose, whereas, advance payment for restoration costs is recouped when the expenses for
restoration of aircraft have been incurred. These advances are unsecured and noninterest-bearing
(Note 30).

Prepaid rent pertains to advance rental on aircraft under operating lease and on office spaces in
airports (Note 30).

Prepaid insurance consists of aviation insurance, which represents insurance of hull, war and risk,
passenger and cargo insurance for the aircraft during flights and non-aviation insurance represents
insurance payments for all employees’ health and medical benefits, commission, casualty and marine
insurance, as well as car/motor insurance.

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

Others include housing allowance and prepayments to other suppliers.

73
74
13. Property and Equipment

The composition and movements in this account follow:

2017
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 beginning of year = 75,894,007,720
P P9,469,685,966
= = 3,650,559,527
P P
= 649,265,394 P873,775,012
= = 1,326,005,809
P = 271,481,424
P = 92,134,780,852
P
Additions 3,901,431,635 1,733,136,545 718,000,450 96,552,181 159,241,727 – 57,415,778 6,665,778,316
Reclassification 6,563,857,663 – – – – 25,661,207 – 6,589,518,870
Disposals/others (16,023,691,516) (1,805,076,141) (238,317,162) (36,364) (11,759,403) – (6,704,464) (18,085,585,050)
Balance at end of year 70,335,605,502 9,397,746,370 4,130,242,815 745,781,211 1,021,257,336 1,351,667,016 322,192,738 87,304,492,988
Accumulated Depreciation
and Amortization
Balance at beginning of year 19,195,803,795 2,939,239,869 861,984,434 449,134,024 737,747,220 524,454,832 192,524,197 24,900,888,371
Depreciation and amortization 4,506,575,827 1,530,373,577 341,661,205 70,824,693 108,171,401 205,887,523 35,927,457 6,799,421,683
Reclassification – – – – – – – –
Disposals/others (8,265,515,593) (1,091,569,255) (162,017,448) (36,364) (11,759,403) – (6,704,464) (9,537,602,527)
Balance at end of year 15,436,864,029 3,378,044,191 1,041,628,191 519,922,353 834,159,218 730,342,355 221,747,190 22,162,707,527
Net Book Value = 54,898,741,473
P = 6,019,702,179
P = 3,088,614,624
P = 225,858,858
P = 187,098,118
P = 621,324,661
P = 100,445,548
P = 65,141,785,461
P

2017
Furniture,
Fixtures and Maintenance
Office Communication Special and Test Other Construction
Equipment Equipment Tools Equipment Equipment In-progress Total
Cost
Balance at beginning of year = 192,742,786
P = 26,326,660
P = 14,808,012
P = 6,538,117
P = 104,886,520
P P
= 14,549,537,398 = 107,029,620,345
P
Additions 24,938,414 3,113,828 1,010,705 46,451 12,705,185 8,068,743,848 14,776,336,747
Reclassification – – – – – (6,589,518,870) –
Disposals/others (1,602,972) – (19,297) (41,642) (184,068) – (18,087,433,029)
Balance at end of year 216,078,228 29,440,488 15,799,420 6,542,926 117,407,637 16,028,762,376 103,718,524,063

(Forward)
 2017
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 beginning of year = 120,774,739
P = 13,440,493
P = 13,075,357
P = 6,471,942
P = 84,665,946
P P–
= = 25,139,316,848
P
Depreciation and amortization 27,079,556 3,720,625 521,294 36,039 8,584,410 – 6,839,363,607
Reclassification – – – – – – –
Disposals/others (1,601,246) – (19,297) (41,642) (184,067) – (9,539,448,779)
Balance at end of year 146,253,049 17,161,118 13,577,354 6,466,339 93,066,289 – 22,439,231,676
Net Book Value = 69,825,179
P = 12,279,370
P = 2,222,066
P = 76,587
P = 24,341,348
P P
= 16,028,762,376 = 81,279,292,387
P

2016
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 beginning of year =70,180,391,031
P =8,800,954,427
P =3,224,302,949
P =515,338,948
P =865,940,227
P =1,030,008,118
P =231,795,064
P =84,848,730,764
P
Additions 8,093,523,876 1,574,616,146 553,091,249 137,361,635 52,875,536 – 39,686,360 10,451,154,802
Reclassification 4,351,607,461 – – – (1,240,000) 295,997,691 – 4,646,365,152
Disposals/others (6,731,514,648) (905,884,607) (126,834,671) (3,435,189) (43,800,751) – – (7,811,469,866)
Balance at end of year 75,894,007,720 9,469,685,966 3,650,559,527 649,265,394 873,775,012 1,326,005,809 271,481,424 92,134,780,852
Accumulated Depreciation
and Amortization
Balance at beginning of year 18,918,279,072 2,271,191,035 668,272,255 391,633,417 688,136,458 327,657,757 168,712,193 23,433,882,187
Depreciation and amortization 4,197,295,780 1,108,933,677 284,567,783 60,885,023 94,619,501 196,797,075 23,812,004 5,966,910,843
Reclassification – – – – (1,240,000) – – (1,240,000)
Disposals/others (3,919,771,057) (440,884,843) (90,855,604) (3,384,416) (43,768,739) – – (4,498,664,659)
Balance at end of year 19,195,803,795 2,939,239,869 861,984,434 449,134,024 737,747,220 524,454,832 192,524,197 24,900,888,371
Net Book Value =56,698,203,925
P =6,530,446,097
P =2,788,575,093
P =200,131,370
P =136,027,792
P P
=801,550,977 =78,957,227
P =67,233,892,481
P

75
76
2016
Furniture,
Fixtures and Maintenance
Office Communication Special and Test Other Construction
Equipment Equipment Tools Equipment Equipment In-progress Total
Cost
Balance at beginning of year =158,892,556
P =15,023,503
P P
=14,213,796 =6,681,631
P =99,147,611
P =
P10,576,116,375 =95,718,806,236
P
Additions 34,976,928 11,303,157 594,216 32,589 6,966,369 8,621,026,175 19,126,054,236
Reclassification – – – – 1,240,000 (4,647,605,152) –
Disposals/others (1,126,698) – – (176,103) (2,467,460) – (7,815,240,127)
Balance at end of year 192,742,786 26,326,660 14,808,012 6,538,117 104,886,520 14,549,537,398 107,029,620,345
Accumulated Depreciation and Amortization
Balance at beginning of year 100,290,381 10,686,314 12,645,419 6,590,325 78,890,597 – 23,642,985,223
Depreciation and amortization 21,635,398 2,674,955 429,938 57,720 6,986,563 – 5,998,695,417
Reclassification – – – – 1,240,000 – –
Disposals/others (1,151,040) 79,224 – (176,103) (2,451,214) – (4,502,363,792)
Balance at end of year 120,774,739 13,440,493 13,075,357 6,471,942 84,665,946 – 25,139,316,848
Net Book Value =71,968,047
P =12,886,167
P P
=1,732,655 =66,175
P =20,220,574
P =
P14,549,537,398 =81,890,303,497
P
Passenger Aircraft and Engines Held as Securing Assets Under Various Loans
The Group entered into various Export Credit Agency (ECA) and commercial loan facilities to
finance the purchase of its aircraft and engines. As of December 31, 2017 and 2016, the Group’s
passenger aircraft and engines held as securing assets under various loans are as follows:

2017 2016
ECA Loans Commercial Loans ECA Loans Commercial Loans
Airbus A320 6 17 10 19
ATR 72-500 7 – 7 –
Airbus A319 ‒ – 4 –
ATR 72-600 ‒ 8 – 2
Airbus A330 ‒ 2 – 1
Engines ‒ 5 – 5
13 32 21 27

Under the terms of the ECA loan and commercial loan facilities (Note 18), upon the event of default,
the outstanding amount of loan (including accrued interest) will be payable by the SPEs or by the
guarantors, which are CPAHI and JGSHI. CPAHI and JGSHI are guarantors to loans entered into by
CALL, BLL and SLL. Under the terms of commercial loan facilities from local banks, upon event of
default, the outstanding amount of loan will be payable, including interest accrued by the Parent
Company. Failure to pay the obligation will allow the respective lenders to foreclose the securing
assets.

As of December 31, 2017 and 2016, the carrying amounts of the securing assets (included under the
‘Property and equipment’ account) amounted to P
=54.9 billion and P
=56.9 billion, respectively.

Forward Sale Agreement

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

In 2015, the Parent Company delivered the first two (2) out of six (6) Airbus A319 aircraft to
Allegiant and recognized P
=80.3 million loss on sale in the consolidated statements of comprehensive
income.

In 2016, the Parent Company delivered the remaining four (4) out of six (6) airbus A319 aircraft to
Allegiant and recognized P
=962.6 million loss on sale in the consolidated statements of comprehensive
income.

In 2016, the Parent Company signed another forward sale agreement with Allegiant covering the last
remaining four (4) A319 aircraft. The aircraft are scheduled for delivery on various dates in 2017 and
2018.

In 2017, the Parent Company delivered the first three (3) out of four (4) Airbus A319 to Allegiant and
recognized P=532.9 million loss on sale in the consolidated statements of comprehensive income.

Sale and Operating Leaseback

In May and November 2017, the Group entered into a sale and operating leaseback transactions with
Ibon Leasing Limited (ILL) and JPA No. 78/79/80/81 Co., Ltd. covering two (2) and four (4) Airbus
A320, respectively (Note 29). The sale of aircraft required the prepayment of outstanding balance of
the loan facility attributed to the sold Airbus A320 aircraft. The total amount of loans and breakage
costs paid amounted to P =4,162.6 million and P=12.32 million, respectively. The Group recognized
gain on sale of aircraft amounting to P =635.5 million from these transactions.

77
 Operating Fleet
As of December 31, 2017 and 2016, the Group’s operating fleet follows:

2017 2016
Owned (Note 18):
Airbus A320 23 29
ATR 72-500 8 8
ATR 72-600 8 2
Airbus A330 2 1
Airbus A319 1 4
Under operating lease (Note 30):
Airbus A320 13 7
Airbus A330 6 6
61 57

Construction in-progress represents the cost of airframe and engine construction in-progress and
buildings and improvements and other ground property under construction. Construction in-progress
is not depreciated until such time when the relevant assets are completed and available for use. As of
December 31, 2017 and 2016, the Group’s capitalized pre-delivery payments as construction in-
progress amounted to = P15,918.4 million and =P14,466.6 million, respectively (Note 30).

As of December 31, 2017 and 2016, the gross amount of fully depreciated property and equipment
which are still in use by the Group amounted to =
P1,654.1 million and =
P1,394.3 million, respectively.

As of December 31, 2017 and 2016, there are no temporarily idle property and equipment.

14. Investments in Joint Ventures and in an Associate

Investments in Joint Ventures

The Parent Company has numerous investments in joint arrangements that are accounted for as joint
ventures. These represent the 60.00%, 49.00% and 35.00% interests in PAAT, A-plus and SIAEP,
respectively.

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

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

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

78
A-plus was incorporated in the Philippines on May 24, 2005 and started commercial operations on
July 1, 2005 while SIAEP was incorporated on July 27, 2008 and started commercial operations on
August 17, 2009.

Investment in an Associate
In May 2016, the Parent Company entered into Value Alliance Agreement with other low cost
carriers (LCCs), namely, Scoot Pte. Ltd, Nok Airlines Public Company Limited, CEBGO, and
Vanilla Air Inc. The alliance aims to increase passenger traffic by creating interline partnerships and
parties involved have agreed to create joint sales and support operations to expand services and
products available to passengers. This is achieved through LCCs’ investment in ABB.

In November 2016, the Parent Company acquired shares of stock in ABB amounting to
=
P43.7 million. ABB is an entity incorporated in Singapore in 2016 to manage the ABB settlement
system, which facilitates the settlement of sales proceeds between the issuing and carrying airlines,
and of the transaction fee due to ABB.

The investment gave the Parent Company a 15% shareholding proportion to ABB which is classified
as an investment in an associate and is accounted for at equity method. However, since ABB is still
non-operational as of December 31, 2017 and 2016, the investment is recognized at cost and is
subject to any remeasurement within the measurement period. As of December 31, 2017 and 2016,
the net carrying amount of the Group’s investment with ABB amounted to P =43.7 million.

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

2017
A-plus SIAEP PAAT Total
Cost
Balance at beginning of year P
=87,012,572 P
=486,168,900 P
=134,873,645 P
=708,055,117
Accumulated Equity in
Net Income (Loss)
Balance at beginning of year 143,617,164 (120,852,015) 31,267,183 54,032,332
Equity in net income during the year 103,865,989 13,907,157 22,557,503 140,330,649
Dividends declared (105,159,583) – – (105,159,583)
Balance at end of year 142,323,570 (106,944,858) 53,824,686 89,203,398
Net Carrying Value P
=229,336,142 P
=379,224,042 P
=188,698,331 P
=797,258,515

2016
A-plus SIAEP PAAT Total
Cost
Balance at beginning of year P
=87,012,572 P
=304,763,900 P
=134,873,645 P
=526,650,117
Investment made during the year ‒ 181,405,000 ‒ 181,405,000
Balance at end of year 87,012,572 486,168,900 134,873,645 708,055,117
Accumulated Equity in
Net Income (Loss)
Balance at beginning of year 120,336,602 (123,621,797) 2,259,065 (1,026,130)
Equity in net income during the year 146,530,942 2,769,782 29,008,118 178,308,842
Dividends declared (123,250,380) ‒ ‒ (123,250,380)
Balance at end of year 143,617,164 (120,852,015) 31,267,183 54,032,332
Net Carrying Value P
=230,629,736 P
=365,316,885 P
=166,140,828 P
=762,087,449

79
 Selected financial information of A-plus, SIAEP and PAAT as of December 31 follow:

2017
A-plus SIAEP PAAT
Total current assets =647,609,652
P =844,054,548
P P236,515,967
=
Noncurrent assets 236,491,515 1,633,406,976 761,202,139
Current liabilities (416,068,224) (630,064,750) (46,069,909)
Noncurrent liabilities – (763,899,511) (574,251,536)
Equity 468,032,943 1,083,497,263 377,396,661
Proportion of the Group’s ownership 49% 35% 50%
Carrying amount of the investments =229,336,142
P =379,224,042
P =188,698,331
P

2016
A-plus SIAEP PAAT
Total current assets =795,460,819
P P698,461,242
= P286,174,849
=
Noncurrent assets 155,159,767 1,664,971,439 804,157,578
Current liabilities (479,947,656) (384,081,485) (78,688,833)
Noncurrent liabilities ‒ (935,588,667) (679,361,939)
Equity 470,672,930 1,043,762,529 332,281,655
Proportion of the Group’s ownership 49% 35% 50%
Carrying amount of the investments =230,629,736
P =365,316,885
P =166,140,828
P

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

2017
A-plus SIAEP PAAT
Revenue =1,048,531,465
P =1,511,437,871
P P291,754,990
=
Expenses (787,755,096) (1,431,375,266) (207,365,599)
Other income (expenses) 27,808,071 (29,617,330) (32,481,449)
Income before tax 288,584,440 50,445,275 51,907,942
Income tax expense 76,613,034 10,710,542 6,792,936
Net income =211,971,406
P =39,734,733
P =45,115,006
P
Group’s share of profit for the year =103,865,989
P =13,907,157
P =22,557,503
P

2016
A-plus SIAEP PAAT
Revenue =987,094,549
P =969,132,649
P P305,467,453
=
Expenses (653,807,788) (937,444,460) (193,942,399)
Other income (expenses) 62,291,042 (18,573,663) (46,126,617)
Income before tax 395,577,803 13,114,526 65,398,437
Income tax expense 96,535,066 5,200,863 7,382,199
Net income =299,042,737
P =7,913,663
P =58,016,238
P
Group’s share of profit for the year =146,530,941
P =2,769,782
P =29,008,118
P

80
 2015
A-plus SIAEP PAAT
Revenue =905,813,968
P =387,432,455
P P157,878,689
=
Expenses (603,475,105) (562,632,105) (149,404,852)
Other income (expenses) 8,283,751 (9,236,769) (40,522,812)
Income (loss) before tax 310,622,614 (184,436,419) (32,048,975)
Income tax expense 72,602,620 45,652 1,236,173
Net income (loss) =238,019,994
P (P
=184,482,071) (P
=33,285,148)
Group’s share of profit for the year =116,629,797
P (P
=64,568,725) (P
=16,642,574)

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

For the years ended December 31, 2017 and 2016, the Parent Company received dividends from A-
plus amounting to P
=124.7 million and P
=61.6 million, respectively. Dividends received in 2017
includes dividends declared in 2016 amounting to P
=61.6 million. Outstanding dividends
receivable from A-plus amounted to =
P43.0 million and =
P61.6 million as of December 31, 2017 and
2016, respectively.

The share of the Parent Company in the net income of A-plus included in the consolidated retained
earnings amounted to =
P142.3 million and = P143.6 million as of December 31, 2017 and 2016,
respectively, which is not currently available for dividend distribution unless declared by A-plus.

The share of the Parent Company in the net income of PAAT included in the consolidated retained
earnings amounted to =
P53.8 million and =P31.3 million as of December 31, 2017 and 2016,
respectively, which is not currently available for dividend distribution unless declared by PAAT.

As of December 31, 2017 and 2016, SIAEP’s accumulated losses amounted to P

=106.9 million and
=120.9 million, respectively.
P

15. Goodwill

This account, which has a balance of =P566.8 million as of December 31, 2017 and 2016, represents
the goodwill arising from the acquisition of CEBGO (Note 7). Goodwill is attributed to the
following:

Achievement of Economies of Scale

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

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

Impairment testing of Goodwill and Intangible Assets with Indefinite Useful Lives
For purposes of impairment testing of these assets, CEBGO was considered as the CGU. In 2017,
2016 and 2015, management assessed that no impairment losses should be recognized for these
intangible assets with indefinite useful lives. These intangible assets pertain to establish brand and
market opportunities under the strategic alliance with CEBGO (Note 16).

81
 Key assumptions used in the VIU calculation
As of December 31, 2017 and 2016, the recoverable amount of the CGU has been determined based
on a VIU calculation using five-year cash flow projections. Key assumptions in the VIU calculation
of the CGU are most sensitive to the following:

∂ Future revenue, profit margins and revenue growth rates: These assumptions are based on the past
performance of CEBGO, market developments and expectations in the industry.
∂ Discount rates: The discount rate used for the computation of the net present value is the
weighted average cost of equity and was determined by reference to comparable entities.

Sensitivity to changes in assumptions

Management believes that no reasonably possible change in any of the above key assumptions would
cause the carrying values of goodwill and intangible assets arising from the acquisition of CEBGO to
materially exceed their recoverable amounts.

16. Other Noncurrent Assets

This account includes noncurrent portion of advances to suppliers, security deposits provided to
lessors and maintenance providers and other refundable deposits to be applied against payments for
future aircraft deliveries. It also includes intangible assets representing costs to establish brand and
market opportunities under the strategic alliance with CEBGO amounting to P =852.2 million as of
December 31, 2017 and 2016 (Note 7).

Advances to suppliers refer to pre-purchase of Airbus A330 life limited engine parts amounting to
P
=2,682.5 million as of December 31, 2017.

Refer to Note 15 for the impairment test of these intangible assets with indefinite useful lives.

17. Accounts Payable and Other Accrued Liabilities

This account consists of:

2017 2016
Accrued expenses =5,626,405,247 P
P =5,104,775,244
Accounts payable (Note 27) 4,348,772,864 3,980,459,969
Airport and other related fees payable 3,255,283,618 2,434,975,393
Advances from agents and others 483,419,341 676,600,363
Accrued interest payable (Note 18) 219,991,240 187,706,795
Other payables 248,913,529 199,119,178
=14,182,785,839 =
P P12,583,636,942

82
Accrued Expenses
The Group’s accrued expenses include accruals for:

2017 2016
Maintenance (Note 30) P
=1,594,899,506 =1,154,037,951
P
Compensation and benefits 1,288,053,955 1,265,980,747
Advertising and promotion 808,520,772 674,203,129
Navigational charges 512,565,815 530,636,176
Repairs and services 392,949,302 322,682,258
Ground handling charges 296,891,238 195,330,532
Fuel 173,828,180 176,846,265
Rent (Note 30) 121,871,445 45,019,497
Landing and take-off fees 119,171,719 282,123,740
Training costs 80,830,272 219,131,480
Catering supplies 53,736,429 30,789,342
Reservation costs 34,648,276 28,232,840
Professional fees 23,310,422 4,679,765
Aircraft insurance 9,730,292 59,144,684
Others 115,397,624 115,936,838
P
=5,626,405,247 =5,104,775,244
P

Others represent accrual of security, utilities, insurance and other expenses.

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

Airport and Other Related Fees Payable

Airport and other related fees payable are amounts payable to the Philippine Tourism Authority, Air
Transportation Office, Mactan-Cebu International Airport and Manila International Airport Authority
arising from aviation security, terminal fees and travel taxes.

Advances from Agents and Others

Advances from agents and others represent cash bonds required from major sales and ticket offices or
agents. These also include commitment fees received for the sale and purchase agreement of
four (4) A319 aircraft amounting = P49.9 million (US$1.0 million) and P=198.9 million
(US$4.0 million) as of December 31, 2017 and 2016, respectively. Commitment fees applied for the
delivery of three (3) aircraft in 2017 and four (4) aircraft in 2016 amounted to P
=152.0 million
(US$3.0 million) and = P194.0 million (US$4.0 million), respectively.

Accrued Interest Payable

Accrued interest payable pertains to accrual of interest expense, which is related to long-term debt
and normally settled quarterly throughout the year.

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

83
18. Long-term Debt

This account consists of:

2017
Annual Interest Rates Range Philippine Peso
(Note 28) Maturities US Dollar Equivalent
ECA loans 3.00% to 5.00% Various dates US$28,434,642 P
= 1,419,741,691
through 2024
2.00% to 5.00%
(US Dollar LIBOR) 101,568,931 5,071,336,717
130,003,573 6,491,078,408

US Dollar 3.00% to 5.00% Various dates

commercial loans through 2025 86,000,000 4,293,980,000
2.00% to 5.00%
(US Dollar LIBOR) 333,493,848 16,651,347,844
Philippine Peso 3.00% to 5.00% 2017 through
commercial loans (PDST-R2) 2026 ‒ 13,545,804,500
419,493,848 34,491,132,344
US$549,497,421 P
= 40,982,210,752

2016
Annual Interest Rates Range Philippine Peso
(Note 28) Maturities US Dollar Equivalent
ECA loans 2.00% to 6.00% Various dates US$131,595,704 P
=6,542,938,380
through 2024
1.00% to 2.00%
(US Dollar LIBOR) 117,841,373 5,859,073,088
249,437,077 12,402,011,468

US Dollar 3.00% to 6.00% Various dates

commercial loans through 2025 122,813,513 6,106,287,889
1.00% to 2.00%
(US Dollar LIBOR) 376,581,824 18,723,648,273
Philippine Peso 2.00% to 3.00% 2016 through
commercial loans (PDST-R2) 2026 ‒ 5,578,490,000
499,395,337 30,408,426,162
US$748,832,414 P
=42,810,437,630

The current and noncurrent portion of long-term debt are shown below:

2017
Philippine Peso
US Dollar Equivalent
Current
US Dollar loans US$90,548,405 P4,521,081,874
=
Philippine Peso loans ‒ 1,448,175,750
90,548,405 5,969,257,624
Noncurrent
US Dollar loans 458,949,016 22,915,324,378
Philippine Peso loans ‒ 12,097,628,750
458,949,016 35,012,953,128
US$549,497,421 =40,982,210,752
P

84
 2016
Philippine Peso
US Dollar Equivalent
Current
US Dollar loans US$130,378,207 =6,482,404,460
P
Philippine Peso loans ‒ 557,849,000
130,378,207 7,040,253,460
Noncurrent
US Dollar loans 618,454,207 30,749,543,170
Philippine Peso loans ‒ 5,020,641,000
618,454,207 35,770,184,170
US$748,832,414 =42,810,437,630
P

Long-term debt rollforward follows:

2017
Philippine Peso Philippine Peso
US Dollar loans Equivalent Loans Total
Balances at beginning of
year US$748,832,414 P=37,231,947,630 P
=5,578,490,000 P=42,810,437,630
Availments ‒ − 8,903,267,500 8,903,267,500
Payments (199,334,993) (10,048,126,753) (935,953,000) (10,984,079,753)
US$549,497,421 27,183,820,877 13,545,804,500 40,729,625,377
Unrealized foreign
exchange loss ‒ 252,585,375 ‒ 252,585,375
Balances at end of year US$549,497,421 =27,436,406,252
P =13,545,804,500
P =40,982,210,752
P

2016
Philippine Peso Philippine Peso
US Dollar loans Equivalent Loans Total
Balances at beginning of
year US$777,496,503 P =36,588,985,446 =‒
P P
=36,588,985,446
Availments 107,800,000 5,105,350,000 5,578,490,000 10,683,840,000
Payments (136,464,089) (6,405,748,273) ‒ (6,405,748,273)
US$748,832,414 35,288,587,173 5,578,490,000 40,867,077,173
Unrealized foreign
exchange loss ‒ 1,943,360,457 ‒ 1,943,360,457
Balances at end of year US$748,832,414 =37,231,947,630
P =5,578,490,000
P =42,810,437,630
P

ECA Loans
On various dates from 2005 to 2012, the Parent Company entered into ECA-backed loan facilities to
partially finance the purchases of ten Airbus A319 aircraft, seven ATR 72-500 turboprop aircraft and
ten Airbus A320 aircraft. The security trustee of these ECA loans established SPEs, namely CALL,
BLL, SLL, VALL and POALL, which purchased the aircraft from the supplier and leases such
aircraft to the Parent Company pursuant to (a) ten-year finance lease arrangement for the

ATR 72-500 turboprop aircraft and (b) twelve-year finance lease arrangement for the Airbus A319
and A320 aircraft. The quarterly and semi-annual payments made by the Parent Company to these
SPEs correspond to the principal and interest payments made by the SPEs to the ECA-backed lenders.
The quarterly and semi-annual lease rentals to the SPEs are guaranteed by CPAHI and JGSHI. The
Parent Company has the option to purchase the aircraft for a nominal amount at the end of such
leases.

85
 In 2017 and 2016, the Parent Company exercised the option to purchase three and four of the ten
Airbus A319 aircraft, respectively, which were subsequently sold to a third party as part of a forward
sale arrangement (Note 13). The purchase required the prepayment of the balance of the loan facility
attributed to the sold Airbus A319 aircraft. The total amount of loans paid amounted to
P
=494.1 million and = P870.5 million in 2017 and 2016, respectively. The breakage cost for the related
loan prepayments amounted to P =12.0 million and =P45.6 million in 2017 and 2016, respectively.

The terms of the remaining ECA-backed facilities, which are the same for the six (6) Airbus A320
aircraft and seven (7) ATR 72-500 turboprop aircraft, follow:

∂ Term of twelve (12) years starting from the delivery date of each Airbus A320 aircraft and
Ten (10) years for each ATR 72-500 turboprop aircraft.
∂ Combination of annuity style and equal principal repayments for the ATR 72-500 turboprop
aircraft and 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
A320 aircraft.
∂ Interest on loans from the ECA lenders are a mix of fixed and variable rates. Fixed annual
interest rates ranges from 2.00% to 5.00% and variable rates are based on US dollar LIBOR plus
margin.
∂ As provided under the ECA-backed facility, the SPEs cannot create or allow to exist any security
interest, other than what is permitted by the transaction documents or the ECA administrative
parties. SPEs 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 SPEs becomes insolvent, (e) failure to
discharge any attachment or sequestration order against SPEs’ 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 the SPEs, 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, 2017 and 2016, the total outstanding balance of the ECA loans amounted to
=
P6,491.1 million (US$130.0 million) and =
P12,402.0 million (US$249.4 million), respectively.
Interest expense amounted to P
=291.6 million, =
P401.0 million and =
P487.7 million in 2017, 2016 and
2015, respectively.

US Dollar Commercial Loans

On various dates from 2007 to 2016, the Group entered into a commercial loan facility to partially
finance the purchase of nineteen (19) Airbus A320 aircraft, one CFM 565B4/P engine and two CFM
565B5/P engines. The security trustee of the commercial loan facility established SPEs, namely
PTALL, PTHALL, SAALL, SBALL and SCALL, which purchased the aircraft from the Parent
Company pursuant to (a) ten-year finance lease arrangement for the Airbus A320 aircraft; and
(b) six-year finance lease arrangement for the engines. The quarterly and semi-annual payments
made by the Parent Company to these SPEs correspond to the principal and interest payments made
by the SPEs to the ECA-backed lenders. The Parent Company has the option to purchase the aircraft
and the engines for a nominal amount at the end of such leases.

86
 The terms of the remaining commercial loans follow:

∂ Term of ten years starting from the delivery date of each aircraft.
∂ Combination of annuity style and equal principal repayments made on a quarterly and
semi-annual basis for the aircraft and engines.
∂ Interests on loans are a mix of fixed and variable rates. Interest rates ranges from 2.00% to
5.00%.
∂ The facilities provide for material breach as an event of default, upon which, the outstanding
amount of loan will be payable, including interest accrued. The lenders will foreclose on secured
assets, namely the aircraft.

As of December 31, 2017 and 2016, the total outstanding balance of the US dollar commercial loans
amounted to =P20,945.3 million (US$419.5 million) and =P24,829.9 million (US$499.4 million),
respectively. Interest expense amounted to P
=780.6 million, P
=751.9 million and P
=585.4 million in
2017, 2016 and 2015, respectively.

Philippine Peso Commercial Loans

In 2016, the Group entered into a Philippine peso commercial loan facility to partially finance the
acquisition of two ATR 72-600 aircraft and one Airbus A330 aircraft.

In 2017, the Group entered into a Philippine peso commercial loan facility to partially finance the
acquisition of six ATR 72-600 aircraft and one Airbus A330 aircraft.

The terms of the commercial loans follow:

∂ Term of ten years starting from the delivery date of each aircraft.
∂ Forty equal consecutive principal repayments made on a quarterly basis.
∂ Interests on loans are variable rates. Interest rates ranges from 3.00% to 5.00%.
∂ The facilities provide that, upon event of default, the outstanding amount of loan will be payable,
including interest accrued. The lenders will foreclose mortgaged assets, namely the aircraft.

Interest expense incurred from these loans amounted to P

=349.3 million and P
=17.3 million in 2017 and
2016, respectively.

The Group is required to comply with affirmative and negative covenants until termination of loans.
As of December 31, 2017 and 2016, the Group is not in breach of any loan covenants.

19. Other Noncurrent Liabilities

This account consists of:

2017 2016
Asset Retirement Obligation (ARO) P
=3,675,087,466 =2,465,671,139
P
Deferred revenue on rewards program 720,229,576 376,960,452
P
=4,395,317,042 =2,842,631,591
P

87
 ARO
The Group is contractually required under various lease contracts to restore certain leased aircraft to
its original condition at its own cost or to bear a proportionate cost 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 future aircraft utilization and certain redelivery costs at the end of the lease
period.

The rollforward analysis of the Group’s ARO follow:

2017 2016
Balance at beginning of year P
=2,465,671,139 =1,344,571,000
P
Provision for ARO 1,209,416,327 1,121,100,139
Balance at end of year P
=3,675,087,466 =2,465,671,139
P

In 2017, 2016 and 2015, ARO expenses included as part of repairs and maintenance amounted to
P
=1,209.4 million, =
P1,121.1 million and =
P864.0 million, respectively (Note 22).

Deferred Revenue on Rewards Program

This account pertains to estimated liability under the Getgo lifestyle rewards program.

20. Equity

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

2017 2016
Authorized - at P
=1 par value 1,340,000,000 1,340,000,000
Beginning and end of year 605,953,330 605,953,330

Common 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 proceeds
amounting to P =3,800.0 million. The Parent Company’s share in the total transaction costs incurred
incidental to the IPO amounted to P =100.4 million, which is charged against ‘Capital paid in excess of
par value’ in the consolidated statements of financial position. The registration statement was
approved on October 11, 2010. After its listing with the PSE, there have been no subsequent
offerings of common stock. The Group has 91 and 95 existing certified shareholders as of
December 31, 2017 and 2016, respectively.

Treasury Stock
On February 28, 2011, the BOD of the Parent Company approved the creation and implementation of
a share buyback program (SBP) up to =
P2,000.0 million worth of the Parent Company’s common
stock. The SBP shall commence upon approval and shall end upon utilization of the said amount, or
as may be otherwise determined by the BOD.

The Parent Company has 7,283,220 shares held in treasury costing =

P529.3 million as of
December 31, 2017 and 2016, restricting the Parent Company from declaring an equivalent amount
from unappropriated retained earnings as dividends.

88
Appropriation of Retained Earnings
On December 15, 2017, November 10, 2016 and December 3, 2015, the Parent Company’s BOD
appropriated P
=18.3 billion, =
P6.6 billion and =
P1.0 billion, respectively, from its unrestricted retained
earnings for purposes of the Group’s re-fleeting program. The appropriated amount will be used for
the settlement of pre-delivery payments and aircraft lease commitments (Note 30). As of
December 31, 2017 and 2016, the Group has appropriated retained earnings totaling
P
=18,300.0 million and =P14,516.8 million, respectively.

Expected Receipt
Project name BOD approval Date
Re-fleeting program
2017 December 15, 2017 2018-2021
2016 November 10, 2016 2017-2021
2015 December 3, 2015 2016-2021

Unappropriated Retained Earnings

The income of the subsidiaries and JVs that are recognized in the consolidated statements of
comprehensive income are not available for dividend declaration unless these are declared by the
subsidiaries and JVs (Note 14). Likewise, retained earnings are restricted for the payment of
dividends to the extent of the cost of common stock held in treasury amounting to = P529.3 million.

On May 19, 2017, the Parent Company’s BOD approved the declaration of a regular cash dividend in
the amount of =P606.0 million or P=1.00 per share and a special cash dividend in the amount of
=
P1,060.4 million or =P1.75 per share from the unrestricted retained earnings of the Parent Company to
all stockholders of record as of June 9, 2017 and payable on July 5, 2017. Total dividends declared
amounted to =P1,666.4 million for the period ended December 31, 2017.

On May 20, 2016, the Parent Company’s BOD approved the declaration of a regular cash dividend in
the amount of =P606.0 million or P=1.00 per share and a special cash dividend in the amount of
P
=605.9 million or P=1.00 per share from the unrestricted retained earnings of the Parent Company to
all stockholders of record as of June 9, 2016 and payable on July 5, 2016. Total dividends declared
amounted to =P1,211.9 million for the period ended December 31, 2016.

On June 24, 2015, the Parent Company’s BOD approved the declaration of a regular cash dividend in
the amount of =P606.0 million or P=1.00 per share and a special cash dividend in the amount of
P
=302.9 million or P=0.50 per share from the unrestricted retained earnings of the Parent Company to
all stockholders of record as of July 16, 2015 and payable on August 11, 2015. Total dividends
declared amounted to P =908.9 million for the period ended December 31, 2015.

After reconciling items which include fair value adjustments on financial instruments, unrealized
foreign exchange loss, recognized deferred tax assets and others, and cost of common stocks
held in treasury, the amount of retained earnings that is available for dividend declaration as of
December 31, 2017 amounted to P =4,291.9 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 is 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.

89
 The Group’s ultimate parent monitors the use of capital structure using a debt-to-equity ratio, which
is gross debt divided by total capital. JGSHI includes within gross debt all interest-bearing loans and
borrowings, while capital represents total equity.

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

2017 2016
(a) Long-term debt (Note 18) =40,982,210,752 =
P P42,810,437,630
(b) Equity 39,785,579,366 33,505,272,519
(c) Debt-to-equity ratio (a/b) 1.0:1 1.3:1

The JGSHI Group’s policy is to keep the debt-to-equity ratio at the 2:1 level as of December 31, 2017
and 2016. Such ratio is currently being managed on a group level by the Group’s ultimate parent.

21. Ancillary Revenue

Ancillary revenue consist of:

2017 2016 2015

Baggage fees P
=6,503,929,372 =5,496,894,601
P =4,955,384,497
P
Rebooking, refunds, cancellation
fees, etc. 4,872,677,534 3,961,855,541 3,338,921,090
Others 2,117,690,355 2,284,264,613 2,065,142,241
=13,494,297,261 P
P =11,743,014,755 P
=10,359,447,828

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

22. Operating Expenses

Flying Operations
This account consists of:

2017 2016 2015

Aviation fuel expense (Note 11) P
=19,594,980,725 P
= 15,821,328,265 =
P 17,659,066,443
Flight deck 3,544,702,215 3,310,321,766 2,797,680,638
Aviation insurance 226,084,461 196,129,796 255,071,777
Others 495,292,866 366,568,889 204,541,676
=23,861,060,267 P
P =19,694,348,716 =P20,916,360,534

Aircraft and Traffic Servicing

This account consists of:

2017 2016 2015

Airport charges P
=4,388,454,073 =3,931,733,367
P =3,508,816,000
P
Ground handling 2,682,026,202 2,105,087,686 1,887,062,871
Others 635,872,264 541,163,750 451,220,434
P
=7,706,352,539 =6,577,984,803
P =5,847,099,305
P

90
 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 = P1,209.4 million,
P
=1,121.1 million and = P864.0 million in 2017, 2016 and 2015, respectively (Note 19).

Reservation and Sales

Reservation and sales relate to the cost to sell or distribute airline tickets and other ancillaries
provided to passengers such as costs to maintain the Group’s web-based booking channel, reservation
ticketing office costs and advertising expenses. These amounted to P =3,674.6 million,
P
=3,211.7 million and = P2,625.5 million in 2017, 2016 and 2015, respectively.

23. General and Administrative Expenses

This account consists of:

2017 2016 2015

Staff costs P
=713,911,477 =642,010,384
P =512,655,998
P
Security and professional fees 589,737,525 498,893,458 487,854,049
Utilities 144,290,695 133,315,208 145,433,281
Rent expense 119,274,051 85,337,118 89,687,818
Travel and transportation 53,113,095 32,378,068 24,674,634
Others 490,378,109 421,109,241 291,843,153
P
=2,110,704,952 =1,813,043,477
P =1,552,148,933
P

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

24. Employee Benefits

Employee Benefit Cost

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

Defined Benefit Plans

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

91
 The range of assumptions used to determine retirement benefits of the Group in 2017, 2016 and 2015
are as follows:

2017 2016 2015

Average remaining working life 7 - 9 years 11 - 18 years 8 - 12 years
Discount rate 5.73% - 5.76% 5.44% - 5.60% 5.00% - 5.13%
Salary increase rate 5.70% - 5.50% 5.50% - 5.50% 5.00% - 5.70%

As of December 31, 2017 and 2016, the discount rate used in determining the retirement liability is
determined by reference to market yields at the reporting date on Philippine government bonds.

The amounts recognized as retirement liability follow:

2017 2016
Present value of defined benefit obligation =1,072,391,925 =
P P1,011,183,379
Fair value of plan assets (435,430,849) (442,414,064)
P
=636,961,076 =568,769,315
P

Remeasurement gains recognized in OCI follow:

2017 2016
Actuarial gains from benefit obligation P
=83,944,869 =26,153,078
P
Return on plan assets, excluding amount included in
net interest cost (28,470,755) (14,941,894)
Amount to be recognized in OCI P
=55,474,114 P11,211,184
=

Movements in the fair value of plan assets follow:

2017 2016
Balance at beginning of year P
=442,414,064 =350,803,616
P
Interest income included in net interest cost 21,486,540 16,028,970
Actual contribution during the year 1,000 90,523,372
Return on plan assets, excluding amount included in
net interest cost (28,470,755) (14,941,894)
Balance at end of year P
=435,430,849 =442,414,064
P

The plan assets consist of:

2017 % 2016 %
Cash P
=117,577,762 27% =P308,307,900 70%
Investment in debt securities 315,537,434 73% 132,884,688 30%
Investment in equity securities 363,231 – – –
Receivables 1,989,920 – 1,259,576 –
435,468,347 442,452,164
Liabilities (37,498) – (38,100) –
= 435,430,849 100% =
P P442,414,064 100%

92
The Group expects to contribute about =
P116.8 million into the retirement fund for the year ending
2018.

The actual returns on plan assets amounted to P

=7.0 million losses in 2017 and =
P1.1 million gains in
2016.

Changes in present value of the defined benefit obligation follow:

2017 2016
Balance at beginning of year P
=1,011,183,379 =897,284,330
P
Current service cost 124,017,696 111,059,054
Interest cost 52,464,588 43,351,629
Benefits paid (31,328,869) (14,358,556)
Actuarial loss/gain due to:
Experience adjustments 650,992 14,942,532
Changes in financial assumption (4,188,561) (50,652,461)
Changes in demographical assumption (80,407,300) 9,556,851
Balance at end of year =1,072,391,925 P
P =1,011,183,379

Movements in retirement liability follow:

2017 2016
Balance at beginning of year P
=568,769,315 =546,480,714
P
Retirement expense 154,995,744 138,381,713
Recognized in OCI (55,474,114) (11,211,184)
Benefits paid (31,328,869) (14,358,556)
Actual contribution (1,000) (90,523,372)
Balance at end of year P
=636,961,076 =568,769,315
P

The benefits paid during 2017 and 2016 were paid out of Group’s operating funds.

Components of retirement expense included in the Group’s consolidated statements of comprehensive

income follow:

2017 2016 2015

Current service cost P
=124,017,696 =111,059,054
P =99,123,882
P
Interest cost 30,978,048 27,322,659 17,717,750
Total retirement expense P
=154,995,744 =138,381,713
P =116,841,632
P

93
 Shown below are the sensitivity analyses that has been determined based on reasonably possible
changes of the assumption occurring as of the end of the reporting period, assuming if all other
assumptions were held constant:

2017
PVO
Discount rates 6.73% (+1.00%) =944,306,805)
(P
4.73% (-1.00%) 1,124,639,036

Salary increase rates 6.70% (+1.00%) 1,131,113,532

4.70% (-1.00%) (937,242,141)

2016
PVO
Discount rates 6.44% (+1.00%) (P
=876,336,520)
4.44% (-1.00%) 1,084,771,639

Salary increase 6.50% (+1.00%) 1,089,891,204

4.50% (-1.00%) (870,361,689)

Each year, an Asset-Liability Matching Study (ALM) is performed with the result being analyzed in
terms of risk-and-return profiles. As of December 31, 2017 and 2016, the Group’s investment
consists of 73% of debt instruments and 27% of cash and receivables and 30% of debt instruments
and 70% of cash and receivables, respectively. The principal technique of the Group’s ALM is to
ensure the expected return on assets to be sufficient to support the desired level of funding arising
from the defined benefit plans.

Shown below is the maturity profile of the undiscounted benefit payments of the Group as of
December 31, 2017 and 2016:

2017
Normal Other Normal
Plan Year Retirement Retirement Total
Less than one year P
=83,066,349 P=36,909,566 P
=119,975,915
One to less than five years 100,566,495 217,623,698 318,190,193
Five to less than 10 years 409,212,531 396,721,336 805,933,867
10 to less than 15 years 448,970,827 448,320,680 897,291,507
15 to less than 20 years 511,864,635 432,141,338 944,005,973
20 years and above 1,829,024,599 744,639,760 2,573,664,359

2016
Normal Other Normal
Plan Year Retirement Retirement Total
Less than one year =77,229,355
P =18,592,905
P =95,822,260
P
One to less than five years 105,481,383 120,144,671 225,626,054
Five to less than 10 years 399,188,712 260,049,032 659,237,744
10 to less than 15 years 540,356,799 330,256,729 870,613,528
15 to less than 20 years 726,038,877 368,907,725 1,094,946,602
20 years and above 3,593,561,999 896,504,719 4,490,066,718

94
 The average duration of the expected benefit payments as of December 31, 2017 and 2016 is
17.95 years and 20.73 years, respectively.

25. Income Taxes

Provision for (benefit from) income tax consists of:

2017 2016 2015

Current:
MCIT P
=134,353,111 P162,594,552
= P125,929,367
=
Deferred 165,852,592 (200,566,039) (984,359,953)
P
=300,205,703 (P
=37,971,487) (P
=858,430,586)

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 Group 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 (CEBGO’s Congressional Franchise) known as the “ipso facto
clause” and the “equality clause”, respectively, the Group is allowed to benefit from the tax privileges
being enjoyed by competing airlines. The Group’s major competitor, by virtue of P.D. No. 1590, is
enjoying tax exemptions which are likewise being claimed by the Group, if applicable, including but
not limited to the following:

a. To depreciate its assets to the extent of not more than twice as fast the normal rate of
depreciation; and
b. To carry over as a deduction from taxable income any NOLCO incurred in any year up to five
years following the year of such loss.

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

2017 2016
Deferred tax assets on:
ARO - liability P
=1,102,526,240 P739,701,342
=
Unrealized foreign exchange losses - net 903,411,993 1,154,300,719
NOLCO 461,723,431 1,388,753,996
MCIT 422,877,029 349,843,622
Deferred revenue - Lifestyle rewards program 216,068,873 113,088,136
Retirement liability 191,088,323 170,630,795
Allowance for credit losses 101,397,202 99,398,977
3,399,093,091 4,015,717,587
(Forward)

95
 2017 2016
Deferred tax liabilities on:
Double depreciation P
=2,186,122,651 =2,624,040,175
P
Business combination (Note 7) 185,645,561 185,645,561
Unrealized gain on net derivative assets 136,320,026 132,532,172
2,508,088,238 2,942,217,908
Net deferred tax assets P
=891,004,853 =1,073,499,679
P

The Group’s recognized deferred tax assets and deferred tax liabilities are expected to be reversed
more than twelve months after the reporting date.
Movement in accrued retirement cost amounted to P
=16.6 million and P
=3.4 million in 2017 and 2016,
respectively, is presented under OCI.
Parent Company
Details of the NOLCO and MCIT are as follows:
NOLCO
Year Incurred Amount Applied Balance Expiry Year
2014 =1,028,184,259
P (P
=1,028,184,259) =–
P 2019
2015 955,474,545 (955,474,545) – 2020
=1,983,658,804
P (P
=1,983,658,804) =–
P

MCIT
Year Incurred Amount Expired Balance Expiry Year
2014 P61,319,704
= (P
=61,319,704) =–
P 2017
2015 117,297,005 – 117,297,005 2018
2016 148,442,253 – 148,442,253 2019
2017 125,331,691 – 125,331,691 2020
=452,390,653
P (P
=61,319,704) =391,070,949
P

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 22 out of 23 registrations, the Parent Company can avail of bonus years in certain specified cases
but the aggregate ITH availments (basic and bonus years) shall not exceed eight years.
As of December 31, 2017 and 2016, the Parent Company has complied with capital requirements set
by the BOI in order to avail the ITH incentives for aircraft of registered activity (Note 32).
CEBGO
Details of NOLCO and MCIT are as follows:
NOLCO
Year Incurred Amount Applied Expired Balance Expiry Year
2012 P
=1,106,443,070 (P
=377,927,614) (P
=728,515,456) =−
P 2017
2013 853,571,166 – – 853,571,166 2018
2014 685,506,938 – – 685,506,938 2019
=2,645,521,174 (P
P =377,927,614) (P
=728,515,456) P
=1,539,078,104

96
MCIT

Year Incurred Amount Expired/Applied Balance Expiry Year

2015 P8,632,361
= =–
P P8,632,361
= 2018
2016 14,152,299 – 14,152,299 2019
2017 9,021,420 – 9,021,420 2020
=31,806,080
P =–
P =31,806,080
P

As of December 31, 2016, CEBGO has recognized its previously unrecognized deferred tax assets
arising from deductible temporary differences, NOLCO and MCIT. Details follow:

Amount
NOLCO =793,656,352
P
Allowance for credit losses 20,553,023
Retirement liability 11,874,373
MCIT 22,784,660
Customer loyalty program 5,348,762
Unrealized foreign exchange loss 391,094
=854,608,264
P

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

2017 2016 2015

Statutory income tax rate 30.00% 30.00% 30.00%
Adjustments resulting from:
Nondeductible items 0.20 0.09 0.19
Interest income subjected to
final tax (0.65) (0.33) (0.63)
Others (0.51) (0.55) (1.29)
Income subject to ITH (25.38) (29.60) (52.60)
Effective income tax rate 3.66% (0.39%) (24.33%)

Entertainment, Amusement and Recreation (EAR) Expenses

Current tax regulations define expenses to be classified as EAR expenses and set a limit for the
amount that is deductible for tax purposes. EAR expenses are limited to 0.50% of net sales for sellers
of goods or properties or 1.00% of net revenue for sellers of services. For sellers of both goods or
properties and services, an apportionment formula is used in determining the ceiling on such
expenses. The Group recognized EAR expenses (allocated under different expense accounts in the
consolidated statements of comprehensive income) amounting P =6.8 million, P
=4.0 million and
P
=3.3 million in 2017, 2016 and 2015, respectively.

97
26. Earnings Per Share

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

2017 2016 2015

(a) Net income attributable to
common shareholders P
=7,907,846,625 P
=9,754,136,196 =
P4,387,225,875
(b) Weighted average number of
common shares for basic EPS 605,953,330 605,953,330 605,953,330
(c) Basic/diluted earnings per share P
=13.05 =16.10
P =7.24
P

The Group has no dilutive potential common shares in 2017, 2016 and 2015.

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

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

2017
Amount/ Outstanding
Related Party Volume Balance Terms Conditions
Parent company
(1) CPAHI
Due from related parties =–
P P
= 65,800 Non-interest bearing Unsecured, No impairment

JV in which the Company is a venture

(2) A-plus
Due from related parties 43,658,969 24,332,374 Non-interest bearing Unsecured, No impairment
Trade payables (1,146,452,691) (5,656,678) Non-interest bearing Unsecured

(3) SIAEP
Due from related parties 41,661,117 3,497,088 Non-interest bearing Unsecured, No impairment
Trade payables (606,357,222) (8,742,743) Non-interest bearing Unsecured

(4) PAAT, Inc.

Due from related party
Loans 2,250,000 90,977,300 2% interest per annum Unsecured, No impairment
Sublease agreement 29,432,744 2,627,838 Payable monthly Unsecured, No impairment
Others 123,405 20,258 Non-interest bearing Unsecured, No impairment
Trade payables (171,272,125) (605,551) Non-interest bearing Unsecured

(Forward)

98
 2017
Amount/ Outstanding
Related Party Volume Balance Terms Conditions
Entities under common control
(5) Robinsons Bank Corporation (RBC)
Trade receivables P
= 3,619,543 P
= 50,052 Non-interest bearing Unsecured, No impairment
Due to related parties (62,334,189) (2,527,313) Non-interest bearing Unsecured
Trade payables (1,066,451,273) (10,582,543) Non-interest bearing Unsecured
Long-term debt (3,464,550,000) (3,400,418,750) Interest bearing Secured

(6) Universal Robina Corporation (URC)

Trade receivables 43,504,985 5,324,528 Non-interest bearing Unsecured, No impairment
Due to related parties (178,949,791) (36,087,318) Non-interest bearing Unsecured

(7) Robinsons Land Corporation (RLC)

Trade receivables 33,139,176 6,890,718 Interest bearing Unsecured, No impairment
Trade payables (26,954,606) – Non-interest bearing Unsecured

(8) Robinsons Handyman, Inc.

Trade payables (4,336,466) (7,334) Non-interest bearing Unsecured

(9) Summit Publishing Inc. (SPI)

Trade receivables 1,164,416 319,150 Non-interest bearing Unsecured, No impairment
Trade payables (6,841,858) – Non-interest bearing Unsecured

(10)JG Petrochemical Corporation

(JGPC)
Trade receivables 1,302,261 270,050 Non-interest bearing Unsecured, No impairment

(11)Robinsons Inc.
Trade receivables 31,898,994 104,745 Non-interest bearing Unsecured, No impairment
Due to related parties (33,379,349) (337,508) Non-interest bearing Unsecured

(12)Jobstreet.com Phils., Inc.

Trade receivables 553,448 – Non-interest bearing Unsecured, No impairment
Trade payables (863,500) – Non-interest bearing Unsecured

2016
Amount/ Outstanding
Related Party Volume Balance Terms Conditions
Parent company
(1) CPAHI
Due from related parties =‒
P =65,800
P Non-interest bearing Unsecured, No impairment

JV in which the Company is a venture

(2) A-plus
Due from related parties 36,759,598 25,361,011 Non-interest bearing Unsecured, No impairment
Trade receivables 61,625,182 61,625,182 Non-interest bearing Unsecured, No impairment
Trade payables 1,008,951,483 (37,183,124) Non-interest bearing Unsecured

(3) SIAEP
Due from related parties 5,305,518 2,723,623 Non-interest bearing Unsecured, No impairment
Trade payables 67,351,578 (2,894,088) Non-interest bearing Unsecured

(4) PAAT, Inc.

Due from related parties

Loans 5,960,066 90,977,300 2% interest per annum Unsecured, No impairment
Sublease agreement 32,530,938 5,012,599 Payable monthly Unsecured, No impairment
Others 70,246 130,407 Non-interest bearing Unsecured, No impairment
Trade payables 141,115,807 ‒ Non-interest bearing Unsecured

Entities under common control

(5) Robinsons Bank Corporation (RBC)
Cash and cash equivalents 112,512,140,676 20,612,039,521 Non-interest bearing Unsecured, No impairment
Trade receivables 3,745,476 258,643 Non-interest bearing Unsecured, No impairment
Due to related parties 67,165,661 (1,183,359) Non-interest bearing Unsecured
Trade payables 2,090,056,896 (10,608,542) Non-interest bearing Unsecured

(Forward)

99
 2016
Amount/ Outstanding
Related Party Volume Balance Terms Conditions
(6) Universal Robina Corporation (URC)
Trade receivables P
=41,868,371 P
=4,255,851 Non-interest bearing Unsecured, No impairment
Due to related parties 73,047 (36,121,604) Non-interest bearing Unsecured
Trade payables 56,338,675 (1,905,670) Non-interest bearing Unsecured

(7) Robinsons Land Corporation (RLC)

Trade receivables 29,396,331 3,015,177 Interest bearing Unsecured, No impairment
Trade payables 40,871,141 (1,226,856) Non-interest bearing Unsecured

(8) Robinsons Handyman, Inc.

Trade payables 3,332,363 (253,778) Non-interest bearing Unsecured

(9) Summit Publishing Inc. (SPI)

Trade receivables 2,390,852 82,676 Non-interest bearing Unsecured, No impairment
Trade payables 18,618,073 (516,610) Non-interest bearing Unsecured

(10) JG Petrochemical Corporation

(JGPC)
Trade receivables 845,291 172,357 Non-interest bearing Unsecured, No impairment

(11) Robinsons Inc.

Trade receivables 299,847 172,876 Non-interest bearing Unsecured, No impairment
Trade payables 31,731,414 – Non-interest bearing Unsecured
Due to related parties 8,074,862 (384,591) Non-interest bearing Unsecured

(12) Jobstreet.com Phils., Inc.

Trade receivables 582,450 15,675 Non-interest bearing Unsecured, No impairment
Trade payables 1,205,600 ‒ Non-interest bearing Unsecured

Consolidated Statement of Comprehensive Income

Sale of Air Interest Ancillary Repairs and
Year Transportation Service Income Revenues Maintenance
JV in which the Parent
Company is a venturer 2017 P–
= P–
= P–
= P
= 738,577,829
A-plus 2016 =–
P =–
P =–
P 701,792,101
2015 =–
P =–
P =–
P 84,698,669

SIAEP 2017 960,594 – – 395,582,713

2016 677,614 – – 196,800,152
2015 439,483 – – –

PAAT 2017 – – 29,432,744 –

2016 – – 32,530,938 –
2015 – – 37,663,884 –

Entities under common control

RSB 2017 3,619,543 – – –
2016 3,369,060 – – –
2015 2,472,792 – – –

URC 2017 43,504,985 – – –

2016 44,137,335 – – –
2015 40,768,879 – – –

RLC 2017 33,139,176 – – –

2016 29,396,331 – – –
2015 19,174,493 – – –

SPI 2017 1,164,416 – – –

2016 2,721,457 – – –
2015 3,498,402 – – –

JGPC 2017 1,302,261 – – –

2016 845,291 – – –
2015 921,695 – – –

(Forward)

100
 Consolidated Statement of Comprehensive Income
Sale of Air Interest Ancillary Repairs and
Year Transportation Service Income Revenues Maintenance
Robinsons Inc. 2017 P
= 31,898,994 =–
P =–
P =–
P
2016 P
=33,749,652 =–
P =–
P =–
P
2015 P
=29,549,943 =–
P =–
P =–
P

Jobstreet.com Phils, Inc. 2017 553,448 – – –

2016 582,450 – – –
2015 682,300 – – –
Total 2017 P
= 116,143,417 =–
P P
= 29,432,744 P
= 1,134,160,542
2016 P
=115,479,190 =–
P P
=32,530,938 P
=898,592,253
2015 P
=97,507,987 =–
P P
=37,663,884 P
=84,698,669

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, 2017, 2016 and 2015. This
assessment is undertaken each financial year through a review of the financial position of the related
party and the market in which the related party operates.

The Group’s significant transactions with related parties follow:

1. There were expenses paid in advance by the Group on behalf of CPAHI. The said expenses are
subject to reimbursement and are recorded under ‘Receivables’ account in the consolidated
statements of financial position.

2. The Group entered into a Shared Services Agreement with A-plus. Under the aforementioned
agreement, the Group will render certain administrative services to A-plus, which include payroll
processing and certain information technology-related functions. The Group also entered into a
Ground Support Equipment (GSE) Maintenance Services Agreement with A-plus. Under the
GSE Maintenance Services Agreement, the Group shall render routine preventive maintenance
services on certain ground support equipment used by A-plus in providing technical GSE to
airline operators in major airports in the Philippines. The Group also performs repair or
rectification of deficiencies noted and supply replacement components.

3. For the aircraft maintenance program, the Group engaged SIAEC to render line maintenance,
light aircraft checks and technical ramp handling services at various domestic and international
airports which were performed by A-plus, and to maintain and provide aircraft heavy
maintenance services which was performed by SIAEP. Cost of services are recorded as ‘Repairs
and maintenance’ account in the consolidated statements of comprehensive income and any
unpaid amount as of reporting date as trade payable under ‘Accounts payable and other accrued
liabilities’ account.

4. The Group maintains deposit accounts and short-term investments with RSB which is reported
under ‘Cash and cash equivalents’ account. The Group also incurs liabilities to RSB for loan
payments of its employees and to URC primarily for the rendering of payroll service to the Group
which are recorded under ‘Due to related parties’ account.

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

101
 The Group also purchases goods from URC for in-flight sales and recorded as trade payable, if
unpaid, in the consolidated statements of financial position. Total amount of purchases in 2017,
2016 and 2015 amounted to = P38.6 million, =
P37.2 million and =P44.8 million, respectively.

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

7. In 2013 and 2012, under the shareholder loan agreement, the Group provided a loan to PAAT to
finance the purchase of its Full Flight Simulator, other equipment and other working capital
requirements. Aggregate loans provided by the Group amounted to P =155.4 million
(US$3.5 million). The loans are subject to 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, 2017 and 2016, loan to PAAT amounted to P =91.0 million (US$2.3 million).

8. In 2015, the Parent Company entered into sublease arrangements with CEBGO for the lease of its
eight (8) ATR 72-500 aircraft. The sublease period for each aircraft is for three years.

9. In 2016, the Parent Company entered into sublease arrangements with CEBGO for the lease of its
two (2) ATR 72-600 aircraft. The sublease period for each aircraft is for six years.

10. In 2017, the Parent Company entered into a loan agreement with RSB to finance the acquisition
of four (4) ATR 72-600 aircraft.

11. In 2017, the Parent Company entered into sublease arrangements with CEBGO for the lease of its
six (6) ATR 72-600 aircraft. The sublease period for each aircraft is for six years.

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

2017 2016 2015

Short-term employee benefits P
=165,548,217 =137,740,617
P =135,392,431
P
Post-employment benefits 25,939,884 2,690,640 3,560,866
P
=191,488,101 =140,431,257
P =138,953,297
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 retirement 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, 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 and foreign currency forward contracts to manage its exposure to fuel price and foreign
exchange rate fluctuations, respectively.

102
The Group’s BOD reviews and approves policies for managing each of these risks and these are
summarized in the succeeding paragraphs, together with the related risk management structure.

Risk Management Structure

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

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

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

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

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

The Audit Committee also aims to ensure that:

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

Enterprise Risk Management Group (ERMG)

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

∂ Formulation of risk policies, strategies, principles, framework and limits;

∂ Management of the fundamental risk issues and monitoring of relevant risk decisions;
∂ Support to management in implementing the risk policies and strategies; and
∂ Development of a risk awareness program.

103
 Corporate Governance Compliance Officer
Compliance with the principles of good corporate governance is one of the objectives of the Group’s
BOD. To assist the Group’s BOD in achieving this purpose, the Group’s BOD has designated a
Compliance Officer who shall be responsible for monitoring the actual compliance of the Group with
the provisions and requirements of good corporate governance, identifying and monitoring control
compliance risks, determining violations, and recommending penalties for such infringements for
further review and approval of the Group’s BOD, among others.

Day-to-day risk management functions

At the business unit or company level, the day-to-day risk management functions are handled by four
different groups, namely:
1. Risk-taking personnel - This group includes line personnel who initiate and are directly
accountable for all risks taken.
2. Risk control and compliance - This group includes middle management personnel who perform
the day-to-day compliance check to approved risk policies and risks mitigation decisions.
3. Support - This group includes back office personnel who support the line personnel.
4. Risk management - This group pertains to the Group’s Management Committee which makes risk
mitigating decisions within the enterprise-wide risk management framework.

ERM framework
The Group’s BOD is also responsible for establishing and maintaining a sound risk management
framework and is accountable for risks taken by the Group. The Group’s BOD also shares the
responsibility with the ERMG in promoting the risk awareness program enterprise-wide.

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

1. Internal Environmental Scanning - It involves the review of the overall prevailing risk profile of
the business unit to determine how risks are viewed and addressed by management. This is
presented during the strategic planning, annual budgeting and mid-year performance reviews of
the business unit.
2. Objective Setting - The Group’s BOD mandates the Group’s management to set the overall
annual targets through strategic planning activities, in order to ensure that management has a
process in place to set objectives which are aligned with the Group’s goals.
3. Risk Assessment - The identified risks are analyzed relative to the probability and severity of
potential loss which serves as a basis for determining how the risks should be managed. The
risks are further assessed as to which risks are controllable and uncontrollable, risks that require
management’s attention, and risks which may materially weaken the Group’s earnings and
capital.
4. Risk Response - The Group’s BOD, through the oversight role of the ERMG, approves the
Group’s responses to mitigate risks, either to avoid, self-insure, reduce, transfer or share risk.
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.

104
Risk management support groups
The Group’s BOD created the following departments within the Group to support the risk
management activities of the Group and the other business units:

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

Risk Management Policies

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

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

With respect to credit risk arising from the other financial assets of the Group, which comprise cash
in banks and cash equivalents and financial assets at FVPL, 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 maximum exposure to credit risk (including financial assets at
FVPL) of the Group as of December 31, 2017 and 2016, without considering the effects of collaterals
and other credit risk mitigation techniques.

2017 2016
Loans and receivables
Cash and cash equivalents* =15,581,594,100 P
P =10,263,876,130
Receivables
Trade receivables 1,512,258,048 1,667,078,389
Due from related parties 121,520,658 124,270,740
(Forward)

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 2017 2016
Interest receivable P
=10,192,032 =3,544,120
P
Others** 594,502,513 663,230,536
Refundable deposits*** 30,639,912 29,182,000
Financial assets at FVPL 454,400,088 441,773,905
=18,305,107,351 P
P =13,192,955,820
* Excluding cash on hand
** Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position

Risk concentrations of the maximum exposure to credit risk

Concentrations arise when a number of counterparties are engaged in similar business activities, or
activities in the same geographic region or have similar economic features that would cause their
ability to meet contractual obligations to be similarly affected by changes in economic, political or
other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to
developments affecting a particular industry or geographical location. Such credit risk
concentrations, if not properly managed, may cause significant losses that could threaten the Group’s
financial strength and undermine public confidence. In order to avoid excessive concentrations of
risk, identified concentrations of credit risks are controlled and managed accordingly.

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

2017
Asia
(excluding
Philippines Philippines) Europe Others Total
Loans and receivables
Cash and cash equivalents* P
= 14,026,202,306 P
= 1,355,785,391 P
= 199,606,403 P
=– P
= 15,581,594,100
Receivables
Trade receivables 1,006,836,764 452,976,380 ‒ 52,444,904 1,512,258,048
Due from related parties 121,520,658 ‒ ‒ ‒ 121,520,658
Interest receivable 10,192,032 ‒ ‒ ‒ 10,192,032
Others** 293,923,390 43,832,946 256,746,177 ‒ 594,502,513
Refundable deposits*** ‒ 30,639,912 ‒ ‒ 30,639,912
Financial assets at FVPL 454,400,088 ‒ ‒ ‒ 454,400,088
P
= 15,913,075,238 P
= 1,883,234,629 P
= 456,352,580 P
= 52,444,904 P
= 18,305,107,351
***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

2016
Asia
(excluding
Philippines Philippines) Europe Others Total
Loans and receivables
Cash and cash equivalents* P
=8,639,055,061 P
=1,050,673,161 P
=574,147,908 P
=– =
P10,263,876,130
Receivables
Trade receivables 1,184,733,983 462,199,939 ‒ 20,144,467 1,667,078,389
Due from related parties 124,270,740 ‒ ‒ ‒ 124,270,740
Interest receivable 3,544,120 ‒ ‒ ‒ 3,544,120
Others** 134,917,703 176,248,494 255,664,333 96,400,006 663,230,536
Refundable deposits*** ‒ 29,182,000 ‒ ‒ 29,182,000
Financial assets at FVPL 441,773,905 ‒ ‒ ‒ 441,773,905
P
=10,528,295,512 P
=1,718,303,594 P
=829,812,241 P=116,544,473 P
=13,192,955,820
***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

106
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 tables below show 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, 2017 and 2016:

2017
Neither Past Due Nor Specifically Impaired Past Due
High Standard Substandard or Individually
Grade Grade Grade Impaired Total
Cash and cash equivalents* P
= 15,581,594,100 =–
P =–
P P
=– P
= 15,581,594,100
Receivables
Trade receivables 1,503,741,119 – – 8,516,929 1,512,258,048
Due from related parties 121,520,658 – – – 121,520,658
Interest receivable 10,192,032 – – – 10,192,032
Others** 265,028,769 – – 329,473,744 594,502,513
Refundable deposits*** 30,639,912 – – – 30,639,912
Financial assets at FVPL 454,400,088 ‒ ‒ ‒ 454,400,088
P
= 17,967,116,678 =−
P =−
P P
= 337,990,673 P
= 18,305,107,351
***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

2016
Neither Past Due Nor Specifically Impaired Past Due
High Standard Substandard or Individually
Grade Grade Grade Impaired Total
Cash and cash equivalents* P
=10,263,876,130 =–
P =–
P P
=– =
P10,263,876,130
Receivables
Trade receivables 1,658,567,195 ‒ ‒ 8,511,194 1,667,078,389
Due from related parties 124,270,740 ‒ ‒ ‒ 124,270,740
Interest receivable 3,544,120 ‒ ‒ ‒ 3,544,120
Others** 340,411,807 ‒ ‒ 322,818,729 663,230,536
Refundable deposits*** 29,182,000 ‒ ‒ ‒ 29,182,000
Financial assets at FVPL 441,773,905 ‒ ‒ ‒ 441,773,905
P
=12,861,625,897 =‒
P =‒
P P
=331,329,923 P
=13,192,955,820
***Excluding cash on hand
***Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position

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

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.

107
 The following tables show the aging analysis of the Group’s receivables:

2017
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
= 1,503,741,119 =–
P =–
P =–
P =–
P P
= 8,516,929 P
= 1,512,258,048
Due from related parties 121,520,658 ‒ ‒ ‒ ‒ ‒ 121,520,658
Interest receivable 10,192,032 ‒ ‒ ‒ ‒ ‒ 10,192,032
Others* 265,028,769 ‒ ‒ ‒ ‒ 329,473,744 594,502,513
P
= 1,900,482,578 =–
P =–
P =–
P P
=– P
= 337,990,673 P
= 2,238,473,251
*Include nontrade receivables from insurance, employees and counterparties

2016
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
=1,658,567,195 =–
P =–
P =–
P =–
P P
=8,511,194 =
P1,667,078,389
Due from related parties 124,270,740 ‒ ‒ ‒ ‒ ‒ 124,270,740
Interest receivable 3,544,120 ‒ ‒ ‒ ‒ ‒ 3,544,120
Others* 340,411,807 ‒ ‒ ‒ ‒ 322,818,729 663,230,536
P
=2,126,793,862 =–
P =–
P =–
P P
=– P
=331,329,923 P
=2,458,123,785
*Include nontrade receivables from insurance, employees and counterparties

Past due and impaired receivables amounted to P =338.0 million and = P331.3 million as of
December 31, 2017 and 2016, respectively. Past due but not impaired receivables are secured by
cash bonds from major sales and ticket offices recorded under ‘Accounts payable and other accrued
liabilities’ account in the consolidated statements of financial position. For the past due and impaired
receivables, specific allowance for impairment losses amounted to P =338.0 million and =P331.3 million
as of December 31, 2017 and 2016, respectively (Note 10).

Collateral or credit enhancements

As collateral against trade receivables from sales ticket offices or agents, the Group requires cash
bonds from major sales ticket offices or agents ranging from P =50,000 to P=2.1 million depending on
the Group’s assessment of sales ticket offices and agents’ credit standing and volume of transactions.
As of December 31, 2017 and 2016, outstanding cash bonds (included under ‘Accounts payable and
other accrued liabilities’ account in the consolidated statements of financial position) amounted to
P
=237.9 million and = P244.1 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;

108
(e) the availability of other sources of financial support; and (f) the existing realizable value of
collateral. The impairment allowances, if any, are evaluated as the need arises, in view of favorable
or unfavorable developments.

With regard to the collective assessment of impairment, allowances are assessed collectively for
losses on receivables that are not individually significant and for individually significant receivables
when there is no apparent nor objective evidence of individual impairment yet. A particular portfolio
is reviewed on a periodic basis in order to determine its corresponding appropriate allowances. The
collective assessment evaluates and estimates the impairment of the portfolio in its entirety even
though there is no objective evidence of impairment yet on an individual assessment. Impairment
losses are estimated by taking into consideration the following deterministic information:
(a) historical losses/write-offs; (b) losses which are likely to occur but have not yet occurred; and
(c) the expected receipts and recoveries once impaired.

Liquidity risk
Liquidity is generally defined as the current and prospective risk to earnings or capital arising from
the Group’s inability to meet its obligations when they become due without recurring unacceptable
losses or costs.

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

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

Financial liabilities
The relevant maturity grouping is based on the remaining period at the reporting date to the
contractual maturity date. When counterparty has a choice of when the amount is paid, the liability is
allocated to the earliest period in which the Group can be required to pay. When the Group is
committed to make amounts available in installments, each installment is allocated to the earliest
period in which the Group 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, 2017 and 2016:

2017
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
= 12,467,954,506 P
= 3,145,590,000 =–
P =–
P P
=– =
P15,613,544,506
Receivables:
Trade receivables 1,512,258,048 – – – – 1,512,258,048
Due from related
parties* 121,520,658 – – – – 121,520,658
(Forward)

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 2017
Less than one 1 to 3 3 to 12 1 to 5 More than
month months months years 5 years Total
Interest receivable P
= 1,604,079 P
= 8,587,953 =–
P =–
P =–
P P
= 10,192,032
Others ** 594,502,513 – – – – 594,502,513
Refundable deposits – – – 30,639,912 – 30,639,912
Financial assets at FVPL – – – 454,400,088 – 454,400,088
P
= 14,697,839,804 P
= 3,154,177,953 =–
P P
= 485,040,000 P
=– =
P18,337,057,757

Financial Liabilities
On-balance sheet
Accounts payable and other
accrued liabilities*** P
= 12,590,750,489 P
= 12,399,834 P
= 123,784,857 =–
P P
=‒ P
= 12,726,935,180
Due to related parties* 38,716,423 – – – 38,716,423
Long-term debt**** – – – 30,981,735,157 14,190,166,376 45,171,901,533
P
= 12,629,466,912 P
= 12,399,834 P
= 123,784,857 P
= 30,981,735,157 P
= 14,190,166,376 P
= 57,937,553,136
***Receivable and payable on demand
***Include nontrade receivables from insurance, employees and counterparties
***Excluding government-related payables
****Including future undiscounted interest payments

2016
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 =
P10,183,729,447 =
P112,512,857 =–
P =–
P =
P– =
P10,296,242,304
Receivables:
Trade receivables 1,667,078,389 ‒ ‒ ‒ ‒ 1,667,078,389
Due from related
parties* 22,093,143 3,464,762 98,712,835 ‒ ‒ 124,270,740
Interest receivable 3,544,120 – – – – 3,544,120
Others ** 663,230,536 – – – ‒ 663,230,536
Refundable deposits ‒ ‒ ‒ 29,182,000 ‒ 29,182,000
Financial assets at FVPL ‒ ‒ ‒ 441,773,905 ‒ 441,773,905
=
P12,539,675,635 =
P115,977,619 =
P98,712,835 =
P470,955,905 =‒
P =
P13,225,321,994

Financial Liabilities
On-balance sheet
Accounts payable and other
accrued liabilities*** P
=5,943,237,435 P
=1,555,438,691 P
=5,009,729,087 P
=5,064,849 P‒
= =
P12,513,470,062
Due to related parties* 38,618,547 ‒ ‒ ‒ ‒ 38,618,547
Long-term debt**** ‒ ‒ ‒ 31,459,942,659 15,032,538,005 46,492,480,664
=5,981,855,982
P P
=1,555,438,691 =
P5,009,729,087 =
P31,465,007,508 P
=15,032,538,005 =
P59,044,569,273
***Receivable and payable on demand
***Include nontrade receivables from insurance, employees and counterparties
***Excluding government-related payables
****Including future undiscounted interest payments

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 Group’s functional currency. During the years ended December 31, 2017,
2016 and 2015, approximately 40.0%, 32.0% and 31.0%, respectively, of the Group’s total sales are
denominated in currencies other than the functional currency. Furthermore, the Group’s capital
expenditures are substantially denominated in USD. As of December 31, 2017, 2016 and 2015,
58.0%, 67.0% and 67.4%, respectively, of the Group’s financial liabilities were denominated in USD.

110
The Group has a foreign currency hedging arrangements as of December 31, 2017 and none as of
December 31, 2016.

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.

2017
Hong Kong Singaporean Other
US Dollar Dollar Dollar Currencies* Total
Financial Assets
Cash and cash equivalents P
= 8,219,588,282 P
= 195,004,829 P
= 276,046,061 P
= 832,818,204 P
= 9,523,457,376
Receivables 669,998,946 52,135,262 29,076,284 283,087,623 1,034,298,115
Financial assets at FVPL 454,400,088 – – – 454,400,088
Refundable deposits** 30,639,912 – – – 30,639,912
P
= 9,374,627,228 P
= 247,140,091 P
= 305,122,345 P
= 1,115,905,827 P
= 11,042,795,491

Financial Liabilities
Accounts payable and other
accrued liabilities*** P
= 4,062,510,380 P
= 42,227,898 P
= 22,765,217 P
= 41,194,698 P
= 4,168,698,193
Long-term debt 27,436,406,252 – – – 27,436,406,252
P
= 31,498,916,632 P
= 42,227,898 P
= 22,765,217 P
= 41,194,698 P
= 31,605,104,445
****Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro
****Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position
****Excluding government-related payables

2016
Hong Kong Singaporean Other
US Dollar Dollar Dollar Currencies* Total
Financial Assets
Cash and cash equivalents P
=4,912,681,176 P
=54,676,207 P
=55,960,921 P
=723,197,429 P
=5,746,515,733
Receivables 781,078,986 36,162,127 15,390,372 468,403,780 1,301,035,265
Financial assets at FVPL 441,773,905 ‒ ‒ ‒ 441,773,905
Refundable deposits** 29,182,000 ‒ ‒ ‒ 29,182,000
P
=6,164,716,067 P
=90,838,334 P
=71,351,293 P=1,191,601,209 P
=7,518,506,903

Financial Liabilities
Accounts payable and other
accrued liabilities*** P
=570,793,915 P
=29,556,483 P
=42,767,198 P =3,329,850,478 P
=3,972,968,074
Long-term debt 37,231,947,630 ‒ ‒ ‒ 37,231,947,630
P
=38,027,155,049 P
=29,556,483 P
=42,767,198 P =3,329,850,478 P
=41,429,329,208
****Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro
****Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position
****Excluding government-related payables

The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilities as
of December 31, 2017 and 2016 follow:

2017 2016
US dollar P
=49.9300 to US$1.00 P49.720 to US$1.00
=
Singapore dollar P
=37.3228 to SGD1.00 =34.354 to SGD1.00
P
Hong Kong dollar P
=6.3882 to HKD1.00 =6.421 to HKD1.00
P

The following table sets forth the impact of the range of reasonably possible changes in the
USD - Peso exchange value on the Group’s pre-tax income for the years ended December 31, 2017,
2016 and 2015 (in thousands).

2017 2016 2015

Changes in foreign exchange value P2
= (P
= 2) P2
= (P
= 2) P2
= (P
= 2)
Change in pre-tax income (P
= 874,856) = 874,856
P (P
= 1,315,342) P
=1,315,342 (P
= 1,737,699) P
=1,737,699

111
 Other than the potential impact on the Group’s pre-tax income, there is no other effect on equity.

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

Commodity price risk

The Group enters into commodity derivatives to manage its price risks on fuel purchases.
Commodity hedging allows stability in prices, thus, offsetting the risk of volatile market fluctuations.
Depending on the economic hedge cover, the price changes on the commodity derivative positions
are offset by higher or lower purchase costs on fuel. A change in price by US$10.00 per barrel of jet
fuel affects the Group’s fuel costs in pre-tax income by P
=2,470.9 million, =P2,326.5 million and
P
=2,132.7 million for the years December 31, 2017, 2016 and 2015, respectively, in each of the
covered periods, assuming no change in volume of fuel is consumed.

Interest rate risk

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

112
 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):

2017
<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years Total Fair Value
ECA-backed loans from banks (in US
Dollar; Note 18) US$18,121,914 US$17,285,711 US$16,181,711 US$16,119,045 US$16,057,039 US$24,471,923 US$108,237,343 US$100,909,133
Commercial loans from banks (in US
Dollar; Note 18) 51,625,695 51,241,359 50,861,146 50,470,226 50,083,379 110,912,735 365,194,540 333,740,984
US$69,747,609 US$68,527,070 US$67,042,857 US$66,589,271 US$66,140,418 US$135,384,658 US$473,431,883 US$434,650,117
US $ Loans (in Philippine Peso) = 3,482,498,117
P = 3,421,556,605
P = 3,347,449,850
P =
P3,324,802,301 =
P3,302,391,071 = 6,759,755,974
P P
= 23,638,453,918 = 21,702,080,320
P
Commercial loans from banks (Note 18) 1,778,409,798 1,745,234,775 1,710,867,422 1,673,501,570 1,636,871,320 6,702,912,377 15,247,797,262 12,656,770,112
= 5,260,907,915
P = 5,166,791,380
P = 5,058,317,272
P = 4,998,303,871
P = 4,939,262,391
P = 13,462,668,351
P = 38,886,251,180
P = 34,358,850,432
P

2016
<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years Total Fair Value
ECA-backed loans from banks (in US Dollar;
Note 18) US$18,183,919 US$18,121,914 US$17,285,711 US$16,181,711 US$16,119,045 US$40,528,962 US$126,421,262 US$117,873,252
Commercial loans from banks (in US Dollar;
Note 18) 51,989,181 51,605,648 51,221,313 50,841,100 50,450,179 160,120,997 416,228,418 381,524,377
US$70,173,100 US$69,727,562 US$68,507,024 US$67,022,811 US$66,569,224 US$200,649,959 US$542,649,680 US$499,397,629
US $ Loans (in Philippine Peso) P
=3,489,006,518 P
=3,466,854,378 P
=3,406,169,218 P
=3,332,374,166 P
=3,309,821,811 P
=9,976,316,001 P
=26,980,542,092 P
=24,830,050,134
Commercial loans from banks (Note 18) 621,619,694 590,652,740 586,849,102 583,115,806 579,241,827 2,839,181,951 5,800,661,120 4,927,396,109
P
=4,110,626,212 P
=4,057,507,118 P
=3,993,018,320 P
=3,915,489,972 P
=3,889,063,638 P
=12,815,497,952 P
=32,781,203,212 P
=29,757,446,243

113
 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, 2017, 2016 and 2015.

2017 2016 2015

Changes in interest rates 1.50% (1.50%) 1.50% (1.50%) 1.50% (1.50%)
Changes in pre-tax income (P
= 697,042,375) P = 697,042,375 (P
=392,086,223) P =392,086,223 (P
=274,842,903) P =274,842,903

Fair value interest rate risk

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

The following table demonstrates the sensitivity to a reasonably possible change in interest rates,
with all other variables held constant, of the Group’s income before tax and the relative impact on
the Group’s net assets as of December 31, 2017 and 2016:

Change in Basis Effect on Profit

Points Before Tax
2017 +100% P
=131,974,355
-100% (123,472,494)
2016 +100% 5,915,843
-100% (5,768,865)

29. Fair Value Measurement

The carrying amounts approximate fair values for the Group’s financial assets and liabilities due
to its short-term maturities, except for the following financial assets and other financial liabilities
as of December 31, 2017 and 2016:

2017 2016
Carrying Value Fair Value Carrying Value Fair Value
Financial Asset
Refundable deposits* (Note 16) P
=30,639,912 P
=38,630,210 P
=29,182,000 P
=34,248,959

Financial Liability
Other financial liability
Long-term debt**(Note 18) P
=40,982,210,752 P
=34,358,850,432 P
=42,810,437,630 P
=29,757,446,243
**Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position.
**Including current portion.

The methods and assumptions used by the Group in estimating the fair value of financial assets
and other financial liabilities are:

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 2017 and 2016,
respectively.

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 Long-term debt
The fair value of long-term debt is determined using the discounted cash flow methodology, with
reference to the Group’s current incremental lending rates for similar types of loans. The discount
rates used range from 2% to 6% as of December 31, 2017 and 2016, respectively.

The tables below show the Group’s financial instruments carried at fair value hierarchy
classification:

2017
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at
fair value:
Financial assets at FVPL (Note 9) =–
P P
=454,400,088 P
=– P
=454,400,088

Assets and liabilities for which

fair values are disclosed:
Refundable deposits P−
= =−
P = 38,630,210
P = 38,630,210
P
Long-term debt − (34,358,850,432) − (34,358,850,432)

2016
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at
fair value:
Financial assets at FVPL (Note 9) =–
P =441,773,905
P =–
P =441,773,905
P

Assets and liabilities for which

fair values are disclosed:
Refundable deposits P−
= =−
P =34,248,959
P =34,248,959
P
Long-term debt − (29,757,446,243) − (29,757,446,243)

There were no transfers within any hierarchy level of fair value measurements for the years ended
December 31, 2017 and 2016, 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 2019
(Inishcrean)
March 2008 GY Aviation Lease 0905 Co. Limited 2 January 2019
March 2008 APTREE Aviation Trading 2 Co. Ltd 1 October 2019
Wells Fargo Bank Northwest 1 October 2019
National Assoc.
(Forward)

115
 Date of Lease Agreement Lessors No. of Units Lease Expiry
July 2011 SMBC Aviation Capital Limited 2 March 2020
May 2017 Ibon Leasing Limited (ILL) 2 January 2019 and February 2019
November 2017 JPA No. 78 Co., Ltd 1 August 2020
November 2017 JPA No. 79 Co., Ltd 1 October 2020
November 2017 JPA No. 80 Co., Ltd 1 January 2021
November 2017 JPA No. 81 Co., Ltd 1 February 2021

In 2007, the Group entered into operating lease agreement with Inishcrean for the lease of
one (1) Airbus A320, which was delivered in 2007, and with CIT Aerospace International for the
lease of four (4) Airbus A320 aircraft, which were delivered in 2008. In 2015, the Group
extended the lease agreement with Inishcrean for another three years.

In March 2008, the Parent Company entered into operating lease agreements with GY Aviation
Lease 0905 Co. Limited (GY Aviation) for the lease of two (2) Airbus A320 aircraft, which were
delivered in 2009, and two Airbus A320 aircraft with two other lessors, which were received in
2012. In November 2010, the Parent Company signed an amendment to the operating lease
agreements, advancing the delivery of the two Airbus A320 aircraft to 2011 from 2012.

In 2016, the Group extended the lease agreement with GY Aviation Lease 0905 Co. Limited for
another two years pursuant to a letter of intent (LOI) signed in the first quarter of the same year.

In July 2011, the Group entered into an operating lease agreement with RBS Aerospace Ltd.
(RBS) for the lease of two (2) Airbus A320 aircraft, which were delivered in March 2012. The
lease agreement with RBS was amended to effect the novation of lease rights by the original
lessors to new lessors as allowed under the existing lease agreements.

In May 2017, the Group entered into lease agreements with ILL for two Airbus A320 (Note 13).

In November 2017, the Group entered into lease agreement with JPA No. 78/79/80/81 Co., Ltd for
four Airbus A320 (Note 13).

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

Date of Lease Agreement Lessors No. of Units Lease Term

February 2012 CIT Aerospace International 4 12 years with pre-termination
option
July 2013 A330 MSN 1552 Limited and A330 2 12 years with pre-termination
MSN 1602 Limited* option
*New lessors per Deed of Novation and Amendment signed on August 2014 and March 2015

On February 21, 2012, the Group entered into a lease agreement with CIT Aerospace International
for four (4) Airbus A330-300 aircraft. The lease term of the aircraft is 12 years with an early
pre-termination option.

On July 19, 2013, the Group entered into an aircraft operating lease agreements with Intrepid
Aviation for the lease of two (2) Airbus A330-300 aircraft, which were delivered in September
2014 and March 2015.

116
As of December 31, 2017, the Group has six (6) Airbus A330 aircraft under operating lease
(Note 13).

The first two (2) A330 aircraft were delivered in June 2013 and September 2013. Three (3) A330
aircraft were delivered in February 2014, May 2014 and September 2014. One (1) A330 aircraft
was delivered in March 2015.

Lease expenses relating to aircraft leases (included in ‘Aircraft and engine lease’ account in the
consolidated statements of comprehensive income) amounted to P =4,635.0 million,
P
=4,253.7 million and =
P4,024.6 million in 2017, 2016 and 2015, respectively.

Future minimum lease payments under the above-indicated operating aircraft leases follow:
2017 2016 2015
Philippine peso Philippine Peso Philippine Peso
US Dollar Equivalent US Dollar Equivalent US Dollar Equivalent
Within one year US$104,064,795 P
= 5,195,955,222 US$88,821,146 =
P4,416,187,364 US$90,260,208 =
P4,247,645,406
After one year but not more
than five years 353,043,295 17,627,451,745 345,847,247 17,195,525,129 309,193,470 14,550,644,708
Over five years 140,369,930 7,008,670,575 206,018,543 10,243,241,938 332,977,141 15,669,904,258
US$597,478,020 P
= 29,832,077,542 US$640,686,936 =
P31,854,954,431 US$732,430,819 =
P34,468,194,372

Operating Non-Aircraft Lease Commitments

The Group has entered into various lease agreements for its hangar, office spaces, ticketing
stations and certain equipment. These leases have remaining lease terms ranging from one to ten
years. Certain leases include a clause to enable upward revision of the annual rental charge
ranging from 5.00% to 10.00%.

Future minimum lease payments under these noncancellable operating leases follow:

2017 2016 2015

Within one year P
=201,321,805 =167,226,528
P =135,299,739
P
After one year but not more than
five years 834,940,613 710,187,772 564,977,120
Over five years 3,876,023,510 3,477,917,440 2,433,712,858
P
=4,912,285,928 =4,355,331,740
P =3,133,989,717
P

Lease expenses relating to both cancellable and noncancellable non-aircraft leases (allocated under
different expense accounts in the consolidated statements of comprehensive income) amounted to
P
=731.0 million, P
=625.8 million and =P488.6 million in 2017, 2016 and 2015, respectively.

Service Maintenance Commitments

On June 21, 2012, the Parent Company has entered into a 10-year charge per aircraft landing
(CPAL) agreement with Messier-Bugatti-Dowty (Safran group) to purchase wheels and brakes for
its fleet of Airbus A319 and A320 aircraft. The contract covers the current fleet, as well as future
aircraft to be acquired.

On June 22, 2012, the Parent Company has entered into service contract with Rolls-Royce Total
Care Services Limited (Rolls-Royce) for service support for the engines of the A330 aircraft.
Rolls-Royce will provide long-term Total Care service support for the Trent 700 engines on up to
eight A330 aircraft. Contract term shall be from delivery of the first A330 until the redelivery of
the last A330.

117
 On March 28, 2017, the Parent Company entered into a maintenance service contract with Societe
Air France for the lease, repair and overhaul services of parts and components of its A319, A320
and A321 aircraft. These services include provision of access to inventories under lease basis,
access to pooled components on a flat rate basis and repairs of aircraft parts and components.

Aircraft and Spare Engine Purchase Commitments

In August 2011, the Group entered in a commitment with Airbus S.A.S. to purchase firm orders of
thirty-two new A321 NEO Aircraft and ten addition option orders. These aircraft are scheduled to
be delivered from 2018 to 2022.

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 32 firm and ten options A321 NEO aircraft to be delivered beginning 2018. The
agreement also includes an engine maintenance services program for a period of ten years from
the date of entry into service of each engine.

On October 20, 2015, the Group entered into a Sale and Purchase Contract with Avions Transport
Regional G.I.E. to purchase 16 firm ATR 72-600 aircraft and up to ten additional option
ATR 72-600 aircraft. These aircraft are scheduled to be delivered from 2016 to 2020. Two
ATR 72-600 were received during 2016 and six ATR-600 during 2017.

On June 6, 2017, the Group placed an order with Airbus S.A.S to purchase seven (7) new
A321 CEO Aircraft to be delivered starting 2018.

As of December 31, 2017, the Group will take delivery of seven (7) Airbus A321 CEO, thirty-two
(32) Airbus A321 NEO and eight (8) ATR 72-600 aircraft starting 2018.

The above-indicated commitments relate to the Group’s re-fleeting and expansion programs.
These agreements remained in effect as of December 31, 2017.
Capital Expenditure Commitments
The Group’s capital expenditure commitments relate principally to the acquisition of aircraft fleet,
aggregating to P
=127,323.3 million and =
P117,804.1 million as of December 31, 2017 and 2016,
respectively.

2017
Philippine Peso
US Dollar Equivalent
Within one year US$541,112,509 P
=27,017,747,591
After one year but not more than
five years 2,008,923,295 100,305,540,083
US$2,550,035,804 P
=127,323,287,674

2016
Philippine Peso
US Dollar Equivalent
Within one year US$483,178,223 =24,023,621,236
P
After one year but not more than
five years 1,886,172,565 93,780,499,949
US$2,369,350,788 =117,804,121,185
P

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

31. Supplemental Disclosures to the Consolidated Statements of Cash Flows

The changes in liabilities arising from financing activities in 2017 follow:

Foreign
January 1, Exchange December 31,
2017 Cash Flows Movement Others* 2017
Current interest-bearing
loans and borrowings P
=7,040,253,460 (P =10,984,079,753) P
=41,622,038 =
P9,871,461,879 P
=5,969,257,624
Noncurrent interest-bearing
loans and borrowings 35,770,184,170 8,903,267,500 210,963,337 (9,871,461,879) 35,012,953,128
Dividends payable – (1,666,371,658) – 1,666,371,658 –
Total liabilities from
financing activities P
=42,810,437,630 (P
=3,747,183,911) P =252,585,375 P
=1,666,371,658 P
=40,982,210,752
*Others consist of reclassification of loans and borrowings from noncurrent to current and the declaration of cash dividend

The principal noncash investing and financing activities of the Group include:

a. Application of creditable withholding taxes against income tax payable amounting to

P
=71.4 million, P
=45.9 million and =
P51.0 million in 2017, 2016 and 2015, respectively; and

b. Acquisition of aircraft through loan financing amounting to P

=10,106.3 million,
P
=12,322.1 million and = P8.037.8 million in 2017, 2016 and 2015, respectively.

32. Registration with the BOI

The Parent Company is registered with the BOI as a new operator of air transport on a pioneer
status on 8 Airbus A320 and non-pioneer status for 11 Airbus A320 aircraft and four 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 16, 2011 2011-241 Nov 2011 - Nov 2017
December 6, 2012 2012-262 Dec 2012 - Dec 2018
February 11,2013 2013-045 Feb 2013 - Feb 2019
April 11, 2013 2013-089 Apr 2013 - Apr 2019
July 29, 2013 2013-166 July 2013 - July 2017
September 13, 2013 2013-185 Sept 2013 - Sept 2019
September 13, 2013 2013-186 Sept 2013 - Sept 2019
October 3, 2013 2013-201 Oct 2013 - Oct 2017
January 17, 2014 2014-012 Jan 2014 - Jan 2020
February 19, 2014 2014-037 Feb 2014 - Feb 2020
May 21, 2014 2014-080 May 2014 - May 2018
May 21, 2014 2014-081 May 2014 - May 2018
January 22, 2015 2015-011 Jan 2015 - Jan 2019
(Forward)

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 Date of Registration Registration Number ITH Period
January 22,2015 2015-012 Jan 2015 - Jan 2019
February 17, 2015 2015-039 Feb 2015 - Feb 2019
March 9, 2015 2015-061 Mar 2015 - Mar 2019
October 22, 2015 2015-225 Oct 2015 - Oct 2019
November 4, 2015 2015-238 Nov 2015 - Nov 2019
February 23, 2016 2016-040 Feb 2016 - Feb 2020
March 2, 2016 2016-045 Mar 2016 - Mar 2020
May 26, 2016 2016-100 May 2016 - May 2020
January 18, 2017 2017-022 Jan 2017 - Jan 2021
June 15, 2017 2017-179 June 2017 - June 2021

a. An ITH for a period of four years for non-pioneer status and six years for pioneer status.

b. Employment of foreign nationals. This may be allowed in supervisory, technical or advisory

positions for five years from date of registration.

c. Importation of capital equipment, spare parts and accessories at zero (0%) duty from date of
effectivity of Executive Order (E.O.) No. 70 and its Implementing Rules and Regulations for a
period of five years reckoned from the date of its registration or until the expiration of
E.O. 70, whichever is earlier.

d. Avail of a bonus year in each of the following cases but the aggregated ITH availments
(regular and bonus years) shall not exceed eight years.

∂ The ratio of total of imported and domestic capital equipment to the number of workers
for the project does not exceed the ratio set by the BOI.
∂ The net foreign exchange savings or earnings amount to at least US$500,000 annually
during the first three years of operation.
∂ The indigenous raw materials used in the manufacture of the registered product must at
least be fifty percent (50%) of the total cost of raw materials for the preceding years prior
to the extension unless the BOI prescribes a higher percentage.

e. Additional deduction from taxable income of fifty percent (50%) of the wages corresponding
to the increment in number of direct labor for skilled and unskilled workers in the year of
availments as against the previous year, if the project meets the prescribed ratio of capital
equipment to the number of workers set by the BOI. This may be availed of for the first
five (5) years from date of registration but not simultaneously with ITH.

f. Tax credit equivalent to the national internal revenue taxes and duties paid on raw materials
and supplies and semi-manufactured products used in producing its export product and
forming part thereof for a ten (10) years from start of commercial operations. Request for
amendment of the date of start of commercial operation for purposes of determining the
reckoning date of the ten-year period, shall be filed within one 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.

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 i. Exemption from wharfage dues, any export tax, duties, imports and fees for a ten-year period.

j. Importation of consigned equipment for a period of ten 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 semestral report on the actual investments,
employment and sales pertaining to the registered project. The report shall be due 15 days after
the end of each semester.

As of December 31, 2017 and 2016, the Parent Company has complied with capital requirements
set by the BOI in order to avail the ITH incentives for aircraft of registered activity.

33. Approval of the Consolidated Financial Statements

The consolidated financial statements were approved and authorized for issue by the BOD on
March 23, 2018.

34. Standards issued but not yet Effective

Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the
Group does not expect that the future adoption of the said pronouncements to have a significant
impact on its consolidated financial statements. The Group intends to adopt the following
pronouncements when these becomes effective.

Effective beginning on or after January 1, 2018

∂ Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-

based Payment Transactions
The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the
measurement of a cash-settled share-based payment transaction; the classification of a share-
based payment transaction with net settlement features for withholding tax obligations; and
the accounting where a modification to the terms and conditions of a share-based payment
transaction changes its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, but
retrospective application is permitted if elected for all three amendments and if other criteria
are met. Early application of the amendments is permitted.

∂ PFRS 9, Financial Instruments

PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial
Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The
standard introduces new requirements for classification and measurement, impairment, and
hedge accounting. Retrospective application is required but providing comparative
information is not compulsory. For hedge accounting, the requirements are generally applied
prospectively, with some limited exceptions.

121
 The Group is still assessing the potential impact of adopting PFRS 9 in 2018.

∂ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with

PFRS 4
The amendments address concerns arising from implementing PFRS 9, the new financial
instruments standard before implementing the new insurance contracts standard. The
amendments introduce two options for entities issuing insurance contracts: a temporary
exemption from applying PFRS 9 and an overlay approach. The temporary exemption is first
applied for reporting periods beginning on or after January 1, 2018. An entity may elect the
overlay approach when it first applies PFRS 9 and apply that approach retrospectively to
financial assets designated on transition to PFRS 9. The entity restates comparative
information reflecting the overlay approach if, and only if, the entity restates comparative
information when applying PFRS 9.

∂ PFRS 15, Revenue from Contracts with Customers

PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts
with customers. Under PFRS 15, revenue is recognized at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for transferring goods or
services to a customer. The principles in PFRS 15 provide a more structured approach to
measuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenue
recognition requirements under PFRSs. Either a full retrospective application or a modified
retrospective application is required for annual periods beginning on or after January 1, 2018.
Early adoption is permitted. The Group plans to adopt the new standard on the required
effective date using the modified retrospective method.

The Group is still assessing the impact of adopting PFRS 15 in 2018.

∂ Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of
Annual Improvements to PFRSs 2014 - 2016 Cycle)
The amendments clarify that an entity that is a venture capital organization, or other
qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to
measure its investments in associates and joint ventures at fair value through profit or loss.
They also clarify that if an entity that is not itself an investment entity has an interest in an
associate or joint venture that is an investment entity, the entity may, when applying the equity
method, elect to retain the fair value measurement applied by that investment entity associate
or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries.
This election is made separately for each investment entity associate or joint venture, at the
later of the date on which (a) the investment entity associate or joint venture is initially
recognized; (b) the associate or joint venture becomes an investment entity; and (c) the
investment entity associate or joint venture first becomes a parent.

The amendments should be applied retrospectively, with earlier application permitted.

∂ Amendments to PAS 40, Investment Property, Transfers of Investment Property

The amendments clarify when an entity should transfer property, including property under
construction or development into, or out of investment property. The amendments state that a
change in use occurs when the property meets, or ceases to meet, the definition of investment
property and there is evidence of the change in use. A mere change in management’s
intentions for the use of a property does not provide evidence of a change in use. The

122
 amendments should be applied prospectively to changes in use that occur on or after the
beginning of the annual reporting period in which the entity first applies the amendments.
Retrospective application is only permitted if this is possible without the use of hindsight.

∂ Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance

Consideration
The interpretation clarifies that, in determining the spot exchange rate to use on initial
recognition of the related asset, expense or income (or part of it) on the derecognition of a
non-monetary asset or non-monetary liability relating to advance consideration, the date of the
transaction is the date on which an entity initially recognizes the nonmonetary asset or non-
monetary liability arising from the advance consideration. If there are multiple payments or
receipts in advance, then the entity must determine a date of the transactions for each payment
or receipt of advance consideration. Entities may apply the amendments on a fully
retrospective basis. Alternatively, an entity may apply the interpretation prospectively to all
assets, expenses and income in its scope that are initially recognized on or after the beginning
of the reporting period in which the entity first applies the interpretation or the beginning of a
prior reporting period presented as comparative information in the financial statements of the
reporting period

Effective beginning on or after January 1, 2019

∂ Amendments to PFRS 9, Prepayment Features with Negative Compensation

The amendments to PFRS 9 allow debt instruments with negative compensation prepayment
features to be measured at amortized cost or fair value through other comprehensive income.
An entity shall apply these amendments for annual reporting periods beginning on or after
January 1, 2019. Earlier application is permitted.

∂ PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure
of leases and requires lessees to account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under PAS 17, Leases. The standard includes two
recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers)
and short-term leases (i.e., leases with a lease term of 12 months or less). At the
commencement date of a lease, a lessee will recognize a liability to make lease payments
(i.e., the lease liability) and an asset representing the right to use the underlying asset during
the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize
the interest expense on the lease liability and the depreciation expense on the right-of-use
asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain
events (e.g., a change in the lease term, a change in future lease payments resulting from a
change in an index or rate used to determine those payments). The lessee will generally
recognize the amount of the remeasurement of the lease liability as an adjustment to the right-
of-use asset.

Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting under
PAS 17. Lessors will continue to classify all leases using the same classification principle as
in PAS 17 and distinguish between two types of leases: operating and finance leases. PFRS 16
also requires lessees and lessors to make more extensive disclosures than under PAS 17.

123
 Early application is permitted, but not before an entity applies PFRS 15. A lessee can choose
to apply the standard using either a full retrospective or a modified retrospective approach.
The standard’s transition provisions permit certain reliefs.

The Group is currently assessing the impact of adopting PFRS 16.

∂ Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments to PAS 28 clarify that entities should account for long-term interests in an
associate or joint venture to which the equity method is not applied using PFRS 9. An entity
shall apply these amendments for annual reporting periods beginning on or after
January 1, 2019. Earlier application is permitted.

∂ Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involve
uncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside
the scope of PAS 12, nor does it specifically include requirements relating to interest and
penalties associated with uncertain tax treatments.

The interpretation specifically addresses the following:

ƒ Whether an entity considers uncertain tax treatments separately;

ƒ The assumptions an entity makes about the examination of tax treatments by taxation
authorities;
ƒ How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax
credits and tax rates; and
ƒ How an entity considers changes in facts and circumstances.

An entity must determine whether to consider each uncertain tax treatment separately or
together with one or more other uncertain tax treatments. The approach that better predicts the
resolution of the uncertainty should be followed.

Deferred Effectivity

∂ Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture
The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of
control of a subsidiary that is sold or contributed to an associate or joint venture. The
amendments clarify that a full gain or loss is recognized when a transfer to an associate or
joint venture involves a business as defined in PFRS 3, Business Combinations. Any gain or
loss resulting from the sale or contribution of assets that does not constitute a business,
however, is recognized only to the extent of unrelated investors’ interests in the associate or
joint venture.

On January 13, 2016, the Financial Reporting Standards Council deferred the original
effective date of January 1, 2016 of the said amendments until the International Accounting
Standards Board completes its broader review of the research project on equity accounting
that may result in the simplification of accounting for such transactions and of other aspects of
accounting for associates and joint ventures.

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