AUDITED FINANCIAL STATEMENTS - Cebu Pacific Aircebupacificaircorporate.com/Quarterly Reports/CEB SEC Form 17A... · AUDITED FINANCIAL STATEMENTS ... In case of death, ... part of

C O V E R S H E E Tfor

AUDITED FINANCIAL STATEMENTS

SEC Registration Number

1 5 4 6 7 5

C O M P A N Y N A M E

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

S

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province )

2 n d F l o o r , D o ñ a J u a n i t a M a r q u e

z L i m B u i l d i n g , O s m e ñ a B o u l e v a

r d , C e b u C i t y

Form Type Department requiring the report Secondary License Type, If Applicable

1 7 - A S E C

C O M P A N Y I N F O R M A T I O N

Company’s Email Address Company’s Telephone Number Mobile Number

N/A (632) 802-7060 N/A

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)

96 6/23 12/31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation

Name of Contact Person Email Address Telephone Number/s Mobile Number

Robin C. Dui [email protected] (632) 802-7060 N/A

CONTACT PERSON’s ADDRESS

Cebu Pacific Building, Domestic Road, Barangay 191, Zone 20, Pasay City 1301, Philippines

NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to theCommission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact persondesignated.

2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records withthe Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation fromliability for its deficiencies.

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17OF THE SECURITIES REGULATION CODE AND SECTION 141

OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended December 31, 2015

2. SEC Identification No. 154675

3. BIR Tax Identification No. 000-948-229-000

Cebu Air, Inc.4. Exact name of issuer as specified in its charter

Cebu City, Philippines5. Province, country or other jurisdiction of incorporation or organization

6. Industry Classification Code: (SEC Use Only)

2nd Floor, Dona Juanita Marquez Lim Building, Osmena Blvd., Cebu City 60007. Address of issuer's principal office Postal Code

(632) 802-70608. Issuer's telephone number, including area code

Not Applicable9. Former name, former address and former fiscal year, if changed since last report

10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA

Number of Shares of CommonStock Outstanding and AmountTitle of Each Class of Debt Outstanding

Common Stock, P1.00 Par Value 605,953,330 shares

11. Are any or all of the securities listed on the Philippine Stock Exchange?

Yes [x] No [ ]

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12. Indicate by check mark whether the registrant:

(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunderor Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of theCorporation Code of the Philippines, during the preceding twelve (12) months (or for such shorterperiod the registrant was required to file such reports)

Yes [x] No [ ]

(b) has been subject to such filing requirements for the past 90 days.

Yes [x] No [ ]

13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. Theaggregate market value shall be computed by reference to the price at which the stock was sold, orthe average bid and asked prices of such stock, as of a specified date within 60 days prior to thedate of filing. If a determination as to whether a particular person or entity is an affiliate cannot bemade without involving unreasonable effort and expense, the aggregate market value of thecommon stock held by non-affiliates may be calculated on the basis of assumptions reasonableunder the circumstances, provided the assumptions are set forth in this Form.

The aggregate market value of stocks held by non-affiliates is P17,157,939,060.

TABLE OF CONTENTS

Page No.

PART I – BUSINESS AND GENERAL INFORMATION

Item 1 Business...................................................................................................... 1

Item 2 Properties…………………………………………………………………. 15

Item 3 Legal Proceedings………………………………………………………… 15

Item 4 Submission of Matters to a Vote of Security Holders……………………. 15

PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5 Market for Registrant’s Common Equity and Related Stockholder Matters………………………………………………. 15

Item 6 Management’s Discussion and Analysis or Plan of Operation…………………………………………………………. 17

Item 7 Financial Statements……………………………………………………… 34

Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure…………………………………….. 35

PART III – CONTROL AND COMPENSATION INFORMATION

Item 9 Board of Directors and Executive Officers of the Registrant…………….. 35

Item 10 Executive Compensation…………………………………………………. 42

Item 11 Security Ownership of Certain Beneficial Owners and Management……………………………………………………………… 44

Item 12 Certain Relationships and Related Transactions…………………………. 46

PART IV – CORPORATE GOVERNANCE

Item 13 Corporate Governance……………………….…………………………… 46

PART V – EXHIBITS AND SCHEDULES

Item 14 Exhibits and Reports on SEC Form 17-C………………………………… 46

SIGNATURES................................................................................................................. 47

INDEX TO FINANCIAL STATEMENTS ANDSUPPLEMENTARY SCHEDULES………………………………………………….. 49

PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business

Cebu Air, Inc. (the Parent Company) is an airline that operates under the trade name “Cebu PacificAir” and is the leading low-cost carrier in the Philippines. It pioneered the “low fare, great value”strategy in the local aviation industry by providing scheduled air travel services targeted topassengers who are willing to forego extras for fares that are typically lower than those offered bytraditional full-service airlines while offering reliable services and providing passengers with a funtravel experience.

The Parent Company was incorporated on August 26, 1988 and was granted a 40-year legislativefranchise to operate international and domestic air transport services in 1991. It commenced itsscheduled passenger operations in 1996 with its first domestic flight from Manila to Cebu. In1997, it was granted the status as an official Philippine carrier to operate international services bythe Office of the President of the Philippines pursuant to Executive Order (EO) No. 219.International operations began in 2001 with flights from Manila to Hong Kong.

In 2005, the Parent Company adopted the low-cost carrier (LCC) business model. The coreelement of the LCC strategy is to offer affordable air services to passengers. This is achieved byhaving: high-load, high-frequency flights; high aircraft utilization; a young and simple fleetcomposition; and low distribution costs.

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

The Parent Company has twelve special purpose entities (SPE) that it controls, namely: CebuAircraft Leasing Limited, IBON Leasing Limited, Boracay Leasing Limited, Surigao LeasingLimited, Sharp Aircraft Leasing Limited, Vector Aircraft Leasing Limited, Panatag One AircraftLeasing Limited, Panatag Two Aircraft Leasing Limited, Panatag Three Aircraft Leasing Limited,Summit A Aircraft Leasing Limited , Summit B Aircraft Leasing Limited and Summit C AircraftLeasing Limited. On March 20, 2014, the Parent Company acquired 100% ownership of TigerAirways Philippines (TAP), including 40% stake in Roar Aviation II Pte. Ltd. (Roar II), a whollyowned subsidiary of Tiger Airways Holdings Limited (TAH). On April 27, 2015, with theapproval of the Securities and Exchange Commission, TAP was rebranded and now operates asCEBGO, Inc. The Parent Company, its twelve SPEs and CEBGO, Inc. (collectively known as “theGroup”) are consolidated for financial reporting purposes.

As of December 31, 2015, the Group operates an extensive route network serving 56 domesticroutes and 41 international routes with a total of 2,685 scheduled weekly flights. It operates fromseven hubs, including the Ninoy Aquino International Airport (NAIA) Terminal 3 and Terminal 4both located in Pasay City, Metro Manila; Mactan-Cebu International Airport located in Lapu-Lapu City, part of Metropolitan Cebu; Diosdado Macapagal International Airport (DMIA) locatedin Clark, Pampanga; Davao International Airport located in Davao City, Davao del Sur; Ilo-iloInternational Airport located in Ilo-ilo City, regional center of the western Visayas region; andKalibo International Airport in Kalibo, Aklan.

As of December 31, 2015, the Group operates a fleet of 55 aircraft which comprises of eight (8)Airbus A319, thirty three (33) Airbus A320, eight (8) ATR 72-500 and six (6) Airbus A330aircraft. It operates its Airbus aircraft on both domestic and international routes and operates theATR 72-500 aircraft on domestic routes, including destinations with runway limitations. Theaverage aircraft age of the Group’s fleet is approximately 4.80 years as of December 31, 2015.

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Aside from passenger service, the Group also provides airport-to-airport cargo services on itsdomestic and international routes. In addition, it offers ancillary services such as cancellation andrebooking options, in-flight merchandising such as sale of duty-free products on internationalflights, baggage and travel-related products and services.

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

For the Years Ended December 312015 2014 2013

Passenger Services 75.5% 77.3% 77.2%Cargo Services 6.2% 6.1% 6.4%Ancillary Services 18.3% 16.6% 16.4%

100.0% 100.0% 100.0%

On February 23, 2015, the Group signed a forward sale agreement with a subsidiary of AllegiantTravel Company (collectively known as “Allegiant”), covering the Group’s sale of six (6) AirbusA319 aircraft. The delivery of the aircraft to Allegiant is scheduled to start on various dates in2015 until 2016. Aside from this, there are no material reclassifications, merger, consolidation, orpurchase or sale of a significant amount of assets not in the ordinary course of business that wasmade in the past three years. The Group has not been subjected to any bankruptcy, receivership orsimilar proceeding in the said period.

Distribution Methods of Products or Services

The Group has three principal distribution channels: the internet; direct sales through bookingsales offices, call centers and government/corporate client accounts; and third-party sales outlets.

Internet

In January 2006, the Parent Company introduced its internet booking system. Throughwww.cebupacificair.com, passengers can book flights and purchase services online. The systemalso provides passengers with real time access to the Parent Company’s flight schedules and fareoptions. CEBGO, Inc.’s flights can be booked through the Cebu Pacific website and its otherbooking channels starting March 2014.

As part of the strategic alliance between the Parent Company and TAH, the two carriers enteredinto an interline agreement with the first interline flights made available for sale in TAH’s websitestarting July 2014. Interline services were made available in Cebu Pacific’s website in September2014. With this, guests of both airlines now have the ability to cross-book flights on a singleitinerary and enjoy seamless connections with an easy one-stop ticketing for connecting flightsand baggage check-in.

On December 2014, the Group also launched its official mobile application which allows guests tobook flights on the go through their mobile devices.

Booking Offices and Call Centers

As of December 31, 2015, the Group has a network of nine booking offices located throughout thePhilippines and one booking office located in Hong Kong. It directly operates these bookingoffices which also handle customer service issues, such as customer requests for change of

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itinerary. In addition, the Group operates two in-house call centers, one in Manila and the other inCebu. It also uses a third-party call center outsourcing service to help accommodate heavy calltraffic. Its employees who work as reservation agents are also trained to handle customer serviceinquiries and to convert inbound calls into sales. Purchases made through call centers can besettled through various modes, such as credit cards, payment centers and authorized agents.

Government/Corporate Client Accounts

As of December 31, 2015, the Group has government and corporate accounts for passenger sales.It provides these accounts with direct access to its reservation system and seat inventory as well ascredit lines and certain incentives. Further, clients may choose to settle their accounts by post-transaction remittance or by using pre-enrolled credit cards.

Third Party Sales Outlets

As of December 31, 2015, the Group has a network of distributors in the Philippines selling itsdomestic and international air services within an agreed territory or geographical coverage. Eachdistributor maintains and grows its own client base and can impose on its clients a service ortransaction fee. Typically, a distributor’s client base would include agents, travel agents or endcustomers. The Group also has a network of foreign general sales agents, wholesalers, andpreferred sales agents who market, sell and distribute the Group’s air services in other countries.

Publicly Announced New Product or Service

The Group continues to analyze its route network. It can opt to increase frequencies on existingroutes or add new routes/destinations. It can also opt to eliminate unprofitable routes and redeploycapacity.

The Group plans to expand its fleet over the course of the next three years to 69 aircraft (net ofreturns and sale of aircraft) by the end of 2018. The additional aircraft will support the Group’splans to increase frequency on current routes and to add new city pairs and destinations. TheGroup has increased frequencies on domestic routes such as Manila to Tagbilaran, Butuan andDumaguete, Cebu to Kalibo, Zamboanga to Tawi-Tawi and international routes such as Manila toHongkong. New international routes were also launched during the year like Manila to Fukuoka,Cebu to Narita, Cebu to Taipei and Davao to Singapore. The Group also further expanded its longhaul services in 2015 with direct flights to Doha, Qatar also utilizing its Airbus A330-300 aircraftwith a configuration of more than 400 all-economy class seats. The Airbus A330-300 has a rangeof up to 11 hours which means the Group could serve markets such as Australia, Middle East,parts of Europe and the US. On November 2015, the Group confirmed its plans to launch non-stop flights from Manila to Guam on March 15, 2016. Guam is the airline’s first US destination.On March 2015, the Group rolled out GetGo, its new lifestyle rewards program that gives pointsto loyal members which can then be used to pay for airfare and other add-ons through the Group’swebsite or other booking channels.

Further, the Group has turned into firm orders its existing options for seven Airbus A320 aircraftfor delivery between 2015 and 2016. The Group has placed a new firm order for 16 ATR 72-600with options to acquire an additional ten ATR 72-600. The new ATR 72-600 will be equippedwith the high density Armonia cabin, the widest cabin in the turboprop market. It will be fittedwith 78 slim-line seats and wider overhead bins with 30% more stowage space for greater comfortfor passengers. This order for ATR 72-600 aircraft will be delivered between 2016 to 2020. TheGroup also has an existing order for 30 Airbus A321NEO (New Engine Option) aircraft withoptions for a further ten Airbus A321neos. Airbus A321neos will be a first of its type to operate in

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the Philippines, being a larger and longer-haul version of the familiar Airbus A320. These 220-seater aircraft will have a much longer range which will enable the Group to serve cities inAustralia, India and Northern Japan, places the A320 cannot reach. This order for A321neoaircraft will be delivered between 2017 and 2021.

Competition

The Philippine aviation authorities deregulated the airline industry in 1995 eliminating certainrestrictions on domestic routes and frequencies which resulted in fewer regulatory barriers to entryinto the Philippine domestic aviation market. On the international market, although thePhilippines currently operates under a bilateral framework, whereby foreign carriers are grantedlanding rights in the Philippines on the basis of reciprocity as set forth in the relevant bilateralagreements between the Philippine government and foreign nations, in March 2011, the Philippinegovernment issued EO 29 which authorizes the Civil Aeronautics Board (CAB) and the PhilippineAir Panels to pursue more aggressively the international civil aviation liberalization policy toboost the country’s competitiveness as a tourism destination and investment location.

Currently, the Group faces intense competition on both its domestic and international routes. Thelevel and intensity of competition varies from route to route based on a number of factors.Principally, it competes with other airlines that service the routes it flies. However, on certaindomestic routes, the Group also considers alternative modes of transportation, particularly sea andland transport, to be competitors for its services. Substitutes to its services also include videoconferencing and other modes of communication.

The Group’s competitors in the Philippines are Philippine Airlines (“PAL”), a full-servicePhilippine flag carrier; PAL Express (formerly Airphil Express) a low-cost domestic operator thathas the same major shareholders as PAL (but separate management team) and which code shareswith PAL on certain domestic routes and leases certain aircraft from PAL; Air Asia Philippinesand Air Asia Zest (formerly Zest Air). Most of the Group’s domestic and internationaldestinations are also serviced by these airlines. According to latest CAB data as of the thirdquarter of 2015, the Group is the leading domestic airline in the Philippines by passengers carried,with a market share of 59.3%.

The Group is the leading regional low-cost airline offering services to more destinations andserving more routes with a higher frequency between the Philippines and other ASEAN countriesthan any other airline in the Philippines. The Group currently competes with the following LCC’sand full-service airlines in its international operations: AirAsia, Jetstar Airways, PAL, CathayPacific, Singapore Airlines, Thai Airways, among others.

Raw Materials

Fuel is a major cost component for airlines. The Group’s fuel requirements are classified bylocation and sourced from various suppliers.

The Group’s fuel suppliers at its international stations include Shell-Singapore, Shell-Hongkong,Shell-Dubai, SK Corp-Korea, Chevron-Sydney, Kuwait Aviation and World Fuel-Riyadh amongothers. It also purchases fuel from local suppliers like Petron, Chevron Manila and Shell Manila.The Group purchases fuel stocks on a per parcel basis, in such quantities as are sufficient to meetits monthly operational requirements. Most of the Group’s contracts with fuel suppliers are on ayearly basis and may be renewed for subsequent one-year periods.

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

The Group’s business is not dependent upon a single customer or a few customers that a loss ofanyone of which would have a material adverse effect on the Group.

Transactions with and/or Dependence on Related Parties

The Group’s significant transactions with related parties are described in detail in Note 27 of theNotes to Consolidated Financial Statements.

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

Trademarks

The Group has registered the “Cebu Pacific” and the Cebu Pacific feather-like device trademarkswith the Philippine Intellectual Property Office (PIPO). In the Philippines, certificates ofregistration of a trademark filed with the PIPO prior to the effective date of the PhilippineIntellectual Property Code (PIPC) in 1998 are generally effective for a period of 20 years from thedate of the certificate, while those filed after the PIPC became effective are generally effective fora shorter period of ten years, unless terminated earlier. The Group has also registered “CEBGO”,the rebranded name of its wholly-owned subsidiary, a trademark for the strategic alliance enteredinto by the Parent Company and TAH and the GetGo logo for its newest lifestyle rewards programwith the PIPO. On June 1, 2015, the Parent Company rolled out its new logo which featuresshades of the Philippines’ land, sea, sky and sun. This new branding also symbolizes the airline'sgrowth and evolution from a low-cost pioneer to its larger operations today. The Group has filedapplications for this new logo and for CEBGO’s logo, the approval of which are still pending withthe PIPO.

The Group also has 26 trademarks registered with the Intellectual Property Office of China andthree (3) trademarks with the Intellectual Property Office of Singapore.

The Group has also registered the business name “Cebu Pacific Air” with the Department of Tradeand Industry (DTI). Registering a business name with the DTI precludes another entity engagedin the same or similar business from using the same business name as one that has been registered.A registration of a business name shall be effective for five years from the initial date ofregistration and must be renewed within the first three months following the expiration of thefive-year period from the date of original registration.

Licenses / Permits

The Group operates its business in a highly regulated environment. The Group’s business dependsupon the permits and licenses issued by the government authorities or agencies for its operationswhich include the following:

· Legislative Franchise to Operate a Public Utility· Certificate of Public Convenience and Necessity· Letter of Authority· Air Operator Certificate· Certificate of Registration· Certificate of Airworthiness

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The Group also has to seek approval from the relevant airport authorities to secure airport slots forits operations.

Franchise

In 1991, pursuant to Republic Act (RA) No. 7151, the Parent Company was granted a franchise tooperate air transportation services, both domestic and international. In accordance with the ParentCompany’s franchise, this extends up to year 2031:

a) The Parent Company is subject to franchise tax of five percent of the gross revenue derivedfrom air transportation operations. For revenue earned from activities other than airtransportation, the Parent Company is subject to regular corporate income tax and to realproperty tax.

b) In the event that any competing individual, partnership or corporation received and enjoyedtax privileges and other favorable terms which tended to place the Parent Company at anydisadvantage, then such privileges shall have been deemed by the fact itself of the ParentCompany’s tax privileges and shall operate equally in favor of the Parent Company.

In December 2008, pursuant to Republic Act No. 9517, CEBGO, Inc. (formerly TAP), the ParentCompany’s wholly owned subsidiary, was granted a franchise to establish, operate and maintaindomestic and international air transport services with Clark Field, Pampanga as its base. Thisfranchise shall be for a term of twenty five (25) years.

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

Government Approval of Principal Products or Services

The Group operates its business in a highly regulated environment. The Group’s business dependsupon the permits and licenses issued by the government authorities or agencies for its operationswhich include the following:

· Legislative Franchise to Operate a Public Utility· Certificate of Public Convenience and Necessity· Letter of Authority· Air Operator Certificate· Certificate of Registration· Certificate of Airworthiness

The Group also has to seek approval from the relevant airport authorities to secure airport slots forits operations.

Effects of Existing or Probable Government Regulations on the Business

Civil Aeronautics Administration and CAAP

Policy-making for the Philippine civil aviation industry started with RA 776, known as the CivilAeronautics Act of the Philippines (the “Act”), passed in 1952. The Act established the policiesand laws governing the economic and technical regulation of civil aeronautics in the country. Itestablished the guidelines for the operation of two regulatory organizations, CAB for theregulation of the economic activities of airline industry participants and the Air Transportation

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Office, which was later transformed into the CAAP, created pursuant to RA 9497, otherwiseknown as the Civil Aviation Authority Act of 2008.

The CAB is authorized to regulate the economic aspects of air transportation, to issue generalrules and regulations to carry out the provisions of RA 776, and to approve or disapprove theconditions of carriage or tariff which an airline desires to adopt. It has general supervision andregulation over air carriers, general sales agents, cargo sales agents, and airfreight forwarders, aswell as their property, property rights, equipment, facilities and franchises.

The CAAP, a government agency under the supervision of the Department of Transportation andCommunications for purposes of policy coordination, regulates the technical and operationalaspects of air transportation in the Philippines, ensuring safe, economic and efficient air travel. Inparticular, it establishes the rules and regulations for the inspection and registration of all aircraftand facilities owned and operated in the Philippines, determine the charges and/or rates pertinentto the operation of public air utility facilities and services, and coordinates with the relevantgovernment agencies in relation to airport security. Moreover, CAAP is likewise tasked to operateand maintain domestic airports, air navigation and other similar facilities in compliance with theInternational Civil Aviation Organization (ICAO), the specialized agency of the United Nationswhose mandate is to ensure the safe, efficient and orderly evolution of international civil aviation.

The Group complies with and adheres to existing government regulations.

Aviation Safety Ranking and Regulations

In early January 2008, the Federal Aviation Administration (FAA) of the United States (U.S.)downgraded the aviation safety ranking of the Philippines to Category 2 from the previousCategory 1 rating. The FAA assesses the civil aviation authorities of all countries with air carriersthat operate to the U.S. to determine whether or not foreign civil aviation authorities are meetingthe safety standards set by the ICAO. The lower Category 2 rating means a country either lackslaws or regulations necessary to oversee airlines in accordance with minimum internationalstandards, or its civil aviation authority is deficient in one or more areas, such as technicalexpertise, trained personnel, record-keeping or inspection procedures. Further, it means Philippinecarriers can continue flying to the U.S. but only under heightened FAA surveillance or limitations.In addition, the Philippines was included in the “Significant Safety Concerns” posting by theICAO as a result of an unaddressed safety concern highlighted in the recent ICAO audit. As aresult of this unaddressed safety concern, Air Safety Committee (ASC) of the European Unionbanned all Philippine commercial air carriers from operating flights to and from Europe. TheASC based its decision on the absence of sufficient oversight by the CAAP.

On February 2013, the ICAO has lifted the significant safety concerns on the ability of CAAP tomeet global aviation standards. The ICAO SSC Validation Committee reviewed the correctiveactions, evidence and documents submitted by the Philippines to address the concerns anddetermined that the corrective actions taken have successfully addressed and resolved the auditfindings.

On April 10, 2014, the ASC of the European Union lifted its ban on Cebu Air, Inc. after itsevaluation of the airline’s capacity and commitment to comply with relevant aviation safetyregulations. On the same date, the US FAA also announced that the Philippines has compliedwith international safety standards set by the ICAO and has been granted a Category 1 rating. Theupgrade to Category 1 status is based on a March 2014 FAA review of the CAAP. With this,Philippine air carriers can now add flights and services to the U.S.

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On September and December 2014, the Group received CAAP’s approval for extended rangeoperations in the form of a certification for Extended Diversion Time Operations (EDTO) of up to90 and 120 minutes, respectively. EDTO refers to a set of rules introduced by the ICAO forairlines operating twin-engine aircraft on routes beyond 60 minutes flying time from the nearestairport. This certification allows the Group to serve new long haul markets and operate moredirect routes between airports resulting to more fuel savings and reduced flight times.

Although the Group does not currently operate flights to the U.S. and Europe, these developmentsopens the opportunity for the Group to establish new routes to other countries in these continents.

EO 28 and 29

In March 2011, the Philippine government issued EO 28 which provides for the reconstitution andreorganization of the existing Single Negotiating Panel into the Philippine Air Negotiating Panel(PANP) and Philippine Air Consultation Panel (PACP) (collectively, the Philippine Air Panels).The PANP shall be responsible for the initial negotiations leading to the conclusion of the relevantASAs while the PACP shall be responsible for the succeeding negotiations of such ASAs orsimilar arrangements.

Also in March 2011, the Philippine government issued EO 29 which authorizes the CAB and thePhilippine Air Panels to pursue more aggressively the international civil aviation liberalizationpolicy to boost the country’s competitiveness as a tourism destination and investment location.Among others, EO 29 provides the following:

· In the negotiation of the ASAs, the Philippine Air Panels may offer and promote third, fourthand fifth freedom rights to the country’s airports other than the NAIA without restriction as tofrequency, capacity and type of aircraft, and other arrangements that will serve the nationalinterest as may be determined by the CAB; and

· Notwithstanding the provisions of the relevant ASAs, the CAB may grant any foreign aircarriers increases in frequencies and/or capacities in the country’s airports other than theNAIA, subject to conditions required by existing laws, rules and regulations. All grants offrequencies and/or capacities which shall be subject to the approval of the President shalloperate as a waiver by the Philippines of the restrictions on frequencies and capacities underthe relevant ASAs.

The issuance of the foregoing EOs may significantly increase competition.

Air Passenger Bill of Rights

The Air Passenger Bill of Rights (the “Bill”), which was formed under a joint administrative orderof the Department of Transportation and Communications, the CAB and the Department of Tradeand Industry, was signed and published by the Government on 11 December 2012 and came intoeffect on 21 December 2012. The Bill sets the guidelines on several airline practices such asoverbooking, rebooking, ticket refunds, cancellations, delayed flights, lost luggage and misleadingadvertisement on fares.Republic Act (RA) No. 10378 - Common Carriers Tax Act

RA No. 10378, otherwise known as the Common Carriers Tax Act, was signed into law onMarch 7, 2013. This act recognizes the principle of reciprocity as basis for the grant of income taxexceptions to international carriers and rationalizes other taxes imposed thereon by amendingsections 28(A)(3)(a), 109, 108 and 236 of the National Internal Revenue Code, as amended.

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Among the relevant provisions of the act follows:

a.) An international carrier doing business in the Philippines shall pay a tax of two and one-halfpercent (2 1/2%) on its Gross Philippine Billings, provided, that international carriers doingbusiness in the Philippines may avail of a preferential rate or exemption from the tax hereinimposed on their gross revenue derived from the carriage of persons and their excess baggageon the basis of an applicable tax treaty or international agreement to which the Philippines is asignatory or on the basis of reciprocity such that an international carrier, whose home countrygrants income tax exemption to Philippine carriers, shall likewise be exempt from the taximposed under this provision;

b.) International air carriers doing business in the Philippines on their gross receipts derived fromtransport of cargo from the Philippines to another country shall pay a tax of three percent (3%)of their quarterly gross receipts;

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

While the removal of CCT takes away the primary constraint on foreign carrier’s capacity growthand places the Philippines on an almost level playing field with that of other countries, this maystill be a positive news for the industry as a whole, as it may drive tourism into the Philippines.With Cebu Pacific’s dominant network, the Group can benefit from the government’s utmostsupport for tourism.

Research and Development

The Group incurred minimal amounts for research and development activities, which do notamount to a significant percentage of revenues.

Cost and Effects of Compliance with Environmental Laws

The operations of the Group are subject to various laws enacted for the protection of theenvironment. The Group has complied with the following applicable environmental laws andregulations:

· Presidential Decree No. 1586 (Establishing an Environmental Impact Assessment System)which directs every person, partnership or corporation to obtain an Environmental ComplianceCertificate (ECC) before undertaking or operating a project declared as environmentallycritical by the President of the Philippines. Petro-chemical industries, including refineries andfuel depots, are considered environmentally critical projects for which an ECC is required.The Group has obtained ECCs for the fuel depots it operates and maintains for the storage anddistribution of aviation fuel for its aircraft.

· RA 8749 (The Implementing Rules and Regulations of the Philippine Clean Air Act of 1999)requires operators of aviation fuel storage tanks, which are considered as a possible source ofair pollution, to obtain a Permit to Operate from the applicable regional office of theEnvironment Management Bureau (EMB). The Group’s aviation fuel storage tanks aresubject to and are compliant with this requirement.

· RA 9275 (Implementing Rules and Regulations of the Philippine Clean Water Act of 2004)requires owners or operators of facilities that discharge regulated effluents to secure from theLaguna Lake Development Authority (LLDA) (Luzon area) and/or the applicable regionaloffice of the EMB (Visayas and Mindanao areas) a Discharge Permit, which is the legalauthorization granted by the Department of Energy and Natural Resources for the discharge of

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waste water. The Group’s operations generate waste water and effluents for the disposal ofwhich a Discharge Permit was obtained from the LLDA and the EMB of Region 7 whichenables it to discharge and dispose of liquid waste or water effluent generated in the course ofits operations at specifically designated areas. The Group also contracted the services ofgovernment-licensed and accredited third parties to transport, handle and dispose its wastematerials.

Compliance with the foregoing laws does not have a material effect to the Group’s capitalexpenditures, earnings and competitive position.

On an annual basis, the Group spends approximately P180,000.00 in connection with itscompliance with applicable environmental laws.

Employees

As of December 31, 2015, the Group has 3,779 permanent full time employees, categorized asfollows:

Division: Employees Operations 2,945 Commercial 476 Support Departments(1) 358

3,779

Note:(1) Support Departments include the Office of the General Manager, Corporate Finance and Legal AffairsDepartment, People Department, Administrative Services Department, Procurement Department,Information Systems Department, Comptroller Department, Internal Audit Department and TreasuryDepartment.

The Group anticipates having approximately 4,362 employees by the end of 2016. The increase innumber of employees is related to the Group’s continuous expansion.

The Group’s employees are not unionized, and it has not experienced any labor strikes or workstoppages in the past three years.

Risk

The major business risks facing the Group are as follows:

(1) Cost and Availability of Fuel

The cost and availability of fuel are subject to many economic and political factors and eventsoccurring throughout the world, the most important of which are not within the Group’scontrol. Fuel prices have been subject to high volatility, fluctuating substantially over thepast several years. Any increase in the cost of fuel or any decline in the availability ofadequate supplies of fuel could have a material adverse effect on the Group’s operations andprofitability.

The Group implements various fuel management strategies to manage the risk of rising fuelprices including hedging.

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(2) Competition

The Group faces intense competition on its domestic and international routes, both from otherlow-cost carriers and from full-service carriers. Its existing competitors or new entrants intothe market may undercut its fares in the future, increase capacity on their routes or attempt toconduct low-fare or low-cost airline operations of their own in an effort to increase marketshare, any of which could negatively affect the Group’s business. The Group also facescompetition from ground and sea transportation alternatives, including buses, trains, ferries,boats and cars, which are the principal means of transportation in the Philippines. Videoteleconferencing and other methods of electronic communication, and improvements therein,also add a new dimension of competition to the industry as they, to a certain extent, providelower-cost substitutes for air travel.

The Group focuses on areas of costs, on-time performance, service delivery and scheduling toremain competitive.

(3) Economic Downturn

The deterioration in the financial markets has heralded a recession in many countries, whichled to significant declines in employment, household wealth, consumer demand and lendingand, as a result, has adversely affected economic growth in the Philippines and elsewhere.Since a substantial portion of airline travel, for both business and leisure, is discretionary, theairline industry tends to experience adverse financial results during general economicdownturns. Any deterioration in the economy could negatively affect consumer sentimentand lead to a reduction in demand for flying which could adversely affect the Group’sbusiness. The Group could also experience difficulty accessing the financial markets, whichcould make it more difficult or expensive to obtain funding in the future.

(4) Availability of Debt Financing

The Group’s business is highly capital intensive. It has historically required debt financing toacquire aircraft and expects to incur significant amounts of debt in the future to fund theacquisition of additional aircraft, its operations, other anticipated capital expenditures,working capital requirements and expansion overseas. Failure to obtain additional financingcould adversely affect the Group’s ability to grow its business and its future profitability.

(5) Foreign Exchange and Interest Rate Fluctuations

The Group’s exposure to foreign exchange rate fluctuations is principally in respect of itsU.S. dollar-denominated long-term debt as well as a majority of its operating costs, such asU.S. dollar-denominated purchases of aviation fuel. On the other hand, the Group’sexposure to interest rate fluctuations is relative to debts incurred which have floating interestrates. In such cases, any significant devaluation of the Philippine peso and any significantincreases in interest rates will result to increased obligations that could adversely impact theGroup’s result of operations.

The Group may enter into derivative contracts in the future to hedge foreign exchangeexposure. In addition, the Group may fix the interest rates for a portion of its loans.

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(6) Airport and Air Traffic Control Infrastructure Constraints

The Group relies on operational efficiency to reduce unit costs and provide reliable service.Any delay to the addition of capacity at airports or upgrade of facilities in the Philippinescould affect the Group’s operational efficiency.

(7) Reliance on Third Party Facilities and Service Providers

The Group’s inability to lease, acquire or access airport facilities and service providers onreasonable terms to support its growth or to maintain its current operations would have amaterial adverse effect on our business, prospects, financial condition and results ofoperations. Furthermore, the Group’s reliance on third parties to provide essential services onits behalf gives the Group less control over the efficiency, timeliness and quality of services.

(8) Safety and Security

The Group is exposed to potentially significant losses in the event that any of its aircraft islost or subject to an accident, terrorist incident or other disaster. In addition, any such eventwould give rise to significant costs related to passenger claims, repairs or replacement of adamaged aircraft and its temporary or permanent loss from service. Moreover, aircraftaccidents or incidents, even if fully insured, are likely to create a public perception that theairline is less safe than other airlines, which could significantly reduce its passenger volumesand have a material adverse effect on its business, prospects, financial condition and resultsof operations. Terrorist attacks could also result in decreased seat load factors and yields andcould result in increased costs, such as increased fuel expenses or insurance costs.

The Group is committed to operational safety and security. Its commitment to safety andsecurity is reflected in its rigorous aircraft maintenance program and flight operationsmanuals, intensive flight crew, cabin crew and employee training programs and strictcompliance with applicable regulations regarding aircraft and operational safety and security.

(9) Maintenance Cost and Performance of Maintenance Repair Organizations

As the fleet ages, maintenance and overhaul expenses will increase. Any significant increasein maintenance and overhaul expenses and the inability of maintenance repair organizationsto provide satisfactory service could adversely affect the business.

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

(10) Reliance on Automated Systems and the Internet

The Group depends on automated systems to operate its business, including, among others,its website, its reservation and its departure control systems. Any disruption to its website oronline reservation and telecommunication services could result in losses, increased expensesand could harm its reputation.

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

The Group’s success depends to a significant extent upon the continued services of itsexecutive officers and other key management personnel. The unavailability of any of itsexecutive officers and other key management or failure to recruit suitable or comparable

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replacements could have a material adverse effect on its business, prospects, financialcondition and results of operations.

(12) Retaining and Attracting Qualified Personnel

The Group’s business model requires it to have highly skilled, dedicated and efficient pilots,engineers and other personnel. Its growth plans will require the Group to hire, train andretain a significant number of new employees in the future. However, from time to time, theairline industry has experienced a shortage of skilled personnel, particularly pilots andengineers. The Group competes against full-service airlines which offer wage and benefitpackages that exceed those offered by the Group. The inability of the Group to hire, train andretain qualified employees at a reasonable cost could result in inability to execute its growthstrategy, which would have a material adverse effect on its business, prospects, financialcondition and results of operations. In addition, the Group may find it increasinglychallenging to maintain its corporate culture as it replaces or hires additional personnel.

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

(13) Availability of Insurance

Insurance is fundamental to airline operations. Because of terrorist attacks or other worldevents, certain aviation insurance could become unavailable or available only for reducedamounts of coverage that are insufficient to comply with the levels of coverage required bythe Group’s aircraft lenders and lessors or applicable government regulations. Any inabilityto obtain insurance, on commercially acceptable terms or at all, for the Group’s generaloperations or specific assets would have a material adverse effect on its business, prospects,financial condition and results of operations.

(14) Regulations

The Group has no control over applicable regulations. Changes in the interpretation ofcurrent regulations or the introduction of new laws or regulations could have a materialadverse effect on its business, prospects, financial condition and results of operations.

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

Like other airlines, the Group is subject to delays caused by factors beyond its control,including weather conditions, traffic congestion at airports, air traffic control problems andincreased security measures. In the event that the Group delays or cancels flights for any ofthese reasons, revenues and profits would be reduced and the Group’s reputation would sufferwhich could result in a loss of customers.

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

At present, the Group has a non-unionized workforce. However, in the event the employeesunionize, it could result to demands that may increase operating expenses and adverselyaffect the Group’s profitability. Likewise, disagreements between the labor union andmanagement could result to work slowdowns or stoppages or disruptions which could beharmful to the business.

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(17) Restrictions under the Philippine Constitution and other Laws

The Group is subject to nationality restrictions under the Philippine Constitution and otherlaws, limiting ownership of public utility companies to citizens of the Philippines orcorporations or associations organized under the laws of the Philippines of which at least60% of the capital stock outstanding is owned and held by citizens of the Philippines. Thereis a risk that these ownership restrictions may be breached which could result in therevocation of the Group’s franchise generally and its rights to fly on certain internationalroutes.

(18) Relationship with Third Party Sales Outlets

While part of the Group’s strategy is to increase bookings through the internet, sales throughthird party sales outlets remain an important distribution channel. There is no assurance thatthe Group will be able to maintain favorable relationships with them nor be able to suitablyreplace them. The Group’s revenues could be adversely impacted if third parties who sell itsair services elect to prioritize other airlines.

(19) Outbreaks

Any present or future outbreak of contagious diseases could have a material adverse effect onthe Group’s business, prospects, financial condition and results of operations.

(20) Domestic Concentration

Since the Group’s operations have focused and, at least in the near term, will continue tofocus on air travel in the Philippines, it would be materially and adversely affected by anycircumstances causing a reduction in demand for air transportation in the Philippines,including adverse changes in local economic and political conditions, negative traveladvisories issued by foreign governments, declining interest in the Philippines as a touristdestination, or significant price increases linked to increases in airport access costs and feesimposed on passengers.

(21) Investment Risk

The Group has investment securities, the values of which are dependent on fluctuating marketprices. Any negative movement in the market price of the Group’s investments could affectthe Group’s results of operations.

(22) Information technology (IT) Risk

The Group’s business processes are widely supported by IT. The use of IT involves risks forthe stability of business processes and for the availability, confidentiality and integrity of dataand information. Such risks may be in the form of cyberattacks, disruptions to theavailability of applications, security breaches and other similar incidents. The Groupimplements information security measures and regularly reviews its data protection systemsin order to minimize these risks.

The foregoing risks are not all inclusive. Other risks that may affect the Group’s businessand operations may not be included in the above disclosure.

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Item 2. Properties

As of December 31, 2015, the Group does not own any land. It however owns an office buildingthat serves as its corporate headquarters and training center located at the Domestic Road,Barangay 191, Zone 20, Pasay City. The land on which said office building stands is leased fromthe Manila International Airport Authority (MIAA). The Group also leases its hangar, aircraftparking and other operational space from MIAA. Kindly refer to Notes 13, 18 and 30 of the Notesto Consolidated Financial Statements for the detailed discussions on Properties, Leases, Purchasesand Capital Expenditure Commitments.

Item 3. Legal Proceedings

The Group is subject to law suits and legal actions in the ordinary course of business. The Groupis not a party to, and its properties are not subject of, any material pending legal proceedings thatcould be expected to have a material adverse effect on the Group’s financial position or result ofoperations.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of the yearcovered by this report.

PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matter

Market Information

The principal market for the Group’s common equity is the Philippine Stock Exchange (PSE).Sales prices of the common stock follow:

High LowYear 2015 October to December 2015 P91.00 P79.35 July to September 2015 99.50 81.50 April to June 2015 94.45 79.80 January to March 2015 99.10 79.10

High LowYear 2014 October to December 2014 P91.50 P65.50 July to September 2014 71.00 56.45 April to June 2014 59.40 46.30 January to March 2014 51.80 46.05

As of March 17, 2016, the latest trading date prior to the completion of this annual report, salesprice of the common stock is at P87.00.

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Holders

The number of shareholders of record as of December 31, 2015 was 96. Common sharesoutstanding as of December 31, 2015 were 605,953,330.

List of Top 20 Stockholders of Record

As of December 31, 2015

Number of % to TotalName of Stockholders Shares Held Outstanding1. CPAir Holdings, Inc. 400,816,841 66.15%2. PCD Nominee Corporation (Filipino) 120,177,206 19.83%3. PCD Nominee Corporation (Non-Filipino) 77,875,881 12.85%4. JG Summit Holdings, Inc. 6,595,190 1.09%5. F. Yap Securities, Inc. 225,410 0.04%6. Pablo M. Pagtalunan &/or Francisca P. Pagtalunan 50,000 0.01%7. Elizabeth Yu Gokongwei 40,000 0.01%8. Amon Trading Corporation 38,200 0.01%9. Raul Veloso Del Mar 16,000 0.00%10. Elizabeth Reyes 13,400 0.00%11. Luis Gantioqui Romero 10,300 0.00%12. Roseller A. Mendoza 6,500 0.00%13. Eric Macario Bernabe 5,000 0.00%13. Estevez Villaruz (Esvill), Inc. 5,000 0.00%13. John T. Lao 5,000 0.00%13. Mario H. Liuag &/or Lydia P. Liuag 5,000 0.00%14. Brigida T. Guingona 4,800 0.00%15. Francisco Paulino V. Cayco 4,000 0.00%15. Sally Chua Co 4,000 0.00%15. Vicente Lim Co 4,000 0.00%16. Frederic Francois Favre-Marinet 3,950 0.00%17. Eric Macario Bernabe 3,000 0.00%17. Virginia M. Lopez 3,000 0.00%18. Leodigario S.P. Aquino &/or Danah R. Antonio 2,800 0.00%19. Ofelia R. Blanco 2,000 0.00%19. Antonio F. Lagarejos 2,000 0.00%19. Ramon T. Locsin 2,000 0.00%19. Marita Ann Ong 2,000 0.00%19. Quality Investments & Securities Corp. 2,000 0.00%19. Anthony V. Rosete 2,000 0.00%19. Mario F. Sales 2,000 0.00%20. Manuel M. Domingo 1,800 0.00%Other stockholders 23,052 0.00%Total Outstanding 605,953,330 100.00%

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Dividends

On June 24, 2015, the Group’s Board of Directors (BOD) approved the declaration of a regularcash dividend in the amount of P=1.00 per share and a special cash dividend in the amount ofP=0.50 per share from the unrestricted retained earnings of the Company to all stockholders ofrecord as of July 16, 2015 and payable on August 11, 2015.

On June 26, 2014, the Group’s BOD approved the declaration of a cash dividend in the amount ofP=1.00 per share from the unrestricted retained earnings of the Group to all stockholders of recordas of July 16, 2014 and payable on August 11, 2014.

On June 27, 2013, the Group’s BOD approved the declaration of a regular cash dividend in theamount of P=1.00 per share and a special cash dividend in the amount of P=1.00 per share from theunrestricted retained earnings of the Group to all stockholders of record as of July 17, 2013 andpayable on August 12, 2013.

Recent Sales of Unregistered Securities

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

Item 6. Management's Discussion and Analysis or Plan of Operation

The following discussion should be read in conjunction with the accompanying consolidatedfinancial statements and notes thereto, which form part of this Report. The consolidated financialstatements and notes thereto have been prepared in accordance with the Philippine FinancialReporting Standards (PFRS).

Results of Operations

Year Ended December 31, 2015 Compared with Year Ended December 31, 2014

RevenuesThe Group generated revenues of P56.502 billion for the year ended December 31, 2015, 8.7%higher than the P52.000 billion revenues earned last year. Growth in revenues is accounted for asfollows:

Passenger RevenuesPassenger revenues grew by P2.493 billion or 6.2% to P42.681 billion for the year endedDecember 31, 2015 from P40.188 billion registered in 2014. This increase was primarily due tothe 8.9% growth in passenger volume to 18.4 million from 16.9 million for the year endedDecember 31, 2014 driven by the increased number of flights in 2015. Number of flights went upby 7.6% year on year as the Group added more aircraft to its fleet, particularly, its acquisition ofwide-body Airbus A330 aircraft with a configuration of more than 400 all-economy class seats.The number of aircraft increased from 52 aircraft as of December 31, 2014 to 55 aircraft as ofDecember 31, 2015. The decrease in average fares by 2.5% to P2,323 for the year endedDecember 31, 2015 from P2,382 for the same period last year partially offset the increase inrevenues.

Cargo RevenuesCargo revenues grew by P315.053 million or 10.0% to P3.461 billion for the year endedDecember 31, 2015 from P3.146 billion for the year ended December 31, 2014 following theincrease in the volume of cargo transported in 2015.

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Ancillary RevenuesAncillary revenues went up by P1.694 billion or 19.6% to P10.359 billion for the year endedDecember 31, 2015 from P8.665 billion posted last year consequent to the 8.9% increase inpassenger traffic and 9.8% increase in ancillary revenue per passenger. Improved online bookings,together with a wider range of ancillary revenue products and services, also contributed to theincrease.

ExpensesThe Group incurred operating expenses of P46.801 billion for the year ended December 31, 2015,slightly lower by 2.2% than the P47.843 billion operating expenses recorded for the year endedDecember 31, 2014. The decrease is attributable to the substantial reduction in fuel costs incurredfor the year ended December 31, 2015 compared to the same period last year due to the sharpdecline in global jet fuel prices. The drop in fuel costs, however, was offset by the increase inmajority of the Group’s operating expenses driven by its expanded long haul operations, growth inseat capacity from the acquisition of new aircraft and the weakening of the Philippine peso againstthe U.S. dollar as referenced by the depreciation of the Philippine peso to an average of P45.51 perU.S. dollar for the year ended December 31, 2015 from an average of P44.40 per U.S. dollar lastyear based on the Philippine Dealing and Exchange Corporation (PDEx) weighted average rates.

Flying OperationsFlying operations expenses decreased by P5.236 billion or 20.0% to P20.916 billion for the yearended December 31, 2015 from P26.152 billion incurred in the same period last year. This isprimarily attributable to the 23.9% decline in aviation fuel expenses to P17.659 billion for the yearended December 31, 2015 from P23.210 billion for the same period last year consequent to thesignificant drop in jet fuel prices as referenced by the reduction in the average published fuelMOPS price of U.S. $64.79 per barrel in the twelve months ended December 31, 2015 fromU.S. $112.48 per barrel in the same period last year. The drop in fuel prices, however, waspartially offset by the weakening of the Philippine peso against the U.S. dollar as referenced bythe depreciation of the Philippine peso to an average of P45.51 per U.S. dollar for the year endedDecember 31, 2015 from an average of P44.40 per U.S. dollar last year based on the PhilippineDealing and Exchange Corporation (PDEx) weighted average rates.

Aircraft and Traffic ServicingAircraft and traffic servicing expenses increased by P1.042 billion or 21.7% to P5.847 billion forthe year ended December 31, 2015 from P4.805 billion registered in 2014 as a result of the overallincrease in the number of flights flown in 2015. Higher expenses were particularly attributable tomore international flights operated for which airport and ground handling charges were generallyhigher compared to domestic flights. International flights increased by 6.0% year on year with thelaunch of new destinations namely Doha, Qatar and Fukuoka, Japan, introduction of new routeslike Cebu to Taipei and Davao to Singapore and increased frequencies of existing routes. Theweakening of the Philippine peso against the U.S. dollar as referenced by the depreciation of thePhilippine peso to an average of P45.51 per U.S. dollar for the year ended December 31, 2015from an average of P44.40 per U.S. dollar last year also contributed to the increase internationalairport charges.

Depreciation and AmortizationDepreciation and amortization expenses grew by P830.019 million or 19.4% to P5.112 billion forthe year ended December 31, 2015 from P4.282 billion for the year ended December 31, 2014.Depreciation and amortization expenses increased consequent to the arrival of four Airbus A320aircraft during the year.

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Repairs and MaintenanceRepairs and maintenance expenses went up by P808.041 million or 18.2% to P5.240 billion for theyear ended December 31, 2015 from P4.432 billion posted last year. Increase was driven by theoverall increase in the number of flights coupled with the weakening of the Philippine peso againstthe U.S. dollar as referenced by the depreciation of the Philippine peso to an average ofP45.51 per U.S. dollar for the year ended December 31, 2015 from an average of P44.40 per U.S.dollar in 2014. The acquisition of four Airbus A320 aircraft and the delivery of one Airbus A330aircraft in 2015 also contributed to the increase in repairs and maintenance expenses.

Aircraft and Engine LeaseAircraft and engine lease expenses moved up by P521.115 million or 14.9% to P4.025 billion forthe year ended December 31, 2015 from P3.503 billion charged for the year endedDecember 31, 2014. Increase in aircraft lease was due to the delivery of one Airbus A330 aircraftunder operating lease in 2015 coupled with the effect of the depreciation of the Philippine pesoagainst the U.S. dollar during the current period.

Reservation and SalesReservation and sales expenses increased by P471.469 million or 21.9% to P2.625 billion for theyear ended December 31, 2015 from P2.154 billion registered last year. This was mainly due tothe increase in commission expenses and online bookings relative to the overall growth inpassenger volume year on year.

General and AdministrativeGeneral and administrative expenses grew by P255.331 million or 19.7% to P1.552 billion for theyear ended December 31, 2015 from P1.297 billion incurred in 2014. Growth in general andadministrative expenses was primarily attributable to the increased flight and passenger activity in2015.

Passenger ServicePassenger service expenses went up by P267.006 million or 21.9% to P1.484 billion for the yearended December 31, 2015 from P1.217 billion posted for the year ended December 31, 2014.This was primarily caused by additional cabin crew hired for the Airbus A320 and A330 aircraftdelivered in 2015 and the increase in passenger food and supplies from pre-ordered meals beingoffered in international flights.

Operating IncomeAs a result of the foregoing, the Group finished with an operating income of P9.700 billion for theyear ended December 31, 2015, a 133.3% improvement compared to the P4.157 billion operatingincome earned last year.

Other Income (Expenses)

Interest IncomeInterest income increased by P3.080 million or 3.9% to P83.007 million for the year endedDecember 31, 2015 from P79.927 million recorded in 2014 due to the increase in the balance ofcash in bank and short-term placements year on year and higher interest rates.

Hedging Gains (Losses)The Group incurred a hedging loss of P2.931 billion for the year ended December 31, 2015, anincrease of 26.7 % from hedging loss of P2.314 billion in the same period last year as a result oflower mark-to-market valuation on fuel hedging positions consequent to the material decline infuel prices in 2015.

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Foreign Exchange LossesNet foreign exchange losses of P2.205 billion for the year ended December 31, 2015 resulted fromthe weakening of the Philippine peso against the U.S. dollar as referenced by the depreciation ofthe Philippine peso to P47.06 per U.S. dollar for the year ended December 31, 2015 from P44.72per U.S. dollar for the twelve months ended December 31, 2014 based on PDEx closing rates. TheGroup’s major exposure to foreign exchange rate fluctuations is in respect to U.S. dollardenominated long-term debt incurred in connection with aircraft acquisitions.

Equity in Net Income of Joint VentureThe Group had equity in net income of joint ventures of P35.418 million for the twelve monthsended December 31, 2015, P60.908 million or 63.2% lower than the P96.326 million equity in netincome of joint venture earned in the same period last year. The decrease was primarily due to thenet loss from current operations incurred by Philippine Academy for Aviation Training, Inc.(PAAT) and SIA Engineering (Philippines) Corporation (SIAEP) in 2015.

Interest ExpenseInterest expense increased by P59.868 million or 5.9% to P1.073 billion for the year endedDecember 31, 2015 from P1.013 billion registered in 2014. Higher interest expense incurredduring the year was due to the additional loans availed to finance the acquisition of four AirbusA320 aircraft in 2015 and by the effect of the weakening of the Philippine peso against the U.S.dollar during the current period.

Income before Income TaxAs a result of the foregoing, the Group recorded income before income tax of P3.529 billion forthe year ended December 31, 2015, a growth of 301.6% or P2.650 billion higher than theP878.636 million income before income tax posted for the year ended December 31, 2014.

Provision for Income TaxBenefit from income tax for the year ended December 31, 2015 amounted to P858.431 million, ofwhich, P125.929 million pertains to current income tax recognized as a result of the taxableincome in 2015. This was offset by the benefit from deferred income tax of P984.360 millionresulting from the recognition of deferred tax assets on future deductible amounts during theperiod.

Net IncomeNet income for the year ended December 31, 2015 amounted to P4.387 billion, an increase of414.0% from the P853.498 million net income earned in 2014.


RevenuesThe Group generated revenues of P52.000 billion for the year ended December 31, 2014, 26.8%higher than the P=41.004 billion revenues earned last year. Growth in revenues is accounted for asfollows:

Passenger RevenuesPassenger revenues grew by P8.525 billion or 26.9% to P40.188 billion for the year endedDecember 31, 2014 from P31.663 billion registered in 2013. This increase was primarily due tothe 17.5% growth in passenger volume to 16.9 million from 14.4 million for the year endedDecember 31, 2013 driven by the increased number of flights in 2014. Number of flights went upby 6.9% year on year as the Group added more aircraft to its fleet, particularly, its acquisition of

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wide-body Airbus A330 aircraft with a configuration of more than 400 all-economy class seats.The number of aircraft increased from 48 aircraft as of December 31, 2013 to 52 aircraft as ofDecember 31, 2014, which includes 3 brand new Airbus A330 aircraft delivered this year.Increase in average fares by 8.0% to P2,382 in 2014 from P2,206 in 2013 also contributed to theimprovement of revenues.

Cargo RevenuesCargo revenues grew by P536.638 million or 20.6% to P3.146 billion for the year endedDecember 31, 2014 from P2.609 billion for the year ended December 31, 2013 following theincrease in the volume of cargo transported in 2014.

Ancillary RevenuesAncillary revenues went up by P1.934 billion or 28.7% to P8.665 billion for the year endedDecember 31, 2014 from P6.732 billion posted last year consequent to the 17.5% increase inpassenger traffic and 9.5% increase in ancillary revenue per passenger. The Group beganunbundling ancillary products and services in 2011 and significant improvements in ancillaryrevenues were noted since then. Improved online bookings, together with a wider range ofancillary revenue products and services, also contributed to the increase.

ExpensesThe Group incurred operating expenses of P47.843 billion for the year ended December 31, 2014,23.9% higher than the P38.600 billion operating expenses recorded for the year endedDecember 31, 2013 as a result of its expanded long haul operations and overall growth in seatcapacity from the acquisition of new aircraft. The weakening of the Philippine peso against theU.S. dollar as referenced by the depreciation of the Philippine peso to an average of P44.40 perU.S. dollar for the year ended December 31, 2014 from an average of P42.46 per U.S. dollar lastyear based on the Philippine Dealing and Exchange Corporation (PDEx) weighted average ratescontributed to said increase. Operating expenses also went up as a result of the following:

Flying OperationsFlying operations expenses moved up by P4.432 billion or 20.4% to P26.152 billion for the yearended December 31, 2014 from P21.721 billion charged in 2013. Aviation fuel expenses grew by18.9% to P23.210 billion from P19.523 billion for the year ended December 31, 2013 consequentto the higher volume of fuel consumed as a result of the increased number of flights year on yearand increased block hours from the launch of long haul flights to Dubai in October 2013, toKuwait and Sydney in September 2014 and to Riyadh and Dammam in October 2014. Theweakening of the Philippine peso against the U.S. dollar as referenced by the depreciation of thePhilippine peso to an average of P44.40 per U.S. dollar for the year ended December 31, 2014from an average of P42.46 per U.S. dollar last year based on the Philippine Dealing and ExchangeCorporation (PDEx) weighted average rates also contributed to the increase. Rise in aviation fuelexpenses, however, was partially offset by the reduction in aviation fuel prices as referenced bythe decrease in the average published fuel MOPS price of U.S. $112.48 per barrel in the twelvemonths ended December 31, 2014 from U.S. $122.97 average per barrel in the same period lastyear.

Aircraft and Traffic ServicingAircraft and traffic servicing expenses increased by P1.202 billion or 33.4% to P4.805 billion forthe year ended December 31, 2014 from P3.603 billion registered in 2013 as a result of the overallincrease in the number of flights flown in 2014. Higher expenses were particularly attributable tomore international flights operated for which airport and ground handling charges were generallyhigher compared to domestic flights. International flights increased by 7.6% year on year which isattributable to the expansion of long haul operations to Kuwait, Sydney, Riyadh and Dammam in

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2014 as well as new short haul flights to Tokyo (Narita) and Nagoya which commenced on March2014. The effect of the depreciation of the Philippine peso against the U.S. dollar at P44.40 perU.S. dollar for the year ended December 31, 2014 from an average of P42.46 per U.S. dollar lastyear also contributed to the increase international airport charges.

Depreciation and AmortizationDepreciation and amortization expenses grew by P826.884 million or 23.9% to P4.282 billion forthe year ended December 31, 2014 from P3.455 billion for the year ended December 31, 2013.Depreciation and amortization expenses increased consequent to the arrival of five Airbus A320aircraft during the year.

Repairs and MaintenanceRepairs and maintenance expenses went up by P606.455 million or 15.9% to P4.432 billion for theyear ended December 31, 2014 from P3.826 billion posted last year. Increase was driven by theoverall increase in the number of flights coupled with the weakening of the Philippine peso againstthe U.S. dollar as referenced by the depreciation of the Philippine peso to an average of P44.40 perU.S. dollar for the year ended December 31, 2014 from an average of P42.46 per U.S. dollar in2013. The acquisition of five Airbus A320 aircraft and the delivery of three Airbus A330 aircraftin 2014 also contributed to the increase in repairs and maintenance expenses.

Aircraft and Engine LeaseAircraft and engine lease expenses moved up by P1.189 billion or 51.3% to P3.503 billion for theyear ended December 31, 2014 from P2.315 billion charged for the year endedDecember 31, 2013. Increase in aircraft lease was due to the delivery of three Airbus A330 aircraftunder operating lease in 2014 coupled with the effect of the depreciation of the Philippine pesoagainst the U.S. dollar during the current period.



Passenger ServicePassenger service expenses went up by P310.683 million or 34.3% to P1.217 billion for the yearended December 31, 2014 from P906.058 million posted for the year ended December 31, 2013.This was primarily caused by additional cabin crew hired for the Airbus A320 and A330 aircraftdelivered in 2014 and the increase in passenger food and supplies from pre-ordered meals beingoffered in international flights.

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Operating IncomeAs a result of the foregoing, the Group finished with an operating income of P4.157 billion for theyear ended December 31, 2014, a 72.9% improvement compared to the P2.404 billion operatingincome earned last year.

Other Income (Expenses)

Interest IncomeInterest income dropped by P139.692 million or 63.6% to P79.927 million for the year endedDecember 31, 2014 from P219.619 million recorded in 2013 due to the decrease in the balance ofcash in bank and short-term placements year on year and lower interest rates.

Hedging Gains (Losses)The Group incurred a hedging loss of P2.314 billion for the year ended December 31, 2014compared to a hedging gain of P290.325 million in the same period last year mainly due to losseson fuel hedging positions consequent to the decrease in fuel prices in 2014 partially offset byforeign exchange hedging gains.

Foreign Exchange LossesNet foreign exchange losses of P127.471 million for the year ended December 31, 2014 resultedfrom the weakening of the Philippine peso against the U.S. dollar as referenced by the slightdepreciation of the Philippine peso to P44.72 per U.S. dollar for the twelve months endedDecember 31, 2014 from P44.40 per U.S. dollar for the twelve months ended December 31, 2013.The Group’s major exposure to foreign exchange rate fluctuations is in respect of U.S. dollardenominated long-term debt incurred in connection with aircraft acquisitions.

Equity in Net Income of Joint VentureThe Group had equity in net income of joint venture of P96.326 million for the year endedDecember 31, 2014, P23.034 million or 19.3% lower than the P119.360 million equity in netincome of joint venture earned last year. The decrease was primarily due to the net loss fromcurrent operations incurred by SIA Engineering (Philippines) Corporation (SIAEP) in 2014.

Interest ExpenseInterest expense increased by P147.740 million or 17.1% to P1.013 billion for the year endedDecember 31, 2014 from P865.501 million registered in 2013. Higher interest expense incurredduring the year was due to the additional loans availed to finance the acquisition of five AirbusA320 aircraft in 2014 and by the effect of the weakening of the Philippine peso against the U.S.dollar during the current period.

Income before Income TaxAs a result of the foregoing, the Group recorded income before income tax of P878.636 millionfor the year ended December 31, 2014, a growth of 735.1% or P773.428 million higher than theP105.208 million income before income tax posted for the year ended December 31, 2013.

Provision for Income TaxProvision for income tax for the year ended December 31, 2014 amounted to P25.138 million, ofwhich, P61.320 million pertains to current income tax recognized as a result of the taxable incomein 2014. This was offset by the benefit from deferred income tax of P36.182 million resulting fromthe recognition of deferred tax assets on future deductible amounts during the period.

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Net IncomeNet income for the year ended December 31, 2014 amounted to P853.498 million, an increase of66.7% from the P511.946 million net income earned in 2013.


RevenuesThe Group generated revenues of P41.004 billion for the year ended December 31, 2013, 8.2%higher than the P=37.904 billion revenues earned last year. Growth in revenues is accounted for asfollows:

Passenger RevenuesPassenger revenues increased by P2.083 billion or 7.0% to P31.663 billion for the year endedDecember 31, 2013 from P29.579 billion registered in 2012. This increase was primarily due tothe 8.3% growth in passenger volume to 14.4 million from 13.3 million for the year endedDecember 31, 2012 driven by the increased number of flights in 2013. Number of flights went upby 6.0% year on year primarily as a result of the increase in the number of aircraft operated to48 aircraft as of December 31, 2013 from 41 aircraft as of end 2012. Increase in revenues,however, was partially offset by the reduction in average fares by 1.1% to P2,206 from P2,232 in2012.

Cargo RevenuesCargo revenues grew by P228.506 million or 9.6% to P2.609 billion for the year endedDecember 31, 2013 from P2.381 billion for the year ended December 31, 2012 following theincrease in the volume and average freight charges of cargo transported in 2013.

Ancillary RevenuesAncillary revenues went up by P787.672 million or 13.3% to P6.732 billion for the year endedDecember 31, 2013 from P5.944 billion posted last year. The Group began unbundling ancillaryproducts and services in 2011 and significant improvements in ancillary revenues were noted sincethen. Improved online bookings also contributed to the increase. Online bookings accounted for57.4% of the total tickets sold during the year compared to 51.0% in 2012.

ExpensesThe Group incurred operating expenses of P38.600 billion for the year ended December 31, 2013,9.5% higher than the P35.241 billion operating expenses recorded for the year endedDecember 31, 2012. The slight weakening of the Philippine peso against the U.S. dollar asreferenced by the depreciation of the Philippine peso to an average of P42.46 per U.S. dollar forthe year ended December 31, 2013 from an average of P42.22 per U.S. dollar last year based onthe Philippine Dealing and Exchange Corporation (PDEx) weighted average rates contributed tosaid increase. Operating expenses also increased as a result of the following:

Flying OperationsFlying operations expenses moved up by P1.704 billion or 8.5% to P21.721 billion for the yearended December 31, 2013 from P20.017 billion charged in 2012. Aviation fuel expenses grew by11.2% to P19.523 billion from P17.562 billion for the year ended December 31, 2012 consequentto the increase in the volume of fuel consumed as a result of the increased number of flights yearon year. Rise in aviation fuel expenses, however, was partially offset by the reduction in aviationfuel prices as referenced by the decrease in the average published fuel MOPS price of U.S.$122.97 per barrel in the twelve months ended December 31, 2013 from U.S. $126.83 average perbarrel in the same period last year. Increase in flying operations expenses was also offset by

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decreased flight deck expenses mainly from lower pilot training costs with the establishment ofPAAT last December 2012.

Aircraft and Traffic ServicingAircraft and traffic servicing expenses increased by P169.795 million or 4.9% to P3.603 billion forthe year ended December 31, 2013 from P3.433 billion registered in 2012 as a result of the overallincrease in the number of flights flown in 2013. Higher expenses were particularly attributable tomore international flights operated for which airport and ground handling charges were generallyhigher compared to domestic flights. International flights increased by 6.7% year on year.

Depreciation and AmortizationDepreciation and amortization expenses grew by P686.777 million or 24.8% to P3.455 billion forthe year ended December 31, 2013 from P2.768 billion for the year ended December 31, 2012.Depreciation and amortization expenses increased consequent to the arrival of five Airbus A320aircraft during the year.

Repairs and MaintenanceRepairs and maintenance expenses went up by P364.286 million or 10.5% to P3.826 billion for theyear ended December 31, 2013 from P3.462 billion posted last year. Increase was driven by theoverall increase in the number of flights coupled with the slight weakening of the Philippine pesoagainst the U.S. dollar as referenced by the depreciation of the Philippine peso to an average ofP42.46 per U.S. dollar for the year ended December 31, 2013 from an average of P42.22 per U.S.dollar in 2012. The acquisition of five Airbus A320 aircraft and two Airbus A330 aircraft in 2013also contributed to the increase in repairs and maintenance expenses.

Aircraft and Engine LeaseAircraft and engine lease expenses moved up by P280.905 million or 13.8% to P2.315 billion forthe year ended December 31, 2013 from P2.034 billion charged for the year endedDecember 31, 2012. Increase in aircraft and engine lease expenses was due to the lease of twoAirbus A330 aircraft in 2013 and by the effect of the slight depreciation of the Philippine pesoagainst the U.S. dollar during the current period.



Passenger ServicePassenger service expenses went up by P80.577 million or 9.8% to P906.058 million for the yearended December 31, 2013 from P825.480 million posted for the year ended December 31, 2012.Additional cabin crew hired for the five Airbus A320 and two A330 aircraft acquired during 2013mainly caused the increase. Increase in expenses was partially offset by lower premiums forpassenger liability insurance.

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Operating IncomeAs a result of the foregoing, the Group finished with an operating income of P2.404 billion for theyear ended December 31, 2013, 9.7% lower than the P2.663 billion operating income earned lastyear.

Other Income (Expenses)Interest IncomeInterest income dropped by P196.151 million or 47.2% to P219.619 million for the year endedDecember 31, 2013 from P415.771 million recorded in 2012 due to the decrease in the balance ofcash in bank and short-term placements year on year and lower interest rates.

Hedging Gains (Losses)Fuel hedging gains for the year ended December 31, 2013 increased to P290.325 million fromP258.544 million earned in the same period last year as a result of higher mark-to-marketvaluation on fuel hedging positions consequent to the increase in fuel prices by end of 2013.

Foreign Exchange LossesNet foreign exchange losses of P2.063 billion for the year ended December 31, 2013 resulted fromthe weakening of the Philippine peso against the U.S. dollar as referenced by the depreciation ofthe Philippine peso to P44.40 per U.S. dollar for the twelve months ended December 31, 2013from P41.05 per U.S. dollar for the twelve months ended December 31, 2012. The Group’s majorexposure to foreign exchange rate fluctuations is in respect of U.S. dollar denominated long-termdebt incurred in connection with aircraft acquisitions.

Equity in Net Income of Joint VentureThe Group had equity in net income of joint venture of P119.360 million for the year endedDecember 31, 2013, P64.976 million or 119.5% higher than the P54.384 million equity in netincome of joint venture earned last year. Increase in this account was due to the increase in netincome from the current operations of Aviation Partnership (Philippines) Corporation (A-plus) andSIA Engineering (Philippines) Corporation (SIAEP) in 2013. The Group also recognized its sharein the net income from current operations of PAAT in 2013.

Interest ExpenseInterest expense increased by P132.910 million or 18.1% to P865.501 million for the year endedDecember 31, 2013 from P732.592 million registered in 2012. Increase was due to higher interestexpense incurred brought by the additional loans availed to finance the acquisition of five AirbusA320 aircraft in 2013 and by the effect of the slight depreciation of the Philippine peso against theU.S. dollar during the current period.

Income before Income TaxAs a result of the foregoing, the Group recorded income before income tax of P105.208 millionfor the year ended December 31, 2013, lower by 97.3% or P3.765 billion than the P3.870 billionincome before income tax posted for the year ended December 31, 2012.

Benefit from Income TaxBenefit from income tax for the year ended December 31, 2013 amounted to P406.739 million, ofwhich, P45.519 million pertains to current income tax recognized as a result of the taxable incomein 2013. Benefit from deferred income tax amounted to P452.257 million resulting from therecognition of deferred tax assets on future deductible amounts during the period.

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Net IncomeNet income for the year ended December 31, 2013 amounted to P511.946 million, a decline of85.7% from the P3.572 billion net income earned in 2012.

Financial Position

December 31, 2015 versus December 31, 2014

As of December 31, 2015, the Group’s consolidated balance sheet remains solid, with net debt toequity of 1.28 [total debt after deducting cash and cash equivalents (including financial assetsheld-for-trading at fair value and available-for-sale assets) divided by total equity]. Consolidatedassets grew to P84.829 billion from P76.062 billion as of December 31, 2014 as the Group addedaircraft to its fleet. Equity grew to P24.955 billion from P 21.539 billion in the prior year whilebook value per share amounted to P41.18 as of December 31, 2015 from P35.55 as ofDecember 31, 2014.

The Group’s cash requirements have been mainly sourced through cash flow from operations andfrom borrowings. Net cash from operating activities amounted to P12.395 billion. As ofDecember 31, 2015, net cash used in investing activities amounted to P11.805 billion whichmainly pertains to payments in connection with the purchase of aircraft. Net cash from financingactivities amounted to P39.672 million. Net cash from financing activities comprised of proceedsfrom long term debt net of repayments and the payment of cash dividends to the Group’sstockholders.

As of December 31, 2015, except as otherwise disclosed in the financial statements and to the bestof the Group’s knowledge and belief, there are no events that will trigger direct or contingentfinancial obligation that is material to the Group, including any default or acceleration of anobligation.

Material Changes in the 2015 Financial Statements(Increase/Decrease of 5% or more versus 2014)

Material changes in the Statements of Consolidated Comprehensive Income were explained indetail in the management’s discussion and analysis or plan of operations stated above.

Consolidated Statements of Financial Position - December 31, 2015 versus December 31, 2014

18.7% increase in Cash and Cash EquivalentsDue to collections as a result of the expansion of the Group’s operations as evidenced by 8.7%growth in revenues.

6.7% decrease in ReceivablesDue to collection of various trade receivables and settlement receivable from Roar II.

35.3% increase in Expendable Parts, Fuel, Materials and SuppliesDue to a higher level of fuel inventory with the opening of a new depot and increased volume ofmaterials and supplies relative to the larger fleet size during the period.

18.8% increase in Other Current AssetsDue mainly to collateral deposits provided to counterparties for fuel hedging transactions.

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10.5% increase in Property and EquipmentDue to the acquisition of four Airbus A320 aircraft during the period.

11.1% decrease in Investment in Joint VenturesDue to the share in net loss of PAAT and SIAEP incurred during the period.

100% increase in Deferred Tax Assets-netDue mainly to the increase in future deductible amounts on unused net operating loss carryover(NOLCO) and on unrealized foreign exchange and hedging losses.

11.2% decrease in Other Noncurrent AssetsDue to return of refundable deposits.

8.8% increase in Accounts Payable and Other Accrued LiabilitiesDue to increase in trade payables and accruals of certain operating expenses as a result of theincreased flight and passenger activity in the twelve months ended December 31, 2015.

4.5% decrease in Due to Related PartiesDue to payments made during the period.

9.4% increase in Unearned Transportation RevenueDue to the increase in sale of passenger travel services.

8.1% increase in Long-Term Debt (including Current Portion)Due to additional loans availed to finance the purchase of the four Airbus A320 aircraft acquiredduring the year partially offset by the repayment of certain outstanding long-term debt inaccordance with the repayment schedule.

8.1% increase in Financial Liabilities at fair value through profit or lossDue to lower mark-to-market valuation of fuel derivative contracts.

243.6% increase in Income Tax PayableDue to higher taxable income in 2015

100% decrease in Deferred Tax Liabilities-netNet balance for the current year resulted to a deferred tax asset.

84.6% increase in Other Noncurrent LiabilitiesDue to the accretion of asset retirement obligation, accrual for pension liability made during theperiod and recognition of deferred revenues from unredeemed customer loyalty points.

46.9% increase in Other Comprehensive Income (Loss)Due to the recognition of actuarial loss on pension liability during the year.

26.4% increase in Retained EarningsDue to net income during the period net of dividends declared and paid to stockholders.

Fuel prices have significantly decreased during in 2015 and this will have an impact on theGroup’s operating income.

For 2015, there are no significant element of income that did not arise from the Group’scontinuing operations.

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The Group generally records higher domestic revenue in January, March, April, May andDecember as festivals and school holidays in the Philippines increase the Group’s seat load factorsin these periods. Accordingly, the Group’s revenue is relatively lower in July to September due todecreased domestic travel during these months. Any prolonged disruption in the Group’soperations during such peak periods could materially affect its financial condition and/or results ofoperations.

In addition, the Group has capital expenditure commitments which principally relate to theacquisition of aircraft. Kindly refer to Note 30 of the Notes to Consolidated Financial Statementsfor the detailed discussion on Purchase and Capital Expenditure Commitments.


As of December 31, 2014, the Group’s consolidated balance sheet remains solid, with net debt toequity of 1.39 [total debt after deducting cash and cash equivalents (including financial assetsheld-for-trading at fair value and available-for-sale assets) divided by total equity]. Consolidatedassets grew to P76.062 billion from P67.527 billion as of December 31, 2013 as the Group addedaircraft to its fleet. Equity grew to P21.539 billion from P21.082 billion in the prior year whilebook value per share amounted to P35.55 as of December 31, 2014 from P34.79 as ofDecember 31, 2013.

The Group’s cash requirements have been mainly sourced through cash flow from operations andfrom borrowings. Net cash from operating activities amounted to P7.575 billion. As of

December 31, 2014, net cash used in investing activities amounted to P13.605 billion whichincluded payments in connection with the purchase of aircraft. Net cash from financing activitiesamounted to P3.695 billion. Net cash from financing activities comprised of proceeds from longterm debt net of repayments and the payment of cash dividends to the Group’s stockholders.





34.5% decrease in Cash and Cash EquivalentsDue to payments made in connection with the acquisition of Airbus A320 aircraft, repayment ofcertain long-term debt and distribution of cash dividends to the Group’s stockholders.

100.0% decrease in Financial Assets at FVPLDue to lower mark-to-market valuation of fuel derivative contracts which resulted to a net liabilityposition in 2014.

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2.5% increase in ReceivablesDue to increased trade receivables relative to the growth in revenues.

4.5% decrease in Expendable Parts, Fuel, Materials and SuppliesDue to lower cost of fuel inventory.

57.7% increase in Other Current AssetsDue mainly to collateral deposits provided to counterparties for fuel hedging transactions.

15.6% increase in Property and EquipmentDue to the acquisition of five Airbus A320 aircraft during the period.

2.2% increase in Investment in Joint VenturesDue to the share in the net income of A-plus and PAAT during the period offset by the share in thenet loss of SIAEP and dividends received from A-plus.

100.0% decrease in Deferred Tax Assets-netNet balance for the current year resulted to a deferred tax liability.

100.0% increase in GoodwillDue to goodwill arising from the acquisition of TAP.

194.5% increase in Other Noncurrent AssetsDue mainly to other assets representing costs to establish brand and market opportunities underthe strategic alliance with TAH.


10.6% decrease in Due to Related PartiesDue to payments made during the period.

19.4% increase in Unearned Transportation RevenueDue to the increase in sale of passenger travel services.

100.0% increase in Financial Liabilities at fair value through profit or lossDue to decline in value of certain fuel derivative financial instruments consequent to the decreasein fuel prices in 2014.

15.1% increase in Long-Term Debt (including Current Portion)Due to additional loans availed to finance the purchase of the five Airbus A320 aircraft acquiredduring the year partially offset by the repayment of certain outstanding long-term debt inaccordance with the repayment schedule.

44.9% decrease in Income Tax PayableDue to income tax payments made from first to third quarters of 2014 and application of creditablewithholding tax on remaining tax due.100.0% increase in Deferred Tax Liabilities-netDue mainly to the recognition of future taxable amounts on double depreciation and actuarialgains on pension liability.

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51.3% decrease in Other Noncurrent LiabilitiesDue to payments made for aircraft restorations during the year applied against asset retirementobligation (ARO) liability and decrease in pension liability.

61.4% decrease in Other Comprehensive Income (Loss)Due to recognition of actuarial gains during the year as other comprehensive income.

1.9% increase in Retained EarningsDue to net income during the period net of dividends declared and paid to stockholders.

Fuel prices have significantly decreased during the last quarter of 2014 and this will have animpact on the Group’s operating income.





As of December 31, 2013, the Group’s consolidated balance sheet remains solid, with net debt toequity of 1.11 [total debt after deducting cash and cash equivalents (including financial assetsheld-for-trading at fair value and available-for-sale assets) divided by total equity]. Consolidatedassets grew to P67.527 billion from P61.414 billion as of December 31, 2012 as the Group addedaircraft to its fleet. Equity declined to P=21.082 billion from P=22.037 billion in prior year whilebook value per share amounted to P=34.79 as of December 31, 2013 from P=36.37 as ofDecember 31, 2012.

The Group’s cash requirements have been mainly sourced through cash flow from operations andfrom borrowings. Net cash from operating activities amounted to P4.216 billion. As ofDecember 31, 2013, net cash used in investing activities amounted to P12.296 billion whichincluded payments in connection with the purchase of aircraft. Net cash from financing activitiesamounted to P3.203 billion. Net cash from financing activities mainly comprised of proceedsfrom long term debt net of repayments and the payment of cash dividends to the Group’sstockholders.

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43.6% decrease in Cash and Cash EquivalentsDue to payments made in connection with the acquisition of Airbus A320 and A330 aircraft,repayment of certain long-term debt and distribution of cash dividends to the Group’sstockholders.

62.1% increase in Financial Assets at FVPLDue to higher mark-to-market valuation of fuel derivative contracts in 2013.

83.9% increase in ReceivablesDue to increased trade receivables relative to the growth in revenues and due to receivable fromPAAT for an Airbus A320 simulator in 2013.61.3% increase in Expendable Parts, Fuel, Materials and SuppliesDue to increased volume of materials and supplies inventory relative to the increased number offlights and larger fleet size during the period.

49.2% increase in Other Current AssetsDue to advances to suppliers for purchases of spare engines and engine parts to be used in therestoration of certain leased aircraft to its original condition at the end of the contract period.

18.6% increase in Property and EquipmentDue to the acquisition of five Airbus A320 aircraft and two spare engines, one each for A320 andA330 aircraft during the period.

13.1% increase in Investment in Joint VenturesDue mainly to the share in the net income of A-plus, SIAEP and PAAT during the period.

100.0% increase in Deferred Tax Assets-netDue mainly to the increase in future deductible amounts on unused net operating loss carryover(NOLCO) coupled with the decrease in future taxable amount on unrealized foreign exchange gainduring the period.

76.9% increase in Other Noncurrent AssetsDue to the payment of security deposit for two A330 aircraft partially offset by the application ofcreditable withholding tax on income tax due for the period.


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10.7% decrease in Unearned Transportation RevenueDue to lesser forward bookings as of December 31, 2013 compared to December 31, 2012.28.3% increase in Long-Term Debt (including Current Portion)Due to additional loans availed to finance the purchase of the five Airbus A320 aircraft acquiredduring the year partially offset by the repayment of certain outstanding long-term debt inaccordance with the repayment schedule.

100.0% increase in Income Tax PayableDue to income tax due during the period in excess of available creditable withholding tax.

100.0% decrease in Deferred Tax Liabilities- netNet balance for the current year resulted to a deferred tax asset.

11.3% increase in Other Noncurrent LiabilitiesDue to additional accrual for ARO liability for two Airbus A330 under operating lease andincrease in pension liability for current year expense and actuarial losses.

297.1% increase in Other Comprehensive Income (Loss)Due to recognition of actuarial losses on pension liability as other comprehensive income (loss).

5.1% decrease in Retained EarningsDue to cash dividends distributed to stockholders partially offset by the net income during theyear.Fuel prices have significantly increased in 2013 and this will have an impact on the Group’soperating income.




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Key Performance Indicators

The Group sets certain performance measures to gauge its operating performance periodically andto assess its overall state of corporate health. Listed below are major performance measures,which the Group has identified as reliable performance indicators. Analyses are employed bycomparisons and measurements based on the financial data as of December 31, 2014 and 2013 andfor the years ended December 31, 2015 and 2014:

Key Financial Indicators 2015 2014Total Revenue P56.502 billion P52.000 billionPre-tax Core Net Income P8.746 billion P3.320 billionEBITDAR Margin 34.9% 23.9%Cost per Available Seat Kilometer (ASK) (Php) 1.88 2.33Cost per ASK (U.S. cents) 4.13 5.26Seat Load Factor 83% 84%

The manner by which the Group calculates the above key performance indicators for both year-end 2015 and 2014 is as follows:

Total Revenue The sum of revenue obtained from the sale of airtransportation services for passengers and cargo andancillary revenue.

Pre-tax Core Net Income Operating income after deducting net interestexpense and adding equity income/loss of jointventure

EBITDAR Margin Operating income after adding depreciation andamortization, provision for ARO and aircraft andengine lease expenses divided by total revenue

Cost per ASK Operating expenses, including depreciation andamortization expenses and the costs of operatingleases, but excluding fuel hedging effects, foreignexchange effects, net financing charges and taxation,divided by ASK

Seat Load Factor Total number of passengers divided by the totalnumber of actual seats on actual flights flown

As of December 31, 2015, except as otherwise disclosed in the financial statements and to the bestof the Group’s knowledge and belief, there are no known trends, demands, commitments, eventsor uncertainties that may have a material impact on the Group’s liquidity.

As of December 31, 2015, except as otherwise disclosed in the financial statements and to the bestof the Group’s knowledge and belief, there are no events that would have a material adverseimpact on the Group’s net sales, revenues and income from operations and future operations.

Item 7. Financial Statements

The financial statements and schedules listed in the accompanying Index to Financial Statementsand Supplementary Schedules (page 49) are filed as part of this Form 17-A.

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Item 8. Changes in and Disagreements with Accountants on Accounting and FinancialDisclosure

None.

Independent Public Accountants and Audit Related Fees

Sycip Gorres Velayo & Co. (SGV & Co.) has acted as the Group’s independent public accountant.The same accounting firm is tabled for reappointment for the current year at the annual meeting ofstockholders. The representatives of the principal accountant have always been present at prioryear’s meetings and are expected to be present at the current year’s annual meeting ofstockholders. They may also make a statement and respond to appropriate questions with respectto matters for which their services were engaged. The current handling partner of SGV & Co. hasbeen engaged by the Group in 2013 and is expected to be rotated every five years.

Audit Fees

The following table sets out the aggregate fees billed for each of the last three years forprofessional services rendered by SGV & Co.

2015 2014 2013Audit and audit-related fees P3,627,847 P3,449,740 P2,546,800

PART III - CONTROL AND COMPENSATION INFORMATION

Item 9. Board of Directors and Executive Officers of the Registrant

Currently, the Board consists of nine members, of which two are independent directors. The tablebelow sets forth certain information regarding the members of our Board.

Name Age Position CitizenshipRicardo J. Romulo 82 Chairman FilipinoJohn L. Gokongwei, Jr. 89 Director FilipinoJames L. Go 76 Director FilipinoLance Y. Gokongwei 49 Director, President and Chief

Executive Officer (CEO)Filipino

Jose F. Buenaventura 81 Director FilipinoRobina Y. Gokongwei-Pe 54 Director FilipinoFrederick D. Go 46 Director FilipinoAntonio L. Go* 75 Independent Director FilipinoWee Khoon Oh 57 Independent Director Singaporean*He is not related to any of the other directors

All of the above directors have served their respective offices since June 26, 2015. There are noother directors who resigned or declined to stand for re-election to the board of directors since thedate of the last annual meeting of the stockholders for any reason whatsoever.

Messrs. Antonio L. Go and Wee Khoon Oh are the independent directors of the Group.

The table below sets forth certain information regarding our executive officers.

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Name Age Position Citizenship

Bach Johann M. Sebastian……. 54 Senior Vice President - ChiefStrategist & Compliance Officer.. Filipino

Andrew L. Huang…................... 59 Chief Finance Officer…................ Filipino/Canadian

Michael Ivan S. Shau…………. 52 President and CEO - CEBGo …... FilipinoJim C. Sydiongco………........... 65 Vice President .…………………. FilipinoRosita D. Menchaca…………... 53 Vice President .…………………. FilipinoCandice Jennifer A. Iyog……... 43 Vice President .…………………. FilipinoJoseph G. Macagga…………… 50 Vice President .…………………. FilipinoAntonio Jose L. Rodriguez….... 62 Vice President .…………………. FilipinoRobin C. Dui………………….. 69 Vice President…………..………. FilipinoMa. Elynore J. Villanueva..…… 53 Treasurer………………………… FilipinoAlexander G. Lao……………... 40 Vice President…………………... FilipinoRhea M. Villanueva…………... 37 Vice President .…………………. FilipinoJose Alejandro B. Reyes……… 48 General Manager .……………… FilipinoRosalinda F. Rivera………….... 45 Corporate Secretary…………….. FilipinoWilliam S. Pamintuan……….... 53 Assistant Corporate

Secretary…………………........... Filipino

The table below sets forth certain information regarding our senior consultants.

Name Age Citizenship

Garry R. Kingshott……………. 62 Australian

Rick S. Howell……………. 51 Australian

The business experience for the past five years of each of our directors, executive officers andsenior consultants is set forth below:

Ricardo J. Romulo has been the Chairman of the Board since December 1995. He is also directorof JG Summit Holdings, Inc. and Senior Partner in Romulo Mabanta Buenaventura Sayoc & DeLos Angeles. Mr. Romulo is also Chairman of FPG Insurance Co., Inc., InterPhil Laboratories,Inc., Sime Darby Pilipinas, Inc. and Towers Watson Philippines, Inc. He is a director of BASFPhilippines, Inc., Beneficial Life Insurance Company, Inc., Honda Philippines, Inc., Johnson &Johnson (Phils.), Inc., Maersk-Filipinas, Inc., MCC Transport Philippines, Inc., MercantileOcean Maritime Co. (Filipinas), Inc., Damco Philippines, Inc. and Zuellig Pharma Corporation.He received his Bachelor of Laws degree from Georgetown University and Doctor of Laws degreefrom Harvard Law School.

John L. Gokongwei, Jr. has been a director of the Group since December 1995. He is theChairman Emeritus and a member of the Board of Directors of JG Summit Holdings, Inc. andcertain of its subsidiaries. He also continues to be a member of the Executive Committee of JGSummit Holdings, Inc. He is currently the Chairman of the Gokongwei Brothers Foundation, Inc.,Chairman and Chief Executive Officer of Robinsons Retail Holdings, Inc., Deputy Chairman andDirector of United Industrial Corporation Limited and a director of Oriental Petroleum andMinerals Corporation. He was elected a director of Manila Electric Company on March 31, 2014.He is also a non-executive director of A. Soriano Corporation. Mr. John L. Gokongwei, Jr.

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received a Masters degree in Business Administration from the De La Salle University andattended the Advanced Management Program at Harvard Business School.

James L. Go has been a director of the Group since May 2002. He is the Chairman and ChiefExecutive Officer of JG Summit Holdings, Inc. and Oriental Petroleum and Minerals Corporation.He is the Chairman of Universal Robina Corporation, Robinsons Land Corporation, JG SummitPetrochemical Corporation and JG Summit Olefins Corporation. He is the Vice Chairman andDeputy Chief Executive Officer of Robinsons Retail Holdings, Inc. and a director of MarinaCenter Holdings Private Limited, United Industrial Corporation Limited and Hotel Marina CityPrivate Limited. He is also the President and Trustee of the Gokongwei Brothers Foundation, Inc.He has been a director of the Philippine Long Distance Telephone Company (PLDT) sinceNovember 3, 2011. He is a member of the Technology Strategy Committee and Advisor of theAudit Committee of the Board of Directors of PLDT. He was elected a director of Manila ElectricCompany on December 16, 2013. He received his Bachelor of Science Degree and Master ofScience Degree in Chemical Engineering from Massachusetts Institute of Technology, USA.

Lance Y. Gokongwei has been the President and Chief Executive Officer of the Parent Companysince 1997. He is the President and Chief Operating Officer of JG Summit Holdings, Inc. He is thePresident and Chief Executive Officer of Universal Robina Corporation, JG SummitPetrochemical Corporation and JG Summit Olefins Corporation. He is the Vice Chairman andChief Executive Officer of Robinsons Land Corporation. He is also the Chairman of RobinsonsBank Corporation, Vice Chairman of Robinsons Retail Holdings, Inc., and a director of OrientalPetroleum and Minerals Corporation, and United Industrial Corporation Limited. He is a directorand Vice Chairman of Manila Electric Company. He is also a trustee and secretary of theGokongwei Brothers Foundation, Inc. Mr. Lance Y. Gokongwei received a Bachelor of Sciencedegree in Finance and a Bachelor of Science degree in Applied Science from the University ofPennsylvania.

Jose F. Buenaventura has been a director of the Company since December 1995. He is a SeniorPartner in Romulo Mabanta Sayoc & de los Angeles. He is President and Director of ConsolidatedCoconut Corporation. He is likewise Director and Corporate Secretary of 2B3C Foundation, Inc.and Peter Paul Philippines Corporation. He is also a member of the Board of BDO Unibank, BDOSecurities Corporation, Capital Managers & Advisors, Inc., GROW, Inc., Grow Holdings, Inc.,Himap Properties Corporation, Himap Properties Corporation, La Concha Land Investment Corp.,Melco Crown (Philippines) Resorts Corp., Philippine First Insurance Co., Inc., Philplans First,Inc., Techzone Philippines, Inc., The Country Club, Inc., Total Consolidated Asset Management,Inc., and Turner Entertainment Manila, Inc. Mr. Buenaventura received his Bachelor of Lawsdegree from the Ateneo de Manila University and his Master of Laws degree from GeorgetownUniversity Law Center, Washington D.C. He was admitted to the Philippine Bar in 1960.

Robina Y. Gokongwei-Pe was elected as a director of the Group effective August 1, 2007. She isthe President and Chief Operating Officer of Robinsons Retail Holdings, Inc. She is also adirector of JG Summit Holdings, Inc., Robinsons Land Corporation, and Robinsons BankCorporation. She is a Trustee for the Gokongwei Brothers Foundation, Inc. and ImmaculateConception Academy Scholarship Fund. She was also a member of the University of thePhilippines Centennial Commission and was a former Trustee of the Ramon Magsaysay AwardsFoundation. She attended the University of the Philippines-Diliman from 1978 to 1981 andobtained a Bachelor of Arts degree (Journalism) from New York University in 1984.

- 38 -

Frederick D. Go was elected a director of the Group effective August 1, 2007. He is currently thePresident and Chief Operating Officer of Robinsons Land Corporation and Robinsons RecreationCorporation. He is the Group General Manager of Shanghai Ding Feng Real Estate DevelopmentGroup Limited, Xiamen Pacific Estate Investment Group Limited, Chengdu Ding Feng RealEstate Development Group Limited, and Taicang Ding Feng Real Estate Development GroupLimited. He also serves as a director of Universal Robina Corporation, JG Summit PetrochemicalCorporation, Robinsons Bank Corporation and Cebu Light Industrial Park. He is also theChairman of the Philippine Retailers Association. He received a Bachelor of Science degree inManagement Engineering from the Ateneo de Manila University.

Antonio L. Go was elected as an independent director of the Group on December 6, 2007. He alsocurrently serves as Director and President of Equitable Computer Services, Inc. and is theChairman of Equicom Savings Bank and ALGO Leasing and Finance, Inc. He is also a director ofMedilink Network, Inc., Maxicare Healthcare Corporation, Equicom Manila Holdings, EquicomInc., Equitable Development Corporation, United Industrial Corporation Limited, OrientalPetroleum and Minerals Corporation, Pin-An Holdings, Inc., Equicom Information Technology,Robinsons Retail Holdings, Inc., and Steel Asia Manufacturing Corporation. He is also a Trusteeof Go Kim Pah Foundation, Equitable Foundation, Inc., and Gokongwei Brothers Foundation, Inc.He graduated from Youngstown University, United States with a Bachelor Science Degree inBusiness Administration. He attended the International Advance Management program at theInternational Management Institute, Geneva, Switzerland as well as the Financial Planning/Control program at the ABA National School of Bankcard Management, Northwestern University,United States.

Wee Khoon Oh was elected as an independent director of the Company effective January 3, 2008.He is the founder and managing director of Sobono Energy Private Limited. He served as the ViceChairman of the Sustainable Energy Association of Singapore until 2014. He graduated withhonors from the University of Manchester Institute of Science and Technology with a Bachelor ofScience degree in Mechanical Engineering. He obtained his Masters degree in BusinessAdministration from the National University of Singapore.

Bach Johann M. Sebastian has been the Senior Vice President - Chief Strategist of the Group andHead of Corporate Strategy since May 5, 2007. He is also the Senior Vice President and Directorof Corporate Planning of JG Summit, URC and RLC. Prior to joining the Group in 2002, he wasSenior Vice President and Chief Corporate Strategist at PSI Technologies and RFM Corporation.He was also Chief Economist and Director of the Policy and Planning Group at the Department ofTrade and Industry. He received a Bachelor of Arts degree in Economics from the University ofthe Philippines and a Master’s degree in Business Management from the Asian Institute ofManagement. He has 12 years of experience in the airline industry, all of which have been withthe Group.

Andrew L. Huang was appointed as the Chief Finance Officer of the Group on October 1, 2015.He has over 30 years of extensive experience in Finance and Management with organizations suchas Chase Manhattan Bank, BA Finance Corp., Philippine Airlines, San Miguel Corporation andFilinvest Development Corporation. He has previously served as Board Member and ChiefOperating Officer of Wi-Tribe Telecoms Holding, Inc. and Easter TelecommunicationsPhilippines, Inc. Since 2013, he has also been an Adjunct Professor of Finance at the AsianInstitute of Management where he also finished his Master’s degree in Business Management aftergraduating from De La Salle University with a degree in Business Administration.

- 39 -

Michael Ivan S. Shau was appointed as the President and Chief Executive Officer of CEBGo,Inc. in October 2014. He joined the Group in May 2007 as Vice President for Airport andAdministration Services and was appointed Vice President for People and Administration Serviceseffective March 2010. On July 2013, he was appointed as Vice President for Ground Operations,overseeing the following departments: Airport Services, Cargo Operations, Catering and FacilitiesManagement. He has been with the JG Summit Group since January 1999 and has held varioussenior management positions with his last assignment as Business Unit General Manager ofUniversal Robina Corporation - Packaging Division. He received a degree in IndustrialManagement Engineering, Minor in Mechanical Engineering and completed all academicrequirements for a Master’s degree in Business Management, both from De La Salle University.He has 9 years of experience in the airline industry, all of which have been with the Group.

Jim C. Sydiongco has been the Vice President for Flight Operations of the Group since June 1,2013. Prior to his appointment as Vice President, he was hired as a Consultant for Flight Safety.He brings with him an outstanding background in Safety both in the local and international sector.Prior to joining the Group, he headed the Flight Standards Inspectorate Services Department ofCAAP. A graduate of the Institute of Safety and Systems management at the University ofSouthern California, he is well-versed in aviation safety and safety program management. He is aseasoned B-747 Captain with more than 20,000 flying hours from Philippine Airlines and Eva Air.Prior to his flying career, he graduated AB Philosophy at the University of Sto. Tomas. He has 44years of experience in the airline industry, 5 of which have been with the Group.

Rosita D. Menchaca has been the Vice President for Inflight Services of the Group since May2009 and was previously Vice President for Passenger Service from February 2007 to May 2009.She joined the Group in 1996 as a Cabin Crew Supervisor and has since been promoted twice, firstto Director, Cabin Services, on November 1999 and on May 2006 to Head of Passenger Services.She previously worked with Philippine Airlines as a flight attendant for two years and joinedSaudi Arabian Airlines in 1985 as a Senior Flight Attendant for eight years. She received herBachelor of Science degree in Psychology from Silliman University. She has 31 years ofexperience in the airline industry, the last 20 of which have been with the Group.

Candice Jennifer A. Iyog has been with the Group since September 2003 and was appointed VicePresident for Marketing and Distribution on September 2008. Prior to this position, she was VicePresident for Marketing and Product from February 2007 to September 2008. She was formerlythe General Manager of Jobstreet.com and was also the marketing manager of NABISCO. Shealso worked at URC as Product Manager and, as such, handled major snack food brands of URCsuch as Chippy, Piattos and Nova. She received her Bachelor of Science degree in Managementfrom the Ateneo de Manila University. She has 12 years of experience in the airline industry, all ofwhich have been with the Group.

Joseph G. Macagga has been the Vice President for Fuel and Cargo Operations of the Groupsince September 2004. He started as Manager for Purchasing and handled Internal Audit for morethan two years. He served as Audit Manager for JG Summit Holdings, Inc. for five years andworked for the Audit Division of SGV & Co. for three years. A Certified Public Accountant, hereceived his Bachelor of Science degree in Commerce, Major in Accounting from the Universityof Sto. Tomas. He has 19 years of experience in the airline industry, all of which have been withthe Group.

Antonio Jose L. Rodriguez was appointed as the Vice President for Airport Services of the Groupon February 16, 2015. He was previously the Vice President for Human Resources of the Groupfrom 2004 to 2010 and Vice President for Airport Services from 2010 to 2013. He was also aconsultant for the Group’s Long Haul project from January 2014 to February 2015. Prior to

- 40 -

joining the Group, he was AVP-Human Resources of Allied Thread Co. Inc. from 1990 to 1992.Before this, he was employed with Triumph International (Phils.) Inc. from 1985 to1990. He is agraduate of De La Salle University where he completed Lia-Com a double degree course,majoring in Business Administration and Behavioural Sciences. He has 19 years of experience inthe airline industry, all of which have been with the Company.

Robin C. Dui has been the Vice President - Comptroller of the Group since 1998. He wasformerly with the Audit Division of SGV & Co. for four years. He previously worked withPhilippine Airlines for 18 years as Manager - General Accounting, Director - OperationsAccounting, Director - Revenue Accounting and Vice President - Comptroller. He also previouslyheld the position of Director - Finance of GrandAir for one year. A Certified Public Accountant,he obtained a Bachelor of Science degree in Business Administration. He has 35 years ofexperience in the airline industry, 18 of which have been with the Group.

Ma. Elynore J. Villanueva was appointed as the Treasurer of the Group on November 2, 2015.She started her career in the JG Summit Group in 1996 as Senior Treasury Manager for ManilaGalleria Suites. In 2003, she transferred to Big R Stores as Assistant Treasurer and was later onmoved to Universal Robina Corporation and handled Cebu Pacific. In 2010, her group wasformally transferred from URC to Cebu Pacific with her being appointed as Director – Treasuryfor Cebu Pacific. Since March 2014, she also assumed a concurrent role as Director – Treasury forCEBGo.

Alexander G. Lao has been the Vice President for Commercial Planning since February 2012. Heserved as the Director of Revenue Management from October 8, 2007 to February 2012. Beforejoining the Group, he worked as Assistant Vice President of Philamlife from August 2001 toSeptember 2007 and as Business Development Assistant of Ayala Life from 1998 to 1999. Hegraduated from Ateneo De Manila University with a Bachelor of Science degree in LegalManagement. He also received his Master’s degree in Business Administration from the AsianInstitute of Management. He has 9years of experience in the airline industry, all of which havebeen with the Group.

Rhea M. Villanueva was appointed as Vice President for Human Resources on June 2014. Shestarted with the Group as a Training Clerk on 2002, and then became an HR Assistant the yearafter before she was promoted as a Supervisor in 2004 and a Manager in 2007 where she handledLearning & Development and Training & Organizational Development. On July 2013, she took ona higher role becoming the Director for Human Resources. Aside from these, she also worked as aProject Manager of Double Graphics & Printers and the Marketing Officer of KMC Precision &Trading. A graduate of Dela Salle University- College of St. Benilde, with a Bachelor of Sciencedegree in Business Administration, Major in Human Resources Management, she has 14 years ofexperience in the airline industry, all of which have been with the Group.

Jose Alejandro B. Reyes was appointed as the General Manager for long-haul operations onFebruary 2012. He was the former Vice President for Commercial Planning of the Group fromJanuary 2008 to January 2012. He previously worked as Senior Vice President of PhilWeb. Priorto this, he held various positions with The Inquirer Group, the latest of which was Senior VicePresident and Chief Operating Officer of the Inquirer Publications, Inc. He graduated SummaCum Laude from Georgetown University with a Bachelor of Science degree in InternationalEconomics. He received his Master’s degree in Business Administration from the University ofVirginia. He has 8 years of experience in the airline industry, all of which have been with theGroup.

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Rosalinda F. Rivera was appointed Corporate Secretary of the Group effective October 31, 2006.She is also the Corporate Secretary of JG Summit Holdings, Inc., Universal Robina Corporation,Robinsons Land Corporation, Robinsons Retail Holdings, Inc., JG Summit PetrochemicalCorporation, JG Summit Olefins Corporation and CPAir Holdings, Inc. Prior to joining the JGGroup, she was a Senior Associate at Puno and Puno Law Offices. She received a Juris Doctordegree from the Ateneo de Manila University School of Law and a Masters of Law degree inInternational Banking from the Boston University School of Law. She was admitted to thePhilippine Bar in 1995. She has eight years of experience in the airline industry, all of which havebeen with the Group.

William S. Pamintuan has been the Assistant Corporate Secretary of the Group since December1995. He is currently the First Vice President and Deputy General Counsel, Assistant CorporateSecretary, Compliance Officer, and Head, Legal and Corporate Governance and ComplianceOffice of Manila Electric Company. He is also the Corporate Secretary of Meralco PowerGenCorporation, Atimonan Land Ventures, Inc., Calamba Aero Power Corporation, Luzon NaturalGas Energy Corporation, Kalilayan Power, Inc., MPG Holdings Phils., Inc., MPG Mauban LPCorporation, Redondo Peninsula Energy, Inc., Miescorrail, Inc., Meralco Industrial EngineeringServices Corporation and First Pacific Leadership Academy, Inc. He was a former Director ofMiescorrail, Inc. He was the former Corporate Secretary and Senior Vice President of DigitalTelecommunications Phils., Inc. and Digitel Mobile Phils., Inc. and, General Manager of DigitelCrossing, Inc. He holds a Bachelor of Arts degree in Political Science and Bachelor of Lawsdegree from the University of the Philippines. He has 20 years of experience in the airlineindustry, all of which have been with the Group.

Garry R. Kingshott is the Group’s senior consultant. He provides advice to the President withrespect to fare structuring, cost management, route development and market entry strategies. Priorto joining the Group in 2008, he was with Jet Lite (India) and Ansett International Limited(Australia) as their Chief Executive Officer. He has 24 years combined experience in the aviationconsultancy and the airline industry.

Rick S. Howell joined the Group as a contractual Operations Adviser for Long Haul from August2012 to May 2013. Almost a year after, he returned to the Group and is currently the ExecutiveAdviser under the Office of the General Manager. He received a Bachelor’s degree in PureMathematics & Aerodynamics at the University of Melbourne. He also graduated with credit fromRoyal Australian Air force Academy in 1985, where he served as a Flying Instructor, MaritimePatrol Commander and a Low-level aerobic display pilot until 1992. Then, he became a Boeing737 First Officer at QANTAS Airways and an Airbus 330 & 340 Captain for Emirates Airline.Moreover, he was also appointed as the Chief Operating Officer for SkyAirWorld and the GeneralManager for Flight Operations and Commercial Planning for Virgin Australia. Before returning tothe Group, he was the Chief Operating Officer of Air North. Combining his experience, he has 34years of expertise in the airline industry.

The Group’s executive officers can be reached at its business office at the Cebu Pacific Building,Domestic Road, Barangay 191, Zone 20, Pasay City.

Involvement in Certain Legal Proceedings of Directors and Executive Officers

Except as otherwise disclosed, to the best of the Group’s knowledge and belief and after dueinquiry, none of the Group’s directors, nominees for election as director, or executive officer havein the past five years: (i) had any petition filed by or against any business of which such personwas a general partner or executive officer either at the time of the bankruptcy or within a two yearperiod of that time; (ii) convicted by final judgment in a criminal proceeding, domestic or foreign,

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or have been subjected to a pending judicial proceeding of a criminal nature, domestic or foreign,excluding traffic violations and other minor offences; (iii) subjected to any order, judgment, ordecree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwiselimiting their involvement in any type of business, securities, commodities or banking activities;or (iv) found by a domestic or foreign court of competent jurisdiction (in a civil action), thePhilippine Securities and Exchange Commission (SEC) or comparable foreign body, or a domesticor foreign exchange or other organized trading market or self regulatory organization, to haveviolated a securities or commodities law or regulation and the judgment has not been reversed,suspended, or vacated.

Family Relationship

· Mr. James L. Go is the brother of Mr. John L. Gokongwei, Jr.· Mr. Lance Y. Gokongwei is the son of Mr. John L. Gokongwei, Jr.· Mr. Frederick D. Go is the nephew of Mr. John L. Gokongwei, Jr.· Ms. Robina Y. Gokongwei-Pe is the daughter of Mr. John L. Gokongwei, Jr.

Item 10. Executive Compensation

The following are the Group’s Chief Executive Officer (“CEO”) and four most highlycompensated executive officers for the year ended 2015:

Name PositionLance Y. Gokongwei . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . President and CEOJim C. Sydiongco. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice PresidentJeanette U. Yu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President - Treasurer

(up to November 2015)Jaime I. Cabangis. . . . . . . . . . . . . . . …………………….. Chief Finance Officer

(up to June 2015)Jose Alejandro B. Reyes. . . . . . . . . . . . . . . . . . . . . . . . . . .. General Manager

The following table identifies and summarizes the aggregate compensation of the Group’s CEO andthe four most highly compensated executive officers for the years ended 2014, 2015 and 2016estimates:

Actual – Fiscal Year 2014

Salaries BonusesOther

Income1 TotalCEO and four (4) most highly compensatedexecutive officers1. Lance Y. Gokongwei - President and CEO2. Jaime I. Cabangis - Chief Finance Officer3. Jose Alejandro B. Reyes - General Manager4. Jim C. Sydiongco - Vice President5. Jeanette U. Yu - Vice President - Treasurer

P62,166,372 P5,507,813 P40,000 P67,714,185Aggregate compensation paid to all officers anddirectors as a group unnamed P99,109,723 P10,709,572 P320,000 P110,139,295

1Includes per diem of directors

- 43 -

Actual – Fiscal Year 2015


Income1 TotalCEO and four (4) most highly compensatedexecutive officers1. Lance Y. Gokongwei - President and CEO2. Jim C. Sydiongco - Vice President3. Jeanette U. Yu - Vice President – Treasurer (up to November 2015)4. Jaime I. Cabangis– Chief Finance Officer (up to June 2015)5. Jose Alejandro B. Reyes - General Manager



Fiscal Year 2016 Estimates


Income1 TotalCEO and four (4) most highly compensatedexecutive officers1. Lance Y. Gokongwei - President and CEO2. Andrew L. Huang - Chief Finance Officer3. Alexander G. Lao- Vice President4. Jose Alejandro B. Reyes - General Manager5. Jim C. Sydiongco - Vice President



Standard Arrangements

Other than payment of reasonable per diem as may be determined by the Board for every meeting,there are no standard arrangements pursuant to which directors of the Group are compensated, orare to be compensated, directly or indirectly, for any services provided as a director for the lastcompleted year and the ensuing year.

Other Arrangements

There are no other arrangements pursuant to which directors of the Group are compensated, or areto be compensated, directly or indirectly, for any services provided as a director for the lastcompleted year and the ensuing year.

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

There are no agreements between the Group and its directors and executive officers providing forbenefits upon termination of employment, except for such benefits to which they may be entitledunder the Group’s pension plans.

- 44 -

Warrants and Options Outstanding

There are no outstanding warrants or options held by the Group’s CEO, the named executiveofficers, and all officers and directors as a group.

Item 11. Security Ownership of Certain Record and Beneficial Owners and Management

(1) Security Ownership of Certain Record and Beneficial Owners

As of December 31, 2015, the Group knows no one who beneficially owns in excess of 5% of theGroup’s common stock except as set forth in the table below.

Title ofClass

Names and addresses ofrecord owners and

relationship with theCorporation

Name of beneficialowner and

relationship withrecord owner

Citizenship No. ofshares held % to Total

Outstanding

Common CPAir Holdings, Inc.43/F Robinsons EquitableTower, ADB Avenuecorner Poveda StreetOrtigas Center, Pasig City(stockholder)

Same as recordowner

(See note 1)

Filipino 400,816,841 66.15%

Common PCD Nominee Corporation(Filipino)37/F Tower 1, TheEnterprise Center, AyalaAve. cor. Paseo de Roxas,Makati City(stockholder)

PDTC Participantsand their clients

(See note 2)

Filipino 120,177,206(See note 3)

19.83%

Common PCD Nominee Corporation(Non-Filipino)37/F Tower 1, TheEnterprise Center, AyalaAve. cor. Paseo de Roxas,Makati City(stockholder)

PDTC Participantsand their clients

(See note 2)

Non-Filipino 77,875,881(See note 4)

12.85%

Notes:

1. CPAir Holdings, Inc. is a wholly-owned subsidiary of JG Summit Holdings, Inc. Under the By-Laws of CPAirHoldings, Inc., the President is authorized to represent the corporation at all functions and proceedings. Theincumbent President of CPAir Holdings, Inc. is Mr. Lance Y. Gokongwei.

2. PCD Nominee Corporation is the registered owner of the shares in the books of the Corporation’s transfer agent.PCD Nominee Corporation is a corporation wholly-owned by Philippine Depository and Trust Corporation, Inc.(formerly the Philippine Central Depository) (“PDTC”), whose sole purpose is to act as nominee and legal titleholder of all shares of stock lodged in the PDTC. PDTC is a private corporation organized to establish a centraldepository in the Philippines and introduce scripless or book-entry trading in the Philippines. Under the currentPDTC system, only participants (brokers and custodians) will be recognized by PDTC as the beneficial owners ofthe lodged shares. Each beneficial owner of shares though his participant will be the beneficial owner to the extentof the number of shares held by such participant in the records of the PCD Nominee.

- 45 -

3. Out of the PCD Nominee Corporation (Filipino) account, “Citibank N.A.” holds for various trust accounts thefollowing shares of the Corporation as of December 31, 2015:

No. of shares % to Outstanding Citibank N.A. 31,587,997 5.21%

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

4. Out of the PCD Nominee Corporation (Non-Filipino) account, “Citibank N.A.” holds for various trust accounts thefollowing shares of the Corporation as of December 31, 2015:

No. of shares % to Outstanding Citibank N.A. 30,837,528 5.09%

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

(2) Security Ownership of Management as of December 31, 2015

Title ofClass

Name of beneficialOwner Position

Amount &nature ofbeneficialownership

(Direct) Citizenship% to Total

OutstandingNamed Executive Officers1

Common 1. Lance Y. Gokongwei Director,President andChief ExecutiveOfficer

1 Filipino *

- 2. Jim C. Sydiongco Vice President - Filipino -- 3. Jeanette U. Yu Vice President –

Treasurer (up toNovember 2015)

- Filipino -

Common/-

4. Jaime I. Cabangis Chief FinanceOfficer (up toJune 2015)

10,000-

FilipinoFilipino

*-

- 5. Jose Alejandro B. Reyes - Filipino -Subtotal 10,001 *

Other Directors and Executive OfficersCommon 6. Ricardo J. Romulo Chairman 1 Filipino *Common 7. John L. Gokongwei, Jr. Director 1 Filipino *Common 8. James L. Go Director 1 Filipino *Common 9. Jose F. Buenaventura Director 1 Filipino *Common 10. Robina Y. Gokongwei-Pe Director 1 Filipino *Common 11. Frederick D. Go Director 1 Filipino *Common 12. Antonio L. Go Director

(Independent)1 Filipino *

Common 13. Wee Khoon Oh Director(Independent)

1 Singaporean *

14. Ma. Elynore J. Villanueva Treasurer 500 Filipino *Subtotal 508 *

All directors and executive officers as a group unnamed 10,509 *

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

Chief Executive Officer and those that are the four (4) most highly compensated executive officers as ofDecember 31, 2015.

* less than 0.01%

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(3) Voting Trust Holders of 5% or More

As of December 31, 2015, there are no persons holding more than 5% of a class under a votingtrust or similar agreement.

(4) Change in Control

As of December 31, 2015, there has been no change in the control of the Group since thebeginning of its last fiscal year.

Item 12. Certain Relationships and Related Transactions

The Group, in its regular conduct of business, had engaged in transactions with its ultimate parentcompany, its joint venture and affiliates. See Note 27 (Related Party Transactions) of the Notes tothe Consolidated Financial Statements in the accompanying Audited Financial Statements filed aspart of this Form 17-A.

PART IV - CORPORATE GOVERNANCE

Item 13. Corporate Governance

Please refer to the attached Annual Corporate Governance Report.

PART V - EXHIBITS AND SCHEDULES

Item 14. Exhibits and Reports on SEC Form 17-C

Exhibits

See accompanying Index to Exhibits (page 49)

Reports on SEC Form 17-C

List of Corporate Disclosures/Replies to SEC LettersUnder SEC Form 17-C

July 1, 2015 to December 31, 2015

Date of Disclosure DescriptionSeptember 22, 2015 Press Release “Cebu Pacific and Tigerair Strategic Alliance Continues to

Soar”October 2, 2015 Appointment of an officerOctober 8, 2015 Clarification of news article “Cebu Air raising P15B from fresh bond issue”October 9, 2015 Payment of penalty to the Philippine Stock ExchangeNovember 2, 2015 Appointment of an officerNovember 23, 2015 Clarification of news report “PAL, Cebu Air lose more than P1B from APEC

cancellations”December 15, 2015 Clarification of news report “CebuPac leads in aircraft purchases”

Cebu Air, Inc.

Annual Corporate Governance Report

Page 1 of 68

CEBU AIR, INC.

ANNUAL CORPORATE GOVERNANCE REPORT

as of December 31, 2015

Cebu Air, Inc.


Page 2 of 68

TABLE OF CONTENTS Page Number

A. BOARD MATTERS 4

1) BOARD OF DIRECTORS (a) Composition of the Board 4 (b) Directorship in Other Companies 5 (c) Shareholding in the Company 7

2) CHAIRMAN AND CEO 8 3) BOARD OF DIRECTORS SUCCESSION PLAN 9 4) OTHER EXECUTIVE, NON-EXECUTIVE AND INDEPENDENT DIRECTORS 9 5) CHANGES IN THE BOARD OF DIRECTORS 12 6) ORIENTATION AND EDUCATION PROGRAM 20 B. CODE OF BUSINESS CONDUCT & ETHICS 22

1) POLICIES 22 2) DISSEMINATION OF CODE 24 3) COMPLIANCE WITH CODE 24 4) RELATED PARTY TRANSACTIONS 24

(a) Policies and Procedures 24 (b) Conflict of Interest 25

5) FAMILY, COMMERCIAL AND CONTRACTUAL RELATIONS 26 6) ALTERNATIVE DISPUTE RESOLUTION 27 C. BOARD MEETINGS & ATTENDANCE 27

1) SCHEDULE OF MEETINGS 27 2) DETAILS OF ATTENDANCE OF DIRECTORS 27 3) SEPARATE MEETING OF NON-EXECUTIVE DIRECTORS 27 4) QUORUM REQUIREMENT 28 5) ACCESS TO INFORMATION 28 6) EXTERNAL ADVICE 29 7) CHANGES IN EXISTING POLICIES 30 D. REMUNERATION MATTERS 30

1) REMUNERATION PROCESS 30 2) REMUNERATION POLICY AND STRUCTURE FOR DIRECTORS 30 3) AGGREGATE REMUNERATION 31 4) STOCK RIGHTS, OPTIONS AND WARRANTS 32 5) REMUNERATION OF MANAGEMENT 33 E. BOARD COMMITTEES 33

1) NUMBER OF MEMBERS, FUNCTIONS AND RESPONSIBILITIES 33 2) COMMITTEE MEMBERS 37 3) CHANGES IN COMMITTEE MEMBERS 39 4) WORK DONE AND ISSUES ADDRESSED 39 5) COMMITTEE PROGRAM 40 F. RISK MANAGEMENT SYSTEM 40

1) STATEMENT ON EFFECTIVENESS OF RISK MANAGEMENT SYSTEM 40 2) RISK POLICY 41 3) CONTROL SYSTEM 44

Cebu Air, Inc.


Page 3 of 68

TABLE OF CONTENTS Page Number

G. INTERNAL AUDIT AND CONTROL 48

1) STATEMENT ON EFFECTIVENESS OF INTERNAL CONTROL SYSTEM 48 2) INTERNAL AUDIT

(a) Role, Scope and Internal Audit Function 49 (b) Appointment/Removal of Internal Auditor 49 (c) Reporting Relationship with the Audit Committee 49 (d) Resignation, Re-assignment and Reasons 50 (e) Progress against Plans, Issues, Findings and Examination Trends 50 (f) Audit Control Policies and Procedures 50 (g) Mechanisms and Safeguards 51

H. ROLE OF STAKEHOLDERS 52

1) POLICIES AND ACTIVITIES 52 2) CORPORATE RESPONSIBILITY 53 3) EMPLOYEE PARTICIPATION MECHANISM 53 4) HANDLING EMPLOYEE COMPLAINTS 56

I. DISCLOSURE AND TRANSPARENCY 56

1) OWNERSHIP STRUCTURE 56 2) ANNUAL REPORT DISCLOSURE 57 3) EXTERNAL AUDITORS’ FEE 57 4) MEDIUM OF COMMUNICATION 57 5) AUDITED FINANCIAL REPORT SUBMISSION 58 6) COMPANY WEBSITE 58 7) DISCLOSURE OF RPT 58 J. RIGHTS OF STOCKHOLDERS 58

1) RIGHT TO PARTICIPATE EFFECTIVELY IN STOCKHOLDERS’ MEETINGS 58 2) TREATMENT OF MINORITY STOCKHOLDERS 63 K. INVESTORS RELATIONS PROGRAM 64

L. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES 67

M. BOARD, DIRECTOR, COMMITTEE AND CEO APPRAISAL 68

N. INTERNAL BREACHES AND SANCTIONS 68

Cebu Air, Inc.


Page 4 of 68

A. BOARD MATTERS 1) Board of Directors

Number of Directors per Articles of Incorporation 9

Actual number of Directors for the year 9

(a) Composition of the Board

Complete the table with information on the Board of Directors:

Director’s Name

Type [Executive (ED), Non-

Executive (NED) or Independent

Director (ID)]

If nominee,

identify the

principal

Nominator in the last election (if ID,

state the relationship with the nominator)

Date first

elected

Date last elected (if ID,

state the number of

years served as ID)1

Elected when

(Annual /Special

Meeting)

No. of years

served as director

(as of 2015)

No. of years served as director

reckoning from the election

immediately following January 2,

2012*

1. John L. Gokongwei, Jr.

NED N/A Sarah Eufrosina D. Celino

1995 July 26, 2015 Annual Meeting

20 years 3

2. James L. Go NED N/A Sarah Eufrosina D. Celino


13 years 3

3. Lance Y. Gokongwei

ED N/A Sarah Eufrosina D. Celino


18 years 3

4. Frederick D. Go NED N/A Sarah Eufrosina D. Celino


8 years 3

5. Robina Gokongwei-Pe



8 years 3

6. Ricardo J. Romulo

ED N/A Sarah Eufrosina D. Celino


20 years 3

7. Jose F. Buenaventura



20 years 3

8. Antonio L. Go ID N/A Sarah Eufrosina D. Celino (no relationship with nominator)

Dec. 6, 2007

July 26, 2015 Annual Meeting

8 years 3

9. Wee Khoon Oh ID N/A Sarah Eufrosina D. Celino (no relationship with nominator)

Jan. 3, 2008

July 26, 2015 Annual Meeting

8 years 3

Note:*-per SEC Memorandum Circular No. 9 Series of 2011

Provide a brief summary of the corporate governance policy that the board of directors has adopted. Please emphasis the policy/ies relative to the treatment of all shareholders, respect for the rights of minority shareholders and of other stakeholders, disclosure duties, and board responsibilities.

The Corporation adheres to the principles and practices of good corporate governance, as embodied in its Corporate Governance Manual, Code of Business Conduct and related SEC Circulars. Continuous improvement and monitoring of governance and management policies have been undertaken to ensure that the Corporation observes good governance and management practices. This is to assure the shareholders that the Corporation conducts its

1 Reckoned from the election immediately following January 2, 2012.

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business with the highest level of integrity, transparency and accountability. SEC Memorandum Circular No.5, Series of 2013 mandates all listed companies to submit an Annual Corporate Governance Report (ACGR). On July 30, 2013, the Corporation submitted its ACGR for the year 2012 to the SEC. Beginning January 30, 2011 in accordance with SEC Memorandum Circular No. 9, Series of 2014, the Corporation submits every year a Corporate Governance Disclosure Report to the PSE.

The Board has adopted the Revised Corporate Governance Manual in June 22, 2015 for the Company. The Manual elaborates on the governance roles and responsibilities of the Board and its Directors. The Board ensures that all material information about the Company is disclosed to the public on a timely manner. The Board likewise is strongly committed to respect and promote the rights of stockholders in accordance with the Revised Corporate Governance Manual, the Company’s Articles of Incorporation, and By-Laws.

The Board represents the shareholders’ interests in its objective to continuously improve the value of the Corporation and to achieve a successful and long-term business. The Board believes that it has to be actively responsible to ensure that the Corporation is properly managed to attain this result. In addition to fulfilling its obligations for increased shareholder value, the Board has responsibility to other stakeholders as well – customers, employees, suppliers, financiers, government, business partners, and to the communities and environment it operates in, all of whom are important to a successful business.

How often does the Board review and approve the vision and mission? The Board shall annually review and approve the vision and mission of the Company.

(b) Directorship in Other Companies

(i) Directorship in the Company’s Group2

Identify, as and if applicable, the members of the Company’s Board of Directors who hold the office of director in other companies within its Group:

Director’s Name Corporate Name of the

Group Company

Type of Directorship (Executive, Non-Executive, Independent). Indicate if

director is also the Chairman.

John L. Gokongwei, Jr. JG Summit Holdings, Inc. Executive

Universal Robina Corporation Executive

Robinsons Land Corporation Executive

JG Summit Petrochemical Corporation Executive

JG Summit Olefins Corporation Non-Executive

Bio-Resource Power Generation Corporation Executive

James L. Go JG Summit Holdings, Inc. Executive, Chairman

Universal Robina Corporation Executive, Chairman

JG Summit Petrochemical Corporation Executive, Chairman

JG Summit Olefins Corporation Executive, Chairman


Robinsons Land Corporation Executive, Chairman

2 The Group is composed of the parent, subsidiaries, associates and joint ventures of the Company.

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Lance Y. Gokongwei JG Summit Holdings, Inc. Executive

Universal Robina Corporation Executive

JG Summit Petrochemical Corporation Executive

JG Summit Olefins Corporation Executive



Robinsons Bank Corporation Executive, Chairman

Frederick D. Go Universal Robina Corporation Non-executive


Robinsons Bank Corporation Executive

JG Summit Petrochemical Corporation Non-executive

JG Summit Olefins Corporation Non-executive

Robina Gokongwei-Pe JG Summit Holdings, Inc. Non-executive

Robinsons Bank Corporation Non-executive

Robinsons Land Corporation Non-executive

Ricardo J. Romulo JG Summit Holdings, Inc. Non-executive

Antonio L. Go None N/A

(ii) Directorship in Other Listed Companies

Identify, as and if applicable, the members of the Company’s Board of Directors who are also directors of publicly-listed companies outside of its Group:

Director’s Name Name of Listed Company

Type of Directorship (Executive, Non-Executive, Independent). Indicate if

director is also the Chairman.

John L. Gokongwei, Jr. A. Soriano Corporation Non-Executive

Oriental Petroleum and Minerals Corporation Non-executive

Robinsons Retail Holdings, Inc. Executive, Chairman

Manila Electric Company Non-Executive

James L. Go Oriental Petroleum and Minerals Corporation Executive, Chairman

Philippine Long Distance Company (PLDT) Non-executive

Robinsons Retail Holdings, Inc. Executive


Lance Y. Gokongwei Oriental Petroleum and Minerals Corporation Non-executive

Robinsons Retail Holdings, Inc. Executive


Robina Gokongwei-Pe Robinsons Retail Holdings, Inc. Executive

Ricardo J. Romulo SM Development Corporation Non-executive

Jose F. Buenaventura BDO Unibank, Inc. Independent director

Melco Crown (Philippines) Resorts Corporation

Non-Executive

Antonio L. Go Oriental Petroleum and Minerals Corporation Independent director

Robinsons Retail Holdings, Inc. Independent director

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(iii) Relationship within the Company and its Group

Provide details, as and if applicable, of any relation among the members of the Board of Directors, which links them to significant shareholders in the Company and/or in its group:

Director’s Name Name of the

Significant Shareholder Description of the

relationship

John L. Gokongwei, Jr. CPAir Holdings, Inc. Director,Chairman Emeritus

James L. Go CPAir Holdings, Inc. Director

Lance Y. Gokongwei CPAir Holdings, Inc. Director, President

Robina Gokongwei-Pe CPAir Holdings, Inc. Director

(iv) Has the Company set a limit on the number of board seats in other companies (publicly listed, ordinary and

companies with secondary license) that an individual director or CEO may hold simultaneously? In particular, is the limit of five board seats in other publicly listed companies imposed and observed? If yes, briefly describe other guidelines: The Board may consider the adoption of guidelines on the number of directorships that its members can hold in stock and non-stock Corporations. Guidelines observed are stated in Article III Section A.8 of the Revised Corporate Governance Manual.

Guidelines

Maximum Number of Directorships in other companies

Executive Director A Director shall exercise due discretion in accepting and holding directorships and officerships in other Companies. A Director may hold any number of directorships or officerships outside the Company provided that, in the Director’s opinion, these other positions do not detract or compromise the Director’s capacity to diligently perform his duties as a Director of the Company and compliant with the limit that may be set by the Board.

The Board may consider the adoption of guidelines on the number of directorships that its members can hold in stock and non-stock Corporations.

Non-Executive Director

CEO

(c) Shareholding in the Company

Complete the following table on the members of the Company’s Board of Directors who directly and indirectly own shares in the Company: (as of December 31, 2015)

Name of Director Number of

Direct shares Number of

Indirect shares / Through (name of record owner)

% of Capital Stock

John Gokongwei, Jr. 1 None 0.00%

James L. Go 1 None 0.00%

Lance Y. Gokongwei 1 None 0.00%

Frederick D. Go 1 None 0.00%

Robina Gokongwei-Pe 1 None 0.00%

Ricardo J. Romulo 1 None 0.00%

Jose F. Buenaventura 1 None 0.00%

Antonio L. Go 1 None 0.00%

Wee Khoon Oh 1 None 0.00%

TOTAL 9

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2) Chairman and CEO

(a) Do different persons assume the role of Chairman of the Board of Directors and CEO? If no, describe the checks and balances laid down to ensure that the Board gets the benefit of independent views.

Yes No

Identify the Chair and CEO:

Chairman of the Board Ricardo J. Romulo

CEO/President Lance Y. Gokongwei

(b) Roles, Accountabilities and Deliverables

Define and clarify the roles, accountabilities and deliverables of the Chairman and CEO. The roles of Chairman and the Chief Executive Officer (CEO) may be separated in order to foster an appropriate balance of power, increased accountability, and better capacity for independent decision-making by the Board. A clear delineation of functions should be made between the Chairman and CEO upon their election.

If the roles of Chairman and CEO are unified, the proper checks and balances shall be laid down to ensure that the Board gets the benefit of independent views and perspectives.

Chairman Chief Executive Officer

Role 1. Ensure that the meetings of the Board are held in accordance with the By-Laws or as the Chairman may deem necessary.

2. Supervise the preparation of the agenda of the meeting in coordination with the Corporate Secretary, taking into consideration the suggestions of the Directors and Management.

3. Maintain qualitative and timely lines of

communication and information between the Board and Management.

4. Provide leadership to the Board and

ensure that the Board works effectively and performs its duties responsibly.

1. The CEO shall have general care, management and administration of the business operations of the Company. He shall ensure that: (a) the business and affairs of the Company are managed in a sound and prudent manner; and (b) operational, financial and internal controls are adequate and effective to ensure reliability and integrity of financial and operational information, effectiveness and efficiency of operations, safeguarding of assets and compliance with laws, rules, regulations and contracts.

2. The CEO shall provide leadership for Management in developing and implementing business strategies, plans and budgets to the extent approved by the Board. He shall provide the Board with a balanced and understandable account of the Company’s performance, financial condition, results of operations and prospects on a regular basis.

Accountabilities Please see above. Please see above.

Deliverables 1. Agenda for the meetings 1. Statement of Management’s

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2. Statement of Management’s Responsibility for audited financial statements 3. SEC Form 17-A 4. SEC Form 17-Q 5. Other reports required by law

Responsibility for audited financial statements 2. SEC Form 17-A 3. SEC Form 17-Q 4. Other reports required by law

3) Explain how the board of directors plans for the succession of the CEO/Managing Director/President and the top key

management positions? One of the Company’s core organizational systems is the Advancement Planning (AP) system. The AP system is an on-going process of identifying, assessing, and developing talents to ensure leadership continuity for all key positions and providing opportunities for key talents to grow within the organization. Incumbents / identified successors are assessed on 2 elements: performance over time and potential. Moreover, each identified successor is assessed based on his/her level of readiness to occupy the higher role. Specific development interventions per successor are also identified as part of the process. Every year, the AP System is reviewed by HR and top management to check whether the planned development interventions took place, and if the level of readiness of identified successors has progressed, among others.

The Competency-Based System and Performance Management System are two other core organizational systems that we have in place which allow the company to properly utilize the Advanced Planning System.

4) Other Executive, Non-Executive and Independent Directors

Does the Company have a policy of ensuring diversity of experience and background of directors in the board? Please explain. The Board, with the assistance of the Governance, Nomination and Election Committee, implements a nomination and election process to ensure that all shareholders are given the opportunity to nominate and elect directors and to ensure a mix of knowledge, expertise, experience and balance among independent, non-executive and executive competent Directors who can add value and contribute independent judgment to the formulation of sound corporate strategies and policies.

Does it ensure that at least one non-executive director has an experience in the sector or industry the Company belongs to? Please explain. Qualification for directorship requires that the director must have a practical understanding of the business of the Corporation and must be a member of good standing in relevant industry, business or professional organizations. The Company has non-executive directors that are well experienced that allow them to give objective views, perspectives, and decisions on matters raised to the Board.

Define and clarify the roles, accountabilities and deliverables of the Executive, Non-Executive and Independent Directors:

Executive Non-Executive Independent Director

Role A Director’s Office is one of trust and confidence. A Director should act in the best interest of the Company in a manner characterized by transparency, accountability, and fairness. He should also exercise leadership, prudence, and integrity in directing the Company towards sustained progress.

Same Same

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A Director should observe the following norms of conduct: 1. Conduct fair business transactions with the

Company, and ensure that his personal interest does not conflict with the interests of the Company. The basic principle to be observed is that a director should not use his position to profit or gain some benefit or advantage for himself and/or his related interests. He should avoid situations that may compromise his impartiality. If an actual or potential conflict of interest may arise on the part of a director, he should fully and immediately disclose it and should not participate in the decision-making process. A director who has a continuing material conflict of interest should seriously consider resigning from his position. A conflict of interest shall be considered material if the director’s personal or business interest is antagonistic to that of the Company, or stands to acquire or gain financial advantage at the expense of the Company.

2. Devote the time and attention necessary to

properly and effectively perform his duties and responsibilities. A director should devote sufficient time to familiarize himself with the Company’s business. He should be constantly aware of and knowledgeable with the Company’s operations to enable him to meaningfully contribute to the Board’s work. He should attend at least 75% of the Board meetings and actively participate in Board and committee meetings, review meeting materials and, if called for, ask questions or seek explanation.

3. Act judiciously. Before deciding on any matter

brought before the Board, a director should carefully evaluate the issues and, if necessary, make inquiries and request clarification.

4. Exercise independent judgment. A director

should view each problem or situation objectively. If a disagreement with other Directors arises, he should carefully evaluate and explain his position. He should not be afraid to take an unpopular position. Corollary, he should support plans and ideas that he thinks are beneficial to the Company.

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5. Have a working knowledge of the statutory and regulatory requirements that affect the Company, including its articles of incorporation and By-Laws, the rules and regulations of the Commission and, where applicable, the requirements of relevant regulatory agencies. A director should also keep abreast with industry developments and business trends in order to promote the Company’s competitiveness.

6. Observe confidentiality. A director should keep

secure and confidential all non-public information he may acquire or learn by reason of his position as director. He should not reveal confidential information to unauthorized persons without the authority of the Board. On the other hand, a Director should not take advantage for himself and/or his related interests or benefit from knowledge which is not generally available to the market.

7. Have a working knowledge of the Company’s

control systems. A director shall ensure the continuing soundness, effectiveness, and adequacy of the Company’s control environment.

8. Disclose to the Philippine Stock Exchange (PSE) and the Securities and Exchange Commission (SEC) the trading of the corporation’s shares by directors, officers (or persons performing similar functions) and controlling shareholders. This shall also include the disclosure of the Corporation’s purchase of its shares from the market (e.g. share buy-back program).

Accountabilities See above See above. See above.

Deliverables 1. Exercise the powers of the Board of Directors as stated in the By-Laws.

2. Execute and approve all resolutions and minutes of the meeting of the Board of Directors.

Exercise the powers of the Board of Directors as stated in the By-Laws

1. Exercise the powers of the Board of Directors as stated in the By-Laws

2. Submit, at the time of his election, a certification confirming that he possesses the qualifications and none of the disqualifications to serve as an independent director of the Company.

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Provide the Company’s definition of "independence" and describe the Company’s compliance to the definition.

The Company has defined an independent director as follows: An independent director is a person who, apart from his fees and shareholdings, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director in the Company and includes, among others, any person who: 1. Is not a director or officer or substantial stockholder of the Company or of its related companies or any of its

substantial shareholders except when the same shall be an independent director of any of the foregoing; 2. Does not own more than two percent (2%) of the shares of the Company and/or its related companies or any

of its substantial shareholders; 3. Is not a relative of any director, officer or substantial shareholder of the Company, any of its related

companies or any of its substantial shareholders. For this purpose, relatives include spouse, parent, child, brother, sister, and the spouse of such child, brother or sister;

4. Is not acting as a nominee or representative of any director or substantial shareholder of the Company, and/or any of its related companies and/or any of its substantial shareholders, pursuant to a Deed of Trust or under any contract or arrangement;

5. Has not been employed in any executive capacity by the Company, any of its related companies and/or by any of its substantial shareholders within the last two (2) years;

6. Is not retained, either personally or through his firm or any similar entity, as professional adviser, by the Company, any of its related companies and/or any of its substantial shareholders, within the last two (2) years; or

7. Has not engaged and does not engage in any transaction with the Company and/or with any of its related companies and/or with any of its substantial shareholders, whether by himself and/or with other persons and/or through a firm of which he is a partner and/or a Company of which he is a director or substantial shareholder, other than transactions which are conducted at arm’s length and are immaterial.

Does the Company have a term limit of five consecutive years for independent directors? If after two years, the Company wishes to bring back an independent director who had served for five years, does it limit the term for no more than four additional years? Please explain.

The Company complies with the Corporation Code, Securities Regulation Code, its by-laws and Corporate Governance Manual in the election of independent directors.

5) Changes in the Board of Directors (Executive, Non-Executive and Independent Directors)

(a) Resignation/Death/Removal

Indicate any changes in the composition of the Board of Directors that happened during the period:

Name Position Date of Cessation Reason

Not applicable

(b) Selection/Appointment, Re-election, Disqualification, Removal, Reinstatement and Suspension

Describe the procedures for the selection/appointment, re-election, disqualification, removal, reinstatement and suspension of the members of the Board of Directors. Provide details of the processes adopted (including the frequency of election) and the criteria employed in each procedure:

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Procedure Process Adopted Criteria

a. Selection/Appointment

(i) Executive Directors The directors of the Company shall be elected by plurality vote at the annual meeting of the stockholders for the year at which a quorum is present. At each election for directors, every stock holder shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected, or to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the number of shares shall equal, or by distributing such votes as the same principle among any number of candidates.

Must own at least one share of the capital stock of the Company in his own name.

A majority of the directors must be residents of the Philippines.

He must not have been convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years or a violation of the Corporation Code, committed within five years before the date of his election.

He must be of legal age.

(ii) Non-Executive Directors The directors of the Company shall be elected by plurality vote at the annual meeting of the stockholders for the year at which a quorum is present. At each election for directors, every stock holder shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected, or to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the number of shares shall equal, or by distributing such votes as the same principle among any number of candidates.

Must own at least one share of the capital stock of the Company in his own name.

A majority of the directors must be residents of the Philippines.


He must be of legal age.

(iii) Independent Directors 1. The Nomination and Committee (the “Committee”) shall have at least three (3) members, one of whom is an independent director. It shall promulgate the guidelines or criteria to govern the conduct of the nomination. The same shall be properly disclosed in the Company’s information or proxy statement or such other reports required to be submitted to the Commission.

2. Nomination of independent director/s

shall be conducted by the Committee prior to a stockholders’ meeting. All recommendations shall be signed by the nominating stockholders together with the acceptance and conformity by the

An independent director shall have the following qualifications: 1.1 He shall have at least one (1)

share of stock of the Company;

1.2 He shall be at least a college graduate or he has sufficient management experience to substitute for such formal education or he shall have been engaged or exposed to the business of the Company for at least five (5) years;

1.3 He shall be twenty one (21) years old up to seventy (70) years old, however, due consideration shall be given to qualified independent directors up to the age of eighty

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would-be nominees. 3. The Committee shall pre-screen the

qualifications and prepare a final list of all candidates and put in place screening policies and parameters to enable it to effectively review the qualifications of the nominees for independent director/s.

4. After the nomination, the Committee

shall prepare a Final List of Candidates which shall contain all the information about all the nominees for independent directors, as required under Part IV (A) and (C) of Annex "C" of SRC Rule 12, which list, shall be made available to the Commission and to all stockholders through the filing and distribution of the Information Statement, in accordance with SRC Rule 20, or in such other reports the Company is required to submit to the Commission. The name of the person or group of persons who recommended the nomination of the independent director shall be identified in such report including any relationship with the nominee.

5. Only nominees whose names appear on

the Final List of Candidates shall be eligible for election as independent director/s. No other nomination shall be entertained after the Final List of Candidates shall have been prepared. No further nominations shall be entertained nor allowed on the floor during the actual annual stockholders' meeting.

6. Election of Independent Director/s 6.1 Except as those required under this Rule

and subject to pertinent existing laws, rules and regulations of the Commission, the conduct of the election of independent director/s shall be made in accordance with the standard election procedures of the Company or its by-laws.

6.2 It shall be the responsibility of the

(80);

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

1.5 He shall be assiduous.

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Chairman of the Meeting to inform all stockholders in attendance of the mandatory requirement of electing independent director/s. He shall ensure that an independent director/s are elected during the stockholders’ meeting.

6.3 Specific slot/s for independent directors

shall not be filled-up by unqualified nominees.

6.4 In case of failure of election for

independent director/s, the Chairman of the Meeting shall call a separate election during the same meeting to fill up the vacancy.

b. Re-appointment

(i) Executive Directors Same process as stated above for selection/appointment of Executive Directors.

Same criteria as stated above for selection/appointment of Executive Directors.

(ii) Non-Executive Directors Same process as stated above for selection/appointment of Non-Executive Directors.

Same process as stated above for selection/appointment of Non-Executive Directors.

(iii) Independent Directors Same process as stated above for selection/appointment of Independent Directors.

Same process as stated above for selection/appointment of Independent Directors.

c. Permanent Disqualification

(i) Executive Directors Same process as stated in the criteria for permanent disqualification of Executive Directors


(ii) Non-Executive Directors Same process as stated in the criteria for permanent disqualification of Non-Executive Directors


(iii) Independent Directors Same process as stated in the criteria for permanent disqualification of Independent Directors

No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of the Corporation Code, committed within five (5) years prior to the date of his election, shall qualify as an independent director. This is without prejudice to other disqualifications

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which the Company’s Manual on Corporate Governance provides.

d. Temporary Disqualification

(i) Executive Directors Same process as stated in the criteria for temporary disqualification of Executive Directors

The Board may provide for the temporary disqualification of a Director for any of the following reasons: 1.1. Refusal to comply with the

disclosure requirements of the Securities Regulation Code and its Implementing Rules and Regulations. This disqualification shall be in effect as long as his refusal persists;

1.2. Absence in more than fifty

percent (50%) of all regular and special meetings of the Board during his incumbency, or any twelve (12) month period during said incumbency, unless the absence is due to illness, death in the immediate family, or serious accident. This disqualification applies for purposes of the succeeding election;

1.3. Dismissal/termination for cause

as Director of any Company covered by this Code. This disqualification shall be in effect until he has cleared himself of any involvement in the cause that gave rise to his dismissal or termination.

1.4. If the beneficial equity ownership

of an Independent Director in the Company or its subsidiaries and affiliates exceeds two percent of its subscribed capital stock. The disqualification shall be lifted if the limit is later complied with.

1.5. If any of the judgments or orders

cited in the grounds for permanent disqualification has not yet become final.

A temporarily disqualified Director shall, within sixty (60) business days

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from such disqualification, take the appropriate action to remedy or correct the disqualification. If he fails or refuses to do so for unjustified reasons, the disqualification shall become permanent.

(ii) Non-Executive Directors Same process as stated in the criteria for temporary disqualification of Non-Executive Directors

The Board may provide for the temporary disqualification of a Director for any of the following reasons: 1.1. Refusal to comply with the

disclosure requirements of the Securities Regulation Code and its Implementing Rules and Regulations. This disqualification shall be in effect as long as his refusal persists;

1.2. Absence in more than fifty

percent (50%) of all regular and special meetings of the Board during his incumbency, or any twelve (12) month period during said incumbency, unless the absence is due to illness, death in the immediate family, or serious accident. This disqualification applies for purposes of the succeeding election;

1.3. Dismissal/termination for cause

as Director of any Company covered by this Code. This disqualification shall be in effect until he has cleared himself of any involvement in the cause that gave rise to his dismissal or termination.

1.4. If the beneficial equity ownership

of an Independent Director in the Company or its subsidiaries and affiliates exceeds two percent of its subscribed capital stock. The disqualification shall be lifted if the limit is later complied with.

1.5. If any of the judgments or orders

cited in the grounds for permanent disqualification has not yet become final.

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A temporarily disqualified Director shall, within sixty (60) business days from such disqualification, take the appropriate action to remedy or correct the disqualification. If he fails or refuses to do so for unjustified reasons, the disqualification shall become permanent.

(iii) Independent Directors Same process as stated in the criteria for temporary disqualification of Independent Directors

He shall be disqualified during his tenure under the following instances or causes: 2.1 He becomes an officer or

employee of the Company where he is such member of the board of directors/trustees, or becomes any of the persons enumerated under letter (A) hereof;

2.2 His beneficial security ownership exceeds two percent (2%) of the outstanding capital stock of the Company where he is such director;

2.3 Fails, without any justifiable cause, to attend at least 50% of the total number of Board meetings during his incumbency unless such absences are due to grave illness or death of an immediate family;

Such other disqualifications that the Corporate Governance Manual provides.

e. Removal

(i) Executive Directors 1. It must take place either at a regular meeting or special meeting of the stockholders or members called for the purpose; 2. There must be previous notice to the stockholders or members of the intention to remove; 3. The removal must be by a vote of the stockholders representing 2/3 of Outstanding Capital Stock or 2/3 of members. 4. The director may be removed with or without cause unless he was elected by the minority , in which case, it is required that there is cause for removal.

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(ii) Non-Executive Directors 1. It must take place either at a regular meeting or special meeting of the stockholders or members called for the purpose; 2. There must be previous notice to the stockholders or members of the intention to remove; 3. The removal must be by a vote of the stockholders representing 2/3 of Outstanding Capital Stock or 2/3 of members. 4. The director may be removed with or without cause unless he was elected by the minority, in which case, it is required that there is cause for removal.

(iii) Independent Directors In case of resignation, disqualification or cessation of independent directorship and only after notice has been made with the Commission within five (5) days from such resignation, disqualification or cessation, the vacancy shall be filled by the vote of at least a majority of the remaining directors, if still constituting a quorum, upon the nomination of the Committee otherwise, said vacancies shall be filled by the stockholders in a regular or special meeting called for that purpose. An independent director so elected to fill a vacancy shall serve only for the unexpired term of his predecessor in office.

f. Re-instatement

(i) Executive Directors Same process as stated above under selection/appointment of Executive Directors.

Same criteria as stated above under selection/appointment of Executive Directors.

(ii) Non-Executive Directors Same process as stated above under selection/appointment of Non-Executive Directors.

Same criteria as stated above under selection/appointment of Non-Executive Directors.

(iii) Independent Directors Same process as stated above under selection/appointment of Independent Directors.

Same criteria as stated above under selection/appointment of Independent Directors.

g. Suspension

(i) Executive Directors Same process as stated above for removal of Executive Directors.

Same criteria as stated above under selection/appointment of Executive Directors.

(ii) Non-Executive Directors Same process as stated above for removal of Non-Executive Directors.

Same criteria as stated above under selection/appointment of Non-Executive Directors.

(iii) Independent Directors Same process as stated above for removal of Independent Directors.

Same criteria as stated above under selection/appointment of Independent Directors.

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Voting Result of the last Annual General Meeting

(held on July 26, 2015)

Name of Director Votes Received

Ricardo J. Romulo CAI’s AGM voting result is 70.22% which is more than the majority vote.

John L. Gokongwei, Jr.

James L. Go

Lance Y. Gokongwei

Jose F. Buenaventura

Frederick D. Go

Robina Gokongwei-Pe

Antonio L. Go

Wee Khoon Oh

6) Orientation and Education Program

(a) Disclose details of the Company’s orientation program for new directors, if any.

New directors receive appropriate orientation from the Corporate Secretary when first appointed to the Board. The directors are likewise given an orientation kit that includes the latest Annual Report, Definitive Information Statement, relevant disclosures to the SEC and PSE, Revised Corporate Governance Manual, related governance policies, etc. This is to ensure that new Directors become familiar with the Company’s business and governance processes.

(b) State any in-house training and external courses attended by Directors and Senior Management3 for the past

three (3) years:

The John Gokongwei Institute for Leadership and Enterprise Development or JG-ILED is the integrated leadership platform for systematic and sustainable development programs of the conglomerate. JG-ILED was established in 2005 with the following objectives: to demonstrate the enterprise commitment to continued learning, organizational growth and career development; to enable leaders to develop strategies for competitiveness, and to develop and grow our employees and create a deep bench of talents. Under JG-ILED is the Management Development Program (MDP) which aims to enhance the leadership capability and business acumen of all JGS leaders. The following are programs under MDP: Finance for Senior Executives, Strategic Communication Program, Executive Coaching Program, Advanced Negotiation Skills. Our leadership core have attended these programs. Three new programs were launched recently, namely: Leading and Managing Change, Strategy Planning and Execution and Becoming People Leaders. Aside from JG-ILED, key business units implement their respective and targeted continuing education programs for their key executives / managers.

3 Senior Management refers to the CEO and other persons having authority and responsibility for planning, directing and controlling the activities of the Company.

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(c) Continuing education programs for directors: programs and seminars and roundtables attended during the year.

Name of Director/Officer

Date of Training Program Name of Training

Institution

John L. Gokongwei, Jr. 2015 June 17, 2014

Exempted4

Creating Advantage Through Governance

SGV & Co.

James L. Go 2015

June 17, 2014

Exempted5 Creating Advantage Through Governance

SGV & Co.

Lance Y. Gokongwei November 25, 2015

June 17, 2014

Updates on Philippine Practices on Corporate Governance & Enterprise Risk Management Creating Advantage Through Governance

SGV & Co. SGV & Co.

Frederick D. Go November 25, 2015

June 17, 2014


SGV & Co. SGV & Co.

Ricardo J. Romulo May 28, 2014 Exclusive Corporate Governance Seminar Institute of Corporate Directors

Robina Gokongwei-Pe June 17, 2014 Creating Advantage Through Governance SGV & Co.

Jose F. Buenaventura May 28, 2014 Exclusive Corporate Governance Seminar Institute of Corporate Directors

Antonio L. Go November 25, 2015

June 17, 2014


SGV & Co. SGV & Co.

Wee Khoon Oh November 25, 2015

June 17, 2014

Updates on Philippine Practices on Corporate Governance & Enterprise Risk Management


SGV & Co. SGV & Co.

Andrew L. Huang November 25, 2015 Updates on Philippine Practices on Corporate Governance & Enterprise Risk

SGV & Co.

4 The SEC resolved to grant the request of the Company for Mr. John L. Gokongwei, Jr. to be permanently exempted from the corporate governance training requirement as per memo dated November 12, 2015 signed by Director Justina F. Callangan. 5 The SEC resolved to grant the request of the Company for Mr. James L. Go to be permanently exempted from the corporate governance training requirement as per memo dated November 12, 2015 signed by Director Justina F. Callangan.

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Management

Bach Johann M. Sebastian

June 17, 2014 Creating Advantage Through Governance SGV & Co.

Jaime I. Cabangis* June 17, 2014 Creating Advantage Through Governance SGV & Co.

Jeanette U. Yu* June 17, 2014 Creating Advantage Through Governance SGV & Co.

Rosita D. Menchaca November 25, 2015 June 17, 2014


SGV & Co. SGV & Co.

Junard J. Cruz June 17, 2014 Creating Advantage Through Governance SGV & Co.

Jose Alejandro B. Reyes

November 25, 2015 June 17, 2014


SGV & Co. SGV & Co.

Alexander G. Lao November 25, 2015

June 17, 2014


SGV & Co. SGV & Co.

Candice Jennifer A. Iyog

June 17, 2014 Creating Advantage Through Governance SGV & Co.

Rhea M. Villanueva November 25, 2015 June 17, 2014

Updates on Philippine Practices on Corporate Governance & Enterprise Risk Management


SGV & Co. SGV & Co.

Rosalinda F. Rivera June 17, 2014 Creating Advantage Through Governance SGV & Co.

Ma. Elynore J. Villanueva

November 25, 2015 Updates on Philippine Practices on Corporate Governance & Enterprise Risk Management

SGV & Co.

*Note: Ms. Jeanette U. Yu has resigned as the Treasurer of the Company effective November 2, 2015 and Mr. Jaime I. Cabangis has retired as the Chief Financial Officer of the Company effective June 17, 2015. Mr. Andrew L. Huang is appointed as CFO effective October 1, 2015.

B. CODE OF BUSINESS CONDUCT & ETHICS 1) Discuss briefly the Company’s policies on the following business conduct or ethics affecting directors, senior

management and employees:

Business Conduct & Ethics Directors Senior Management

Employees

(a) Conflict of Interest The Company’s Code of Business Conduct and Conflicts of Interest Policy require employees to make a conscious effort to avoid conflict of interest situations; that his judgment and discretion is not

Same Same

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influenced by considerations of personal gain or benefit. A conflict of interest may also occur because of the actions, employment, or investments of an immediate family member of an employee.

(b) Conduct of Business and Fair Dealings

The Company’s employees that recommend, endorse, or approve the procurement or / sale of goods and services should make a conscious effort to avoid any conflict of interest situation in transactions that they are involved in.

Same Same

(c) Receipt of gifts from third parties

The Company discourage the acceptance of gifts. However, gifts like advertising novelties maybe given or accepted during the Christmas season. There is no restriction in the value of the gift accepted. However, accepted gift with estimated value over Php2,000 must be disclosed to the Conflicts of interest Committee.

Same Same

(d) Compliance with Laws & Regulations

The Company ensures that all transactions comply with relevant laws and regulations. Any deficiencies are immediately rectified.

Same Same

(e) Respect for Trade Secrets/Use of Non-public Information

The Company has policies (via PSE EDGE and Company website) that ensure proper and authorized disclosure of confidential information. Disclosures to the public can only be done after disclosure to the SEC and PSE by the Company’s authorized officers.

Same Same

(f) Use of Company Funds, Assets and Information

Employees are required to safeguard Company resources and assets with honesty and integrity. Employees must ensure that these assets are efficiently, effectively, and responsibly utilized.

Same Same

(g) Employment & Labor Laws & Policies

The Company’s Human Resources Unit ensures compliance with employment and labor laws and policies.

Same Same

(h) Disciplinary action Violation of any provision of the Code of Business Conduct may result to disciplinary action, including dismissal and reimbursement for any loss to the Company that results from the employee’s action. If appropriate, a violation may result in legal action against the employee or referral to the appropriate government authorities.

Same Same

(i) Whistle Blower Any employee may discuss or disclose in writing any concern on potential violation of the Code of Business Conduct with the Conflicts of Interest Committee. Reports or disclosures can be made in writing or by email using the following contact details: a. email address [email protected] b. fax number 395-2890 c. mailing address Must be sent in a sealed envelope clearly marked

Same Same

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“Strictly Private and Confidential-To Be Opened by Addressee Only”. CICOM JG Summit Holdings, Inc. 44th Flr. Robinsons Equitable Tower ADB Avenue, Cor., Poveda Road, Pasig City The complaint shall be filed using the Complaint/Disclosure Form (CDF) available in the company website. All information received in connection with the reports or disclosures shall be strictly confidential and shall not be disclosed to any person without prior consent of CICOM.

(j) Conflict Resolution The Conflicts of Interest Committee submits recommendations on courses of action to be taken on conflicts of interest situations. Decision is done by the Executive Committee.

Same Same

2) Has the code of ethics or conduct been disseminated to all directors, senior management and employees?

Yes. The Company’s Code of Business Conduct has been disseminated to all directors, senior management, and employees.

3) Discuss how the Company implements and monitors compliance with the code of ethics or conduct. All new employees undergo an orientation program to familiarize themselves with the Code. Relevant disclosure and compliance statements are likewise secured prior employment or engagement with the Company. Further, all concerned employees of the Conglomerate are required to comply with the Annual Self-Diclosure Activity on an annual basis. Employees with the following position levels or functions are required to accomplish and submit the Handwritten Self-Disclosure Form (HSDF) to the Business Unit or Corporate Human within 15 days after the end of each calendar year:

All employees in the managerial and executive levels;

All employees with procurement, retail merchandising, CAPEX project management, and leasing functions;

Technical specialists involved in CAPEX projects

All employees involved in engineering fabrications (whether OPEX or CAPEX) Employees may also submit new HSDF anytime during the year if they would like to disclose new information to avoid potential conflict of interest.

4) Related Party Transactions

(a) Policies and Procedures

Describe the Company’s policies and procedures for the review, approval or ratification, monitoring and recording of related party transactions between and among the Company and its parent, joint ventures, subsidiaries, associates, affiliates, substantial stockholders, officers and directors, including their spouses, children and dependent siblings and parents and of interlocking director relationships of members of the Board.

Related Party Transactions Policies and Procedures

(1) Parent Company The Company applies the “arm’s-length principle” in transactions entered into with the Parent Company.

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(2) Joint Ventures Treated as arm’s-length transaction

(3) Subsidiaries Treated as arm’s-length transaction

(4) Entities Under Common Control Treated as arm’s-length transaction

(5) Substantial Stockholders Treated as arm’s-length transaction

(6) Officers including spouse/children/siblings/parents

Treated as arm’s-length transaction

(7) Directors including spouse/children/siblings/parents

Treated as arm’s-length transaction

(8) Interlocking director relationship of Board of Directors

The Company, adopts by law, the rules pertaining to interlocking directors, as follows: a) If the interests of the interlocking director in the Companies are both

substantial (stockholdings exceed 20% of outstanding capital stock) General Rule: A contract between two or more Companies having interlocking directors shall not be invalidated on that ground alone. Exception: If the contract is fraudulent or not fair and reasonable.

b) If the interest of the interlocking director in one of the Companies is nominal while substantial in the other (stockholdings 20% or more), the contract shall be valid provided the following conditions are present: 1) The presence of such director in the board meeting in which the

contract was approved was not necessary to constitute a quorum for such meeting;

2) That the vote of such director was not necessary for the approval of the contract;

3) That the contract is fair and reasonable under the circumstances.

Where (1) and (2) are absent , the contract can be ratified by the vote of the stockholders representing at least 2/3 of the outstanding capital stock or by the vote of the stockholders representing at least 2/3 of the members in a meeting called for the purpose. Provided that:

1) Full disclosure of the adverse interest of the directors/trustees involved is made on such meeting;

2) The contract is fair and reasonable under the circumstances.

(b) Conflict of Interest

(i) Directors/Officers and 5% or more Shareholders

Identify any actual or probable conflict of interest to which directors/officers/5% or more shareholders may be involved.

None

Details of Conflict

of Interest (Actual or Probable)

Name of Director/s Not applicable

Name of Officer/s Not applicable

Name of Significant Shareholders Not applicable

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(ii) Mechanism

Describe the mechanism laid down to detect, determine and resolve any possible conflict of interest between the Company and/or its group and their directors, officers and significant shareholders

Directors/Officers/Significant Shareholders

Company

Entities and persons that wish to transact business with the Company are required to submit accreditation papers and undergo evaluation by designated committees that recommended accreditation. Disclosure of relationships is required.

Group Same as above.

5) Family, Commercial and Contractual Relations

(a) Indicate, if applicable, any relation of a family,6 commercial, contractual or business nature that exists between the holders of significant equity (5% or more), to the extent that they are known to the Company:

Names of Related Significant Shareholders

Type of Relationship Brief Description of the

Relationship

None

(b) Indicate, if applicable, any relation of a commercial, contractual or business nature that exists between the

holders of significant equity (5% or more) and the Company:

Names of Related Significant Shareholders

Type of Relationship Brief Description

CPAir Holdings, Inc Major Stockholder The Company, in its regular conduct of business, had engaged in transactions with its major stockholder, CPAir Holdings, Inc and its ultimate parent Company, JG Summit Holdings, Inc. For further information on the Company’s related party transactions, including detailed breakdowns of amounts receivable from and amounts payable to affiliated companies, please refer to Note 25 (Related party Transactions) of the Notes to the Company’s Audited Consolidated Financial Statements as of and for the fiscal year ended December 31, 2014.

(c) Indicate any shareholder agreements that may impact on the control, ownership and strategic direction of the

Company:

Name of Shareholders % of Capital Stock affected

(Parties) Brief Description of the Transaction

None

6 Family relationship up to the fourth civil degree either by consanguinity or affinity.

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6) Alternative Dispute Resolution

Describe the alternative dispute resolution system adopted by the Company for the last three (3) years in amicably settling conflicts or differences between the Company and its stockholders, and the Company and third parties, including regulatory authorities.

Alternative Dispute Resolution System

Corporation & Stockholders

The Board shall establish and maintain an alternative dispute resolution system in the Corporation that can amicably settle conflicts or differences between the Corporation and its stockholders, and the Corporation and third parties, including regulatory authorities.

Corporation & Third Parties

For cases filed in court involving the Company and third parties, the Company submits itself to the court-ordered mediation and judicial dispute resolution process and exhaust all means therein to settle the controversy amicably. For contracts, the Company includes a dispute resolution clause between the designated officers of the parties to the contract and an arbitration clause, in the event the former fails, as alternative dispute resolution.

Corporation & Regulatory Authorities None. Regulatory matters are subject to strict adherence and compliance by the Company as it is governed by laws, rules, and regulations.

C. BOARD MEETINGS & ATTENDANCE 1) Are Board of Directors’ meetings scheduled before or at the beginning of the year?

These are scheduled before the beginning of the year.

2) Attendance of Directors (For the year 2015)

Board Name Date of last

Election

No. of Meetings Held during the

fiscal year*

No. of Meetings Attended

%

Chairman Ricardo J. Romulo June 26, 2015 5 5 100%

Member John L. Gokongwei, Jr. June 26, 2015 5 4 80%

Member James L. Go June 26, 2015 5 5 100%

Member Lance Y. Gokongwei June 26, 2015 5 5 100%

Member Frederick D. Go June 26, 2015 5 4 80%

Member Robina Gokongwei-Pe June 26, 2015 5 5 100%

Member Jose F. Buenaventura June 26, 2015 5 4 80%

Independent Antonio L. Go June 26, 2015 5 5 100%

Independent Wee Khoon Oh June 26, 2015 5 4 80% * Calendar year 2015 of CEB is from January 1, 2015 to December 31, 2015

3) Do non-executive directors have a separate meeting during the year without the presence of any executive? If yes,

how many times? No

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4) Is the minimum quorum requirement for Board decisions set at two-thirds of board members? Please explain. A quorum at any meeting of the directors shall consist of a majority of the number of directors fixed in the Articles of Incorporation. A majority of such quorum shall decide any question that may come before the meeting and shall be considered a valid corporate act, except for the election of officers which shall require the vote of a majority of all the members of the Board. Actual attendance of the Board of Director for each of the meeting for the fiscal year 2014 exceeded two-thirds of the board members.

5) Access to Information

(a) How many days in advance are board papers7 for board of directors meetings provided to the board? The notice and agenda of the meeting and other relevant meeting materials shall be furnished to the Directors at least five (5) business days prior to each meeting.

(b) Do board members have independent access to Management and the Corporate Secretary? Yes. Board Members have independent access to management and the Corporate Secretary.

(c) State the policy of the role of the Company secretary. Does such role include assisting the Chairman in preparing the board agenda, facilitating training of directors, keeping directors updated regarding any relevant statutory and regulatory changes, etc? The Secretary who must be a citizen and resident of the Philippines shall attend all meetings of the stockholders and Board of Directors, and shall act as Secretary thereof and record the minutes of all proceedings in book to be kept for that purpose, and shall perform like duties for any committee of the Board when required. He shall cause to be given notice of all meetings of directors and stockholders, and shall perform such other duties as may pertain to this office. He shall keep in safe custody the seal of the Company, and, when authorized by the Board of Directors, affix it when required to any instrument. The Corporate Secretary, a Filipino citizen and a resident of the Philippines, is an officer of the Company and must be exemplary in performance.

The Corporate Secretary shall: 1. Be loyal to the mission, vision, and objectives of the Company. 2. Work fairly and objectively with the Board, Management, and stockholders. 3. Be responsible for the safekeeping and preservation of the integrity of the minutes of the

meeting of the Board and its Committees, as well as other official records of the Company. 4. Gather and analyze all documents, records and other information essential to the conduct of

his duties and responsibilities to the Company. 5. Provide the Board of Directors the schedule of meetings before the start of the financial year

and provide notice before every meeting. 6. As to agenda, get a complete schedule thereof and put the Board on notice at least five (5)

business days before every meeting. 7. Inform the members of the Board, in accordance with the By-Laws, of the agenda of their

meetings together with the rationale and explanation of each item in the agenda and ensure

7 Board papers consist of complete and adequate information about the matters to be taken in the board meeting. Information includes the background or explanation on matters brought before the Board, disclosures, budgets, forecasts and internal financial documents.

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that the members have before them accurate information that will enable them to arrive at intelligent decisions on matters that require their approval.

8. Release to the Exchange the notice of Annual Shareholders’ Meeting (ASM) with detailed agendas and explanatory circulars, at least twenty eight (28) days before the date of the meeting.

9. Attend all Board meetings, except when justifiable causes, such as illness, death in the immediate family and serious accidents, prevent him from doing so.

10. Ensure that all Board procedures, rules, and regulations are strictly followed by the members. 11. Submit within five (5) business days from the end of the Corporation’s fiscal year an

advisement letter on the attendance of the Directors during Board meetings.

(d) Is the Company secretary trained in legal, accountancy or Company secretarial practices? Please explain should the answer be in the negative. Yes

(e) Committee Procedures

Disclose whether there is a procedure that Directors can avail of to enable them to get information necessary to be able to prepare in advance for the meetings of different committees:

Yes X No

Committee Details of the procedures

Executive To enable the Directors to properly fulfill their duties and responsibilities, Management should provide the Directors with complete, adequate, and timely information about the matters to be taken in their meetings. Reliance on information volunteered by Management would not be sufficient in all circumstances and further inquiries may have to be made by a Director to enable him to properly perform his duties and responsibilities. Hence, the Directors should be given independent access to Management and to the Corporate Secretary. The information may include the background or explanation on matters brought before the Board, disclosures, budgets, forecasts, and internal financial documents.

Audit and Risk Management

Governance, Nomination and Election

Remuneration and Compensation

Others (specify)

6) External Advice

Indicate whether or not a procedure exists whereby directors can receive external advice and, if so, provide details:

Procedures Details

The Directors, either individually or as a Board, and in furtherance of their duties and responsibilities, should have access to independent professional advice at the Company’s expense.

-same-

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The members, either individually or as a Board, and in furtherance of their duties and responsibilities, have access to independent professional advice at the Company’s expense.

7) Change/s in existing policies

Indicate, if applicable, any change/s introduced by the Board of Directors (during its most recent term) on existing policies that may have an effect on the business of the Company and the reason/s for the change:

Existing Policies Changes Reason

None

D. REMUNERATION MATTERS 1) Remuneration Process

Disclose the process used for determining the remuneration of the CEO and the four (4) most highly compensated management officers:

Process CEO Top 4 Highest Paid Management

Officers

(1) Fixed remuneration Based on the compensation structure and policies of the Company on salary adjustments, promotions and performance assessments.

(2) Variable remuneration None

(3) Per diem allowance Each director shall receive a reasonable per diem for his attendance at meetings

(4) Bonus Determined upon achievement of performance based matrix.

(5) Stock Options and other financial instruments

None

(6) Others (specify) Rice, medicine allowance and leave credits

2) Remuneration Policy and Structure for Executive and Non-Executive Directors

Disclose the Company’s policy on remuneration and the structure of its compensation package. Explain how the compensation of Executive and Non-Executive Directors is calculated.

Remuneration

Policy Structure of

Compensation Packages

How Compensation is

Calculated

Executive Directors Performance based matrices.

Non-Executive Directors Each director shall receive a reasonable per diem for his attendance at

meetings.

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Do stockholders have the opportunity to approve the decision on total remuneration (fees, allowances, benefits-in-kind and other emoluments) of board of directors? Provide details for the last three (3) years.

Remuneration Scheme Date of

Stockholders’ Approval

Ratification of acts of the Board of Directors, its Committees, officers and Management

June 26, 2015


August 18, 2014


June 27, 2013

3) Aggregate Remuneration Complete the following table on the aggregate remuneration accrued during the most recent year: The summary compensation table, as set forth below, shows the aggregate compensation of the: (a) CEO and 4 most highly compensated executive officers; and (b) all other directors and officers as a group unnamed.

Name Position Actual- Fiscal Year 2014

Salary Bonus Others Total

A. CEO and four (4) most highly compensated executive officers

P62,166,372.00 P5,507,813.00 P40,000.00 P67,714,185.00

1. Lance Y. Gokongwei

Director, President & Chief Executive Officer

2. Jaime I. Cabangis Chief Financial Officer

3. Jose Alejandro B. Reyes

General Manager

4. Jim C. Sydiongco Vice President

5. Jeanette U. Yu

Vice President & Treasurer

B. All other officers and Directors as a group unnamed

P99,109,723.00

P10,709,572.00

P320,000.00 P110,139,295.00

Remuneration Item Executive Directors Non-Executive Directors (other than

independent directors) Independent

Directors

(a) Fixed Remuneration See above See above See above

(b) Variable Remuneration See above See above See above

(c) Per diem Allowance See above See above See above

(d) Bonuses See above See above See above

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(e) Stock Options and/or other financial instruments

See above See above See above

(f) Others (Specify) See above See above See above

Total

Other Benefits

Executive Directors

Non-Executive Director (other than independent

directors)

Independent Directors

1) Advances

2) Credit granted

3) Pension Plan/s Contributions Please refer to Note 22 of the Notes to Audited Consolidated Financial Statements as of December 31, 2014.

(d) Pension Plans, Obligations incurred Please refer to Note 22 of the Notes to Audited Consolidated Financial Statements as of December 31, 2014.

(e) Life Insurance Premium

(f) Hospitalization Plan Healthcare coverage and benefits are provided by the Company through a health maintenance organization.

(g) Car Plan

(h) Others (Specify)

Total

4) Stock Rights, Options and Warrants

(a) Board of Directors

Complete the following table, on the members of the Company’s Board of Directors who own or are entitled to stock rights, options or warrants over the Company’s shares:

Director’s Name Number of Direct

Option/Rights/ Warrants

Number of Indirect

Option/Rights/ Warrants

Number of Equivalent

Shares

Total % from Capital Stock

Not Applicable

(b) Amendments of Incentive Programs

Indicate any amendments and discontinuation of any incentive programs introduced, including the criteria used in the creation of the program. Disclose whether these are subject to approval during the Annual Stockholders’ Meeting:

Incentive Program Amendments Date of

Stockholders’ Approval

None

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5) Remuneration of Management

Identify the five (5) members of management who are not at the same time executive directors and indicate the total remuneration received during the financial year:

Name of Officer/Position Total Remuneration

Jaime I. Cabangis

See table in paragraph 3 above. Jose Alejandro B. Reyes

Jim C. Sydiongco

Jeanette U. Yu

E. BOARD COMMITTEES

1) Number of Members, Functions and Responsibilities

Provide details on the number of members of each committee, its functions, key responsibilities and the power/authority delegated to it by the Board:

Committee No. of Members Committee Charter

Functions Key Responsibilities

Power

Executive Director

(ED)

Non-executive Director

(NED)

Independent Director

(ID)

Executive 2 2 1 The Executive Committee shall have the following functions/powers: 1. Advise and assist the officers of the Company in all matters

concerning its interests and the management of its business.

2. Between meetings of the Board of Directors, the Executive Committee shall have and may exercise all the powers of the Board of Directors which may be delegated to it by the Board.

3. Exercise all the powers and attributes of the Board except with respect to the following matters: a. any action for which shareholders’ approval is required, b. distribution of cash dividends, c. filling of vacancies in the Board or in the Executive Committee, d. amendment or repeal of the By-Laws or the adoption of new By-Laws, e. amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable, and f. the exercise of powers delegated by the Board exclusively to other committees.

4. Regular meetings of the Executive Committee may be held without call or notice at such times and places as the Executive Committee from time to time may fix.

5. At any meeting of the Executive Committee a majority of

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the members shall constitute a quorum. Any action of the executive Committee, to be effective, must be authorized by the affirmative vote of a majority of the members thereof.

6. The Secretary shall keep the minutes of the meetings of the executive Committee and cause them to be recorded in a book kept at his office for that purpose. Theses Minutes shall be presented to the Board of Directors from time to time for their information.


3 1 2 The Audit and Risk Management Committee shall have the following functions: 1. Assist the Board in the performance of its oversight

responsibility for the financial reporting process, system of internal controls, audit process and monitoring of compliance with applicable laws, rules and regulations.

2. Provide oversight over Management’s activities in managing credit, market, liquidity, operational, legal and other risks of the Company. This function may include regular receipt from Management of information on risk exposures and risk management activities.

3. Perform oversight functions over the Company’s internal and external auditors. It should ensure that the internal and external auditors are given unrestricted access to all records, properties and personnel to enable them to perform their respective audit functions

4. Review the annual internal audit plan to ensure its conformity with the objectives of the Company. The plan shall include the audit scope, resources and budget necessary to implement it.

5. Recommend the appointment, re-appointment and removal of External Auditor.

6. Prior to the commencement of the audit, discuss with the external auditor the nature, scope and expenses of the audit, and ensure proper coordination if more than one audit firm is involved in the activity to secure proper coverage and minimize duplication of efforts.

7. Ensure the establishment of an Internal audit department and the appointment of an independent internal auditor and the terms and conditions of its engagement and removal.

8. Monitor, evaluate and confirm the adequacy and effectiveness of the Company’s internal control system, including financial reporting control and information technology security.

9. Review the reports submitted by the internal and external auditors.

10. Review the quarterly, half-year and annual financial statements before their submission to the Board, with particular focus on the following

- any change/s in accounting policies and practices - major judgmental areas

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- significant related party transactions - significant adjustments resulting from the audit - going concern assumptions - compliance with accounting standards - compliance with tax, legal and regulatory

requirements 11. Coordinate, monitor and facilitate compliance with laws,

rules and regulations. 12. Evaluate and determine the non-audit work, if any, of the

external auditor, and review periodically the non-audit fees paid to the external auditor in relation to their significance to the total annual income of the external auditor and to the Company’s overall consultancy expenses. The Committee shall disallow any non-audit work that will conflict with his duties as an external auditor o may pose a threat to his independence. The non-audit work if allowed, should be disclosed in the Company’s annual report.

13. Establish and identify the reporting line of the Internal Audit to enable him to properly fulfill his duties and responsibilities. He shall functionally report directly to the Audit and Risk Management Committee.

14. The Audit and Risk Management Committee shall ensure that, in the performance of the work of the Internal Auditor, he shall be free from interference by outside parties.

Governance, Nomination and Election

3 1 1 The Governance, Nomination and Election Committee shall be responsible for overseeing the development and implementation of corporate governance principles and policies and ensuring that the nomination and election of new members of the Board is transparent with the end objective of having the Board increase shareholder value and aligned with the Corporation’s strategic direction. For this purpose, the Governance, Nomination and Election Committee shall:

1. Pre-screen, evaluate the qualifications and shortlist all

candidates nominated to become a member of the Board in accordance with pertinent provisions of the Articles of Incorporation and By Laws of the Company, as well as established guidelines on qualifications, disqualifications and succession planning.

2. Recommend guidelines in the selection of nominee/s for directorships which may include the following based on the perceived needs of the Board at a certain point in time:

Nature of the business of the Companies which he is a director of

Age of the director nominee

Number of directorships/active memberships and officerships in other Companies or organizations

Possible conflict of interest 3. Recommend guidelines in the determination of the

optimum number of directorships/active memberships and officerships in other Companies allowable for members of

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the Board. The capacity of directors to serve with diligence shall not be compromised.

4. Recommend to the Board regarding the size and composition of the Board in view of long term business plans, and the needed appropriate skills and characteristics of the Board members.

5. Assess the effectiveness of the Board’s processes and procedures in the election or replacement of Directors.

6. Assist the Board of Directors in performing the corporate governance duties in compliance with the Corporation’s Manual, the Revised Code of Corporate Governance, the Corporate Governance Guidelines and the listing rules of the Philippines Stock Exchange.

7. Monitor, evaluate and confirm the Corporation’s full compliance with the code of corporate governance and where there is non-compliance, identify and explain reasons for each such issue.

8. Use professional search firms or other external sources of candidates when searching for candidates to the Board or Management as deemed necessary.


3 1 1 The Remuneration and Compensation Committee recommends for Board approval a formal and transparent policy and system of remuneration and evaluation of the Directors of the Board and Company officers. For this purpose, the Committee shall: 1. Recommend a formal and transparent procedure for

developing a policy on executive remuneration and evaluation and for fixing the remuneration packages of Directors and Officers that is consistent with the Company’s culture, strategy, and business environment.

2. Recommend the amount of remuneration, which shall be in a sufficient level to attract and retain directors and officers who are needed to run the Company successfully.

3. Disallow any director to decide his remuneration. 4. Ensure that Full Business Interest Disclosure is part of the

pre-employment requirements for all incoming officers, which among others compel all officers to declare under the penalty of perjury all of their existing business interests or shareholdings that may directly or indirectly conflict in their performance of duties once hired.

5. Review recommendations concerning the existing Human Resources Development Handbook, with the objective of strengthening provisions on conflict of interest, salaries and benefits policies, promotion and career advancement directives and compliance of personnel concerned with all statutory requirements that must be periodically met in their respective posts.

6. Provide in the Company’s annual reports, information and proxy statements a clear, concise and understandable disclosure of aggregate compensation of its executive officers for the previous fiscal year and the ensuing year as prescribed by the Commission or other regulatory agency.

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Others (specify)

None

2) Committee Members

(a) Executive Committee

Office Name Date of last

Appointment

No. of Meetings Held***


***

%

Length of

Service in the

Committee**

No. of years served as director reckoning from

the election immediately following

January 2, 2012*

Member (NED)


June 26, 2015 10 10 100% 6 years 3

Member (NED)

James L. Go June 26, 2015 10 10 100% 6 years 3

Member (ED) Lance Y. Gokongwei June 26, 2015 10 10 100% 6 years 3

Member (ED) Ricardo J. Romulo June 26, 2015 10 10 100% 6 years 3

Member (ID) Antonio L. Go June 26, 2015 10 10 100% 6 years 3 Note: *-per SEC Memorandum Circular No. 9 Series of 2011 **as of 2015

*** for the year 2014

(b) Audit and Risk Management Committee


Appointment



***

%

Length of Service in

the Committee

**

No. of years served as director reckoning from the election


2012*

Chairman (ID) Antonio L. Go June 26, 2015 4 4 100% 7 years 3

Member (NED)


June 26, 2015 4 4 100% 7 years 3

Member (NED)



Member (NED)

Frederick D. Go June 26, 2015 4 4 100% 7 years 3

Member (ID) Wee Khoon Oh June 26, 2015 4 4 100% 7 years 3 Note: *-per SEC Memorandum Circular No. 9 Series of 2011 **as of 2015


Disclose the profile or qualifications of the Audit Committee members. 1. The Board establishes the Audit and Risk Management Committee and appoints the members of the

Committee. 2. This Audit and Risk Management Committee reports functionally to the Board. 3. The Audit and Risk Management Committee shall be composed of at least three (3) members from the Board,

at least one (1) of whom shall always be Independent Director. The Board shall ensure that each member should have adequate competence and/or experience on accounting, finance and audit to enable them to discharge their responsibilities.

4. The Board shall appoint an Independent Director as Committee Chairman.

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5. The Audit and Risk Management Committee, as a body, shall have neither executive nor managerial powers nor duties in the Company except those relating to the management of the Corporate Auditor.

Describe the Audit Committee’s responsibility relative to the external auditor. Following are the responsibilities of the Audit and Risk Management relative to the external auditor: 1. Perform oversight functions over the Corporation’s Internal and External Auditors. It should ensure that the

Internal and External Auditors are given reasonable access to all material records, properties and personnel to enable them to perform their respective audit functions.

2. Recommend the appointment, re-appointment and removal of External Auditor. 3. Prior to the commencement of the audit, discuss with the External Auditor the nature, scope, and expenses of

the audit, and ensure proper coordination if more than one audit firm is involved in the activity to secure proper coverage and minimize duplication of efforts.

4. Review the reports submitted by the Internal and External Auditors. 5. Evaluate and determine the non-audit work, if any, of the External Auditor, and review periodically the non-

audit fees paid to the External Auditor in relation to their significance to the total annual income of the External Auditor and to the Corporation’s overall consultancy expenses. The Committee shall disallow any non-audit work that will conflict with his duties as an External Auditor or may pose a threat to his independence. If the non-audit work is allowed, this should be disclosed in the Company’s Annual Report.

(c) Governance, Nomination and Election Committee


Appointment



***

%


the Committee

**

No. of years served as director reckoning from the election


2012*

Chairman (NED)


Member (NED)


June 26, 2015 1 1 100% 7 years 3


Member (NED)

Frederick D. Go June 26, 2015 1 1 100% 7 years 3

Member (ID) Wee Khoon Oh June 26, 2015 1 1 100% 7 years 3 Note: *-per SEC Memorandum Circular No. 9 Series of 2011 **as of 2015


(d) Remuneration and Compensation Committee


Appointment



***

%


the Committee

**

No. of years served as director reckoning from

the election immediately following

January 2, 2012*

Member (NED) John L. Gokongwei, Jr.

June 26, 2015 Discussed at Board Meetings 7 years 3

Member (NED) James L. Go June 26, 2015 7 years 3

Member (ED) Lance Y. Gokongwei

June 26, 2015 7 years 3

Member (NED) Frederick D. Go June 26, 2015 7 years 3

Member (ID) Antonio L. Go June 26, 2015 7 years 3

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Note: *-per SEC Memorandum Circular No. 9 Series of 2011 **as of 2015


(e) Others (Specify)

Provide the same information on all other committees constituted by the Board of Directors:

Office Name Date of

Appointment

No. of Meetings

Held


%


the Committee

Chairman

None Member (ED)

Member (NED)

Member (ID)

Member

3) Changes in Committee Members

Indicate any changes in committee membership that occurred during the year and the reason for the changes:

Name of Committee Name Reason

Executive

None


Governance, Nomination and Election Committee


Others (specify)

4) Work Done and Issues Addressed

Describe the work done by each committee and the significant issues addressed during the year.

Name of Committee Work Done Issues Addressed

Executive Acted upon and adopted resolutions on the following areas: Application for registration with the Board of Investments, financing of the acquisition and acceptance of delivery of aircraft, transactions with banks and an insurance company, and approval of financial statements.

No significant issues that would put the Company at major risk.


Review of the following areas: inventory management, fuel inventory management, revenue management, billing and collection, financial reporting, accounts receivable management, employee benefits management, and process review of treasury, comptrollership


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and people departments.


Recommendation of nominees to be included in the final list of independent directors.



Recommendation of budgets for merit increase and salary adjustments


Others (specify) None

5) Committee Program

Provide a list of programs that each committee plans to undertake to address relevant issues in the improvement or enforcement of effective governance for the coming year.

Name of Committee Planned Programs Issues to be Addressed

Executive None


Internal audit plan for the coming fiscal year



Pre-screen qualifications of nominees for independent directors.



Review and evaluate existing remuneration policies and procedures.


Others (specify)

F. RISK MANAGEMENT SYSTEM 1) Disclose the following:

(a) Overall risk management philosophy of the Company;

The Company aims to identify, measure, analyze, monitor, and control all forms of risks that would affect the Company.

(b) A statement that the directors have reviewed the effectiveness of the risk management system and commenting on the adequacy thereof; At the end of each calendar year, the Chief Executive Officer (CEO) and Chief Audit Executive (CAE) executes a written attestation that a sound internal audit, control and compliance system is in place and working effectively. The attestation is presented to and confirmed by the Audit and Risk Management Committee during the meeting.

(c) Period covered by the review;

The Audit and RIsk Management Committee periodically reviews the risk management system of the Company through its meetings and review of required reports.

(d) How often the risk management system is reviewed and the directors’ criteria for assessing its effectiveness; and

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The adequacy of the risk management system is reviewed annually by the Audit and Risk Management Committee. On a quarterly basis, specific risk management processes and findings are reviewed and evaluated.

(e) Where no review was conducted during the year, an explanation why not. Not applicable.

2) Risk Policy

(a) Company Give a general description of the Company’s risk management policy, setting out and assessing the risk/s covered by the system (ranked according to priority), along with the objective behind the policy for each kind of risk:

Risk Exposure Risk Management Policy Objective

Credit risk The Company trades only with recognized, creditworthy third parties. It is the Company’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 Company, which comprise cash in bank and cash equivalents and certain derivative instruments, the Company’s exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amount of these instruments. The Company also requires collaterals such as cash bonds against trade receivables from major sales ticket offices or agents ranging from Php50,000 to Php2.1 million depending on the Company’s assessment of sales ticket offices and agents’ credit standing and volume of transactions.

To manage the risk of loss due to uncertainty in a third party’s ability to meet its obligation to the Company.

Liquidity Risks The Company’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 Company’s business operations or unanticipated events created by customer behavior or capital market conditions. The Company maintains a level of cash and cash equivalents deemed sufficient to finance operations. As part of its liquidity risk management, the Company 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

To meet its obligations when they become due without recurring unacceptable losses or costs.

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export credit agency facilities.

Foreign Currency Risk

Foreign currency risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company has transactional currency exposures. Such exposures arise from sales and purchases in currencies other than the Parent Company’s functional currency.

To avoid or minimize the loss associated with market risks.

Commodity price risk

The Company 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.

To manage the price risks on fuel purchases.

Interest rate risk The Company’s policy is to manage its interest cost using a mix of fixed and variable rate debt.

To manage the risk arising on interest-bearing financial instruments recognized in the consolidated statement of financial position and on some financial instruments not recognized in the statement of financial position.

Fair value interest rate

The risk that the value/future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

To manage the risk arising from the Company’s exposure to interest rate risk which relates primarily to the Company’s financial assets designated at fair value thorough profit or loss.

(b) Group

Give a general description of the Group’s risk management policy, setting out and assessing the risk/s covered by the system (ranked according to priority), along with the objective behind the policy for each kind of risk:

Risk Exposure Risk Management Policy Objective

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group transacts only with recognized, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

The Group has a counterparty credit risk management policy which allocates investment limits based on counterparty credit ratings and credit risk profile.

It is the Group’s objective that losses are minimized due to credit risks.

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Market risk

Market risk is defined as the possibility of loss due to adverse movements in market factors such as rates and prices. Market risk is present in both trading and non-trading activities Market risk is the risk of loss to future earnings, to fair value or future cash flows of a financial instrument as a result of changes in its price, in turn caused by changes in interest rates, foreign currency exchange rates, equity prices and other market factors

It is the Group’s objective that losses be minimized due to market risks.

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.

The Group seeks to maintain a square or minimal position on its foreign currency exposure.

Interest rate risk

The Group’s exposure to market risk for changes in interest rates relates primarily to the Parent Company’s and its subsidiaries’ long-term debt obligations which are subject to floating rate. The Group makes use of derivative financial instruments, such as interest rate swaps, to hedge the variability in cash flows arising from fluctuation in benchmark interest rates.

The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt.

Liquidity risk

Liquidity risk is the risk of not being able to meet funding obligations such as the repayment of liabilities or payment of asset purchases as they fall due. 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 its 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 capital market issues both onshore and offshore.

To minimize risk of not being able to meet funding obligations.

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(c) Minority Shareholders

Indicate the principal risk of the exercise of controlling shareholders’ voting power.

Risk to Minority Shareholders

Due to statutory limitations on the obligations of majority shareholders with respect to minority shareholders, minority shareholders are subject to the risk of the exercise by the majority shareholders of their voting power. However, the Corporation Code provides for minority shareholders’ protection in certain instances wherein a vote by the shareholders representing at least two-thirds of the Company’s outstanding capital stock is required. The Corporation Code also grants shareholders an appraisal, right allowing a dissenting shareholder to require a Company to purchase his shares in certain instances.

3) Control System Set Up

(a) Company

Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the Company:

Risk Exposure Risk Assessment (Monitoring and Measurement

Process)

Risk Management and Control (Structures, Procedures, Actions Taken)

Compliance Risk Evaluation of risk factors relative to the Company’s compliance obligations, considering laws and regulations, policies and procedures, ethics and business conduct standards, and contracts to which the organization committed.

The risk assessment is performed by the Compliance officer. The Compliance officer monitors the actual compliance by the Company and, if any violations are found, report the matter to the BOD and recommend the impositions of appropriate disciplinary action on the responsible parties and the adoption of measures to prevent a repetition of the violation.

Market Risk (interest rate risk, foreign currency risk, commodity risk, fair value risk)

Evaluation of market movements that could affect the Company’s performance or risk exposure.

Controllership and Corporate planning divisions assist management and the BOD in implementing and monitoring of the risk policies and procedures for each specific financial risk.

Credit Risk Evaluation of the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms.

Performs a credit verification procedures and monitors receivables on a continuous basis to ensure that the Company will have an insignificant exposure to bad debts.

Fraud risk Evaluation of potential instances of fraud that could impact the Company’s ethics and compliance standards, business practice requirements, financial reporting integrity, and other objectives. Audits are performed by the internal and external auditors.

The Company encourages all employees to report any known or suspected fraud schemes or fraud risk factors. Results of work of internal and external audits are reviewed by the Audit and Risk Management Committee and appropriate actions are done.

Risk of material misstatements on the

Financial statements are reviewed by management and key

Proper review is in place. The Company also engages the services of the external auditors to

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financial statements performance indicators are taken into consideration.

assist them in the preparation and review of the financial statements.

Security risk Evaluation of potential breaches in the Company’s physical assets and information protection and security.

The Corporate Security and Safety Board of the Company administers enterprise-wide policies affecting physical security of assets exposed to various forms of risks.

(b) Group

Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the Company:

Risk Exposure Risk Assessment

(Monitoring and Measurement Process)

Risk Management and Control (Structures, Procedures, Actions Taken)

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group transacts only with recognized, creditworthy third parties.

It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. The Group has a counterparty credit risk management policy which allocates investment limits based on counterparty credit ratings and credit risk profile.

Market risk

Market risk is defined as the possibility of loss due to adverse movements in market factors such as rates and prices. Market risk is present in both trading and non-trading activities. Market risk is the risk of loss to future earnings, to fair value or future cash flows of a financial instrument as a result of changes in its price, in turn caused by changes in interest rates, foreign currency exchange rates, equity prices and other market factors

The Group makes use of derivative financial instrument to hedge against fluctuations in interest rates and foreign currency exposure.

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.

The Group makes use of derivative financial instruments, such as currency swaps, to hedge foreign currency exposure.

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Interest rate risk

The Group’s exposure to market risk for changes in interest rates relates primarily to the Parent Company’s and its subsidiaries’ long-term debt obligations which are subject to floating rate.

The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. The Group makes use of derivative financial instruments, such as interest rate swaps, to hedge the variability in cash flows arising from fluctuation in benchmark interest rates.

Liquidity risk

Liquidity risk is the risk of not being able to meet funding obligations such as the repayment of liabilities or payment of asset purchases as they fall due.

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 its 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 capital market issues both onshore and offshore.

(c) Committee

Identify the committee or any other body of corporate governance in charge of laying down and supervising these control mechanisms, and give details of its functions:

Committee/Unit Control Mechanism Details of its Functions

Board of Directors (BOD) The BOD of the Company and the respective BOD of each subsidiary are ultimately responsible for the oversight of the Group’s risk management processes that involve identifying, measuring, analyzing, monitoring and controlling risks. Each BOD has created the board-level Audit and Risk Management Committee to spearhead the managing and

The minimum internal control mechanisms for the performance of the Board’s oversight responsibility may include:

1. Definition of the duties and responsibilities of the CEO;

2. Selection of the person who possesses the ability, integrity and expertise essential for the position of CEO;

3. Evaluation of proposed Senior Management

appointments;

4. Evaluation of appointments of Management Officers; and

5. Review of the Corporation’s human resource

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monitoring of risks. policies, conflict of interest situations, compensation program for employees and management succession plan.

Audit and Risk Management Committee

The Audit and Risk Management Committee shall assist the Group’s BOD in its fiduciary responsibility for the over-all effectiveness of risk management systems, and both the internal and external audit functions of the Group. Furthermore, it is also the AC’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 and Risk Management Committee aims to ensure that: a. financial reports comply with established internal

policies and proce n dures, 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 ERMG was created to be primarily responsible for the execution of the enterprise risk management framework.

Main functions include:

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

Management of the fundamental risk issues and monitoring of relevant risk decisions;

Support to management in implementing the risk policies and strategies; and

Development of a risk awareness program.

Corporate Governance Compliance Officer

The Compliance Officer monitors the actual compliance of the Company with the provisions and requirements of good governance, identifying and monitoring control compliance risks, determining violations, and recommending penalties for such infringements for further review and approval of the Company’s BOD.

Assist the BOD in achieving the compliance with the principles of good governance.

Corporate Management Services

Responsible for the formulation of enterprise-wide policies and procedures.

Corporate Planning and Responsible for the administration of strategic

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Legal Affairs planning, budgeting and performance review processes of the business units.

Corporate Insurance Department

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.

G. INTERNAL AUDIT AND CONTROL 1) Internal Control System

Disclose the following information pertaining to the internal control system of the Company: (a) Explain how the internal control system is defined for the Company;

Internal Control System covers systematic measures which include reviews, checks and balances, methods and procedures. The Company conducts its business in an orderly and efficient manner, safeguards its assets and resources, deters and detects errors and fraud, ensures the accuracy and completeness of its accounting data, prepares reliable and timely financial and management information and complies with the Company policies and procedures.

(b) A statement that the directors have reviewed the effectiveness of the internal control system and whether they

consider them effective and adequate;

No statement is currently issued that attest to the effectiveness of the internal control system. The Board through the Audit and Risk Management Committee monitors, evaluates and annually confirms the adequacy and effectiveness of the Corporation’s internal control system, including financial reporting control and information technology security. The Company understands that the primary responsibility for the design, implementation and maintenance of internal control rest on Management; while the Board and its Audit and Risk Management Committee oversee actions of Management and monitor the effectiveness of controls put in place. Audit and Risk Management Committee’s purpose is to lead in the general evaluation and to provide assistance in the continuous improvements of risk management, control and governance processes. Monitor and evaluate the adequacy and effectiveness of the Company’s internal control system, including financial reporting control and information technology security. And this committee meets quarterly and as often as necessary.

(c) Period covered by the review;

Preceding financial year.

(d) How often internal controls are reviewed and the directors’ criteria for assessing the effectiveness of the

internal control system; and

Every quarter, the Internal Audit reports to the Audit and Risk Management Committee the summary of results of audit engagements / reviews and audits covering operational units of the Company and specific areas identified by Management. Material issues and its remedial measures, as reported by the Internal Audit group are monitored by Management and Audit and Risk Management Committee.

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(e) Where no review was conducted during the year, an explanation why not.

Every quarter, the Corporate Internal Audit reports to the Audit and Risk Management Committee the summary of results of audit engagements / reviews and audits covering operational units of the Company and specific areas identified by Management. Material issues and its remedial measures, as reported by the Corporate Internal Audit group are monitored by Management and Audit and Risk Management Committee.

2) Internal Audit

(a) Role, Scope and Internal Audit Function

Give a general description of the role, scope of internal audit work and other details of the internal audit function.

Role Scope

Indicate whether In-

house or Outsource

Internal Audit Function

Name of Chief Internal Auditor/Auditing Firm

Reporting process

Corporate Internal Audit’s role is to provide an independent, objective assurance and consulting services within the Company designed to add value and improve the Company’s operations.

Scope of internal audit includes the examination and evaluation of the Company’s risk management, controls, and processes.

In-house Mr. Emmanuel B. De Pano

Corporate Internal Audit, headed by Corporate Audit Executive, reports functionally to the Audit and Risk Management Committee of the Board of Directors.

(b) Do the appointment and/or removal of the Internal Auditor or the accounting /auditing firm or corporation to

which the internal audit function is outsourced require the approval of the audit committee? Ensure the establishment of an Internal Audit Department and the appointment of a Corporate Auditor and the terms and conditions of its engagement and removal.

(c) Discuss the internal auditor’s reporting relationship with the audit committee. Does the internal auditor have

direct and unfettered access to the board of directors and the audit committee and to all records, properties and personnel? The Corporate Internal Auditor functionally reports directly to the Audit and Risk Management Committee. As such, the Audit and Risk Management Committee establishes and identifies the reporting line of the Corporate Internal Auditor to enable the Corporate Internal Audit Group to properly fulfill its duties and responsibilities. The Audit and Risk Management Committee ensures that, in the performance of the work of the Internal Audit, said group shall be free from interference by outside parties.

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(d) Resignation, Re-assignment and Reasons

Disclose any resignation/s or re-assignment of the internal audit staff (including those employed by the third-party auditing firm) and the reason/s for them.

Name of Audit Staff Reason

Rose Ann Alabastro Fatima C. Adem

Absent Without Leave Settle at Tagbilaran

(e) Progress against Plans, Issues, Findings and Examination Trends

State the internal audit’s progress against plans, significant issues, significant findings and examination trends.

Progress Against Plans On-going

Issues8 No significant issues that would put the Company at major risk.

Findings9 No significant findings that would put the Company at major risk.

Examination Trends No significant examination trends were noted.

[The relationship among progress, plans, issues and findings should be viewed as an internal control review cycle which involves the following step-by-step activities:

1) Preparation of an audit plan inclusive of a timeline and milestones; 2) Conduct of examination based on the plan; 3) Evaluation of the progress in the implementation of the plan; 4) Documentation of issues and findings as a result of the examination; 5) Determination of the pervasive issues and findings (“examination trends”) based on single year result

and/or year-to-year results; 6) Conduct of the foregoing procedures on a regular basis.]

(f) Audit Control Policies and Procedures

Disclose all internal audit controls, policies and procedures that have been established by the Company and the result of an assessment as to whether the established controls, policies and procedures have been implemented under the column “Implementation.”

Policies & Procedures Implementation

The Internal Auditor submits to the Audit and Risk Management Committee quarterly reports of the highlights of the audit engagements. And a semi-annual report of the internal audit department’s activities and performance relative to the audit plans and strategies as approved by the Audit and Risk Management Committee. The Corporate Internal Auditor submits the yearly Audit plans to the Audit and Risk Management

The Chief Audit Executive of annually attests that the company has internal audit, controls, and compliance system in place and working effectively; in all material respects, compliant with the standards set out in the Corporate Audit Policy Manual. These processes provide an assurance that enables the senior management of the company to understand, manage and satisfactorily control risk exposures.

8 “Issues” are compliance matters that arise from adopting different interpretations. 9 “Findings” are those with concrete basis under the Company’s policies and rules.

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Committee who approves the same. Quarterly, the former reports to the latter the highlights of the audit engagements. On a monthly basis, audit plans are monitored and any changes in the audit plans are reported by the Audit teams to the Internal Auditor, who in turn updates the Audit and Risk Management Committee. At the end of each calendar year, the Chief Executive Officer (CEO) and Chief Audit Executive (CAE) executes a written attestation that a sound internal audit, control and compliance system is in place and working effectively. The attestation is presented to and confirmed by the Audit and Risk Management Committee during the meeting.

Furthermore, the Chief Audit Executive states that the Audit Committee of the company is constituted and operates in accordance with the independence and governance requirements of the Manual.

(g) Mechanism and Safeguards

State the mechanism established by the Company to safeguard the independence of the auditors, financial analysts, investment banks and rating agencies (example, restrictions on tradi ng in the Company’s shares and imposition of internal approval procedures for these transactions, limitation on the non-audit services that an external auditor may provide to the Company):

Auditors (Internal and External)

Financial Analysts Investment Banks Rating Agencies

To provide independence of the Internal Audit Group, the Chief Audit Executive reports directly to the Audit and Risk Management Committee in a manner outlined in the Audit Charter. The Audit and Risk Management Committee performs oversight functions over the Company’s internal and external auditors. It should act independently from each other and that both auditors are given unrestricted access to records, properties and personnel to enable them to perform their respective audit functions. The Board evaluates and determines the non-audit work, if any, of the External

The Company and its officers, staff and any other person who are privy to the material non-public information are prohibited to communicate material non-public information about the Company to any person, unless the Company is ready to simultaneously disclose the material non-public information to the Commission and to the Exchanges except if the disclosure is made to:

A person who is bound by duty to maintain trust and confidence to the Company such as but not limited to its auditors, legal counsels, investment bankers, financial


A person who is bound by duty to maintain trust and confidence to the Company such as but not limited to its auditors, legal counsels,


A person who is bound by duty to maintain trust and confidence to

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Auditor, and review periodically the non-audit fees paid to the External Auditor in relation to their significance to the total annual income of the External Auditor and to the Corporation’s overall consultancy expenses. The Committee shall disallow any non-audit work that will conflict with his duties as an External Auditor or may pose a threat to his independence. If the non-audit work is allowed, this should be disclosed in the Corporation’s Annual Report.

advisers; and

A person who agrees in writing to maintain in strict confidence the disclosed material information and will not take advantage of it for his personal gain.

investment bankers, financial advisers; and


the Company such as but not limited to its auditors, legal counsels, investment bankers, financial advisers; and


(h) State the officers (preferably the Chairman and the CEO) who will have to attest to the Company’s full compliance with the SEC Code of Corporate Governance. Such confirmation must state that all directors, officers and employees of the Company have been given proper instruction on their respective duties as mandated by the Code and that internal mechanisms are in place to ensure that compliance. Compliance with the principles of good governance is one of the objectives of the Board of Directors. To assist the Board in achieving this purpose, the Board has designated a Compliance Officer, who reports to the Chairman, who shall be responsible for monitoring the actual compliance of the Company with the provisions and requirements of good governance, identifying and monitoring control compliance risks, determining violations, and recommending penalties for such infringements for further review and approval of the Board, among others. The Governance, Nomination and Election Committee shall monitor, evaluate and confirm the Corporation’s full compliance with the code of corporate governance and where there is non-compliance, identify and explain reasons for each such issue.

H. ROLE OF STAKEHOLDERS

1) Disclose the Company’s policy and activities relative to the following:

Policy Activities

Customers' welfare The Company has Customer Relations Policy and procedures to ensure that customers’ welfare are protected and questions addressed

Customers are informed the Company’s customer relations contacts to ensure that their welfare and questions are addressed.

Supplier/contractor selection practice

We have Supplier Accreditation Policy to ensure that the Company’s suppliers and contractors are qualified to meet its commitments to the Company.

Suppliers and contractors undergo accreditation and orientation on Company policies.

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Environmentally friendly value-chain

The Company complies with government mandated policies on the environment.

Required environment management systems and energy management are rigidly complied with by the Company.

Community interaction The Company focuses on uplifting the socio-economic condition of the country through education.

The Company partners with organizations that promote education of Filipinos through grants, endowments, scholarships, and educational facilities.

Anti-corruption programs and procedures

The Company has policies that cover Business Conduct, Conflict of Interest Policy, Offenses Subject to Disciplinary Action Policy, among others.

New employees are oriented regarding policies and procedures related to Business Conduct and similar policies. All employees are given periodic reminders Further, all concerned employees of the Conglomerate are required to comply with the Annual Self-Diclosure Activity on an annual basis.

Safeguarding creditors' rights The Company upholds creditors’ right by honoring contracted obligations and providing information required under the Revised Disclosure Rules and the Securities Regulation Code, if applicable, audited financial statements prepared compliant with applicable financial reporting standards, and other periodic reports compliant with the provisions of law, loan covenants and other regulatory requirements. This policy aims to:

1. Provide the guiding principles to ensure protection of creditors’ rights. 2. To identify the duties of responsible departments in protecting the rights of creditors. This policy shall cover the documentation, reporting and disclosure requirements to promote transparency for the protection of the rights of creditors of the Company.

There is regular communication with creditors through briefings and the like.

2) Does the Company have a separate corporate responsibility (CR) report/section or sustainability report/section?

No. The Company’s Corporate Responsibility Report is part of the Annual Report.

3) Performance-enhancing mechanisms for employee participation.

(a) What are the Company’s policy for its employees’ safety, health, and welfare?

The Company abides by safety, health, and welfare standards and policies set by the Department of Labor and Employment. Likewise, the Company has Security and Safety Manuals that are implemented and regularly reviewed to

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ensure the security, safety, health, and welfare of the employees in the work place. (b) Show data relating to health, safety and welfare of its employees.

To ensure that the employees of the Company maintain a healthy balance between work and life, health and wellness programs are organized for these employees. Professionals are invited to conduct free classes of Zumba, Tai Chi, and other activities in our work site. The Company has also partnered with Gold’s Gym to offer special membership rates to employees. This is in addition to the free use of gym facilities in the different installations. Year on year, the Company has facilitated vaccinations such as against flu and cervical cancer that are offered not only to employees but to their dependents as well. The Company has worked with healthcare providers in identifying top diseases based on utilization report and has invited resource speakers to talk about preventive measures. To ensure the safety of the Company’s employees, a Corporate Emergency Response Team (CERT) has been created that will be activated and will become the “command center”, orchestrating initiatives across the conglomerate during a crisis. Also, the CERT shall be responsible for the periodic review of contingency plans and the institution’s emergency preparedness and response procedures to ensure that effective responses and responsible policies are in place to deal with crisis or emergency situations.

(c) State the Company’s training and development programmes for its employees. Show the data.

Cebu Pacific utilizes and adopts the Parent Company’s leadership platform for systematic and sustained development programs. The John Gokongwei – Institute for Leadership and Enterprise Development (JG-ILED) aims to enable a high performing organization through facilitation of targeted and customized leadership development programs. JG-ILED courses are designed to help employees in various employee levels to advance their skills in effectively managing themselves (personal leadership), managing teams (motivational leadership) and being able to contribute significantly to the organization (strategic leadership). Moreover, the JG-ILED programs are anchored to the six (6) JG Summit Leadership Attributes, specifically being Competent, a Team Player, Entrepreneurial, Innovative, Passionate and Strategic, which the organization believes are the most critical competencies to develop in the JG Summit’s leadership teams. JG-ILED Vision:

To demonstrate the enterprise commitment to continued learning, organizational growth and career development.

To enable leaders to develop strategies for competitiveness of the company.

To develop and grow our employees and create a deep bench of talents.

The JG-ILED curriculum comprises of the following:

A. Core Programs The JG-ILED Core programs are focused on building the leadership foundation, highlighting the development of personal leadership and motivational leadership. Programs classified as Core Programs are as follows:

Achieving Customer Service Excellence (ACE)

Employee Discipline Program (EDP)

Basic Management Program (BMP)

Communicating for Leadership Success (CLS)

Problem Solving and Decision Making (PSDM)

Professional Image and Demeanor (PID)

My First 100 Days as a JGS Leader (F100)

Effective Business Communication Program (EBCP

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B. Executive and Management Development Programs These programs are geared toward developing strategic leadership, targeting managers and executives. Programs classified as Executive and Management Development Programs are as follows:

Finance for Senior Executives (FSE)

Strategic Communication Program (SCP)

Executive Coaching Program (ECP)

Advanced Negotiation Skills Workshop (ANSW)

Leading and Managing Change (LMC)

Strategy Planning and Execution (SPE)

Becoming a People Leader (BPL)

Innovative Thinking System (ITS) Currently, the conglomerate has over 30 certified facilitator employees who are tapped to facilitate the programs for the group. JG-ILED continues to improve its programs to ensure it is relevant and responsive to the changing business landscape. Further, more facilitators are being certified to widen the reach of the JG-ILED programs. (d) State the Company’s reward/compensation policy that accounts for the performance of the Company beyond short-term financial measures.

The Company has policies on annual merit increase, promotions and salary adjustments that are tied-up to the employees’ performance assessments. The Company promotes a culture of recognition and value for key and high performing employees who demonstrate excellence at the workplace. Recognition programs are maximized to promote and reinforce behavior that are consistent with the values and desired culture of the Company. Performance will be the main driver for total rewards. Rewards programs are therefore differentiated across businesses and among employees according to their contributions and levels of performance with a significant share given to high performers. The Company provides adequate benefits to cover the needs of its employees, where possible, through shared accountability between the Company and its employees. The rewards philosophy adopts an integrated approach, embodied by the 3Ps in compensation: Pay for the Position, Pay for the Performance, and Pay for the Person. The Company Pays for the Position through its job evaluation system. It Pays for Performance through its performance management system which is linked to its merit increases. The Company Pays for the Person through its competency-based and succession planning systems.

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4) What are the Company’s procedures for handling complaints by employees concerning illegal (including corruption) and unethical behaviour? Explain how employees are protected from retaliation. Employees can submit complaints to the Conflict of Interest Committee (CICOM) or any officer of the Company who would relay said complaints to the Committee. Reports or disclosures can be made in writing or by email to the Conflicts of Interest Committee (CICOM) using the following contact details:

Details

a. email address [email protected]

b. fax number 395-2890

c. mailing address

Must be sent in a sealed envelope clearly marked "Strictly Private and Confidential-To Be Opened by Addressee Only"

CICOM JG Summit Holdings, Inc. 44th Flr. Robinsons Equitable Tower ADB Avenue, Cor., Poveda Road, Pasig City

The complaint should be filed using the Complaint/Disclosure Form (CDF) that is made available in the Company website. All information received in connection with the reports or disclosures shall be strictly confidential and shall not be disclosed to any person without prior consent of CICOM.

Protection from Retaliation

The Company commits to protect those who report in good faith from retaliation, harassment and even informal pressures. It will take the necessary and appropriate action to do so in its enforcement. A Whistleblower, who on account of his Complaint, is subjected to actual or threatened retaliation or harassment, shall be afforded protection in accordance with the applicable company policies.

I. DISCLOSURE AND TRANSPARENCY 1) Ownership Structure

(a) Holding 5% shareholding or more

(as of December 31, 2015)

Shareholder Number of Shares Percent Beneficial Owner

CPAir Holdings, Inc. 400,816,841 66.146% Same as record owner

PCD Nominee (Filipino) 120,177,206 19.833% PCD Participants and their clients

PCD Nominee (Non-Filipino) 77,875,881 12.852% PCD Participants and their clients

(as of December 31, 2015)

Name of Senior Management

Number of Direct shares Number of

Indirect shares / Through (name of record owner)

% of Capital Stock

Ricardo J. Romulo 1 N.A. *

John L. Gokongwei, Jr. 1 N.A. *

James L. Go 1 N.A. *

Lance Y. Gokongwei 1 N.A. *

mailto:[email protected]

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Jose F. Buenaventura 1 N.A. *

Robina Gokongwei-Pe 1 N.A. *

Frederick D. Go 1 N.A. *

Antonio L. Go 1 N.A. *

Wee Khoon Oh 1 N.A. *

* less than 0.01% 2) Does the Annual Report disclose the following:

Key risks Yes

Corporate objectives Yes

Financial performance indicators Yes

Non-financial performance indicators Yes

Dividend policy Yes

Details of whistle-blowing policy No

Biographical details (at least age, qualifications, date of first appointment, relevant experience, and any other directorships of listed companies) of directors/commissioners

Yes

Training and/or continuing education programme attended by each director/commissioner

No

Number of board of directors/commissioners meetings held during the year No

Attendance details of each director/commissioner in respect of meetings held No

Details of remuneration of the CEO and each member of the board of directors/commissioners

Yes

Should the Annual Report not disclose any of the above, please indicate the reason for the non-disclosure. The number of Board meetings and attendance details are reported annually to the Commission in a separate disclosure. Details of remuneration are indicated in the Definitive Information Statement that is likewise disclosed annually or as needed. 3) External Auditor’s fee

Name of auditor Audit Fee Non-audit Fee

SGV & Co. P2,546,800.00 -

4) Medium of Communication

List down the mode/s of communication that the Company is using for disseminating information. The following modes of communication are being used by the Company to disseminate information:

Company website – posts press releases, quarterly and annual reports, monthly statistics and other information.

Social Media websites such as Facebook, Twitter and Instagram

Investors’ and Analyst’ Briefing

Annual Stockholders’ Meeting

Media Briefing

Electronic and regular mail

Telecommunication facilities

Hard copy of documents

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5) Date of release of audited financial report:

The audited financial statements for the fiscal year ended December 31, 2014 was released on April 15, 2015.

6) Company Website Does the Company have a website disclosing up-to-date information about the following?

Business operations Yes

Financial statements/reports (current and prior years) Yes

Materials provided in briefings to analysts and media Yes

Shareholding structure Yes

Group corporate structure Yes

Downloadable annual report Yes

Notice of AGM and/or EGM Yes

Company's constitution (Company's by-laws, memorandum and articles of association)

Yes

Should any of the foregoing information be not disclosed, please indicate the reason thereto.

7) Disclosure of RPT

RPT Relationship Nature Value

Please refer to Note 25 (Related Party Transactions) of the Notes to the Audited Consolidated Financial Statements as of December 31, 2014.

When RPTs are involved, what processes are in place to address them in the manner that will safeguard the interest of the Company and in particular of its minority shareholders and other stakeholders? Transactions between related parties are based on terms similar to those offered to nonrelated parties. Appropriate disclosures on the nature and amount of transactions between related parties are shown in the financial statements to be transparent to the stakeholders.

J. RIGHTS OF STOCKHOLDERS 1) Right to participate effectively in and vote in Annual/Special Stockholders’ Meetings

(a) Quorum

Give details on the quorum required to convene the Annual/Special Stockholders’ Meeting as set forth in its By-laws.

Quorum Required No stockholders’ meeting shall be competent to decide any matter or transact any business, unless a majority of the outstanding capital stock is presented or represented thereat, except in those cases in which the Corporation law requires the affirmative vote of a greater proportion.

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(b) System Used to Approve Corporate Acts

Explain the system used to approve corporate acts.

System Used Corporate acts to be approved are included in the agenda of the stockholder’s meeting.

Description Every stockholder shall be entitled to vote for each share of stock held by him, which shall be by viva voce or show of hands

(c) Stockholders’ Rights

List any Stockholders’ Rights concerning Annual/Special Stockholders’ Meeting that differ from those laid down in the Corporation Code.

Stockholders’ Rights under The Corporation Code

Stockholders’ Rights not in The Corporation Code

Stockholders’ Rights concerning Annual/Special Stockholders Meeting are in accordance with provisions stated in the Corporation Code.

There are no stockholders’ rights concerning Annual/Special Stockholders’ Meeting that differ from those laid down in the Corporation Code.

Dividends

Declaration Date Record Date Payment Date

June 24, 2015 July 16, 2015 August 11, 2015

(d) Stockholders’ Participation

1. State, if any, the measures adopted to promote stockholder participation in the Annual/Special Stockholders’ Meeting, including the procedure on how stockholders and other parties interested may communicate directly with the Chairman of the Board, individual directors or board committees. Include in the discussion the steps the Board has taken to solicit and understand the views of the stockholders as well as procedures for putting forward proposals at stockholders’ meetings.

Measures Adopted Communication Procedure

The stockholders are given the opportunity to ask questions during the stockholder’s meeting.

1. Stockholders are provided with disclosures, announcements and reports filed with the SEC and PSE through public records, press statements and the Company’s website. 2. The Corporate Secretary shall:

a) Inform the members of the Board, in accordance with the By-Laws, of the agenda of their meetings together with the rationale and explanation of each item in the agenda and ensure that the members have before them accurate information that will enable them to arrive at intelligent decisions on matters that require their approval.

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b) Release to the Exchange the notice of Annual Shareholders’ Meeting (ASM) with detailed agendas and explanatory circulars, at least twenty eight (28) days before the date of the meeting. The notice of the meeting includes the date, time, venue and agenda of the meeting, the record date of stockholders entitled to vote, and the date and place of proxy validation.

2. State the Company policy of asking shareholders to actively participate in corporate decisions regarding:

a. Amendments to the Company's constitution b. Authorization of additional shares c. Transfer of all or substantially all assets, which in effect results in the sale of the Company

The Company complies with the Corporation Code and the Securities Regulations Code on the above matters.

3. Does the Company observe a minimum of 21 business days for giving out of notices to the AGM where items to be resolved by shareholders are taken up?

The Company released to the Exchange the notice of Annual Shareholders’ Meeting (ASM) with detailed agendas and explanatory circulars, at least twenty eight (28) days before the date of the meeting. The Company complies with the SRC Rule 20 (Disclosures to stockholders prior to meeting) of the Securities Regulations Code which provides that the information statement, including the notice of meeting, shall be distributed to stockholders at least 15 business days before the date of the stockholders’ meeting. The relevant dates pertaining to the last annual stockholders’ meeting of the Company is set forth below:

a. Date of sending out notices: May 29, 2015 b. Date of the Annual/Special Stockholders’ Meeting: June 26, 2015

4. State, if any, questions and answers during the Annual/Special Stockholders’ Meeting.

The usual questions during the Annual Stockholders’ meeting pertain to dividends and disclosures made in the Audited Consolidated Financial Statements of the Company.

5. Result of Annual/Special Stockholders’ Meeting’s Resolutions

Resolution Approving Dissenting Abstaining

Election of Board of Directors

More than a majority vote

Not applicable Less than 1%

Amendment of Articles of Incorporation

More than two-thirds vote

Not applicable None

Election of external auditor

More than a majority vote

Not applicable Less than 1%

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Name of Director Votes Abstain


James L. Go

Lance Y. Gokongwei

Ricardo J. Romulo less than 1%

Frederick D. Go

Jose F. Buenaventura

Robina Gokongwei-Pe

Antonio L. Go

Wee Khoon Oh

6. Date of publishing of the result of the votes taken during the most recent AGM for all resolutions:

The results of the resolutions approved by the stockholders at the annual meeting of the stockholders of the Company held on June 26, 2015 were disclosed to the Philippines Stock Exchange on June 26, 2015 and to the Securities and Exchange Commission on June 26, 2015.

(e) Modifications

State, if any, the modifications made in the Annual/Special Stockholders’ Meeting regulations during the most recent year and the reason for such modification:

Modifications Reason for Modification

None

(f) Stockholders’ Attendance

(i) Details of Attendance in the Annual/Special Stockholders’ Meeting Held:

Type of Meeting

Names of Board members / Officers

present Date of Meeting

Voting Procedure

(by poll, show of

hands, etc.)

% of SH Attending in Person

% of SH in Proxy

Total % of SH attendance

Annual Robin C. Dui Juan Lorenzo Tanada Rosalinda F. Rivera

June 26, 2015 By viva voce or show of hands

67.23% 11.55% 78.78%

(ii) Does the Company appoint an independent party (inspectors) to count and/or validate the votes at the

ASM/SSMs?

Yes, the Stock Transfer Agent of the Company.

(iii) Do the Company’s common shares carry one vote for one share? If not, disclose and give reasons for any divergence to this standard. Where the Company has more than one class of shares, describe the voting rights attached to each class of shares.

Yes.

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(g) Proxy Voting Policies

State the policies followed by the Company regarding proxy voting in the Annual/Special Stockholders’ Meeting.

Company’s Policies

Execution and acceptance of proxies The By-Laws provides that stockholders may vote at all meetings the number of shares registered in their respective names, either in person or by proxy duly given in writing and duly presented to and received by the Corporate Secretary for inspection and recording not later than five (5) working days before the time set for the meeting, except such period shall be reduced to one (1) working day for meetings that are adjourned due to lack of the necessary quorum. No proxy bearing the signature which is not legally acknowledged by the Corporate Secretary shall be honored at the meetings.

Notary Not required

Submission of Proxy See above.

Several Proxies Not applicable.

Validity of Proxy The By-Laws Proxies shall be valid and effective for five (5) years, unless the proxy provides for a shorter period, and shall be suspended for any meeting wherein the stockholder appears in person.

Proxies executed abroad Not applicable

Invalidated Proxy

Validation of Proxy Validation of proxies shall be held at the date, time and place as may be stated in the Notice of stockholders’ meeting which in no case shall be five calendar days prior to the date of stockholders meeting.

Violation of Proxy Any violation of this rule on proxy shall be subject to the administrative sanctions provided for under Section 144 of the Corporation Code and Section 54 of the Securities Regulation Code, and shall render the proceedings null and void.

Sending of Notices

State the Company’s policies and procedure on the sending of notices of Annual/Special Stockholders’ Meeting.

Policies Procedure

The Company complies with the SRC Rule 20 (Disclosures to stockholders prior to meeting) which provides that the information statement, including the notice of meeting, shall be distributed to stockholders at least 15 business days before the date of the stockholders’ meeting.

By courier and by mail.

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(h) Definitive Information Statements and Management Report

Number of Stockholders entitled to receive Definitive Information Statements and Management Report and Other Materials

97

Date of Actual Distribution of Definitive Information Statement and Management Report and Other Materials held by market participants/certain beneficial owners

May 29, 2015

Date of Actual Distribution of Definitive Information Statement and Management Report and Other Materials held by stockholders

May 29, 2015

State whether CD format or hard copies were distributed

CD format were distributed

If yes, indicate whether requesting stockholders were provided hard copies

There were no requests made for hard copies.

(i) Does the Notice of Annual/Special Stockholders’ Meeting include the following:

Each resolution to be taken up deals with only one item. Yes

Profiles of directors (at least age, qualification, date of first appointment, experience, and directorships in other listed companies) nominated for election/re-election.

Yes

The auditors to be appointed or re-appointed. Yes

An explanation of the dividend policy, if any dividend is to be declared. Yes

The amount payable for final dividends. Yes

Documents required for proxy vote. The Company does not solicit proxy votes.

Should any of the foregoing information be not disclosed, please indicate the reason thereto.

2) Treatment of Minority Stockholders

(a) State the Company’s policies with respect to the treatment of minority stockholders.

Policies Implementation

The Company recognizes that the strongest proof of good corporate governance is what is publicly seen and experienced by its stockholders. Therefore, the following provisions are issued for the guidance of all internal and external parties concerned, as governance covenant between the Company and all its stockholders. The Board shall be committed to respect the following rights of the stockholders in accordance with the Corporation Code and the Company’s Articles of Incorporation and By-Laws:

Right to Vote on All Matters that Require Their Consent or Approval

Right to Inspect Corporate Books and Records

Implemented

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Right to Information

Right to Dividends

Appraisal Right

The Board shall be transparent and fair in the conduct of the annual and special stockholders meetings of the Company. The stockholders shall be encouraged to personally attend such meetings. If they cannot attend, they shall be apprised ahead of time of their right to appoint a proxy. Subject to the requirements of the By-Laws, the exercise of that right shall not be unduly restricted and any doubt about the validity of a proxy should be resolved in the stockholder’s favor. It shall be the duty of the Board to promote the rights of the stockholders, remove impediments to the exercise of those rights and provide an adequate avenue for them to seek timely redress for violation of their rights. The Board should take the appropriate steps to remove excessive or unnecessary costs and other administrative impediments to the stockholders’ meaningful participation in meetings, whether in person or by proxy. Accurate and timely information should be made available to the stockholders to enable them to make a sound judgment on all matters brought to their attention for consideration or approval.

(b) Do minority stockholders have a right to nominate candidates for board of directors? Yes.

K. INVESTORS RELATIONS PROGRAM 1) Discuss the Company’s external and internal communications policies and how frequently they are reviewed.

Disclose who reviews and approves major Company announcements. Identify the committee with this responsibility, if it has been assigned to a committee. The Company has a Corporate Communications team, tasked with the following functions:

a) Help establish and maintain mutual lines of communication, understanding, acceptance and cooperation between the Company and its stakeholders

b) Assist in managing problems or issues that may affect public perception c) Help management be informed on be responsive to public opinion d) Define and emphasize the responsibility of management to serve the public interest e) Use research, accurate up to date information and sound ethical communication as its principal tools

All information and official statements to be released for public consumption must be centralized with the Company’s Corporate Communications team. The Company may also hire Public Relations (PR) Consultants.

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Information and details are checked prior to release of an official statement. The Official Statement must be approved by the head (s) of the department(s) involved in the issues (eg, Operations, Customer Relations, Investor Relations, Legal, etc.), the Corporate Compliance Officer and CEB’s Senior Consultant/s prior to the release. It is also reviewed and approved by the Head of Commercial Operations, Head of Marketing (who is also the Official Spokesperson) and the Corporate Communications Manager. In certain cases, depending on the nature of the situation, the Official Statement must also be approved by the President and/or Executive Committee.

2) Describe the Company’s investor relations program including its communications strategy to promote effective

communication with its stockholders, other stakeholders and the public in general. Disclose the contact details (e.g. telephone, fax and email) of the officer responsible for investor relations.

Details

(1) Objectives Investor Relations encompasses the broad range of activities through which the Company communicates with its current and potential investors. The Investor Relations (IR) Program aims to provide in a timely manner, full and comprehensive disclosure of significant developments and information about the Company. It also seeks to obtain feedback from investors and other audiences to help the Company formulate its own strategy and facilitate its delivery. The Chief Financial Officer (CFO) shall appoint a Director for IR who shall be the key point of contact for the investment community and who shall ensure that an effective IR Program is in place and is successfully implemented. The Investor Relations function includes ensuring that the Company complies with Philippine disclosure rules and securities laws. The Director for IR, with the assistance of the Corporate Secretary shall meet the deadlines prescribed by the SEC and PSE for disclosure requirements. The specific functions of the IR Program also include: (a) Develop and monitor financial and operating performance metrics of

the Company for the investor relations function (b) Monitor operational changes through ongoing contacts with Company

management, and develop investor messages based on these changes (c) Prepare presentation and other communication materials for earnings

releases, industry events and presentations to analysts, investors, brokers, and the rest of the investment community

(d) Prepare reports on share price movement relative to peers with competitive analysis that may include, among others, comparison of financial and operating metrics and differentiation

(e) Oversee the production of all annual/quarterly reports, SEC filings, PSE disclosure and proxy statements and ensure that such reports or other information needed for disclosure purposes are completed and filed in compliance with Philippines disclosure rules/securities laws

(f) Create and maintain an updated database of investors/shareholders as well as analysts covering the Company.

(g) Organize/arrange conference calls, analysts/investors meetings and briefings, conferences, road shows and other events as needed.

(h) Provide feedback to management regarding the investment community’s perception of the Company to assist in the development of corporate strategy.

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(i) With the assistance of the Corporate Secretary, meet the deadlines prescribed by the SEC and PSE for disclosure of Structured Reportorial Requirements

(j) Lead the planning, staging and presentation of key financial calendar evens for the Company.

(2) Principles (a) In accordance with the Company’s Corporate Governance Manual, the Chief Executive Officer (CEB) shall exercise the oversight responsibility over the IR program. The Chief Financial Officer shall assist the CEO in this function.

(b) Investor Relations shall reply promptly to investor and analyst inquiries with clear and factual information but ensuring confidentiality of proprietary information. To do this, the Company shall rely largely on a well-developed IR infrastructure (see #3)

(c) Investor Relations shall ensure that the Company complies with Philippine disclosure rules and securities laws as per the Philippines Securities Regulation Code and its Implementing Rules and Regulations. As the regulatory and IR developments change ra[idly, the Company shall keep abreast with amendments to amendments to these documents as well as guidance and regulatory announcements from the regulators.

(d) Investor relations shall be involved in the planning, staging and presentation of key financial calendar events for the Company. All meetings should be well structured and use audiovisual and technological aids as necessary.

(e) Investor Relations shall maintain regular contact with the market through various communication tools, to manage expectations and gain feedback.

(3) Modes of Communications A) IR Presentations and Events a. Quarterly Investors / Analyst Briefing – which coincide with the

filing of the Company’s SEC form 17Q and done via global teleconference

b. Annual Investors / Analyst Briefing – which coincides with the fining of the Company’s 17A and done via global teleconference

c. Annual Stockholders Meeting – arranged in coordination with the Corporate Secretary, this event offers the shareholders a chance to question management on the Company’s performance and direction

d. Media Briefings – as necessary and arranged in coordination with the Public Relations (PR) team

e. Non-deal Roadshows – arranged at least once a year to attract private investors

f. Meetings with Research Analysts – usually one on one meetings with senior management

g. Investor Conferences – usually arranged by equity houses and attended by senior management

B) IR Communication Tools a. Press Releases b. Annual Reports c. Quarterly reports d. Presentations used in IR presentations and events e. Investor kit – comprised of electronic or printed materials that have

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been approved by CEO and CFO for disclosure to investors, analysts and the rest of the investment community. This may include presentations, SEC filings , PSE disclosures and press releases also made available on the IR section of the Company’s website.

f. IR website – offers links to relevant Company information and disclosures

(4) Investors Relations Officer Trina Asuncion, Director for Investor Relations Direct line: 632 802 7081 Tele Fax: 632 851 7362 E-mail: [email protected] Reports directly to the Chief Financial Officer

3) What are the Company’s rules and procedures governing the acquisition of corporate control in the capital markets,

and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets?

the transaction must create value to the market

the transaction must be value-accretive Name of the independent party the board of directors of the Company appointed to evaluate the fairness of the transaction price. The Company actively evaluates potential mergers and acquisitions. Once CEB management believes that the transaction is in-line with the Company’s strategies and will be value-accretive based on internal valuation and analysis, the board appoints an independent party to evaluate the fairness of the transaction price.

L. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

Discuss any initiative undertaken or proposed to be undertaken by the Company.

Initiative Beneficiary

EDUCATION: World Vision Lakbay Pag-Asa via Cebu Pacific

Youth, destination in 2012; Puerto Princesa

Cebu Pacific and GMA Kapuso Foundation: Unang Hakbang sa Kinabukasan and Give A Gift

Public school children

DREAMS ON FLIGHT SERIES: Cebu Pacific and GMA Kapuso Foundation treated children to a trip to Star City

75 pupils from Paliparan III Elementary School in Cavite

RELIEF: Toy donations by Bronte and Frank toy drive via Cebu Pacific Cebu Pacific and GMA Kapuso Foundation Relief Operations

Children who were victims of the earthquake in Dumaguete, Negros Occidental Victims of various calamities in 2012

FILIPINO PRIDE Supports 2012 Team Philippines at Homeless World Cup

Homeless World Cup Foundation in Mexico City

ENVIRONMENT Partnership with World Wide Fund for Nature, CEB’s Bright Skies for Every Juan, a climate adaptation program to fight global warming

Philippines’ Great Reefs

mailto:[email protected]

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M. BOARD, DIRECTOR, COMMITTEE AND CEO APPRAISAL

Disclose the process followed and criteria used in assessing the annual performance of the board and its committees, individual director, and the CEO/President.

Process Criteria

Board of Directors The Board may create an internal self-rating system that can measure the performance of the Board and Management in accordance with the criteria provided for in the Corporate Governance Manual. The creation and implementation of such self-rating system, including its salient features, may be disclosed in the Company’s Annual Report.

Board Committees Audit and Risk Management Committee conducts annual performance evaluation in compliance with SEC Memorandum Circular No.4, Series of 2012.

Guidelines for the assessment of the performance of audit committees of companies listed on the exchange under SEC Memorandum Circular No. 4, Series of 2012.

Individual Directors

CEO/President

N. INTERNAL BREACHES AND SANCTIONS

Discuss the internal policies on sanctions imposed for any violation or breach of the corporate governance manual involving directors, officers, management and employees

Violations Sanctions

First Violation The subject person shall be reprimanded.

Second Violation Suspension from office shall be imposed to the subject person. The duration of the suspension shall depend on the gravity of the violation.

Third Violation The maximum penalty of removal from office shall be imposed.

The above answers are based on company records and information given by relevant officers of the Company, not necessarily on personal knowledge of the affiants.

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CEBU AIR, INC. AND SUBSIDIARIESINDEX TO CONSOLIDATED COMPANY FINANCIAL STATEMENTS AND

SUPPLEMENTARY SCHEDULES

CONSOLIDATED COMPANY FINANCIAL STATEMENTS

Statement of Management’s Responsibility for Financial Statements

Report of Independent Auditors

Consolidated Company Statements of Financial Position as of December 31, 2015 and 2014

Consolidated Company Statements of Comprehensive Income for the Years EndedDecember 31, 2015 and 2014

Consolidated Company Statements of Changes in Equity for the Years Ended December 31, 2015and 2014

Consolidated Company Statements of Cash flows for the Years Ended December 31, 2015 and 2014

SUPPLEMENTARY SCHEDULES

Report of Independent Auditors on Supplementary Schedules

I. Supplementary schedules required by Annex 68-E

A. Financial Assets (Current Marketable Equity and Debt Securities and Other Short-Term CashInvestments)

B. Amounts Receivable from Directors, Officers, Employees,Related Parties and Principal Stockholders (Other than Related Parties)

C. Noncurrent Marketable Equity Securities, Other Long-TermInvestments in Stocks and Other Investments*

D. Indebtedness of Unconsolidated Subsidiaries and Affiliates*

E. Property, Plant and Equipment

F. Accumulated Depreciation

G. Intangible Assets and Other Assets*

H. Long-Term Debt

I. Indebtedness to Affiliates and Related Parties*

J. Guarantees of Securities of Other Issuers*

K. Capital Stock

*These schedules, which are required by SRC Rule 68, have been omitted because they are either not required, notapplicable or the information required to be presented is included/shown in the related parent company financialstatements or in the notes thereto.

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II. Schedule of all of the effective standards and interpretations (Part 1, 4J)

III. Reconciliation of Retained Earnings Available for Dividend Declaration(Part 1, 4C; Annex 68-C)

IV. Map of the relationships of the companies within the group (Part 1, 4H)

V. Schedule of Financial Ratios

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INDEPENDENT AUDITORS’ REPORT

The Stockholders and the Board of DirectorsCebu Air, Inc.2nd Floor, Doña Juanita Marquez Lim BuildingOsmeña Boulevard, Cebu City

We have audited the accompanying consolidated financial statements of Cebu Air, Inc. and itsSubsidiaries, which comprise the consolidated statements of financial position as atDecember 31, 2015 and 2014, and the consolidated statements of comprehensive income, statementsof changes in equity and statements of cash flows for each of the three years in the period endedDecember 31, 2015, and a summary of significant accounting policies and other explanatoryinformation.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with Philippine Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of consolidated financial statementsthat are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the consolidated financial statements. The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the consolidated financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements.

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

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global Limited

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Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of Cebu Air, Inc. and its Subsidiaries as at December 31, 2015 and 2014, and theirfinancial performance and their cash flows for each of the three years in the period endedDecember 31, 2015 in accordance with Philippine Financial Reporting Standards.

SYCIP GORRES VELAYO & CO.

Michael C. SabadoPartnerCPA Certificate No. 89336SEC Accreditation No. 0664-AR-2 (Group A), March 26, 2014, valid until March 25, 2017Tax Identification No. 160-302-865BIR Accreditation No. 08-001998-73-2015, February 27, 2015, valid until February 26, 2018PTR No. 5321688, January 4, 2016, Makati City

March 18, 2016


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CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

December 312015 2014

ASSETS

Current AssetsCash and cash equivalents (Note 8) P=4,706,090,063 P=3,963,912,683Receivables (Notes 7 and 10) 1,737,444,884 1,862,718,419Expendable parts, fuel, materials and supplies (Note 11) 919,118,043 679,315,070Other current assets (Note 12) 2,400,119,148 2,020,471,923

Total Current Assets 9,762,772,138 8,526,418,095

Noncurrent AssetsProperty and equipment (Notes 13, 18, 30 and 31) 72,075,821,013 65,227,125,368Investments in joint ventures (Notes 14) 525,623,987 591,339,486Goodwill (Notes 7 and 15) 566,781,533 566,781,533Deferred tax assets - net (Note 25) 876,296,996 –Other noncurrent assets (Notes 7 and 16) 1,021,286,522 1,150,594,326

Total Noncurrent Assets 75,065,810,051 67,535,840,713P=84,828,582,189 P=76,062,258,808

LIABILITIES AND EQUITY

Current LiabilitiesAccounts payable and other accrued liabilities (Notes 7 and 17) P=11,602,989,706 P=10,668,437,651Unearned transportation revenue (Notes 4 and 5) 6,971,754,698 6,373,744,740Current portion of long-term debt (Notes 13 and 18) 5,423,699,184 4,712,465,291Financial liabilities at fair value through profit or loss (Note 9) 2,443,495,138 2,260,559,896Due to related parties (Note 27) 38,115,803 39,909,503Income tax payable 20,038,200 5,831,638

Total Current Liabilities 26,500,092,729 24,060,948,719

Noncurrent LiabilitiesLong-term debt - net of current portion (Notes 13 and 18) 31,165,286,307 29,137,197,374Deferred tax liabilities - net (Notes 7 and 25) – 129,160,379Pension liability (Note 24) 546,480,714 385,665,449Other noncurrent liabilities (Note 19) 1,661,527,283 810,482,700

Total Noncurrent Liabilities 33,373,294,304 30,462,505,902Total Liabilities 59,873,387,033 54,523,454,621

Equity (Note 20)Common stock 613,236,550 613,236,550Capital paid in excess of par value 8,405,568,120 8,405,568,120Treasury stock (529,319,321) (529,319,321)Other comprehensive loss (Notes 9 and 24) (193,873,203) (131,968,292)Retained earnings (Note 14) 16,659,583,010 13,181,287,130

Total Equity 24,955,195,156 21,538,804,187P=84,828,582,189 P=76,062,258,808

See accompanying Notes to Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 312015 2014 2013

REVENUESale of air transportation services (Note 4) Passenger P=42,681,069,939 P=40,188,445,623 P=31,662,949,847 Cargo 3,461,136,749 3,146,083,310 2,609,444,919Ancillary revenues (Note 21) 10,359,447,828 8,665,489,377 6,731,701,515

56,501,654,516 52,000,018,310 41,004,096,281

EXPENSESFlying operations (Notes 11 and 22) 20,916,360,534 26,152,476,007 21,720,929,565Aircraft and traffic servicing (Note 22) 5,847,099,305 4,805,212,489 3,602,807,012Repairs and maintenance (Notes 11, 19 and 22) 5,240,478,648 4,432,437,982 3,825,982,774Depreciation and amortization (Notes 6 and 13) 5,111,543,724 4,281,525,018 3,454,641,115Aircraft and engine lease (Note 30) 4,024,599,732 3,503,484,521 2,314,859,021Reservation and sales (Note 22) 2,625,456,497 2,153,987,158 1,662,461,815General and administrative (Note 23) 1,552,148,933 1,296,817,694 1,111,945,434Passenger service 1,483,746,337 1,216,740,451 906,057,635

46,801,433,710 47,842,681,320 38,599,684,371

9,700,220,806 4,157,336,990 2,404,411,910

OTHER INCOME (EXPENSE)Equity in net income of joint ventures (Note 14) 35,418,498 96,326,091 119,360,469Interest income (Notes 6 and 8) 83,006,926 79,927,272 219,619,475Loss on sale of aircraft (Note 13) (80,267,191) – –Foreign exchange losses (2,205,258,151) (127,471,032) (2,063,007,996)Interest expense (Notes 6 and 18) (1,073,109,693) (1,013,241,353) (865,501,445)Hedging gains (losses) (Note 9) (2,931,215,906) (2,314,241,984) 290,325,093

(6,171,425,517) (3,278,701,006) (2,299,204,404)

INCOME BEFORE INCOME TAX 3,528,795,289 878,635,984 105,207,506

PROVISION FOR (BENEFIT FROM)INCOME TAX (Note 25) (858,430,586) 25,137,768 (406,738,723)

NET INCOME 4,387,225,875 853,498,216 511,946,229Other comprehensive income (loss) to be reclassified to

profit or loss in subsequent periods:Actuarial gains (losses) on pension liability (Note 24) (83,002,333) 301,535,342 (365,149,270)Provision for (benefit from income tax)

(Notes 24 and 25) (21,097,422) 91,853,356 (109,544,781)

OTHER COMPREHENSIVE INCOME (LOSS),NET OF TAX (61,904,911) 209,681,986 (255,604,489)

TOTAL COMPREHENSIVE INCOME P=4,325,320,964 P=1,063,180,202 P=256,341,740

Basic/Diluted Earnings Per Share (Note 26) P=7.24 P=1.41 P=0.84


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CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Year Ended December 31, 2015

Common Stock(Note 20)

Capital Paid inExcess of Par

Value(Note 20)

Treasury Stock(Note 20)

OtherComprehensive

Loss(Note 24)

AppropriatedRetainedEarnings

(Notes 9 and 20)

UnappropriatedRetainedEarnings

(Notes 14 and 20)Total

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




Value(Note 20)


OtherComprehensive

Loss(Notes 9 and 24)


(Note 20)



EquityBalance at January 1, 2014 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=341,650,278) P=3,916,762,000 P=9,016,980,244 P=21,081,577,315Net income – – – – – 853,498,216 853,498,216Other comprehensive income – – – 209,681,986 – – 209,681,986Total comprehensive income – – – 209,681,986 – 853,498,216 1,063,180,202Appropriation of retained earnings – – – – 3,000,000,000 (3,000,000,000) –Dividend declaration – – – – – (605,953,330) (605,953,330)Balance at December 31, 2014 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=131,968,292) P=6,916,762,000 P=6,264,525,130 P=21,538,804,187

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Value(Note 20)


OtherComprehensive

Loss(Notes 9 and 24)


(Note 20)



EquityBalance at January 1, 2013 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=86,045,789) P=1,416,762,000 P=12,216,940,675 P=22,037,142,235Net income – – – – – 511,946,229 511,946,229Other comprehensive loss – – – (255,604,489) – – (255,604,489)Total comprehensive income – – – (255,604,489) – 511,946,229 256,341,740Appropriation of retained earnings – – – – 2,500,000,000 (2,500,000,000) –Dividend declaration – – – – – (1,211,906,660) (1,211,906,660)Balance at December 31, 2013 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=341,650,278) P=3,916,762,000 P=9,016,980,244 P=21,081,577,315

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CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS


CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax P=3,528,795,289 P=878,635,984 P=105,207,506Adjustments for: Depreciation and amortization (Note 13) 5,111,543,724 4,281,525,018 3,454,641,115 Hedging losses (gains) (Note 9) 2,931,215,906 2,314,241,984 (290,325,093) Unrealized foreign exchange losses 1,709,750,714 164,383,293 1,899,060,619 Interest expense (Note 18) 1,073,109,693 1,013,241,353 865,501,445 Provision for asset retirement obligation (Note 19) 863,960,835 476,017,529 590,638,099 Loss on sale of aircraft (Note 13) 80,267,191 – – Loss (gain) on disposal of property and equipment

(Note 13) 9,122,533 27,734,209 3,347,242 Equity in net income of joint ventures (Note 14) (35,418,498) (96,326,091) (119,360,469) Interest income (Note 8) (83,006,926) (79,927,272) (219,619,475)Operating income before working capital changes 15,189,340,461 8,979,526,007 6,289,090,989 Decrease (increase) in: Receivables 143,435,357 405,357,069 (444,359,508) Financial assets at fair value through profit or

loss (derivatives) (Note 9) – 112,774,809 226,550,958 Expendable parts, fuel, materials and supplies (239,802,973) 31,860,790 (270,324,909) Other current assets (430,603,370) (729,957,322) (422,305,919) Increase (decrease) in: Accounts payable and other accrued liabilities 932,068,099 325,208,227 658,235,934 Unearned transportation revenue 598,009,959 873,405,279 (642,278,678) Pension liability 116,841,632 157,005,125 79,621,617 Amounts of due to related parties (1,793,699) (4,743,714) (949,100) Noncurrent liabilities (108,048,329) (1,609,080,414) (676,902,820) Financial liabilities at fair value through profit or loss (derivatives) (Note 9) (2,748,280,664) – –Net cash generated from operations 13,451,166,473 8,541,355,856 4,796,378,564Interest paid (1,078,011,092) (1,004,857,514) (771,690,630)Income tax paid (Note 31) (60,766,659) (45,043,718) (34,600,186)Interest received 82,638,335 83,919,430 226,352,282Net cash provided by operating activities 12,395,027,057 7,575,374,054 4,216,440,030

CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of: Property and equipment (Notes 13 and 31) (13,047,934,091) (13,316,719,856) (12,179,883,734) Subsidiary (Notes 7 and 31) – (488,559,147) –Proceeds from sale (disposals) of: Other noncurrent assets – – 1,778,103 Property and equipment 1,012,448,386 338,060 –Dividends received from a joint venture (Note 14) 101,133,997 83,811,058 52,292,889Decrease (increase) in other noncurrent assets 129,307,803 115,781,781 (170,123,133)Net cash used in investing activities (11,805,043,905) (13,605,348,104) (12,295,935,875)

(Forward)

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CASH FLOWS FROM FINANCING ACTIVITIESLong-term debt: Availments (Notes 18 and 31) P=6,466,895,200 P=8,478,040,015 P=7,425,565,000 Payments of long-term debt (Note 18) (5,518,293,249) (4,176,677,721) (3,011,148,694)Dividends paid (908,929,995) (605,953,330) (1,211,906,660)Net cash provided by financing activities 39,671,956 3,695,408,964 3,202,509,646

EFFECTS OF EXCHANGE RATE CHANGESIN CASH AND CASH EQUIVALENTS 112,522,272 (14,356,033) 204,771,677

NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS 742,177,380 (2,348,921,119) (4,672,214,522)

CASH AND CASH EQUIVALENTS ATTRIBUTABLE TOBUSINESS COMBINATION (Notes 7 and 31) – 256,721,999 –

CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR 3,963,912,683 6,056,111,803 10,728,326,325

CASH AND CASH EQUIVALENTSAT END OF YEAR (Note 8) P=4,706,090,063 P=3,963,912,683 P=6,056,111,803


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CEBU AIR, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Cebu Air, Inc. (the Parent Company) was incorporated and organized in the Philippines onAugust 26, 1988 to carry on, by means of aircraft of every kind and description, the generalbusiness of a private carrier or charter engaged in the transportation of passengers, mail,merchandise and freight, and to acquire, purchase, lease, construct, own, maintain, operate anddispose of airplanes and other aircraft of every kind and description, and also to own, purchase,construct, lease, operate and dispose of hangars, transportation depots, aircraft service stations andagencies, and other objects and service of a similar nature which may be necessary, convenient oruseful as an auxiliary to aircraft transportation. The principal place of business of the ParentCompany is at 2nd Floor, Doña Juanita Marquez Lim Building, Osmeña Boulevard, Cebu City.

The Parent Company has twelve special purpose entities (SPE) that it controls, namely: CebuAircraft Leasing Limited (CALL), IBON Leasing Limited (ILL), Boracay Leasing Limited (BLL),Surigao Leasing Limited (SLL), Sharp Aircraft Leasing Limited (SALL), Vector Aircraft LeasingLimited (VALL), Panatag One Aircraft Leasing Limited (POALL), Panatag Two Aircraft LeasingLimited (PTALL), Panatag Three Aircraft Leasing Limited (PTHALL), Summit A AircraftLeasing Limited (SAALL), Summit B Aircraft Leasing Limited (SBALL) and Summit C AircraftLeasing Limited (SCALL). CALL, ILL, BLL, SLL, SALL, VALL, POALL, PTALL andPTHALL are SPEs in which the Parent Company does not have equity interest. CALL, ILL, BLL,SLL, SALL, VALL, POALL, PTALL, PTHALL, SAALL, SBALL and SCALL acquired thepassenger aircraft for lease to the Parent Company under finance lease arrangements (Note 13)and funded the acquisitions through long-term debt (Note 18).

On March 20, 2014, the Parent Company acquired 100% ownership of Cebgo, Inc. (formerlyTiger Airways Philippines) (Note 7). The Parent Company, its twelve (12) SPEs and Cebgo(collectively known as “the Group”) are consolidated for financial reporting purposes (Note 2).

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

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

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

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

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

a. The Parent Company is subject to franchise tax of five percent (5%) of the gross revenuederived from air transportation operations. For revenue earned from activities other than airtransportation, the Parent Company is subject to corporate income tax and to real property tax.

b. In the event that any competing individual, partnership or corporation received and enjoyedtax privileges and other favorable terms which tended to place the Parent Company at anydisadvantage, then such privileges shall have been deemed by the fact itself of the ParentCompany’s tax privileges and shall operate equally in favor of the Parent Company.

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

a. The franchise tax of the Parent Company is abolished;b. The Parent Company shall be subject to corporate income tax;c. The Parent Company shall remain exempt from any taxes, duties, royalties, registration

license, and other fees and charges;d. Change in corporate income tax rate from 32.00% to 35.00% for the next three years effective

on November 1, 2005, and 30.00% starting on January 1, 2009 and thereafter;e. 70.00% cap on the input VAT that can be claimed against output VAT; andf. Increase in the VAT rate imposed on goods and services from 10.00% to 12.00% effective

on February 1, 2006.

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

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

2. Basis of Preparation

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

The financial statements of the Group are presented in Philippine Peso (P=), the Parent Company’sfunctional and presentation currency. All amounts are rounded to the nearest peso unlessotherwise indicated.

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Statement of ComplianceThe consolidated financial statements of the Group have been prepared in compliance withPhilippine Financial Reporting Standards (PFRS). The Group has adopted the new and revisedaccounting standards, which became effective beginning January 1, 2015, in the accompanyingfinancial statements.

On March 20, 2014, the Group finalized its acquisition of Cebgo, Inc. The acquisition wasaccounted for as a business combination (Note 7). Accordingly, the Group finalized the purchaseprice allocation.

Basis of ConsolidationThe consolidated financial statements as of December 31, 2015 and 2014 represent theconsolidated financial statements of the Parent Company, the SPEs that it controls and its whollyowned subsidiary Cebgo, Inc. Consolidation of Cebgo, Inc. started on March 20, 2014 when theGroup 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 therelevant activities of the investee);

· exposure, or rights, to variable returns from its involvement with the investee; and· the ability to use its power over the investee to affect the amount of the investor's returns

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

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

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

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

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

· Derecognizes the assets (including goodwill) and liabilities of the subsidiary;· Derecognizes the carrying amount of any non-controlling interests;· Derecognizes the cumulative translation adjustments recorded in equity;· Recognizes the fair value of the consideration received;· Recognizes the fair value of any investment retained;· Recognizes any surplus or deficit in profit or loss; and· Reclassifies the Parent Company’s share of components previously recognized in OCI to

profit or loss or retained earnings, as appropriate, as would be required if the Parent Companyhad directly disposed of the related assets and liabilities.

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

3. Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year, except forthe adoption of new and amended PFRS and Philippine Interpretations which became effectivebeginning January 1, 2015. Except as otherwise indicated, the adoption of amended PFRS andPhilippine Interpretations did not have any effect on the financial statements of the Group.

· PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments)PAS 19 requires an entity to consider contributions from employees or third parties whenaccounting for defined benefit plans. Where the contributions are linked to service, theyshould be attributed to periods of service as a negative benefit. These amendments clarifythat, if the amount of the contributions is independent of the number of years of service, anentity is permitted to recognize such contributions as a reduction in the service cost in theperiod in which the service is rendered, instead of allocating the contributions to the periods ofservice. The amendments will have no impact on the Group’s financial statements.

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

· PFRS 2, Share-based Payment - Definition of Vesting ConditionThis improvement is applied prospectively and clarifies various issues relating to thedefinitions of performance and service conditions which are vesting conditions, including:

o A performance condition must contain a service conditiono A performance target must be met while the counterparty is rendering serviceo A performance target may relate to the operations or activities of an entity, or to those of

another entity in the same groupo A performance condition may be a market or non-market conditiono If the counterparty, regardless of the reason, ceases to provide service during the vesting

period, the service condition is not satisfied.

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This amendment will not be applicable to the Group as it has no share-based payments.

· PFRS 3, Business Combinations - Accounting for Contingent Consideration in a BusinessCombinationThe amendment is applied prospectively for business combinations for which the acquisitiondate is on or after July 1, 2014. It clarifies that a contingent consideration that is not classifiedas equity is subsequently measured at fair value through profit or loss whether or not it fallswithin the scope of PAS 39, Financial Instruments: Recognition and Measurement(or PFRS 9, Financial Instruments, if early adopted). The Group shall consider thisamendment for future business combinations.

· PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of theTotal of the Reportable Segments’ Assets to the Entity’s AssetsThe amendments are applied retrospectively and clarify that:

o An entity must disclose the judgments made by management in applying the aggregationcriteria in the standard, including a brief description of operating segments that have beenaggregated and the economic characteristics (e.g., sales and gross margins) used to assesswhether the segments are ‘similar’.

o The reconciliation of segment assets to total assets is only required to be disclosed if thereconciliation is reported to the chief operating decision maker, similar to the requireddisclosure for segment liabilities.

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

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

· PAS 24, Related Party Disclosures - Key Management PersonnelThe amendment is applied retrospectively and clarifies that a management entity, which is anentity that provides key management personnel services, is a related party subject to therelated party disclosures. In addition, an entity that uses a management entity is required todisclose the expenses incurred for management services. The amendments will affectdisclosures only and will have no impact on the Group’s financial position or performance.


· PFRS 3, Business Combinations - Scope Exceptions for Joint ArrangementsThe amendment is applied prospectively and clarifies the following regarding the scopeexceptions within PFRS 3:

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

arrangement itself.

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

· PFRS 13, Fair Value Measurement - Portfolio ExceptionThe amendment is applied prospectively and clarifies that the portfolio exception in PFRS 13can be applied not only to financial assets and financial liabilities, but also to other contractswithin the scope of PAS 39. The amendment will have no significant impact on the Group’sfinancial position or performance.

· PAS 40, Investment PropertyThe amendment is applied prospectively and clarifies that PFRS 3, and not the description ofancillary services in PAS 40, is used to determine if the transaction is the purchase of an assetor business combination. The description of ancillary services in PAS 40 only differentiatesbetween investment property and owner-occupied property (i.e., property, plant andequipment). The amendment will have no significant impact on the Group’s financial positionor performance.

There are new and PFRS, amendments, annual improvements and interpretations to existingstandards that are effective for periods subsequent to 2015 and these will be adopted on theireffectivity dates in accordance with the transition provisions. Except as otherwise stated, theseamendments and improvements to PFRS and new standards are not expected to have anysignificant impact on the Group’s financial statements.

Effective January 1, 2016

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

· PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants(Amendments)The amendments change the accounting requirements for biological assets that meet thedefinition of bearer plants. Under the amendments, biological assets that meet the definitionof bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply.After initial recognition, bearer plants will be measured under PAS 16 at accumulated cost(before maturity) and using either the cost model or revaluation model (after maturity). Theamendments also require that produce that grows on bearer plants will remain in the scope ofPAS 41 measured at fair value less costs to sell. For government grants related to bearerplants, PAS 20, Accounting for Government Grants and Disclosure of GovernmentAssistance, will apply. The amendments are retrospectively effective for annual periodsbeginning on or after January 1, 2016, with early adoption permitted. The amendment willhave no significant impact on the Group’s financial position or performance.

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

· PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and JointVentures - Sale or Contribution of Assets between an Investor and its Associate or JointVentureThese amendments address an acknowledged inconsistency between the requirements inPFRS 10 and those in PAS 28 (2011) in dealing with the sale or contribution of assets betweenan investor and its associate or joint venture. The amendments require that a full gain or lossis recognized when a transaction involves a business (whether it is housed in a subsidiary ornot). A partial gain or loss is recognized when a transaction involves assets that do notconstitute a business, even if these assets are housed in a subsidiary. These amendments areeffective from annual periods beginning on or after January 1, 2016. The amendment willhave no significant impact on the Group’s financial position or performance.

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

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

· PFRS 14, Regulatory Deferral AccountsPFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferralaccount balances upon its first-time adoption of PFRS. Entities that adopt PFRS 14 mustpresent the regulatory deferral accounts as separate line items on the statement of financialposition and present movements in these account balances as separate line items in thestatement of profit or loss and other comprehensive income. The standard requires disclosureson the nature of, and risks associated with, the entity’s rate-regulation and the effects of thatrate-regulation on its financial statements. PFRS 14 is effective for annual periods beginningon or after January 1, 2016. Since the Group is an existing PFRS preparer, this standard willnot apply.

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

· PFRS 7, Financial Instruments: Disclosures - Servicing ContractsPFRS 7 requires an entity to provide disclosures for any continuing involvement in atransferred asset that is derecognized in its entirety. The amendment clarifies that a servicingcontract that includes a fee can constitute continuing involvement in a financial asset. Anentity must assess the nature of the fee and arrangement against the guidance in PFRS 7 inorder to assess whether the disclosures are required. The amendment is to be applied such thatthe assessment of which servicing contracts constitute continuing involvement will need to bedone retrospectively. However, comparative disclosures are not required to be provided forany period beginning before the annual period in which the entity first applies the amendments.The amendment will have no significant impact on the Group’s financial position orperformance.

· PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim FinancialStatementsThis amendment is applied retrospectively and clarifies that the disclosures on offsetting offinancial assets and financial liabilities are not required in the condensed interim financialreport unless they provide a significant update to the information reported in the most recentannual report. The amendment will have no significant impact on the Group’s financialposition or performance.

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

· PAS 34, Interim Financial Reporting - disclosure of information ‘elsewhere in the interimfinancial report’The amendment is applied retrospectively and clarifies that the required interim disclosuresmust either be in the interim financial statements or incorporated by cross-reference betweenthe interim financial statements and wherever they are included within the greater interimfinancial report (e.g., in the management commentary or risk report). The amendment willhave no significant impact on the Group’s financial position or performance.

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Effective January 1, 2018

· PFRS 9, Financial Instruments - Hedge Accounting and amendments to PFRS 9, PFRS 7 andPAS 39 (2013 version)PFRS 9 (2013 version) already includes the third phase of the project to replace PAS 39 whichpertains to hedge accounting. This version of PFRS 9 replaces the rules-based hedge accountingmodel of PAS 39 with a more principles-based approach. Changes include replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on the economicrelationship between the hedged item and the hedging instrument, and the effect of credit risk onthat economic relationship; allowing risk components to be designated as the hedged item, notonly for financial items but also for non-financial items, provided that the risk component isseparately identifiable and reliably measurable; and allowing the time value of an option, theforward element of a forward contract and any foreign currency basis spread to be excludedfrom the designation of a derivative instrument as the hedging instrument and accounted for ascosts of hedging. PFRS 9 also requires more extensive disclosures for hedge accounting.

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

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

· PFRS 9, Financial Instruments (2014 or final version)In July 2014, the final version of PFRS 9, Financial Instruments, was issued. PFRS 9 reflectsall phases of the financial instruments project and replaces PAS 39, Financial Instruments:Recognition and Measurement, and all previous versions of PFRS 9. The standard introducesnew requirements for classification and measurement, impairment, and hedge accounting.PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with earlyapplication permitted. Retrospective application is required, but comparative information isnot compulsory. Early application of previous versions of PFRS 9 is permitted if the date ofinitial application is before February 1, 2015.

The adoption of PFRS 9 will have an effect on the classification and measurement of theGroup’s financial assets and impairment methodology for financial assets, but will have noimpact on the classification and measurement of the Group’s financial liabilities. Theadoption will also have an effect on the Group’s application of hedge accounting. The Groupis currently assessing the impact of adopting this standard.

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

· IFRS 15, Revenue from Contracts with CustomersIFRS 15 was issued in May 2014 and establishes a new five-step model that will apply torevenue arising from contracts with customers. Under IFRS 15 revenue is recognized at anamount that reflects the consideration to which an entity expects to be entitled in exchange fortransferring goods or services to a customer. The principles in IFRS 15 provide a morestructured approach to measuring and recognizing revenue. The new revenue standard isapplicable to all entities and will supersede all current revenue recognition requirements underIFRS. Either a full or modified retrospective application is required for annual periods

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beginning on or after January 1, 2018 with early adoption permitted. The Group is currentlyassessing the impact of IFRS 15 and plans to adopt the new standard on the required effectivedate once adopted locally.

· IFRS 16, LeasesOn January 13, 2016, the IASB issued its new standard, IFRS 16, Leases, which replacesIAS 17, the current leases standard, and the related Interpretations.

Under the new standard, lessees will no longer classify their leases as either operating orfinance leases in accordance with IAS 17. Rather, lessees will apply the single-asset model.Under this model, lessees will recognize the assets and related liabilities for most leases ontheir balance sheets, and subsequently, will depreciate the lease assets and recognize intereston the lease liabilities in their profit or loss. Leases with a term of 12 months or less or forwhich the underlying asset is of low value are exempted from these requirements.

The accounting by lessors is substantially unchanged as the new standard carries forward theprinciples of lessor accounting under IAS 17. Lessors, however, will be required to disclosemore information in their financial statements, particularly on the risk exposure to residualvalue.

The new standard is effective for annual periods beginning on or after January 1, 2019.Entities may early adopt IFRS 16 but only if they have also adopted IFRS 15. When adoptingIFRS 16, an entity is permitted to use either a full retrospective or a modified retrospectiveapproach, with options to use certain transition reliefs. The Group is currently assessing theimpact of IFRS 16 and plans to adopt the new standard on the required effective date onceadopted locally.

4. Summary of Significant Accounting Policies

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

Sale of air transportation servicesPassenger ticket and cargo waybill sales, excluding portion relating to awards under LifestyleRewards Program, are initially recorded under ‘Unearned transportation revenue’ account in theconsolidated statement of financial position until recognized under Revenue account in theconsolidated statement of comprehensive income when carriage is provided or when the flight isuplifted.

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

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

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Liability Under Lifestyle Rewards ProgramThe Parent Company operates a lifestyle rewards program called ‘Getgo.’ A portion of passengerrevenue attributable to the award of Getgo points, estimated based on expected utilization of thesebenefits, is deferred until utilized. The fair value of the consideration received in respect of theinitial sale is allocated to the award credits based on its fair value. The fair value of the pointsexpected to be redeemed is estimated using the applicable fare based on the estimated redemption.The deferred revenue is included under ‘Other noncurrent liabilities’ in the Parent Companystatement of financial position. Any remaining unutilized benefits are recognized as revenue uponredemption or expiry.

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

The commission related to the sale of air transportation services is recognized as outright expenseupon the receipt of payment from customers, and is included under ‘Reservation and sales’account (Note 22).

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

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

Financial InstrumentsDate of recognitionPurchases or sales of financial assets that require delivery of assets within the time frameestablished by regulation or convention in the marketplace are recognized using the settlementdate accounting. Derivatives are recognized on a trade date basis.

Initial recognition of financial instrumentsFinancial instruments are recognized initially at the fair value of the consideration given. Exceptfor financial instruments at FVPL, the initial measurement of financial assets includes transactioncosts. The Group classifies its financial assets into the following categories: financial assets atFVPL, held-to-maturity (HTM) investments, AFS investments and loans and receivables.Financial liabilities are classified into financial liabilities at FVPL and other financial liabilitiescarried at cost or amortized cost. The Group has no HTM and AFS investments as ofDecember 31, 2015 and 2014.

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

Determination of fair valueThe fair value of financial instruments traded in active markets at the statement of financialposition date is based on their quoted market price or dealer price quotations (bid price for longpositions and ask price for short positions), without any deduction for transaction costs. Whencurrent bid and ask prices are not available, the price of the most recent transaction providesevidence of the current fair value as long as there has not been a significant change in economiccircumstances since the time of the transaction.

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

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

· Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities· Level 2: other techniques for which all inputs which have a significant effect on the recorded

fair value are observable, either directly or indirectly· Level 3: techniques which use inputs which have a significant effect on the recorded fair value

that are not based on observable market data.

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

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

· The designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the assets or liabilities or recognizing gains or losses on themon a different basis; or

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· The assets or liabilities are part of a group of financial assets, financial liabilities or bothwhich are managed and their performance are evaluated on a fair value basis, in accordancewith a documented risk management or investment strategy; or

· The financial instrument contains an embedded derivative, unless the embedded derivativedoes not significantly modify the cash flows or it is clear, with little or no analysis, that itwould not be separately recorded.

The Group’s financial assets and liabilities at FVPL consist of derivative liabilities and derivativeassets as of December 31, 2015 and 2014, respectively (Note 9).

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

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

For the purpose of hedge accounting, hedges are classified primarily as either: (a) a hedge of thefair value of an asset, liability or a firm commitment (fair value hedge); or (b) a hedge of theexposure to variability in cash flows attributable to an asset or liability or a forecasted transaction(cash flow hedge). The Group did not apply hedge accounting on its derivative transactions forthe years ended December 31, 2015 and 2014.

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

As of December 31, 2015 and 2014, the Group has no embedded derivatives.

AFS investmentsAFS investments are those non-derivative investments which are designated as such or do notqualify to be classified or designated as financial assets at FVPL, HTM investments or loans andreceivables. They are purchased and held indefinitely, and may be sold in response to liquidityrequirements or changes in market conditions.

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

The unrealized gains and losses are recognized directly in equity [other comprehensive income(loss)] under ‘Net unrealized gain (loss) on AFS investments’ account in the statement of financialposition. When the investment is disposed of, the cumulative gain or loss previously recognizedin the statement of comprehensive income is recognized in the statement of income. Where theGroup holds more than one investment in the same security they are deemed to be disposed of ona first-in first-out basis. Dividends earned while holding AFS investments are recognized in the

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statement of income when the right of the payment has been established. The losses arising fromimpairment of such investments are recognized in the statement of income and removed from the‘Net unrealized gain (loss) on AFS investments’ account.

As of December 31, 2015 and 2014, the Group has no AFS investments.

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

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

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

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

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

Impairment of Financial AssetsThe Group assesses at each reporting date whether there is objective evidence that a financial assetor group of financial assets is impaired. A financial asset or a group of financial assets is deemedto be impaired if, and only if, there is objective evidence of impairment as a result of one or moreevents that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and thatloss event (or events) has an impact on the estimated future cash flows of the financial asset or thegroup of financial assets that can be reliably estimated. Evidence of impairment may includeindications that the borrower or a group of borrowers is experiencing significant financialdifficulty, default or delinquency in interest or principal payments, the probability that they willenter bankruptcy or other financial reorganization and where observable data indicate that there isa measurable decrease in the estimated future cash flows, such as changes in arrears or economicconditions that correlate with defaults.

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

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

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

AFS investmentsThe Group assesses at each reporting date whether there is objective evidence that a financial assetor group of financial assets is impaired. In the case of debt instruments classified as AFSinvestments, impairment is assessed based on the same criteria as financial assets carried atamortized cost. Interest continues to be accrued at the original EIR on the reduced carryingamount of the asset and is recorded under interest income in profit or loss. If, in a subsequentyear, the fair value of a debt instrument increases, and the increase can be objectively related to anevent occurring after the impairment loss was recognized in profit or loss, the impairment loss isalso reversed through profit or loss.

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

As of December 31, 2015 and 2014, the Group has no AFS investments.

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Derecognition of Financial InstrumentsFinancial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of financialassets) is derecognized where:

· the rights to receive cash flows from the asset have expired;· the Group retains the right to receive cash flows from the asset, but has assumed an obligation

to pay them in full without material delay to a third party under a “pass-through” arrangement;or

· the Group has transferred its rights to receive cash flows from the asset and either: (a) hastransferred substantially all the risks and rewards of ownership and retained control over theasset; or (b) has neither transferred nor retained the risks and rewards of the asset but hastransferred the control over the asset.

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

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

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

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

Business Combinations and GoodwillPFRS 3 provides that if the initial accounting for a business combination can be determined onlyprovisionally by the end of the period in which the combination is effected because either the fairvalues to be assigned to the acquiree’s identifiable assets, liabilities or contingent liabilities or thecost of the combination can be determined only provisionally, the acquirer shall account for thecombination using those provisional values. The acquirer shall recognize any adjustments to thoseprovisional values as a result of completing the initial accounting within twelve months of theacquisition date as follows: (i) the carrying amount of the identifiable asset, liability or contingent

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liability that is recognized or adjusted as a result of completing the initial accounting shall becalculated as if its fair value at the acquisition date had been recognized from that date;(ii) goodwill or any gain recognized shall be adjusted by an amount equal to the adjustment to thefair value at the acquisition date of the identifiable asset, liability or contingent liability beingrecognized or adjusted; and (iii) comparative information presented for the periods before theinitial accounting for the combination is complete shall be presented as if the initial accounting hasbeen completed from the acquisition date.

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

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

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

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

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

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.For the purpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Group’s CGU that are expected to benefit from thecombination, irrespective of whether other assets or liabilities of the acquiree are assigned to thoseunits.

On March 20, 2014, the Group acquired 100% shares of Cebgo, Inc. in which total considerationamounted to P=231.8 million (net of cash acquired amounting P=256.7) and goodwill recognized asa result of the acquisition amounted to P=566.8 million (Notes 7, 15 and 31).

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

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

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

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

The EULs of property and equipment of the Group follows:

Passenger aircraft* 15 yearsEngines 15 yearsRotables 15 yearsGround support equipment 5 yearsEDP Equipment, mainframe and peripherals 3 yearsTransportation equipment 5 yearsFurniture, fixtures and office equipment 5 yearsCommunication equipment 5 yearsSpecial tools 5 yearsMaintenance and test equipment 5 yearsOther equipment 5 years*With residual value of 15.00%

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

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

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

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

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

The intangible asset of the Group has indefinite useful lives.

Aircraft Maintenance and Overhaul CostThe Group recognizes aircraft maintenance and overhaul expenses in accordance with thecontractual terms.

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

Asset Retirement Obligation (ARO)The Group is contractually required under various lease contracts to restore certain leased aircraftto its original condition and to bear the cost of restoration at the end of the contract period. Thecontractual obligation includes regular aircraft maintenance, overhaul and restoration of the leasedaircraft to its original condition. The event that gives rise to the obligation is the actual flyinghours of the asset as used, as the usage determines the timing and nature of the entity completesthe overhaul and restoration. Regular aircraft maintenance is accounted for as expense whenincurred, while overhaul and restoration are accounted on an accrual basis.

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

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

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

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

The Group’s 50.00%, 49.00% and 35.00% investments in Philippine Academy for AviationTraining, Inc. (PAAT), Aviation Partnership (Philippines) Corporation (A-plus) and SIAEngineering (Philippines) Corporation (SIAEP), respectively, are accounted for under the equity

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method (Note 14). Under the equity method, the investments in JV are carried in the consolidatedstatement of financial position at cost plus post-acquisition changes in the Group’s share of netassets of the JV, less any allowance for impairment in value. The consolidated statement ofcomprehensive income reflects the Group’s share in the results of operations of the JV. Dividendsreceived are treated as a revaluation of the carrying value of the investment.

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

Impairment of Nonfinancial AssetsThis accounting policy applies primarily to the Group’s property and equipment.

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

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

Impairment of IntangiblesIntangible assets with indefinite lives are assessed for impairment annually irrespective of whetherthere is any indication that it may be impaired. An intangible asset is impaired when its carryingamount exceeds recoverable amount. An impairment is recognized immediately in the profit orloss. The Group estimates the recoverable amount of the intangible asset. This impairment testmay be performed at any time during an annual period, provided it is performed at the same timeevery year.

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

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

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

Impairment of Investments in JVThe Group’s investment in JV is tested for impairment in accordance with PAS 36 as a singleasset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell)with its carrying amount, whenever application of the requirements in PAS 39 indicates that theinvestment may be impaired. An impairment loss recognized in those circumstances is notallocated to any asset that forms part of the carrying amount of the investment in a JV.Accordingly, any reversal of that impairment loss is recognized in accordance with PAS 36 to theextent that the recoverable amount of the investment subsequently increases. In determining thevalue in use of the investment, an entity estimates: (a) its share of the present value of theestimated future cash flows expected to be generated by the JV, including the cash flows from theoperations of the JV and the proceeds on the ultimate disposal of the investment; or (b) the presentvalue of the estimated future cash flows expected to arise from dividends to be received from theinvestment and from its ultimate disposal.

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

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

· The assets and liabilities making up the CGU have not changed significantly from the mostrecent calculation;

· The most recent recoverable amount calculation resulted in an amount that exceeded thecarrying amount of the CGU by a significant margin; and

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

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

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

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

Treasury StockOwn equity instruments which are acquired (treasury shares) are recognized at cost and deductedfrom equity. No gain or loss is recognized in the profit and loss on the purchase, sale, issue orcancellation of the Group’s own equity instruments.

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

Dividends on Common SharesDividends on common shares are recognized as a liability and deducted from equity whenapproved and declared by the BOD, in the case of cash dividends; or by the BOD andshareholders, in the case of stock dividends.

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

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

Pension CostsDefined benefit planThe net defined benefit liability or asset is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets, adjusted forany effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is thepresent value of any economic benefits available in the form of refunds from the plan orreductions in future contributions to the plan.

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

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

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

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

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

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

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

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

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

Deferred tax liabilities are recognized for all taxable temporary differences, with certainexceptions. Deferred tax assets are recognized for all deductible temporary differences withcertain exceptions, and carryforward benefits of unused tax credits from excess minimumcorporate income tax (MCIT) over RCIT and unused net operating loss carryover (NOLCO), tothe extent that it is probable that sufficient taxable income will be available against which thedeductible temporary differences and carryforward benefits of unused tax credits from excessMCIT and unused NOLCO can be utilized. Deferred tax assets, however, are not recognizedwhen it arises from the initial recognition of an asset or liability in a transaction that is not abusiness combination and, at the time of transaction, affects neither the accounting income nor

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taxable profit or loss. Deferred tax liabilities are not provided on non-taxable temporarydifferences associated with interests in JV. With respect to interests in JV, deferred tax liabilitiesare recognized except where the timing of the reversal of the temporary difference can becontrolled and it is probable that the temporary difference will not reverse in the foreseeablefuture.

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

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

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

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

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

a. there is a change in contractual terms, other than a renewal or extension of the arrangement;b. a renewal option is exercised or an extension granted, unless that term of the renewal or

extension was initially included in the lease term;c. there is a change in the determination of whether fulfillment is dependent on a specified asset;

ord. there is a substantial change to the asset.

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

Group as lesseeFinance leases, which transfer to the Group substantially all the risks and benefits incidental toownership of the leased item, are capitalized at the inception of the lease at the fair value of theleased property or, if lower, at the present value of the minimum lease payments and includedunder ‘Property and equipment’ account with the corresponding liability to the lessor includedunder ‘Long-term debt’ account in the consolidated statement of financial position. Leasepayments are apportioned between the finance charges and reduction of the lease liability so as toachieve a constant rate of interest on the remaining balance of the liability. Finance charges arecharged directly to profit or loss.

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

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

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

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

The Group had not capitalized any borrowing costs for the years ended December 31, 2015 and2014 as all borrowing costs from outstanding long-term debt relate to assets that are at state readyfor intended use (Note 18).

Foreign Currency TransactionsTransactions in foreign currencies are initially recorded in the Group’s functional currency usingthe exchange rates prevailing at the dates of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated at the functional currency using the PhilippineDealing and Exchange Corp. (PDEX) closing rate prevailing at the reporting date. All differencesare taken to the consolidated statement of comprehensive income. Non-monetary items that aremeasured in terms of historical cost in a foreign currency are translated using the prevailingclosing exchange rate as of the date of initial transaction.

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

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

For the years ended December 31, 2015 and 2014, the Group does not have any dilutive potentialordinary shares.

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

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

5. Significant Accounting Judgments and Estimates

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

Judgments

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

b. Classification of financial instrumentsThe Group exercises judgment in classifying a financial instrument, or its component, oninitial recognition as either a financial asset, a financial liability or an equity instrument inaccordance with the substance of the contractual arrangement and the definitions of a financialasset, financial liability or equity instrument. The substance of a financial instrument, ratherthan its legal form, governs its classification in the consolidated statement of financialposition.

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

c. Fair values of financial instrumentsWhere the fair values of certain financial assets and liabilities recorded in the consolidatedstatement of financial position cannot be derived from active markets, they are determinedusing valuation techniques, including the discounted cash flow model. The inputs to thesemodels are taken from observable market data where possible, but where this is not feasible,estimates are used in establishing fair values. The judgments include considerations ofliquidity risk, credit risk and volatility. Changes in assumptions about these factors couldaffect the reported fair value of financial instruments. For derivatives, the Group generallyrelies on calculation agent’s valuation.

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

d. Impairment of financial assetsIn determining whether an impairment loss should be recorded in profit or loss, the Groupmakes judgments as to whether there is any objective evidence of impairment as a result ofone or more events that has occurred after initial recognition of the asset and that loss event orevents has an impact on the estimated future cash flows of the financial assets or the group offinancial assets that can be reliably estimated. This observable data may include adversechanges in payment status of borrowings in a group, or national or local economic conditionsthat correlate with defaults on assets in the portfolio.

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

The Group also has lease agreements where it has determined that the risks and rewardsrelated to the leased assets are retained with the lessors (e.g., no bargain purchase option andtransfer of ownership at the end of the lease term). The Group determined that it has no risksrelating to changing economic conditions since the Group does not own the leased aircraft.Where the lease agreement does not transfer substantially all the risks and rewards incidentalto ownership, such leases are accounted for as operating leases (Note 30).

f. Consolidation of SPEsThe Group periodically undertakes transactions that may involve obtaining the rights tovariable returns from its involvement with the SPE. These transactions include the purchaseof aircraft and assumption of certain liabilities. Also, included are transactions involvingSPEs and similar vehicles. In all such cases, management makes an assessment as to whetherthe Group has the right over the returns of its SPEs, and based on this assessment, the SPE isconsolidated as a subsidiary or associated company. In making this assessment, managementconsiders the underlying economic substance of the transaction and not only the contractualterms. 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 therisks and returns from its involvement with the SPEs. Such rights and risks associated with thebenefits and returns are indicators of control. Accordingly, the SPEs are consolidated.

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

a) the currency that mainly influences sales prices for financial instruments and services (thiswill often be the currency in which sales prices for its financial instruments and servicesare denominated and settled);

b) the currency in which funds from financing activities are generated; andc) the currency in which receipts from operating activities are usually retained.

The Group’s consolidated financial statements are presented in Philippine peso, which is alsothe Group’s functional currency.

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

i. Allocation of revenue, costs and expensesRevenue, costs and expenses are classified as exclusive and common. Exclusive revenue, costand expenses such as passenger revenue, cargo revenue, excess baggage revenue, fuel andinsurance surcharge, fuel and oil expense, hull/war/risk insurance, maintenance expense,depreciation (for aircraft under finance lease), lease expense (for aircraft under operatinglease) and interest expense based on the related long-term debt are specifically identified peraircraft based on an actual basis. For revenue, cost and expense accounts that are notidentifiable per aircraft, the Group provides allocation based on activity factors that closelyrelate to the earning process of the revenue.

j. Classification of joint arrangementsThe Group’s investments in joint ventures (Note 14) are structured in separate incorporatedentities. Even though the Group holds various percentage of ownership interest on thesearrangements, their respective joint arrangement agreements requires unanimous consent fromall parties to the agreement for the relevant activities identified. The Group and the parties tothe agreement only have rights to the net assets of the joint venture through the terms of thecontractual arrangements.

k. IntangiblesThe Group assesses intangible as having an indefinite useful life when based on the analysisof relevant factors; the Group has no foreseeable limit to the period of which the intangibleasset is expected to generate cash inflow for the Group. These intangibles relate to costs toestablish brand and market opportunities (Notes 7 and 16).

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

m. Impairment of PPE and investments in joint ventures (JV)The Company assesses at the end of each reporting period whether there is any indication thatan asset may be impaired. If any such indication exists, the entity shall estimate therecoverable amount of the asset.

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

As of December 31, 2015 and 2014, the balances of the Group’s unearned transportation revenueamounted to P=6,971.8 million and P=6,373.7 million, respectively.

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Estimates and Assumptions

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

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

The related balances follow (Note 10):

2015 2014Receivables P=2,053,854,968 P=2,169,549,982Allowance for credit losses 316,410,084 306,831,563

b. Determination of NRV of expendable parts, fuel, materials and suppliesThe Group’s estimates of the NRV of expendable parts, fuel, materials and supplies are basedon the most reliable evidence available at the time the estimates are made, of the amount thatthe expendable parts, fuel, materials and supplies are expected to be realized. In determiningthe NRV, the Group considers any adjustment necessary for obsolescence, which is generallyproviding 100.00% for nonmoving items for more than one year. A new assessment is madeof NRV in each subsequent period. When the circumstances that previously causedexpendable parts, fuel, materials and supplies to be written-down below cost no longer exist orwhen there is a clear evidence of an increase in NRV because of a change in economiccircumstances, the amount of the write-down is reversed so that the new carrying amount isthe lower of the cost and the revised NRV.

The related balances follow (Note 11):

2015 2014Expendable Parts, Fuel, Materials and Supplies

At NRV P=670,424,438 P=504,714,331At cost 248,693,605 174,600,739

As of December 31, 2015 and 2014, allowance for inventory write-down for expendable partsamounted to P=20.5 million. No additional provision for inventory write-down was recognizedby the Group in 2015 and 2014.

c. Estimation of Asset Retirement Obligation (ARO)The Group is contractually required under certain lease contracts to restore certain leasedpassenger aircraft to stipulated return condition and to bear the costs of restoration at the endof the contract period. Since the first operating lease entered by the Group in 2001, thesecosts are accrued based on an internal estimate which includes estimates of certain redeliverycosts at the end of the operating aircraft lease. The contractual obligation includes regularaircraft maintenance, overhaul and restoration of the leased aircraft to its original condition.

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Regular aircraft maintenance is accounted for as expense when incurred, while overhaul andrestoration are accounted on an accrual basis.

Assumptions used to compute ARO are reviewed and updated annually by the Group. As ofDecember 31, 2015 and 2014, the cost of restoration is computed based on the Group’saverage borrowing cost.

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

As of December 31, 2015 and 2014, the Group’s ARO liability (included under ‘Othernoncurrent liabilities’ account in the statements of financial position) has a carrying value ofP=1,344.5 million and P=586.1 million, respectively (Note 19). The related repairs andmaintenance expense for the years ended December 31, 2015, 2014 and 2013 amounted toP=864.0 million, P=476.0 million and P=590.6 million, respectively (Notes 19 and 22).

d. Estimation of useful lives and residual values of property and equipmentThe Group estimates the useful lives of its property and equipment based on the period overwhich the assets are expected to be available for use. The Group estimates the residual valueof its property and equipment based on the expected amount recoverable at the end of itsuseful life. The Group reviews annually the EULs and residual values of property andequipment based on factors that include physical wear and tear, technical and commercialobsolescence and other limits on the use of the assets. It is possible that future results ofoperations could be materially affected by changes in these estimates brought about bychanges in the factors mentioned. A reduction in the EUL or residual value of property andequipment would increase recorded depreciation and amortization expense and decreasenoncurrent assets.

As of December 31, 2015 and 2014, the carrying values of the Group’s property andequipment amounted to P=72,075.8 million and P=65,227.1 million, respectively (Note 13).The Group’s depreciation and amortization expense amounted to P=5,111.5 million,P=4,281.5 million and P=3,454.6 million for the years ended December 31, 2015, 2014 and2013, respectively (Note 13).

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

· significant underperformance relative to expected historical or projected future operatingresults;

· significant changes in the manner of use of the acquired assets or the strategy for overallbusiness; and

· significant negative industry or economic trends.

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An impairment loss is recognized whenever the carrying amount of an asset or investmentexceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair valueless cost to sell and value in use. The fair value less cost to sell is the amount obtainable fromthe sale of an asset in an arm’s length transaction while value in use is the present value ofestimated future cash flows expected to arise from the continuing use of an asset and from itsdisposal at the end of its useful life.

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

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

As of December 31, 2015 and 2014, the carrying values of the Group’s property andequipment amounted to P=72,075.8 million and P=65,227.1 million, respectively (Note 13).

Investments in JV amounted to P=525.6 million and P=591.3 million as of December 31, 2015and 2014, respectively (Note 14). There were no provision for impairment losses on theGroup’s property and equipment and investments in JV for the years endedDecember 31, 2015 and 2014.

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

· The assets and liabilities making up the CGU have not changes significantly from themost recent calculation;

· The most recent recoverable amount calculation resulted in an amount that exceeded thecarrying amount of the CGU by a significant margin; and

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

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

As of December 31, 2015 and 2014, the Group has determined that goodwill and intangiblesare recoverable as there were no indications that these are impaired. Goodwill amounted toP=566.8 million as of December 31, 2015 and 2014 (Notes 7 and 15). Brand and marketopportunities amounted to P=852.2 million as of December 31, 2015 and 2014 (Note 16).

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g. Estimation of liability under the Lifestyle Rewards ProgramA 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 pointsexpected to be redeemed are measured at fair value which is estimated using the peso value ofthe points. Deferred revenue included as part of ‘Other noncurrent liabilities’ amounted toP=92.5 million and nil as of December 31, 2015 and 2014, respectively (Note 19). The rewardsprogram started in 2015. Any remaining unredeemed points are recognized as revenue uponexpiration.

h. Estimation of pension and other employee benefit costsThe determination of the obligation and cost of pension and other employee benefits isdependent on the selection of certain assumptions used in calculating such amounts. Thoseassumptions include, among others, discount rates and salary increase rates (Note 24).

While the Group believes that the assumptions are reasonable and appropriate, significantdifferences between actual experiences and assumptions may materially affect the cost ofemployee benefits and related obligations.

The Group’s pension liability (included in ‘Other noncurrent liabilities’ account in theconsolidated statements of financial position) amounted to P=546.5 million and P=385.7 millionas of December 31, 2015 and 2014, respectively (Notes 19 and 24).

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

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

As of December 31, 2015 and 2014, the Group had certain gross deductible and taxabletemporary differences which are expected to expire or reverse within the ITH period, and forwhich deferred tax assets and deferred tax liabilities were not set up on account of the Group’sITH.

As of December 31, 2015 and 2014, the Group has deferred tax assets amountingP=3,574.4 million and P=1,967.4, respectively. Unrecognized deferred tax assets as ofDecember 31, 2015 and 2014 amounted to P=80.5 million and P=397.6 million, respectively(Note 25).

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6. Segment Information

The Group has one reportable operating segment, which is the airline business (system-wide).This is consistent with how the Group’s management internally monitors and analyzes thefinancial information for reporting to the Chief Operating Decision Maker (CODM), who isresponsible for allocating resources, assessing performance and making operating decisions. TheCODM 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 totransactions with third parties.

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

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

2015 2014 2013Revenue P=56,620,079,940 P=52,176,271,673 P=41,633,401,318Net income 4,387,225,875 853,498,216 511,946,229Depreciation and amortization 5,111,543,724 4,281,525,018 3,454,641,115Interest expense 1,073,109,693 1,013,241,353 865,501,445Interest income 83,006,926 79,927,272 219,619,475EBIT 9,700,220,806 4,157,336,990 2,404,411,910Pre-tax core net income 8,745,536,537 3,320,349,000 1,877,890,409EBITDAR 19,700,325,097 12,418,364,058 8,764,550,145Capital expenditures 13,047,934,091 13,316,719,856 12,179,883,734

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

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

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

The reconciliation of total revenue reported by reportable operating segment to revenue in theconsolidated statements of comprehensive income is presented in the following table:

2015 2014 2013Total segment revenue of reportable

operating segment P=56,501,654,516 P=52,000,018,310 P=41,004,096,281Nontransport revenue and

other income 118,425,424 176,253,363 629,305,037Total revenue P=56,620,079,940 P=52,176,271,673 P=41,633,401,318

Nontransport revenue and other income include interest income, dividend income from JV andfuel hedging gains.

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The reconciliation of total income reported by reportable operating segment to totalcomprehensive income in the consolidated statements of comprehensive income is presented inthe following table:

2015 2014 2013Total segment income of

reportable segment P=9,700,220,806 P=4,157,336,990 P=2,404,411,910Add (deduct) unallocated items:

Nontransport revenue andother income 118,425,424 176,253,363 629,305,037

Nontransport expenses andother charges (6,289,850,941) (3,454,954,369) (2,928,509,441)

Benefit from (provision for)income tax 858,430,586 (25,137,768) 406,738,723

Net income 4,387,225,875 853,498,216 511,946,229Other comprehensive gain (loss), net

of tax (61,904,911) 209,681,986 (255,604,489)Total comprehensive income P=4,325,320,964 P=1,063,180,202 P=256,341,740

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

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

7. Business Combination

As part of the strategic alliance between the Parent Company and Tiger Airways Holding Limited(TAH), on February 10, 2014, the Parent Company signed a Sale and Purchase Agreement (SPA)to acquire 100% of Cebgo, Inc. Under the terms of the SPA, closing of the transaction is subjectto the satisfaction or waiver of each of the conditions contained in the SPA. On March 20, 2014,all the conditions precedent has been satisfactorily completed. The Parent Company has paid thepurchase price covering the transfer of shares from TAH. Consequently, the Parent Companygained control of Cebgo, Inc. on the same date. The total consideration for the transaction, atpost-closing settlement date, amounted to P=265.1 million.

The fair values of the identifiable assets and liabilities of Cebgo, Inc. at the date of acquisitionfollow:

Fair Valuerecognized in

the acquisitionTotal cash, receivables and other assets P=1,234,084,305Total accounts payable, accrued expenses and unearned income 1,535,756,691Net liabilities (301,672,386)Goodwill 566,781,533Acquisition cost at post-closing settlement date P=265,109,147

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The goodwill arising from this business combination amounted to P=566.8 million (Note 15). TheParent Company also identified other assets representing costs to establish brand and marketopportunities under the strategic alliance with TAH (Note 16). The related deferred tax liabilityon this business combination amounted to P=185.6 million (Note 25).

From the date of acquisition up to December 31, 2014, the Parent Company’s share in Cebgo’srevenue and net loss amounted to P=2,830.0 million and P=159.8 million, respectively. If thecombination had taken place at the beginning of the year in 2014, the Parent Company’s share inCebgo’s total revenue and net loss would have been P=3,773.6 million and P=1,379.6 million,respectively.

In February 2015, the Parent Company reached an agreement with ROAR II on the settlement ofpost-closing adjustments amounting P=223.5 million pursuant to the SPA. Such amount is bookedunder ‘other receivables’ and is accounted for as an adjustment in the purchase price in 2014(Note 10). The total purchase price after closing settlement date amounted to P=488.6 million.

8. Cash and Cash Equivalents

This account consists of:

2015 2014Cash on hand P=30,790,719 P=27,571,469Cash in banks (Note 28) 1,078,023,124 1,011,286,363Short-term placements (Note 28) 3,597,276,220 2,925,054,851

P=4,706,090,063 P=3,963,912,683

Cash in banks earns interest at the respective bank deposit rates. Short-term placements, whichrepresent money market placements, are made for varying periods depending on the immediatecash requirements of the Group. Short-term placements denominated in Philippine peso earn anaverage annual interest of 2.35%, 3.07% and 0.84% in 2015, 2014 and 2013, respectively.Moreover, short-term placements in US dollar earn interest on an average annual interest rate of0.77%, 0.92% and 1.89% in 2015, 2014 and 2013, respectively.

Interest income on cash and cash equivalents, presented in the consolidated statements ofcomprehensive income amounted to P=83.0 million, P=79.9 million and P=219.6 million in 2015,2014 and 2013, respectively.

9. Investment and Trading Securities

This account consists of derivative financial liabilities in 2015 and 2014 that are not designated asaccounting hedges. This account amounted to P=2,443.5 million and P=2,260.6 million as ofDecember 31, 2015 and 2014, respectively.

As of December 31, 2015 and 2014, this account consists of commodity swaps.

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Commodity SwapsThe Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuelderivatives are not designated as accounting hedges. The gains or losses on these instruments areaccounted for directly as a charge against or credit to profit or loss. As of December 31, 2015 and2014, the Group has outstanding fuel hedging transactions. The notional quantity is the amount ofthe derivatives’ underlying asset or liability, reference rate or index and is the basis upon whichchanges in the value of derivatives are measured. The swaps can be exercised at variouscalculation dates with specified quantities on each calculation date. The swaps have variousmaturity dates through December 31, 2017 (Note 5).

As of December 31, 2015 and 2014, the Group recognized net changes in fair value of derivativesamounting P=2,945.8 million loss and P=2,424.0 million loss, respectively. These are recognized in“Hedging gains (losses)” under the consolidated statements of comprehensive income.

Foreign Currency ForwardsThe Group entered into foreign currency hedging arrangements with various counterparties tomanage its exposure to foreign currency fluctuations. Such derivatives are not designated asaccounting hedges. The gains or losses on these instruments are accounted for directly as a chargeagainst or credit to profit or loss. In 2015 and 2014, the Group pre-terminated all foreign currencyderivative contracts, where the Group recognized realized gain of P=14.6 million andP=109.8 million in 2015 and 2014, respectively. For the years ended December 31, 2015 and 2014,such realized gain is recognized in “Hedging gains (losses)” under the consolidated statement ofcomprehensive income.

Fair value changes on derivativesThe changes in fair value of all derivative financial instruments not designated as accountinghedges follow:

2015 2014Balance at beginning of year

Derivative assets P=– P=166,456,897Derivative liabilities 2,260,559,896 ‒

(2,260,559,896) 166,456,897Net changes in fair value of derivatives (2,931,215,906) (2,314,241,984)

(5,191,775,802) (2,147,785,087)Fair value of settled instruments 2,748,280,664 (112,774,809)Balance at end of year (P=2,443,495,138) (P=2,260,559,896)Attributable to:

Derivative liabilities P=2,443,495,138 P=2,260,559,896

The net changes in fair value of derivatives is inclusive of the realized gains on pre-terminatedforeign currency forwards amounting P=14.6 million and P=109.8 million in 2015 and 2014,respectively.

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10. Receivables


2015 2014Trade receivables (Note 28) P=1,398,342,106 P=1,302,342,302Due from related parties (Notes 27 and 28) 125,623,460 134,424,754Interest receivable (Note 28) 1,377,036 1,008,445Others (Note 7) 528,512,366 731,774,481

2,053,854,968 2,169,549,982Less allowance for credit losses (Note 28) 316,410,084 306,831,563

P=1,737,444,884 P=1,862,718,419

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

Interest receivable pertains to accrual of interest income from short-term placements amountingP=1.4 million and P=1.0 million in 2015 and 2014, respectively.

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

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

2015Trade

Receivables Others TotalBalance at beginning of year P=8,372,701 P=298,458,862 P=306,831,563Unrealized foreign exchange gain on

allowance for credit losses 65,857 9,512,664 9,578,521Balance at end of year P=8,438,558 P=307,971,526 P=316,410,084

2014Trade

Receivables Others TotalBalance at beginning of year P=7,153,490 P=228,284,529 P=235,438,019Unrealized foreign exchange gain on

allowance for credit losses – 1,671,190 1,671,190Allowance for credit losses 1,219,211 68,503,143 69,722,354Balance at end of year P=8,372,701 P=298,458,862 P=306,831,563

As of December 31, 2015 and 2014, the specific allowance for credit losses on trade receivablesand other receivables amounted to P=316.4 million and P=306.8 million, respectively.

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11. Expendable Parts, Fuel, Materials and Supplies


2015 2014At NRV:

Expendable parts P=670,424,438 P=504,714,331At cost:

Fuel 171,346,803 129,110,368Materials and supplies 77,346,802 45,490,371

248,693,605 174,600,739P=919,118,043 P=679,315,070

The cost of expendable and consumable parts, and materials and supplies recognized as expense(included under ‘Repairs and maintenance’ account in the consolidated statements ofcomprehensive income) for the years ended December 31, 2015, 2014 and 2013 amounted toP=374.4 million, P=365.2 million and P=279.8 million, respectively. The cost of fuel reported asexpense under ‘Flying operations’ amounted to P=17,659.1 million, P=23,210.3 million andP=19,522.7 million in 2015, 2014 and 2013, respectively (Note 22).

The cost of expendable parts amounted to P=690.92 million and P=525.21 million as ofDecember 31, 2015 and 2014, respectively. There are no additional provisions for inventorywrite down in 2015 and 2014. No expendable parts, fuel, material and supplies are pledged assecurity for liabilities.

12. Other Current Assets


2015 2014Deposit to counterparties (Note 9) P=1,124,551,325 P=841,439,022Advances to suppliers 829,605,886 851,716,307Prepaid rent 324,260,018 318,023,507Prepaid insurance 45,784,015 5,180,027Others 75,917,904 4,113,060

P=2,400,119,148 P=2,020,471,923

Deposit to counterparties pertains to collateral deposits provided to counterparties for fuel hedgingtransactions (Note 9).

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

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

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

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13. Property and Equipment

The composition and movements in this account follow:

2015

PassengerAircraft

(Notes 18 and 32) Engines Rotables

GroundSupport

Equipment

EDPEquipment,

Mainframe andPeripherals

LeaseholdImprovements

TransportationEquipment Sub-total

CostBalance at January 1, 2015 P=65,630,899,798 P=6,155,955,141 P=2,662,189,267 P=475,209,294 P=766,702,015 P=963,115,054 P=209,909,946 76,863,980,515Additions 5,981,525,274 2,644,999,286 574,778,528 40,689,115 113,054,208 104,300 23,385,118 9,378,535,829Reclassification 2,118,681,561 – – – – 66,788,764 – 2,185,470,325Disposals/others (3,550,715,602) – (12,664,846) (559,461) (13,815,996) – (1,500,000) (3,579,255,905)Balance at December 31, 2015 70,180,391,031 8,800,954,427 3,224,302,949 515,338,948 865,940,227 1,030,008,118 231,795,064 84,848,730,764Accumulated Depreciation

and AmortizationBalance at January 1, 2015 16,984,521,548 1,560,099,494 473,914,125 343,494,842 618,926,054 230,738,057 150,300,178 20,361,994,298Depreciation and amortization 3,916,430,206 711,091,541 205,371,623 48,698,036 83,020,533 96,919,700 19,912,015 5,081,443,654Reclassification – – (28,506) – – – – (28,506)Disposals/others (1,982,672,682) – (10,984,987) (559,461) (13,810,129) – (1,500,000) (2,009,527,259)Balance at December 31, 2015 18,918,279,072 2,271,191,035 668,272,255 391,633,417 688,136,458 327,657,757 168,712,193 23,433,882,187Net Book Value at December 31, 2015 P=51,262,111,959 P=6,529,763,392 P=2,556,030,694 P=123,705,531 P=177,803,769 P=702,350,361 P=63,082,871 P=61,414,848,577

2015Furniture,

Fixtures andOffice

EquipmentCommunication

EquipmentSpecial

Tools

Maintenanceand Test

EquipmentOther

EquipmentConstruction

In-progress TotalCostBalance at January 1, 2015 P=152,616,549 P=12,736,501 P=14,105,321 P=6,681,631 P=90,524,829 P=8,629,008,939 P=85,769,654,285Additions 7,645,062 2,297,716 108,475 – 8,803,172 4,132,577,761 13,529,968,015Reclassification – – – – – (2,185,470,325) –Disposals/others (1,369,055) (10,714) – – (180,390) – (3,580,816,064)Balance at December 31, 2015 158,892,556 15,023,503 14,213,796 6,681,631 99,147,611 10,576,116,375 95,718,806,236

(Forward)

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2015Furniture,

Fixtures andOffice


EquipmentSpecial

Tools

Maintenanceand Test

EquipmentOther


In-progress TotalAccumulated Depreciation and AmortizationBalance at January 1, 2015 P=81,009,265 P=9,257,432 P=12,219,370 P=6,498,213 P=71,550,339 – P=20,542,528,917Depreciation and amortization 20,650,716 1,411,090 426,049 92,112 7,520,103 – 5,111,543,724Reclassification (545) 28,506 – – 545 – –Disposals/others (1,369,055) (10,714) – (180,390) – (2,011,087,418)Balance at December 31, 2015 100,290,381 10,686,314 12,645,419 6,590,325 78,890,597 ‒ 23,642,985,223Net Book Value at December 31, 2015 P=58,602,175 P=4,337,189 P=1,568,377 P=91,306 P=20,257,014 P=10,576,116,375 P=72,075,821,013

2014

PassengerAircraft

(Notes 18 and 32) Engines Rotables

GroundSupport

Equipment

EDPEquipment,

Mainframe andPeripherals

LeaseholdImprovements

TransportationEquipment Sub-total

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

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

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2014Furniture,

Fixtures andOffice


EquipmentSpecial

Tools

Maintenanceand Test

EquipmentOther


In-progress TotalCostBalance at January 1, 2014 P=98,788,650 P=11,166,616 P=12,930,393 P=6,681,631 P=81,210,161 P=8,630,598,676 P=72,775,731,281Additions through business combination (Note 7) 350,215 3,037,878 3,503,993Additions 53,913,030 1,569,885 1,217,339 – 6,258,504 3,123,469,412 13,316,719,856Reclassification (237,053) – (42,411) – 241,071 (3,241,300,128) (18,542,710)Disposals/others (198,293) – – – (222,785) 116,240,979 (307,758,135)Balance at December 31, 2014 152,616,549 12,736,501 14,105,321 6,681,631 90,524,829 8,629,008,939 85,769,654,285Accumulated Depreciation and AmortizationBalance at January 1, 2014 69,503,656 7,980,577 11,782,318 6,290,564 64,071,259 – 16,363,264,997Depreciation and amortization 11,999,988 1,276,855 438,466 207,649 7,423,319 3,652 4,281,525,018Reclassification (319,042) (1,414) 278,546 (3,652) (10,777,210)Disposals/others (175,337) (222,785) (91,483,888)Balance at December 31, 2014 81,009,265 9,257,432 12,219,370 6,498,213 71,550,339 ‒ 20,542,528,917Net Book Value at December 31, 2014 P=71,607,284 P=3,479,069 P=1,885,951 P=183,418 P=18,974,490 P=8,629,008,939 P=65,227,125,368

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Passenger Aircraft Held as Securing Assets Under Various LoansThe Group entered into various Export Credit Agency (ECA) and commercial loan facilities tofinance the purchase of its aircraft and engines. As of December 31, 2015, the Group has eight (8)Airbus A319 aircraft, seven (7) Avion de Transport Regional (ATR) 72-500 turboprop aircraft,and ten (10) Airbus A320 aircraft under ECA loans, and sixteen (16) Airbus A320 aircraft andfive (5) engines under commercial loans.

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

As of December 31, 2015 and 2014, the carrying amounts of the securing assets (included underthe ‘Property and equipment’ account) amounted to P=53.0 billion and P=49.7 billion, respectively.

Forward Sale AgreementOn February 23, 2015, the Group signed a forward sale agreement with a subsidiary of AllegiantTravel Company (collectively known as “Allegiant”) covering the Group’s sale of six (6) AirbusA319 aircraft. The aircraft are scheduled for delivery on various dates in 2015 until 2016.

In September and October 2015, the Parent Company delivered the first two out of six AirbusA319 aircraft to Allegiant and recognized P=80.3 million loss on sale in the statement ofcomprehensive income.

Operating FleetAs of December 31, 2015 and 2014, the Group’s operating fleet follows (Note 32):

2015 2014Owned (Note 16):

Airbus A319 8 10Airbus A320 26 22ATR 72-500 8 8

Under operating lease (Note 30):Airbus A320 7 7Airbus A330 6 5

55 52

Construction in-progress represents the cost of aircraft and engine construction in progress andbuildings and improvements and other ground property under construction. Constructionin-progress is not depreciated until such time when the relevant assets are completed and availablefor use. As of December 31, 2015 and 2014, the Group’s capitalized pre-delivery payments asconstruction in-progress amounted to P=10.4 billion and P=8.6 billion, respectively (Note 30).

As of December 31, 2015 and 2014, the gross amount of fully depreciated property and equipmentwhich are still in use by the Group amounted to P=1,194.4 million and P=1,023.9 million,respectively.

As of December 31, 2015 and 2014, there are no temporary idle property and equipment.

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14. Investments in Joint Ventures

The investments in joint ventures represent the Parent Company’s 60.00%, 49.00% and 35.00%interests in PAAT, A-plus and SIAEP, respectively. The joint ventures are accounted for asjointly controlled entities.

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

PAAT was created to address the Group’s training requirements and to pursue businessopportunities for training third parties in the commercial fixed wing aviation industry, includingother local and international airline companies. PAAT was formally incorporated onJanuary 27, 2012 and started commercial operations in December 2012.

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

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

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

2015A-plus SIAEP PAAT Total

CostBalance at beginning of the year P=87,012,572 P=304,763,900 P=134,873,645 P=526,650,117Accumulated Equity in

Net Income (Loss)Balance at beginning of the year 104,840,802 (59,053,072) 18,901,639 64,689,369Equity in net income (loss) during the

year 116,626,797 (64,568,725) (16,642,574) 35,418,498Dividends received (101,133,997) – – (101,133,997)Balance at end of the year 120,333,602 (123,621,797) 2,259,065 (1,026,130)Net Carrying Value P=207,346,174 P=181,142,103 P=137,132,710 P=525,623,987

2014A-plus SIAEP PAAT Total

CostBalance at beginning of the year P=87,012,572 P=304,763,900 P=134,873,645 P=526,650,117Accumulated Equity in

Net Income (Loss)Balance at beginning of the year 80,072,599 (24,307,482) (3,590,781) 52,174,336Equity in net income during

the year 108,579,261 (34,745,590) 22,492,420 96,326,091Dividends received (83,811,058) – – (83,811,058)Balance at end of the year 104,840,802 (59,053,072) 18,901,639 64,689,369Net Carrying Value P=191,853,374 P=245,710,828 P=153,775,284 P=591,339,486

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

2015

Aplus SIAEP PAATTotal current assets P=650,452,860 P=483,125,816 P=266,000,656Noncurrent assets 261,601,217 1,569,590,695 757,860,538Current liabilities (388,851,643) (604,693,999) (30,994,557)Noncurrent liabilities (100,040,854) (930,473,645) (718,601,218)Equity 423,161,580 517,548,867 274,265,419Proportion of the Group’s ownership 49% 35% 50%Carrying amount of the investments P=207,349,174 P=181,142,103 P=137,132,710

2014

Aplus SIAEP PAATTotal current assets P=628,879,988 P=653,378,218 P=253,137,483Noncurrent assets 124,389,267 1,328,695,779 779,873,393Current liabilities (361,731,757) (626,863,000) (39,454,946)Noncurrent liabilities – (653,180,060) (686,005,363)Equity 391,537,498 702,030,937 307,550,567Proportion of the Group’s ownership 49% 35% 50%Carrying amount of the investments P=191,853,374 P=245,710,828 P=153,775,284

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

2015

Aplus SIAEP PAATRevenue P=905,813,968 P=387,432,455 P=157,878,689Expenses (603,475,105) (562,632,105) (149,404,852)Other income (expenses) 8,283,751 (9,236,769) (40,522,812)Income before tax 310,622,614 (184,436,419) (32,048,975)Income tax expense 72,602,620 45,652 1,236,173Net income 238,019,994 (184,482,071) (33,285,148)Group’s share of profit for the year P=116,629,797 (P=64,568,725) (P=16,642,574)

2014

Aplus SIAEP PAATRevenue P=831,652,059 P=749,982,173 P=227,958,105Expenses (537,954,937) (847,033,722) (164,004,339)Other income (expenses) 22,550,458 (79,043) (16,239,773)Income before tax 316,247,580 (97,130,592) 47,713,993Income tax expense 94,657,252 2,142,521 2,729,153Net income 221,590,328 (99,273,113) 44,984,840Group’s share of profit for the year P=108,579,261 (P=34,745,590) P=22,492,420

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

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The undistributed earnings of A-plus included in the consolidated retained earnings amounted toP=120.3 million and P=104.8 million as of December 31, 2015 and 2014, respectively, which is notcurrently available for dividend distribution unless declared by A-plus.

The undistributed earnings of PAAT included in the consolidated retained earnings amounted toP=2.3 million and P=18.9 million as of December 31, 2015 and 2014, respectively, which is notcurrently available for dividend distribution unless declared by PAAT.

As of December 31, 2015 and 2014, SIAEP’s accumulated losses amounted to P=123.6 million andP=59.1 million, respectively .

The Group has no share of any contingent liabilities or capital commitments as ofDecember 31, 2015 and 2014.

15. Goodwill

This account represents the goodwill arising from the acquisition of Cebgo (Note 7). Goodwill isattributed to the following:

Achievement of Economies of ScaleUsing the Parent Company’s network of suppliers and other partners to improve cost andefficiency of Cebgo, thus, improving Cebgo’s overall profit, given its existing market share.

Defensive StrategyAcquiring a competitor enables the Parent Company to manage overcapacity in certaingeographical areas/markets.

As of December 31, 2015 and 2014, the Goodwill amounted to P=566.8 million (Note 7).

16. Other Noncurrent Assets

This account includes security deposits provided to lessors and maintenance providers and otherrefundable deposits to be applied against payments for future aircraft deliveries. It also includesother assets representing costs to establish brand and market opportunities under the strategicalliance with Cebgo amounting P=852.2 million (Note 7).

17. Accounts Payable and Other Accrued Liabilities


2015 2014Accrued expenses P=5,157,226,549 P=4,565,129,147Accounts payable (Notes 27 and 30) 3,773,396,965 3,984,009,931Airport and other related fees payable 1,709,712,692 1,211,266,625Advances from agents and others 594,568,902 554,620,109Interest payable (Note 18) 202,219,547 207,120,947Other payables 165,865,051 146,290,892

P=11,602,989,706 P=10,668,437,651

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Accrued Expenses

The Group’s accrued expenses include accruals for:

2015 2014Maintenance (Note 30) P=1,244,725,569 P=1,292,335,450Compensation and benefits 1,087,156,297 744,630,855Advertising and promotion 617,181,652 511,768,214Navigational charges 571,133,449 380,565,611Repairs and services 370,928,260 159,497,011Landing and take-off fees 332,074,021 283,580,997Training costs 232,894,451 245,866,751Fuel 191,519,501 240,095,874Professional fees 102,348,155 114,167,659Ground handling charges 90,081,351 78,983,174Rent (Note 30) 67,155,690 92,742,956Aircraft insurance 65,216,676 150,597,236Catering supplies 44,222,872 32,519,227Reservation costs – 8,131,518Others 140,588,605 229,646,614

P=5,157,226,549 P=4,565,129,147

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

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

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

Advances from Agents and OthersAdvances from agents and others represent cash bonds required from major sales and ticketoffices or agents. This also includes commitment fees received for the sale and purchaseagreement of six (6) A319 aircraft amounting P=188.2 (US$4.0 million) million and P=134.2 million(US$3.0 million) as of December 31, 2015 and 2014. Commitment fees applied for the deliveryof two (2) aircraft in September and October 2015 amounted to P=93.8 million (US$2.0 million).

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

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

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18. Long-term Debt


2015Annual Interest Rates Range

(Note 28) Maturities US DollarPhilippine Peso

EquivalentECA loans 2.00% to 6.00% Various dates

through 2024US$188,082,868 P=8,851,179,775

1.00% to 2.00%(US Dollar LIBOR) 133,887,484 6,300,745,013

321,970,352 15,151,924,788

Commercial loans 3.00% to 6.00% Various datesthrough 2025

146,684,784 6,902,985,959


455,526,152 21,437,060,703777,496,504 36,588,985,491

Less current portion 115,250,726 5,423,699,184US$662,245,778 P=31,165,286,307

2014Annual Interest Rates Range

(Note 28) Maturities US DollarPhilippine Peso

EquivalentECA loans 2.00% to 6.00% Various dates

through 2024US$244,437,529 P=10,931,246,279


394,159,314 17,626,804,510

Commercial loans 3.00% to 6.00% Various datesthrough 2024

170,274,962 7,614,696,300


362,765,164 16,222,858,155756,924,478 33,849,662,665

Less current portion 105,377,131 4,712,465,291US$651,547,347 P=29,137,197,374

ECA LoansIn 2005 and 2006, the Group entered into ECA-backed loan facilities to partially finance thepurchase of ten Airbus A319 aircraft. The security trustee of the ECA loans established CALL, aspecial purpose company, which purchased the aircraft from the supplier and leases such aircraftto the Parent Company pursuant to twelve-year finance lease agreements. The quarterly rentalpayments made by the Parent Company to CALL correspond to the principal and interestpayments made by CALL to the ECA-backed lenders. The quarterly lease rentals to CALL areguaranteed by CPAHI and JGSHI. The Parent Company has the option to purchase the aircraft fora nominal amount at the end of such leases.

In 2015, the Parent Company exercised the option to purchase two of the ten Airbus A319 aircraftwhich were subsequently sold to a third party as part of a forward sale arrangement (Note 13). Thepurchase required the prepayment of the balance of the loan facility attributed to the two AirbusA319 aircraft. The total amount of loans paid amounted to P=534.5 million in 2015.

In 2008, the Group entered into ECA-backed loan facilities to partially finance the purchase of six(6) ATR 72-500 turboprop aircraft. However in 2010, the Group disposed one (1) ATR 72-500turboprop aircraft. Subsequently, the ECA-backed loan facilities only covered five (5) aircraft 72-500 turboprop aircraft. The security trustee of the ECA loans established BLL, a special purpose

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company, which purchased the aircraft from the supplier and leases such aircraft to the ParentCompany pursuant to ten-year finance lease agreements. The semi-annual rental payments madeby the Parent Company to BLL corresponds to the principal and interest payments made by BLLto the ECA-backed lenders. The semi-annual lease rentals to BLL are guaranteed by JGSHI. TheParent Company has the option to purchase the aircraft for a nominal amount at the end of suchleases.

In 2009, the Group entered into ECA-backed loan facilities to partially finance the purchase oftwo (2) ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established SLL, aspecial purpose company, which purchased the aircraft from the supplier and leases such aircraftto the Parent Company pursuant to ten-year finance lease agreements. The semi-annual rentalpayments made by the Parent Company to SLL corresponds to the principal and interest paymentsmade by SLL to the ECA-backed lenders. The semi-annual lease rentals to SLL are guaranteed byJGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at theend of such leases.

In 2010, the Group entered into ECA-backed loan facilities to partially finance the purchase offour (4) Airbus A320 aircraft, delivered between 2010 to January 2011. The security trustee of theECA loans established SALL, a special purpose company, which purchased the aircraft from thesupplier and leases such aircraft to the Parent Company pursuant to twelve-year finance leaseagreements. The quarterly rental payments made by the Parent Company to SALL corresponds tothe principal and interest payments made by SALL to the ECA-backed lenders. The quarterlylease rentals to SALL are guaranteed by JGSHI. The Parent Company has the option to purchasethe aircraft for a nominal amount at the end of such leases.

In 2011, the Group entered into ECA-backed loan facilities to fully finance the purchase of three(3) Airbus A320 aircraft, delivered between 2011 to January 2012. The security trustee of theECA loans established VALL, special purpose company, which purchased the aircraft from thesupplier and leases such aircraft to the Parent Company pursuant to twelve-year finance leaseagreements. The quarterly rental payments made by the Parent Company to VALL corresponds tothe principal and interest payments made by VALL to the ECA-backed lenders. The ParentCompany has the option to purchase the aircraft for a nominal amount at the end of such leases.

In 2012, the Group entered into ECA-backed loan facilities to partially finance the purchase ofthree (3) Airbus A320 aircraft. The security trustee of the ECA loans established POALL, aspecial purpose company, which purchased the aircraft from the supplier and leases such aircraftto the Parent Company pursuant to twelve-year finance lease agreements. The quarterly rentalpayments made by the Parent Company to POALL corresponds to the principal and interestpayments made by POALL to the ECA-backed lenders. The Parent Company has the option topurchase the aircraft for a nominal amount at the end of such leases.

The terms of the ECA-backed facilities, which are the same for each of the ten (10) Airbus A319aircraft, seven (7) ATR 72-500 turboprop aircraft and ten (10) Airbus A320 aircraft, follow:

· Term of 12 years starting from the delivery date of each Airbus A319 aircraft and AirbusA320, and ten years for each ATR 72-500 turboprop aircraft.

· Annuity style principal repayments for the first four Airbus A319 aircraft, eight ATR 72-500turboprop aircraft and seven Airbus A320 aircraft, and equal principal repayments for the lastsix Airbus A319 aircraft and last three Airbus A320 aircraft. Principal repayments shall bemade on a semi-annual basis for ATR 72-500 turboprop aircraft. Principal repayments shallbe made on a quarterly basis for Airbus A319 and A320 aircraft.

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· Interest on loans from the ECA lenders are a mix of fixed and variable rates. Fixed annualinterest rates ranges from 2.00% to 6.00% and variable rates are based on US dollar LIBORplus margin.

· As provided under the ECA-backed facility, CALL, BLL, SLL, SALL, VALL and POALLcannot create or allow to exist any security interest, other than what is permitted by thetransaction documents or the ECA administrative parties. CALL, BLL, SLL, SALL, VALLand POALL must not allow impairment of first priority nature of the lenders’ securityinterests.

· The ECA-backed facilities also provide for the following events of default: (a) nonpayment ofthe loan principal or interest or any other amount payable on the due date, (b) breach ofnegative pledge, covenant on preservation of transaction documents, (c) misrepresentation,(d) commencement of insolvency proceedings against CALL or BLL or SLL or SALL orVALL or POALL becomes insolvent, (e) failure to discharge any attachment or sequestrationorder against CALL’s, BLL’s, SLL’s, SALL’s VALL’s and POALL’s assets, (f) entering intoan undervalued transaction, obtaining preference or giving preference to any person, contraryto the laws of the Cayman Islands, (g) sale of any aircraft under ECA financing prior todischarge date, (h) cessation of business, (i) revocation or repudiation by CALL or BLL orSLL or SALL or VALL or POALL, the Group, JGSHI or CPAHI of any transaction documentor security interest, and (j) occurrence of an event of default under the lease agreement withthe Parent Company.

· Upon default, the outstanding amount of loan will be payable, including interest accrued.Also, the ECA lenders will foreclose on secured assets, namely the aircraft (Note 13).

· An event of default under any ECA loan agreement will occur if an event of default asenumerated above occurs under any other ECA loan agreement.

As of December 31, 2015 and 2014, the total outstanding balance of the ECA loans amounted toP=15,151.9 million (US$321.9 million) and P=17,626.8 million (US$394.2 million), respectively.Interest expense amounted to P=487.7 million, P=551.5 million and P=625.2 million in 2015, 2014and 2013, respectively.

Commercial LoansIn 2007, the Group entered into a commercial loan facility to partially finance the purchase oftwo (2) Airbus A320 aircraft, one CFM 565B4/P engine, two CFM 565B5/P engines and one QECKit. The security trustee of the commercial loan facility established ILL, a special purposecompany, which purchased the aircraft from the supplier and leases such aircraft to the ParentCompany pursuant to (a) ten-year finance lease arrangement for the aircraft, (b) six-year financelease arrangement for the engines and (c) five-year finance lease arrangement for the QEC Kit.The quarterly rental payments of the Parent Company correspond to the principal and interestpayments made by ILL to the commercial lenders and are guaranteed by JGSHI. The ParentCompany has the option to purchase the aircraft, the engines and the QEC Kit for a nominalamount at the end of such leases.

In 2012, the Group entered into a commercial loan facility to partially finance the purchase of four(4) Airbus A320 aircraft. The security trustee of the commercial loan facility established PTALL,a special purpose company, which purchased the aircraft from the supplier and leases such aircraftto the Parent Company pursuant to ten-year finance lease arrangement for the aircraft. Thesemiannual rental payments of the Parent Company correspond to the principal and interestpayments made by PTALL to the commercial lenders. The Parent Company has the option topurchase the aircraft for a nominal amount at the end of such leases.

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In 2013, the Group entered into a commercial loan facility to partially finance the purchase of two(2) Airbus A320 aircraft. The security trustee of the commercial loan facility establishedPTHALL, a special purpose company, which purchased the aircraft from the supplier and leasessuch aircraft to the Parent Company pursuant to ten-year finance lease arrangement for theaircraft. The quarterly rental payments of the Parent Company correspond to the principal andinterest payments made by PTHALL to the commercial lenders. The Parent Company has theoption to purchase the aircraft for a nominal amount at the end of such leases.

In 2014, the Group entered into a commercial loan facility to partially finance the purchase of five(5) Airbus A320 aircraft. The security trustee of the commercial loan facility established SAALL,a special purpose company, which purchased the aircraft from the supplier and leases such aircraftto the Parent Company pursuant to ten-year finance lease arrangement for the aircraft. Thequarterly rental payments of the Parent Company correspond to the principal and interestpayments made by SAALL to the commercial lenders. The Parent Company has the option topurchase the aircraft for a nominal amount at the end of such leases.

In 2015, the Group entered into a commercial loan facility to partially finance the purchase of fourAirbus A320 aircraft. The security trustee of the commercial loan facility established SBALL forthe first two A320 aircraft and SCALL for the additional two A320 aircraft, a special purposecompany, which purchased the aircraft from the supplier and leases such aircraft to the ParentCompany pursuant to ten-year finance lease arrangement for the aircraft. The quarterly rentalpayments of the Parent Company correspond to the principal and interest payments made bySBALL and SCALL to the commercial lenders. The Parent Company has the option to purchasethe aircraft for a nominal amount at the end of such leases.

The terms of the commercial loans follow:

· Term of ten years starting from the delivery date of each Airbus A320 aircraft.· Terms of six and five years for the engines and QEC Kit, respectively.· Term of six years starting from the delivery date of each ATR 72-500 turboprop aircraft.· Annuity style principal repayments for the two Airbus A320 aircraft and six ATR 72-500

turboprop aircraft, and equal principal repayments for the engines and the QEC Kit. Principalrepayments shall be made on a quarterly and semi-annual basis for the two Airbus A320aircraft, engines and the QEC Kit and six ATR 72-500 turboprop aircraft, respectively.

· Interests on loans are a mix of fixed and variable rates. Interest rates ranges from 1.00% to6.00%.

· The commercial loan facility provides for material breach as an event of default.· Upon default, the outstanding amount of loan will be payable, including interest accrued.

The lenders will foreclose on secured assets, namely the aircraft.

As of December 31, 2015 and 2014, the total outstanding balance of the commercial loansamounted to P=21,437.0 million (US$455.5 million) and P=16,222.9 million (US$362.8 million),respectively. Interest expense amounted to P=585.4 million, P=461.7 million and P=240.3 million in2015, 2014 and 2013, respectively.

The Group is not in breach of any terms on the ECA and commercial loans.

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19. Other Noncurrent Liabilities


2015 2014Asset Retirement Obligation (ARO) P=1,344,571,000 P=586,069,196Accrued maintenance 224,413,463 224,413,504Deferred revenue on rewards program (Note 5) 92,542,820 –

P=1,661,527,283 P=810,482,700

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

The rollforward analysis of the Group’s ARO follows:

2015 2014Balance at beginning of year P=586,069,196 P=1,637,345,608Provision for return cost 863,960,835 476,017,529Payment of restorations during the year (105,459,031) (1,527,293,941)Balance at end of year P=1,344,571,000 P=586,069,196

In 2015, 2014 and 2013 ARO expenses included as part of repairs and maintenance amounted toP=864.0 million, P=476.0 million and P=590.6 million, respectively. In 2014, the Group returnedfour (4) aircraft under its operating lease agreements.

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

Deferred Revenue on Rewards ProgramThis account pertains to estimated liability under the Getgo lifestyle rewards program (Note 5).

20. Equity

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

2015 2014Authorized - at P=1 par value 1,340,000,000 1,340,000,000Beginning of year 605,953,330 605,953,330Treasury shares – –Issuance of shares during the year – –Issued and outstanding 605,953,330 605,953,330

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Issuance of Common Shares of StockOn October 26, 2010, the Parent Company listed with the PSE its common stock, by way ofprimary and secondary share offerings, wherein it offered 212,419,700 shares to the public atP=125.00 per share. Of the total shares sold, 30,661,800 shares are newly issued shares with totalproceeds amounting P=3,800.0 million. The Parent Company’s share in the total transaction costsincurred incidental to the IPO amounting P=100.4 million, which is charged against ‘Capital paid inexcess of par value’ in the parent statement of financial position. The registration statement wasapproved on October 11, 2010. After its listing with the PSE, there have been no subsequentofferings of common stock. The Group has 96 and 99 existing certified shareholders as ofDecember 31, 2015 and 2014, respectively.

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

The Parent Company has outstanding treasury shares of 7,283,220 shares amounting toP=529.3 million as of December 31, 2015 and 2014, restricting the Parent Company from declaringan equivalent amount from unappropriated retained earnings as dividends.

Appropriation of Retained EarningsOn December 3, 2015, November 27, 2014 and March 8, 2013, the Parent Company’s BODappropriated P=1.0 billion, P=3.0 billion and P=2.5 billion, respectively, from its unrestricted retainedearnings as of December 31, 2015 for purposes of the Group’s re-fleeting program. Theappropriated amount will be used for the settlement of pre-delivery payments and aircraft leasecommitments (Notes 18, 30 and 31). Planned re-fleeting program is estimated at P=90.0 billionwhich will be spent over the next five years. As of December 31, 2015, the Group hasappropriated retained earnings totaling P=7,916.8 million.

Unappropriated Retained EarningsThe income of the subsidiaries and JV that are recognized in the statements of comprehensiveincome are not available for dividend declaration unless these are declared by the subsidiaries andJV (Note 14). Likewise, retained earnings are restricted for the payment of dividends to the extentof the cost of common shares held in treasury amounting P=529.3 million.

On June 24, 2015, the Parent Company’s BOD approved the declaration of a regular cash dividendin the amount of P=606.0 million or P=1.00 per share and a special cash dividend in the amount ofP=303.0 million or P=0.50 per share from the unrestricted retained earnings of the Parent Companyto all stockholders of record as of July 16, 2015 and payable on August 11, 2015. Total dividendsdeclared amounted to P=909.0 million as of December 31, 2015.

On June 26, 2014, the Parent Company’s BOD approved the declaration of a regular cash dividendin the amount of P=606.0 million or P=1.00 per share in the amount of P=606.0 million from theunrestricted retained earnings of the Parent Company to all stockholders of record as ofJuly 16, 2014 and payable on August 11, 2014. Total dividends declared and paid amounted toP=606.0 million as of December 31, 2014.

On June 27, 2013, the Parent Company’s BOD approved the declaration of a regular cash dividendin the amount of P=606.0 million or P=1.00 per share and a special cash dividend in the amount ofP=606.0 million of P=1.00 per share from the unrestricted retained earnings of the Parent Company

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to all stockholders of record as of July 17, 2013 and payable on August 12, 2013. Total dividendsdeclared and paid amounted to P=1,211.9 million as of December 31, 2013.

After reconciling items which include fair value adjustments on financial instruments, unrealizedforeign exchange gain, recognized deferred tax assets and others, and cost of common stocks heldin treasury, the amount of retained earnings that is available for dividend declaration as ofDecember 31, 2015 amounted to P=2,903.8 million.

Capital ManagementThe primary objective of the Group’s capital management is to ensure that it maintains healthycapital ratios in order to support its business and maximize shareholder value. The Groupmanages its capital structure, which composed of paid up capital and retained earnings, and makesadjustments to these ratios in light of changes in economic conditions and the risk characteristicsof its activities. In order to maintain or adjust the capital structure, the Group may adjust theamount of dividend payment to shareholders, return capital structure or issue capital securities.No changes have been made in the objective, policies and processes as they have been applied inprevious years.

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

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

2015 2014(a) Long term debt (Notes 18 and 25) P=36,588,985,491 P=33,849,662,665(b) Capital 24,955,195,156 21,538,804,187(c) Debt-to-capital ratio (a/b) 1.5:1 1.6:1

The JGSHI Group’s policy is to keep the debt to capital ratio at the 2:1 level as ofDecember 31, 2015 and 2014. Such ratio is currently being managed on a group level by theGroup’s ultimate parent.

21. Ancillary Revenues

Ancillary revenues consist of:

2015 2014 2013Excess baggage fee P=4,955,384,497 P=4,116,640,154 P=3,106,766,079Rebooking, refunds, cancellation

fees, etc. 3,338,921,090 2,920,343,253 2,391,871,202Others 2,065,142,241 1,628,505,970 1,233,064,234

P=10,359,447,828 P=8,665,489,377 P=6,731,701,515

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

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22. Operating Expenses

Flying OperationsThis account consists of:

2015 2014 2013Aviation fuel expense P=17,659,066,443 P=23,210,305,406 P=19,522,716,332Flight deck 2,797,680,638 2,406,983,028 1,833,211,612Aviation insurance 255,071,777 292,982,743 187,703,304Others 204,541,676 242,204,830 177,298,317

P=20,916,360,534 P=26,152,476,007 P=21,720,929,565

Aircraft and Traffic ServicingThis account consists of:

2015 2014 2013Airport charges P=3,508,816,000 P=2,843,602,317 P=2,034,012,474Ground handling 1,887,062,871 1,518,884,645 1,163,621,461Others 451,220,434 442,725,527 405,173,077

P=5,847,099,305 P=4,805,212,489 P=3,602,807,012

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

Repairs and maintenanceRepairs and maintenance expenses relate to the cost of maintaining, repairing and overhauling ofall aircraft and engines, technical handling fees on pre-flight inspections and cost of aircraft spareparts and other related equipment. The account includes related costs of other contractualobligations under aircraft operating lease agreements (Note 30). These amounted toP=864.0 million, P=476.0 million and P=590.6 million in 2015, 2014 and 2013, respectively(Note 19).

Reservation and salesReservation and sales relate to the cost to sell or distribute airline tickets and other ancillariesprovided 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=2,625.5 million,P=2,154.0 million and P=1,662.5 million in 2015, 2014 and 2013, respectively.

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23. General and Administrative Expenses


2015 2014 2013Staff cost P=512,655,998 P=458,971,856 P=339,686,203Security and professional fees 487,854,049 318,235,374 285,542,944Utilities 145,433,281 124,694,997 125,873,045Rent expenses 89,687,818 54,056,070 60,559,860Travel and transportation 24,674,634 30,807,870 29,467,377Others (Note 10) 291,843,153 310,051,527 270,816,005

P=1,552,148,933 P=1,296,817,694 P=1,111,945,434

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

24. Employee Benefits

Employee Benefit CostTotal personnel expenses, consisting of salaries, expense related to defined benefit plans and otheremployee benefits, are included in flying operations, aircraft and traffic servicing, repairs andmaintenance, reservation and sales, general and administrative, and passenger service.

Defined Benefit PlanThe Parent Company has a funded, noncontributory, defined benefit plan covering substantially allof its regular employees. The benefits are based on years of service and compensation on the lastyear of employment.

As of January 1, 2015, 2014, and 2013 the assumptions used to determine pension benefits of theGroup follow:

2015 2014 2013Average remaining working life 12 years 12 years 12 yearsDiscount rate 5% 4.59% 5.26%Salary rate increase 5.70% 5.50% 5.50%

As of December 31, 2015 and 2014, the discount rate used in determining the pension liability is5.00% and 4.59%, which is determined by reference to market yields at the reporting date onPhilippine government bonds.

The amounts recognized as pension liability follow:

2015 2014Present value of defined benefit obligation (PVO) P=897,284,330 P=725,420,912Fair value of plan assets (350,803,616) (339,755,463)Pension liability at end of year P=546,480,714 P=385,665,449

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Remeasurement losses (gains) recognized in other comprehensive income

2015 2014Actuarial losses (gains) from benefit obligation P=78,455,711 (P=308,302,812)Return on plan assets excluding amount included in

net interest cost 4,546,622 6,767,470Amount to be recognized in OCI P=83,002,333 (P=301,535,342)

Movements in the fair value of plan asset follow:

2015 2014Balance at beginning of year P=339,755,463 P=329,200,680Interest income included in net interest cost 15,594,775 17,322,253Return on plan assets excluding amount included in

net interest cost (4,546,622) (6,767,470)Balance at end of year P=350,803,616 P=339,755,463

The plan assets consist of:

2015 % 2014 %Cash P=220,210,013 63% P=212,180,441 63%Investment in debt securities 129,658,904 37% 126,406,963 37%Receivables 964,910 – 1,197,319 –

350,833,827 339,784,723Liabilities (30,211) – (29,260) –

P=350,803,616 100% P=339,755,463 100%

The Group expects to contribute about P=100.0 million into the pension fund for the year ending2016. The actual returns on plan assets amounted to P=11.0 million in 2015 and P=10.6 million in2014.

Movements in the net defined benefit liability follow:

2015 2014Balance at beginning of year P=385,665,449 P=538,227,996Pension liability through business combination – 17,650,767OCI in business combination – (1,599,267)Pension expense during year 116,841,632 158,604,392Recognized in OCI 83,002,333 (301,535,342)Benefits paid during year (39,028,700) (25,683,097)Balance at end of year P=546,480,714 P=385,665,449

The benefits paid during 2015 and 2014 were paid out of Company’s operating funds.

Components of pension expense included in the Group’s statements of comprehensive incomefollow:

2015 2014 2013Current service cost P=99,123,882 P=129,329,209 P=59,146,510Interest cost 17,717,750 29,275,183 20,475,107Total pension expense P=116,841,632 P=158,604,392 P=79,621,617

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

2015 2014Balance at beginning of year P=725,420,912 P=882,383,136Current service cost 99,123,882 129,329,209Interest cost 33,312,525 46,597,436Benefits paid (39,028,700) (25,683,097)Actuarial loss/gain due to:

Experience adjustments 130,890,864 (370,771,827)Changes in financial assumption (43,207,906) 63,566,055Changes in demographical assumption (9,227,247) –

Balance at end of year P=897,284,330 P=725,420,912

The sensitivity analyses that follow has been determined based on reasonably possible changes ofthe assumption occurring as of the end of the reporting period, assuming if all other assumptionswere held constant.

PVODiscount rates 6.07% (+1.00%) P=805,004,689

4.07% (-1.00%) (1,007,319,468)

Salary increase 6.25% (+1.00%) 1,011,435,0174.25% (-1.00%) (799,914,451)

Each year, an Asset-Liability Matching Study (ALM) is performed with the result being analyzedin terms of risk-and-return profiles. The Parent Company’s investment consists of 37% of debtinstruments and 63% for cash and receivables. The principal technique of the Parent Company’sALM is to ensure the expected return on assets to be sufficient to support the desired level offunding arising from the defined benefit plans.

25. Income Taxes

Provision for (benefit from) income tax consists of:

2015 2014 2013Current:

MCIT P=125,929,367 P=61,319,704 P=45,518,668Deferred (984,359,953) (36,181,936) (452,257,391)

(P=858,430,586) P=25,137,768 (P=406,738,723)

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

Income taxes include corporate income tax, as discussed below, and final taxes paid at the rate of20.00% and 7.50% on peso-denominated and foreign currency-denominated short-termplacements and cash in banks, respectively, which are final withholding taxes on gross interestincome.

The NIRC of 1997 also provides for rules on the imposition of a 2.00% MCIT on the gross incomeas of the end of the taxable year beginning on the fourth taxable year immediately following thetaxable year in which the Parent Company commenced its business operations. Any excess MCIT

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over the RCIT can be carried forward on an annual basis and credited against the RCIT for thethree immediately succeeding taxable years.

In addition, under Section 11 of R. A. No. 7151 (Parent Company’s Congressional Franchise) andunder Section 15 of R. A. No. 9517 (Cebgo’s Congressional Franchise) known as the “ipso factoclause” and the “equality clause”, respectively, the Group is allowed to benefit from the taxprivileges being enjoyed by competing airlines. The Group’s major competitor, by virtue of PDNo. 1590, is enjoying tax exemptions which are likewise being claimed by the Group, ifapplicable, including but not limited to the following:

a.) To depreciate its assets to the extent of not more than twice as fast the normal rate ofdepreciation; and

b.) To carry over as a deduction from taxable income any net loss (NOLCO) incurred in any yearup to five years following the year of such loss.

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

NOLCO

Year Incurred Amount Expired/Applied Balance Expiry Year2012 P=1,301,721,876 P=– P=1,301,721,876 20172013 956,965,884 – 956,965,884 20182014 1,361,594,609 – 1,361,594,609 20192015 955,474,545 – 955,474,545 2020

P=4,575,756,914 P=– P=4,575,756,914

MCIT

Year Incurred Amount Expired/Applied Balance Expiry Year2013 P=45,518,668 P=– P=45,518,668 20162014 61,319,704 – 61,319,704 20172015 117,297,005 – 117,297,005 2018

P=224,135,377 P=– P=224,135,377

Details of Cebgo’s NOLCO and MCIT are as follows:

NOLCO

Year Incurred Amount Expired/Applied Balance Expiry Year2014 P=159,636,593 P=– P=159,636,593 2019

MCIT

Year Incurred Amount Expired/Applied Balance Expiry Year2015 P=8,632,361 P=– P=8,632,361 2018

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

On 19 out of 23 registrations, the Parent Company can avail of bonus years in certain specifiedcases but the aggregate ITH availment (basic and bonus years) shall not exceed eight (8) years.

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As of December 31, 2015 and 2014, the Parent Company has complied with externally imposedcapital requirements set by the BOI in order to avail the ITH incentives for aircraft of registeredactivity (Note 32).

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

2015 2014Deferred tax assets on:

NOLCO P=1,372,727,074 P=1,086,084,710Unrealized loss on net derivative liability 733,048,541 330,710,768Unrealized foreign exchange loss - net 597,768,972 7,647,215ARO - liability 420,073,060 225,926,038MCIT 224,135,377 136,919,683Accrued retirement costs 151,876,449 108,968,551Allowance for credit losses 74,742,533 71,132,763

3,574,372,006 1,967,389,728Deferred tax liabilities on:

Double depreciation 2,512,429,449 1,910,904,546Business combination (Note 7) 185,645,561 185,645,561

2,698,075,010 2,096,550,107Net deferred tax assets (liabilities) P=876,296,996 (P=129,160,379)

Movement in accrued retirement cost amounting P=21.1 million and P=91.9 million in 2015 and2014, respectively, is presented under other comprehensive income.

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

As of December 31, 2015 and 2014, the Group has the following gross deductible temporarydifferences, NOLCO and MCIT for which no deferred tax assets have been recognized:

2015 2014Deductible temporary difference:

NOLCO P=159,636,593 P=159,636,593Allowance for credit losses 67,268,308 –Retirement benefit obligation 12,593,829 7,482,530MCIT 8,632,361 –Unrealized loss on derivative asset – 1,158,190,670

P=248,131,091 P=1,325,309,793

The related deferred tax asset on the deductible temporary differences is P=80.5 million andP=397.6 million.

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

2015 2014 2013Statutory income tax rate 30.00% 30.00% 30.00%Adjustments resulting from:

Nondeductible items 0.19 0.87 17.3Others (1.29) (2.94) (34.0)Interest income subjected to final tax (0.63) (2.69) (58.3)Income subject to ITH (52.60) (22.38) (341.6)

Effective income tax rate (24.33%) 2.86% (386.6%)

Entertainment, Amusement and Recreation (EAR) ExpensesCurrent tax regulations define expenses to be classified as EAR expenses and set a limit for theamount that is deductible for tax purposes. EAR expenses are limited to 0.50% of net sales forsellers of goods or properties or 1.00% of net revenue for sellers of services. For sellers of bothgoods or properties and services, an apportionment formula is used in determining the ceiling onsuch expenses. The Group recognized EAR expenses (allocated under different expense accountsin the consolidated statements of comprehensive income) amounting P=3.3 million, P=6.5 millionand P=19.0 million in 2015, 2014 and 2013, respectively.

26. Earnings Per Share

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

2015 2014 2013(a) Net income attributable to

common shareholders P=4,387,225,875 P=853,498,216 P=511,946,229(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=7.24 P=1.41 P=0.84

The Group has no dilutive potential common shares in 2015, 2014 and 2013.

27. Related Party Transaction

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

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

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

2015

Related PartyAmount/Volume

OutstandingBalance Terms Conditions

Ultimate parent company(1) JGSHI

Due from related parties P=4,405,758 P=194,919 Non-interest bearingUnsecured,

No impairment

Parent company(2) CPAHI

Due from related parties – 65,800 Non-interest bearingUnsecured,

No impairment

JV in which the Company is a venture(3) A-plus

Due from related parties 47,849,905 19,994,824 Non-interest bearingUnsecured,

No impairment

Trade payables 836,365,207 (14,218,865) Non-interest bearingUnsecured,

No impairment(4) SIAEP


No impairment


No impairment(5) PAAT, Inc. Due from related parties

Loans 5,960,066 90,977,300 2% interest per annumUnsecured,

No impairment

Sublease agreement 31,880,370 8,925,181 Payable monthlyUnsecured,

No impairment

Others 82,732 121,262 Non-interest bearingUnsecured,

No impairment


No impairment

Entities under common control(6) Robinsons Bank Corporation (RBC)

Cash and cash equivalents 103,480,442,308 298,083,980 Non-interest bearingUnsecured,

No impairment

Due to related parties 57,996,306 (1,490,580) Non-interest bearingUnsecured,

No impairment

Trade receivables 2,472,792 142,888 Non-interest bearingUnsecured,

No impairment

Trade payables 7,657,899,965 (10,259,002) Non-interest bearingUnsecured,

No impairment(7) Universal Robina Corporation (URC)

Trade receivables 40,768,879 3,976,809 Non-interest bearingUnsecured,

No impairment


No impairment


No impairment(8) Robinsons Land Corporation (RLC)

Trade receivables 19,174,493 3,087,041 Interest bearingUnsecured,

No impairment

Trade payables 113,010,460 (656,986) Non-interest bearingUnsecured,

No impairment(9) Robinsons Handyman, Inc.


No impairment

(Forward)

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(10)Summit Publishing Inc. (SPI)

Trade receivables P=3,498,402 P=1,532,977 Non-interest bearingUnsecured,

No impairment


No impairment(11)JG Petrochemical Corporation

(JGPC)

Trade receivables 921,695 130,486 Non-interest bearingUnsecured,

No impairment(12)Robinsons Inc.

Due to related parties 329,962 (819,486) Non-interest bearingUnsecured,

No impairment


No impairment

Trade payables 31,272,028 – Non-interest bearingUnsecured,

No impairment(13)Jobstreet.com Phils., Inc.


No impairment

Trade payables 404,800 (404,800) Non-interest bearingUnsecured,

No impairmentP=112,684,367,577 P=351,407,503

2014



Ultimate parent company(1) JGSHI

Due to related parties P=20,961,413 P=2,538,405 Non-interest bearingUnsecured,

No impairmentParent company(2) CPAHI

Due from related parties 4,798 65,800 Non-interest bearingUnsecured,

No impairment

JV in which the Company is a venture(3) A-plus


No impairment


No impairment(4) SIAEP


No impairment


No impairment(5) PAAT, Inc.

Due from related parties Non-interest bearingUnsecured,

No impairment

Loans 823,865 90,977,300 2% interest per annumUnsecured,

No impairment

Sublease agreement 26,403,955 2,205,686 Payable monthlyUnsecured,

No impairment

Others 11,315,631 38,531 Non-interest bearingUnsecured,

No impairment


No impairment

(Forward)

Entities under common control

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(6) Robinsons Bank Corporation (RBC)

Cash and cash equivalents P=78,214,354,341 P=1,077,863,751 Non-interest bearingUnsecured,

No impairment

Due to related parties 44,899,786 (370,324) Non-interest bearingUnsecured,

No impairment


No impairment


No impairment(7) Universal Robina Corporation (URC)


No impairment


No impairment


No impairment(8) Robinsons Land Corporation (RLC)


No impairment


No impairment(9) Robinsons Handyman, Inc.


No impairment(10)Summit Publishing Inc. (SPI)


No impairment


No impairment(11)JG Petrochemical Corporation

(JGPC)


No impairment(12)Robinsons Inc.

Due to related parties 9,239,878 (489,524) Non-interest bearingUnsecured,

No impairment


No impairment

Trade payables 24,258,006 – Non-interest bearingUnsecured,

No impairment(13)Jobstreet.com Phils., Inc.


No impairment

Trade payables 326,594 – Non-interest bearingUnsecured,

No impairmentP=89,216,707,786 P=1,138,993,778

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Consolidated Statement of Comprehensive IncomeSale of Air Transportation

ServiceInterestIncome

AncillaryRevenues

Repairs andMaintenance

YearAmount/

Outstanding Balance

Amount/Outstanding

Balance

Amount/Outstanding

BalanceAmount/

Outstanding BalanceJV in which the Company is a ventureA-plus 2015 P=– P=– P=– P=84,698,669

2014 – – – 605,056,5382013 – – – 453,571,038

SIAEP 2015 439,483 – – –2014 – – – 116,413,1932013 – – – –

PAAT 2015 – – 37,663,884 –2014 – – 26,104,946 –2013 – – 24,868,852 –

Entities under common controlRSB 2015 2,472,792 – – –

2014 2,620,575 – – –2013 2,031,512 – – –

URC 2015 40,768,879 – – –2014 41,337,092 – – –2013 32,038,742 – – –

RLC 2015 19,174,493 – – –2014 13,928,598 – – –2013 10,347,628 – – –

SPI 2015 3,498,402 – – –2014 5,183,283 – – –2013 2,185,451 – – –

JGPC 2015 921,695 – – –2014 958,570 – – –2013 936,659 – – –

Robinsons Inc. 2015 29,549,943 – – –2014 26,231,941 – – –2013 21,862,505 – – –

Jobstreet.com Phils., Inc. 2015 682,300 – – –2014 624,615 – – –2013 686,710 – – –

Total 2015 P=97,507,987 P=– P=37,663,884 P=84,698,6692014 P=90,884,674 P=– P=26,104,946 P=721,469,7312013 P=70,089,207 P=– P=24,868,852 P=453,571,038

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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 receivedfor any related party receivables or payables. The Group has not recognized any impairmentlosses on amounts due from related parties for the years ended December 31, 2015 and 2014.This assessment is undertaken each financial year through a review of the financial position of therelated party and the market in which the related party operates.

The Group’s significant transactions with related parties follow:

1. Expenses advanced by the Group on behalf of CPAHI. The said expenses are subject toreimbursement and are recorded under ‘Receivables’ in the consolidated statement of financialposition.

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

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

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

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

The Group also purchases goods from URC for in-flight sales and recorded as trade payable, ifunpaid, in the consolidated statement of financial position. Total amount of purchases in2015, 2014 and 2013 amounted to P=12.3 million, P=9.5 million and P=8.3 million, respectively.

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

7. In 2013 and 2012, under the shareholder loan agreement the Group provided a loan to PAATto finance the purchase of its Full Flight Simulator, other equipment and other working capitalrequirements. Aggregate loans provided by the Group amounted to P=155.4 million

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(US$3.5 million). The loans are subject two percent (2%) interest per annum. In 2014, theGroup collected P=41.7 million (US$0.9 million) from PAAT as partial payment of the loan.As of December 31, 2015 and 2014, loan to PAAT amounted to P=91.0 million (US$2.3million).

8. In 2014, the Parent Company entered into sublease agreements with Cebgo, Inc. for the leaseof its five (5) A320 Airbus aircraft. The sublease period for each aircraft is for two years, butwas pre-terminated in 2015.

9. In 2015, the Parent Company entered into sublease arrangements with Cebgo, Inc. for thelease of its eight (8) ATR 72-500 aircraft. The sublease period for each aircraft is for twoyears.

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

2015 2014 2013Short-term employee benefits P=135,392,431 P=150,010,391 P=135,839,296Post-employment benefits 3,560,866 10,011,731 1,290,721

P=138,953,297 P=160,022,122 P=137,130,017

There are no agreements between the Group and any of its directors and key officers providing forbenefits upon termination of employment, except for such benefits to which they may be entitledunder the Group’s pension plans.

28. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments, other than derivatives, comprise cash and cashequivalents, financial assets at FVPL, AFS investments, receivables, payables and interest-bearingborrowings. The main purpose of these financial instruments is to finance the Group’s operationsand capital expenditures. The Group has various other financial assets and liabilities, such as tradereceivables and trade payables which arise directly from its operations. The Group also enters intofuel derivatives to manage its exposure to fuel price fluctuations.

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

Risk Management StructureThe Group’s risk management structure is closely aligned with that of its ultimate parent. TheGroup has its own BOD which is ultimately responsible for the oversight of the Group’s riskmanagement process which involves identifying, measuring, analyzing, monitoring andcontrolling risks.

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

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

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

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

The Audit Committee also aims to ensure that:a. financial reports comply with established internal policies and procedures, pertinent

accounting and auditing standards and other regulatory requirements;b. risks are properly identified, evaluated and managed, specifically in the areas of managing

credit, market, liquidity, operational, legal and other risks, and crisis management;c. audit activities of internal and external auditors are done based on plan, and deviations are

explained through the performance of direct interface functions with the internal and externalauditors; and

d. the Group’s BOD is properly assisted in the development of policies that would enhance therisk management and control systems.

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

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

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

Day-to-day risk management functionsAt the business unit or company level, the day-to-day risk management functions are handled byfour different groups, namely:

1. Risk-taking personnel - this group includes line personnel who initiate and are directlyaccountable for all risks taken.

2. Risk control and compliance - this group includes middle management personnel who performthe day-to-day compliance check to approved risk policies and risks mitigation decisions.

3. Support - this group includes back office personnel who support the line personnel.

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4. Risk management - this group pertains to the Group’s Management Committee which makesrisk mitigating decisions within the enterprise-wide risk management framework.

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

The ERM framework revolves around the following seven interrelated risk managementapproaches:

1. Internal Environmental Scanning - it involves the review of the overall prevailing risk profileof the business unit to determine how risks are viewed and addressed by management. This ispresented during the strategic planning, annual budgeting and mid-year performance reviewsof the business unit.

2. Objective Setting - the Group’s BOD mandates the Group’s management to set the overallannual targets through strategic planning activities, in order to ensure that management has aprocess in place to set objectives which are aligned with the Group’s goals.

3. Risk Assessment - the identified risks are analyzed relative to the probability and severity ofpotential loss which serves as a basis for determining how the risks should be managed. Therisks are further assessed as to which risks are controllable and uncontrollable, risks thatrequire management’s attention, and risks which may materially weaken the Group’s earningsand capital.

4. Risk Response - the Group’s BOD, through the oversight role of the ERMG, approves theGroup’s responses to mitigate risks, either to avoid, self-insure, reduce, transfer or share risk.

5. Control Activities - policies and procedures are established and approved by the Group’s BODand implemented to ensure that the risk responses are effectively carried out enterprise-wide.

6. Information and Communication - relevant risk management information are identified,captured and communicated in form and substance that enable all personnel to perform theirrisk management roles.

7. Monitoring - the ERMG, Internal Audit Group, Compliance Office and Business AssessmentTeam constantly monitor the management of risks through risk limits, audit reviews,compliance checks, revalidation of risk strategies and performance reviews.

Risk management support groupsThe Group’s BOD created the following departments within the Group to support the riskmanagement activities of the Group and the other business units:

1. Corporate Security and Safety Board (CSSB) - under the supervision of ERMG, the CSSBadministers enterprise-wide policies affecting physical security of assets exposed to variousforms of risks.

2. Corporate Supplier Accreditation Team (CORPSAT) - under the supervision of ERMG, theCORPSAT administers enterprise-wide procurement policies to ensure availability of suppliesand services of high quality and standards to all business units.

3. Corporate Management Services (CMS) - the CMS is responsible for the formulation ofenterprise-wide policies and procedures.

4. Corporate Planning and Legal Affairs (CORPLAN) - the CORPLAN is responsible for theadministration of strategic planning, budgeting and performance review processes of thebusiness units.

5. Corporate Insurance Department (CID) - the CID is responsible for the administration of theinsurance program of business units concerning property, public liability, business

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interruption, money and fidelity, and employer compensation insurances, as well as in theprocurement of performance bonds.

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

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

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

Maximum exposure to credit risk without taking account of any credit enhancementThe table below shows the gross maximum exposure to credit risk (including derivative assets) ofthe Group as of December 31, 2015 and 2014, without considering the effects of collaterals andother credit risk mitigation techniques.

2015 2014Loans and receivables

Cash and cash equivalents* P=4,675,299,344 P=3,936,341,214Receivables

Trade receivables 1,398,342,106 1,302,342,302Due from related parties 125,623,460 134,424,754Interest receivable 1,377,036 1,008,445Others** 528,512,366 731,774,481

2,053,854,968 2,169,549,982Refundable deposits*** 27,135,401 123,486,187

P=6,756,289,713 P=6,229,377,383* Excluding cash on hand** Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the Parent Company statements of financial position

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

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

2015

Philippines

Asia(excluding

Philippines) Europe Others TotalLoans and receivables Cash and cash equivalents* P=3,928,723,397 P=726,099,935 P=20,476,012 P=– P=4,675,299,344 Receivables Trade receivables 1,141,591,909 237,602,342 19,147,855 – 1,398,342,106 Due from related parties 125,623,460 – – – 125,623,460 Interest receivable 1,377,036 – – – 1,377,036 Others** 228,982,224 57,032,291 242,497,851 – 528,512,366 Refundable deposits*** – – 27,135,401 – 27,135,401

P=5,426,298,026 P=1,020,734,568 P=309,257,119 P= – P=6,756,289,713***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

2014

Philippines

Asia(excluding

Philippines) Europe Others TotalLoans and receivables Cash and cash equivalents* P=3,476,501,003 P=447,656,601 P=12,183,610 P=– P=3,936,341,214 Receivables Trade receivables 946,188,709 345,891,943 10,261,650 – 1,302,342,302 Due from related parties 134,424,754 – – – 134,424,754 Interest receivable 1,008,445 – – – 1,008,445 Others** 63,998,817 433,133,826 234,641,838 – 731,774,481 Refundable deposits*** – – 123,486,187 – 123,486,187

P=4,622,121,728 P=1,226,682,370 P=380,573,285 P= – P=6,229,377,383***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

The Group has no concentration of risk with regard to various industry sectors. The majorindustry relevant to the Group is the transportation sector and financial intermediaries.

Credit quality per class of financial assetsThe Group rates its financial assets based on an internal and external credit rating system.

The table below shows the credit quality by class of financial assets based on internal credit ratingof the Group (gross of allowance for impairment losses) as of December 31, 2015 and 2014.

2015Neither Past Due Nor Specifically Impaired Past Due

HighGrade

StandardGrade

SubstandardGrade

or IndividuallyImpaired Total

Cash and cash equivalents* P=4,675,299,344 P=– P=– P=– P=4,675,299,344 Receivables

Trade receivables 1,384,064,445 14,277,661 – – 1,398,342,106Due from related parties 125,623,460 – – – 125,623,460Interest receivable 1,377,036 – – – 1,377,036Others** 190,565,126 337,947,240 – – 528,512,366

Refundable deposits*** 27,135,401 – – – 27,135,401P=6,404,064,812 P=352,224,901 P=– P=– P=6,756,289,713

***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

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2014Neither Past Due Nor Specifically Impaired Past Due

HighGrade

StandardGrade

SubstandardGrade

or IndividuallyImpaired Total

Cash and cash equivalents* P=3,908,568,317 P=27,772,897 P=– P= – P=3,936,341,214 Receivables

Trade receivables 1,034,026,029 268,316,273 – – 1,302,342,302Due from related parties 134,424,754 – – – 134,424,754Interest receivable 1,008,445 – – – 1,008,445Others** 321,787,171 409,987,310 – – 731,774,481

Refundable deposits*** 123,486,187 – – – 123,486,187P=5,523,300,903 P=706,076,480 P=– P=– P=6,229,377,383

***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

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

High grade accounts are accounts considered to be of high value. The counterparties have a veryremote likelihood of default and have consistently exhibited good paying habits.

Standard grade accounts are active accounts with propensity of deteriorating to mid-range agebuckets. These accounts are typically not impaired as the counterparties generally respond tocredit actions and update their payments accordingly.

Substandard grade accounts are accounts which have probability of impairment based on historicaltrend. These accounts show propensity to default in payment despite regular follow-up actionsand extended payment terms.

Past due or individually impaired accounts consist of past due but not impaired receivablesamounting to P=20.8 million and P=261.7 million as December 31, 2015 and 2014, respectively, andpast due and impaired receivables amounting P=316.4 million and P=306.8 million as ofDecember 31, 2015 and 2014, respectively. Past due but not impaired receivables are secured bycash bonds from major sales and ticket offices recorded under ‘Accounts payable and otheraccrued liabilities’ account in the consolidated statement of financial position. For the past dueand impaired receivables, specific allowance for impairment losses amounted to P=316.4 millionand P=306.8 million as of December 31, 2015 and 2014, respectively (Note 10).

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

2015Neither Past Past Due But Not Impaired Past

Due NorImpaired 31-60 days 61-90 days 91-180 days

Over180 days

Due andImpaired Total

Trade receivables P=1,389,903,548 P=– P=– P=– P=– P=8,438,558 P=1,398,342,106Due from related parties 125,623,460 – – – – – 125,623,460Interest receivable 1,377,036 – – – – – 1,377,036Others* 199,754,607 – – – 20,786,211 307,971,548 528,512,366

P=1,716,658,651 P=– P=– P=– P=20,786,211 P=316,410,106 P=2,053,854,968*Include nontrade receivables from insurance, employees and counterparties.

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2014Neither Past Past Due But Not Impaired Past

Due NorImpaired 31-60 days 61-90 days 91-180 days

Over180 days

Due andImpaired Total

Trade receivables P=1,032,225,034 P=150,601,997 P=58,720 P=98,594,460 P=12,489,390 P=8,372,701 P=1,302,342,302Due from related parties 134,424,754 – – – – – 134,424,754Interest receivable 1,008,445 – – – – – 1,008,445Others* 433,315,619 – – – – 298,458,862 731,774,481

P=1,600,973,852 P=150,601,997 P=58,720 P=98,594,460 P=12,489,390 P=306,831,563 P=2,169,549,982*Include nontrade receivables from insurance, employees and counterparties.

Collateral or credit enhancementsAs collateral against trade receivables from sales ticket offices or agents, the Group requires cashbonds from major sales ticket offices or agents ranging from P=50,000 to P=2.1 million dependingon the Group’s assessment of sales ticket offices and agents’ credit standing and volume oftransactions. As of December 31, 2015 and 2014, outstanding cash bonds (included under‘Accounts payable and other accrued liabilities’ account in the consolidated statement of financialposition) amounted to P=214.7 million and P=293.9 million, respectively (Note 17). There are nocollaterals for impaired receivables.

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

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

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

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

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

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

Financial assetsThe analysis of financial assets held for liquidity purposes into relevant maturity grouping is basedon the remaining period at the statement of financial position date to the contractual maturity dateor, if earlier, the expected date the assets will be realized.

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

The tables below summarize the maturity profile of financial instruments based on remainingcontractual undiscounted cash flows as of December 31, 2015 and 2014:

2015Less than one

month1 to 3

months3 to 12

months1 to 5years

More than5 years Total

Financial AssetsLoans and receivables Cash and cash equivalents P=4,628,358,567 P=77,731,496 P=– P=– P=– P=4,706,090,063 Receivables: Trade receivables 1,389,696,872 – 2,780,182 – 5,865,052 1,398,342,106 Due from related parties* 125,623,460 – – – – 125,623,460 Interest receivable 1,377,036 – – – – 1,377,036 Others ** 207,781,957 2,157,740 75,372,740 1,211,644 241,988,285 528,512,366 Refundable deposits – – – 27,135,401 – 27,135,401

P=6,352,837,892 P=79,889,236 P=78,152,922 P=28,347,045 P=247,853,337 P=6,787,080,432

Financial LiabilitiesOn-balance sheet

Derivative financialinstruments notdesignated as accountinghedges P=– P=– P=– P=1,671,213,914 P=772,281,224 P=2,443,495,138

Accounts payable and otheraccrued liabilities*** 5,833,676,569 1,051,834,620 1,862,805,953 1,066,516,117 250,776 9,815,084,035

Due to related parties* 38,115,803 – – – – 38,115,803Long-term debt – – 5,419,595,530 22,249,673,135 8,919,716,826 36,588,985,491

P=5,871,792,372 P=1,051,834,620 P=7,282,401,483 P=24,987,403,166 P=9,692,248,826 P=48,885,680,467***Receivable and payable on demand***Include nontrade receivables from insurance, employees and counterparties***Excluding government-related payables

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2014Less than one

month1 to 3

months3 to 12months

1 to 5years

More than5 years Total

Financial AssetsLoans and receivables Cash and cash equivalents P=3,936,139,786 P=27,772,897 P=– P=– P=– P=3,963,912,683 Receivables: Trade receivables 1,034,732,682 150,660,717 98,905,506 12,178,345 5,865,052 1,302,342,302 Interest receivable 1,008,445 – – – – 1,008,445 Due from related parties* 134,424,754 – – – – 134,424,754 Others ** 51,467,965 1,217,263 110,677,108 338,456,426 229,955,719 731,774,481 Refundable deposits – – – 123,486,187 – 123,486,187

P=5,157,773,632 P=179,650,877 P=209,582,614 P=474,120,958 P=235,820,771 P=6,256,948,852

Financial LiabilitiesOn-balance sheet

Derivative financialinstruments notdesignated as accountinghedges P=– P=– P=– P=2,260,559,896 P=– P=2,260,559,896

Accounts payable and otheraccrued liabilities*** 2,856,393,747 1,694,895,508 2,792,557,873 1,864,583,261 175,573,639 9,384,004,028

Due to related parties* 44,653,215 – – – – 44,653,215Long-term debt 655,766,281 725,769,177 3,330,929,833 20,055,408,320 9,081,789,054 33,849,662,665

P=3,556,813,243 P=2,420,664,685 P=6,123,487,706 P=24,180,551,477 P=9,257,362,693 P=45,538,879,804***Receivable and payable on demand***Include nontrade receivables from insurance, employees and counterparties***Excluding government-related payables

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

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

The Group has transactional currency exposures. Such exposures arise from sales and purchasesin currencies other than the Parent Company’s functional currency. During the years endedDecember 31, 2015, 2014 and 2013, approximately 31.0%, 29.0% and 27.2%, respectively, of theGroup’s total sales are denominated in currencies other than the functional currency. Furthermore,the Group’s capital expenditures are substantially denominated in US Dollar. As ofDecember 31, 2015, 2014 and 2013, 67.4 %, 67.2% and 66.1%, respectively, of the Group’sfinancial liabilities were denominated in US Dollar.

The Group does not have any foreign currency hedging arrangements as of December 31, 2015.

The tables below summarize the Group’s exposure to foreign currency risk. Included in the tablesare the Group’s financial assets and liabilities at carrying amounts, categorized by currency.

2015

US DollarHong Kong

DollarSingaporean

DollarOther

Currencies* TotalFinancial AssetsCash and cash equivalents P=2,157,992,877 P=28,618,072 P=23,598,454 P=550,734,832 P=2,760,944,235Receivables 319,932,610 27,987,568 23,597,364 268,906,696 640,424,238Refundable deposits** 27,135,401 – – – 27,135,401

P=2,505,060,888 P=56,605,640 P=47,195,818 P=819,641,528 P=3,428,503,874

(Forward)

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2015

US DollarHong Kong

DollarSingaporean

DollarOther

Currencies* TotalFinancial LiabilitiesFinancial Liabilities at FVPL

Derivative financialinstruments not designatedas accounting hedges P=2,443,495,138 P=– P=– P=– P=2,443,495,138

Accounts payable and other accrued liabilities*** 4,136,229,873 43,755,668 54,483,493 248,494,675 4,482,963,709Long-term debt 36,588,985,491 – – – 36,588,985,491Others**** 224,413,504 – – – 224,413,504

P=43,393,124,006 P=43,755,668 P=54,483,493 P=248,494,675 P=43,739,857,842****Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro****Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position****Excluding government-related payables****Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position

2014

US DollarHong Kong

DollarSingaporean

DollarOther

Currencies* TotalFinancial AssetsCash and cash equivalents P=1,228,287,151 P=19,301,198 P=22,565,841 P=115,858,859 P=1,386,013,049Receivables 1,068,922,069 27,994,197 15,263,811 243,160,131 1,355,340,208Refundable deposits** 123,486,187 – – – 123,486,187

P=2,420,695,407 P=47,295,395 P=37,829,652 P=359,018,990 P=2,864,839,444

Financial LiabilitiesFinancial Liabilities at FVPL

Derivative financialinstruments not designatedas accounting hedges P=2,260,559,896 P=– P=– P=– P=2,260,559,896

Accounts payable and other accrued liabilities*** 4,245,034,312 39,691,447 47,236,945 227,073,939 4,559,036,643Long-term debt 33,849,662,665 – – – 33,849,662,665Others**** 224,413,504 – – – 224,413,504

P=40,579,670,377 P=39,691,447 P=47,236,945 P=227,073,939 P=40,893,672,708****Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro****Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position****Excluding government-related payables****Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position

The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilitiesas of December 31, 2015 and 2014 follow:

2015 2014US dollar P=47.060 to US$1.00 P=44.720 to US$1.00Singapore dollar P=33.517 to SGD1.00 P=33.696 to SGD1.00Hong Kong dollar P=6.086 to HKD1.00 P=5.749 to HKD1.00

The following table sets forth the impact of the range of reasonably possible changes in theUS dollar - Philippine peso exchange value on the Group’s pre-tax income for the years endedDecember 31, 2014, 2013 and 2012 (in thousands).

2015 2014 2013Changes in foreign exchange value P=2 (P=2) P=2 (P=2) P=2 (P=2)Change in pre-tax income (P=1,737,699) P=1,737,699 (P=1,687,711) P=1,687,711 (P=1,371,102) P=1,371,102

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.

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Commodity price riskThe Group enters into commodity derivatives to manage its price risks on fuel purchases.Commodity hedging allows stability in prices, thus offsetting the risk of volatile marketfluctuations. Depending on the economic hedge cover, the price changes on the commodityderivative positions are offset by higher or lower purchase costs on fuel. A change in price byUS$10.00 per barrel of jet fuel affects the Group’s fuel costs in pre-tax income byP=2,132.7 million, P=1,778.5 million and P=1,414.3 million as of December 31, 2015, 2014 and 2013,respectively, in each of the covered periods, assuming no change in volume of fuel is consumed.

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

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

December 31, 2015

<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 yearsTotal

(In US Dollar)

Total(in Philippine

Peso) Fair ValueECA-backed loans from banks

(Note 18) Floating rateUS Dollar London Interbank Offering

Rate (LIBOR) US$15,982,346 US$16,140,463 US$16,362,447 US$16,130,052 US$15,030,481 US$54,241,695 US$133,887,484 P=6,300,745,013 P=6,280,226,991Commercial loans from banks

(Note 18) Floating rate 32,797,061 33,258,070 33,734,931 34,223,316 34,716,386 140,111,604 308,841,368 14,534,074,745 14,869,925,168US$48,779,407 US$49,398,533 US$50,097,378 US$50,353,368 US$49,746,867 US$194,353,299 US$442,728,852 P=20,834,819,758 P=21,150,152,159

December 31, 2014

<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 yearsTotal

(In US Dollar)

Total(in Philippine

Peso) Fair ValueECA-backed loans from banks

(Note 18) Floating rateUS Dollar LIBOR US$15,686,883 US$15,795,544 US$16,013,071 US$16,231,494 US$16,360,413 US$69,634,380 US$149,721,785 P=6,695,558,231 P=6,663,889,880Commercial loans from banks

(Note 18) Floating rate 19,512,191 19,684,945 19,871,456 20,058,749 20,251,300 93,111,562 192,490,203 8,608,161,855 8,950,548,249US$35,199,074 US$35,480,489 US$35,884,527 US$36,290,243 US$36,611,713 US$162,745,942 US$342,211,988 P=15,303,720,086 P=15,614,438,129

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The following table sets forth the impact of the range of reasonably possible changes in interestrates on the Group’s pre-tax income for the years ended December 31, 2014, 2013 and 2012.

2015 2014 2013Changes in interest rates 1.50% (1.50%) 1.50% (1.50%) 1.50% (1.50%)Changes in pre-tax income (P=274,842,903) P=274,842,903 (P=183,855,223) P=183,855,223 (P=113,939,099) P=113,939,099

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

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 onthe Group’s net assets as of December 31, 2015 and 2014:

Change in BasisPoints

Effect on profitbefore tax

2015 +100% P=103,278,994-100% (103,278,994)

2014 +100% 72,116,210-100% (72,116,210)

29. Fair Value Measurement

The carrying amounts approximate fair values for the Group’s financial assets and liabilities dueto its short-term maturities except for the following financial asset and other financial liabilities asof December 31, 2015 and 2014:

2015 2014Carrying Value Fair Value Carrying Value Fair Value

Financial AssetsLoans and receivables Refundable deposits* (Note 16) P=27,135,401 P=30,107,952 P=123,486,187 P=121,309,197Financial LiabilitiesOther financial liability Long-term debt** (Note 18) P=36,588,985,491 P=37,501,137,327 P=33,849,662,665 P=35,500,074,733**Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position.**Includes current portion.

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

Noninterest - bearing refundable depositsThe fair values are determined based on the present value of estimated future cash flows usingprevailing market rates. The Group used discount rates of 3% to 4% in 2015 and 2014.

Long-term debtThe fair value of long-term debt is determined using the discounted cash flow methodology, withreference to the Group’s current incremental lending rates for similar types of loans. The discountcurve used range from 2% to 6% as of December 31, 2015 and 2014.

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The Group uses the following hierarchy for determining and disclosing the fair value of financialassets designated at FVPL, derivative financial instruments and AFS investments by valuationtechniques:

(a) Level 1: quoted (unadjusted) prices in an active market for identical assets or liabilities;(b) Level 2: other techniques for which all inputs which have a significant effect on the recorded

fair value are observable, either directly or indirectly; and(c) Level 3: techniques which use inputs which have a significant effect on the recorded fair value

that are not based on observable market data.

The table below shows the Group’s financial instruments carried at fair value hierarchyclassification:

2015 2014Level 1 Level 2 Level 1 Level 2

Financial LiabilitiesFinancial liabilities at FVPL (Note 9)

Derivative financial instruments not designated as accounting hedges P=– P=2,443,495,138 P=– P=2,260,559,896

There are no financial instruments measured at Level 3. There were no transfers within anyhierarchy level of fair value measurements for the years ended December 31, 2015 and 2014,respectively.

30. Commitments and Contingencies

Operating Aircraft Lease CommitmentsThe Group entered into operating lease agreements with certain leasing companies which coverthe following aircraft:

A320 aircraftThe following table summarizes the specific lease agreements on the Group’s Airbus A320aircraft:

Date of Lease Agreement Lessors No. of Units Lease ExpiryApril 2007 Inishcrean Leasing Limited

(Inishcrean)1 October 2019

March 2008 GY Aviation Lease 0905 Co. Limited 2 January 2019March 2008 APTREE Aviation Trading 2 Co. Ltd 1 October 2019

Wells Fargo Bank NorthwestNational Assoc.

1 October 2019

July 2011 SMBC Aviation Capital Limited 2 February 2018Note: The lease agreements were amended, when applicable, to effect the novation of lease rights by the original lessorsto new lessors as allowed under the lease agreements.

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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 offour (4) Airbus A320 aircraft, which were delivered in 2008. In 2015, the Group extended thelease agreement with Inishcrean for another three years.

In March 2008, the Parent Company entered into operating lease agreements with GY AviationLease 0905 Co. Limited (GY Aviation) for the lease of two Airbus A320 aircraft, which weredelivered in 2009, and two Airbus A320 aircraft with two other lessors, which were received in2012. In November 2010, the Parent Company signed an amendment to the operating leaseagreements, advancing the delivery of the two Airbus A320 aircraft to 2011 from 2012. The leaseswith GY Aviation Lease 0905 Co. Limited maturity date reflects an intended extension for anothertwo years pursuant to an letter of intent (LOI) signed in the first quarter of 2016.

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

A330 aircraftThe following table summarizes the specific lease agreements on the Group’s Airbus A330aircraft:

Date of Lease Agreement Lessors No. of Units Lease TermFebruary 2012 CIT Aerospace International 4 12 years with pre-termination

optionJuly 2013 Intrepid Aviation 2 12 years with pre-termination

option

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

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

As of December 31, 2015, the Group has six (6) Airbus A330 aircraft under operating lease(Note 13), wherein one Airbus was delivered in 2015.

The first two A330 aircraft were delivered in June 2013 and September 2013. Three A330 aircraftwere delivered in February 2014, May 2014 and September 2014. One A330 aircraft was deliveredin March 2015.

Lease expenses relating to aircraft leases (included in ‘Aircraft and engine lease’ account in theconsolidated statements of comprehensive income) amounted to P=4,024.6 million,P=3,503.5 million and P=2,314.9 million in 2015, 2014 and 2013, respectively.

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Future minimum lease payments under the above-indicated operating aircraft leases follow:

2015 2014 2013

US dollarPhilippine peso

equivalent US dollarPhilippine peso

equivalent US dollarPhilippine peso

equivalentWithin one year US$90,260,208 P=4,247,645,406 US$88,551,265 P=3,960,012,577 US$73,094,439 P=3,245,027,618After one year but not more

than five years 309,193,470 14,550,644,708 314,017,649 14,042,869,274 307,184,942 13,637,475,503Over five years 332,977,141 15,669,904,258 395,380,828 17,681,430,645 463,829,248 20,591,699,480

US$732,430,819 P=34,468,194,372 US$797,949,742 P=35,684,312,496 US$844,108,629 P=37,474,202,601

Operating Non-Aircraft Lease CommitmentsThe Group has entered into various lease agreements for its hangar, office spaces, ticketingstations and certain equipment. These leases have remaining lease terms ranging from one to tenyears. Certain leases include a clause to enable upward revision of the annual rental chargeranging from 5.00% to 10.00%.

Future minimum lease payments under these noncancellable operating leases follow:

2015 2014 2013Within one year P=135,299,739 P=127,970,825 P=114,110,716After one year but not more than

five years 564,977,120 539,700,300 665,809,830Over five years 2,433,712,858 2,065,948,495 799,242,568

P=3,133,989,717 P=2,733,619,620 P=1,579,163,114

Lease expenses relating to both cancellable and non-cancellable non-aircraft leases (allocatedunder different expense accounts in the consolidated statements of comprehensive income)amounted to P=488.6 million, P=337.1 million and P=304.8 million in 2015, 2014 and 2013,respectively.

Service Maintenance CommitmentsOn 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 forits fleet of Airbus A319 and A320 aircraft. The contract covers the current fleet, as well as futureaircraft to be acquired.

On June 22, 2012, the Parent Company has entered into service contract with Rolls-Royce TotalCare 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 toeight A330 aircraft. Contract term shall be from delivery of the first A330 until the redelivery ofthe last A330.

On July 12, 2012, the Parent Company has entered into a maintenance service contract with SIAEngineering Co. Ltd. for the maintenance, repair and overhaul services of its A319 and A320aircraft. Specific services from SIAEC are Base Maintenance, Fleet Technical Management(FTM), Inventory Technical Management (ITM) and C&E for Line Maintenance Services for theA319 and A320.

These agreements remained in effect as of December 31, 2015.

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Aircraft and Spare Engine Purchase CommitmentsIn 2007, the Group entered into a purchase agreement with Airbus S.A.S covering the purchase often A320 aircraft and the right to purchase five option aircraft.

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

In 2010, the Group exercised its option to purchase five additional option Airbus A320 aircraftand entered into a new commitment to purchase two (2) Airbus A320 aircraft to be deliveredbetween 2011 and 2014. Six (6) of these aircraft were delivered between September 2011 andDecember 2013.

In May 2011, the Group turned into firm orders its existing options for the seven (7) Airbus A320aircraft which are scheduled to be delivered in 2015 to 2016. In 2015, the Group received four (4)aircraft. It is scheduled to receive three (3) aircraft in 2016.

In August 2011, the Group entered in a new commitment to purchase firm orders of thirty newA321 NEO Aircraft and ten addition option orders. These aircraft are scheduled to be deliveredfrom 2017 to 2021.

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

On October 20, 2015, the Group entered into a Sale and Purchase Contract with Avions TransportRegional G.I.E. to purchase 16 firm ATR 72-600 aircraft and up to 10 additional option ATR 72-600 aircraft. These aircraft are scheduled to be delivered from 2016 to 2020.

As of December 31, 2015, the Group will take delivery of 5 more Airbus A320, 30 Airbus A321NEO aircraft and 16 ATR 72-600.

The above-indicated commitments relate to the Group’s re-fleeting and expansion programs.These agreements remained in effect as of December 31, 2015.

Capital Expenditure CommitmentsThe Group’s capital expenditure commitments relate principally to the acquisition of aircraft fleet,aggregating to P=90.0 billion and P=70.07 billion as of December 31, 2015 and 2014, respectively.

2015


equivalentWithin one year US$294,434,836 P=13,856,103,384After one year but not more than

five years 1,698,714,532 79,941,505,899US$1,993,149,368 P=93,797,609,283

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2014


equivalentWithin one year US$260,795,946 P=11,662,794,707After one year but not more than

five years 1,458,101,728 65,206,309,259US$1,718,897,674 P=76,869,103,966

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

31. Supplemental Disclosures to the Consolidated Statements of Cash Flows

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

a. On December 31, 2015 the Group recognized a liability based on the schedule of pre-deliverypayments amounting P=482.0 million. These incurred costs are recognized under the‘Construction-in progress’ account. The liability was paid the following year.

b. The Parent Company paid P=488.6 million for the acquisition of Cebgo (Note 7). Cash flowsused to acquire Cebgo, after the cash attributable to the business combination ofP=256.7 million, amounted to P=231.8 million.

c. The Group applied creditable withholding taxes against income tax payable and theseamounted to P=51.0 million, P=21.0 million and P=0.3 million in 2015, 2014 and 2013,respectively.

32. Registration with the BOI

The Parent Company is registered with the BOI as a new operator of air transport on a pioneerstatus on eleven (11) A320 and non-pioneer status for twelve (12) Airbus A320 aircraft and two(2) Airbus A330 aircraft. Under the terms of the registration and subject to certain requirements,the Parent Company is entitled to the following fiscal and non-fiscal incentives (Notes 1, 13and 25):

Date of Registration Registration Number ITH PeriodNovember 3, 2010 2010-180 Jan 2011 - Dec 2016November 16, 2011 2011-240 Nov 2011 - Nov 2015November 16, 2011 2011-241 Nov 2011 - Nov 2017November 16, 2011 2011-242 Nov 2011 - Nov 2015January 17, 2012 2012-013 Mar 2012 - Feb 2016January 17, 2012 2012-014 Mar 2012 - Feb 2016December 6, 2012 2012-262 Dec 2012 - Dec 2018February 11,2013

(Forward)

2013-045 Feb 2013 - Feb 2019

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Date of Registration Registration Number ITH PeriodApril 11, 2013 2013-089 Apr 2013 - Apr 2019July 29, 2013 2013-166 July 2013 - July 2017September 13, 2013 2013-185 Sept 2013 - Sept 2019September 13, 2013 2013-186 Sept 2013 - Sept 2019October 3, 2013 2013-201 Oct 2013 - Oct 2017January 17, 2014 2014-012 Jan 2014 - Jan 2020February 19, 2014 2014-037 Feb 2014 - Feb 2020May 21, 2014 2014-080 May 2014 - May 2018May 21, 2014 2014-081 May 2014 - May 2018January 22, 2015 2015-011 Jan 2015 - Jan 2019January 22,2015 2015-012 Jan 2015 - Jan 2019February 17, 2015 2015-039 Feb 2015 - Feb 2019March 9, 2015 2015-061 Mar 2015 - Mar 2019October 22, 2015 2015-225 Oct 2015 - Oct 2019November 4, 2015 2015-238 Nov 2015 - Nov 2019

a. An ITH for a period of four (4) years for non-pioneer status and six (6) years for pioneerstatus.

b. Employment of foreign nationals. This may be allowed in supervisory, technical or advisorypositions for five (5) years from date of registration.

c. Importation of capital equipment, spare parts and accessories at zero (0%) duty from date ofeffectivity of Executive Order (E.O.) No. 70 and its Implementing Rules and Regulations for aperiod of five (5) years reckoned from the date of its registration or until the expiration ofE.O. 70, whichever is earlier.

d. Avail of a bonus year in each of the following cases but the aggregated ITH availment (regularand bonus years) shall not exceed eight (8) years.· The ratio of total of imported and domestic capital equipment to the number of workers

for the project does not exceed the ratio set by the BOI; or· The net foreign exchange savings or earnings amount to at least US$500,000 annually

during the first three (3) years of operation.· The indigenous raw materials used in the manufacture of the registered product must at

least be fifty percent (50%) of the total cost of raw materials for the preceding years priorto the extension unless the BOI prescribes a higher percentage.

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

f. Tax credit equivalent to the national internal revenue taxes and duties paid on raw materialsand supplies and semi-manufactured products used in producing its export product andforming part thereof for a ten (10) years from start of commercial operations. Request foramendment of the date of start of commercial operation for purposes of determining thereckoning date of the 10-year period, shall be filed within one (1) year from date of committedstart of commercial operation.

g. Simplification of customs procedures for the importation of equipment, spare parts, rawmaterials and suppliers.

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h. Access to Customs Bonded Manufacturing Warehouse (CBMW) subject to the customs rulesand regulations provided the Parent Company exports at least 70% of production output.

i. Exemption from wharfage dues, any export tax, duties, imports and fees for a ten (10) yearperiod.

j. Importation of consigned equipment for a period of ten (10) years from date of registrationsubject to posting of re-export bond.

k. Exemption from taxes and duties on imported spare parts and consumable supplies for exportproducers with CBMW exporting at least 100% of production.

The Parent Company shall submit to the BOI a semestral report on the actual investments,employment and sales pertaining to the registered project. The report shall be due 15 days afterthe end of each semester.

As of December 31, 2015 and 2014, the Parent Company has complied with externally imposedcapital requirements set by the BOI in order to avail the ITH incentives for aircraft of registeredactivity.

33. Approval of the Consolidated Financial Statements

The accompanying consolidated financial statements were approved and authorized for issue bythe BOD on March 18, 2016.

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INDEPENDENT AUDITORS’ REPORTON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsCebu Air, Inc.2nd Floor, Doña Juanita Marquez Lim BuildingOsmeña Boulevard, Cebu City

We have audited in accordance with Philippine Standards on Auditing the consolidated financialstatements of Cebu Air, Inc. and its Subsidiaries (the Group) as at December 31, 2015 and 2014 foreach of the three years in the period ended December 31, 2015, included in this Form 17-A and haveissued our report thereon dated March 18, 2016. Our audits were made for the purpose of forming anopinion on the basic consolidated financial statements taken as a whole. The schedules listed in theIndex to Consolidated Financial Statements and Supplementary Schedules are the responsibility of theGroup’s management. Thus, schedules are presented for purposes of complying with SecuritiesRegulation Code Rule 68, As Amended (2011) and are not part of the basic consolidated financialstatements. These schedules have been subjected to the auditing procedures applied in the audit of thebasic consolidated financial statements and, in our opinion, fairly state, in all material respects, theinformation required to be set forth therein in relation to the basic consolidated financial statementstaken as a whole.

SYCIP GORRES VELAYO & CO.

Michael C. SabadoPartnerCPA Certificate No. 89336SEC Accreditation No. 0664-AR-2 (Group A), March 26, 2014, valid until March 25, 2017Tax Identification No. 160-302-865BIR Accreditation No. 08-001998-73-2015, February 27, 2015, valid until February 26, 2018PTR No. 5321688, January 4, 2016, Makati City

March 18, 2016

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018


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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE A - FINANCIAL ASSETS

(CURRENT MARKETABLE EQUITYAND DEBT SECURITIES AND OTHER SHORT-TERM CASH INVESTMENTS)DECEMBER 31, 2015

Amount Shown in Value Based onName of Issuing Entity and the Balance Sheet/ Market Quotations Income Received andDescription of Each Issue Notes at Balance Sheet Date Accrued

Various / USD Short-term cash investments P=1,631,253,752 P=1,631,253,752 P=14,160,380Various / PHP Short-term cash investments 1,966,022,468 1,966,022,468 54,347,045

P=3,597,276,220 P=3,597,276,220 P=68,507,425

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

Derivative Assets (Fuel Hedge) P=– P=– P=–

See Notes 8 and 9 of the Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE B

AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES AND PRINCIPAL STOCKHOLDERS (OTHERTHAN

RELATED PARTIES)DECEMBER 31, 2015

Balance Balance at End of PeriodName and Designation at Beginning

of Debtor of Period Additions Collections Write Offs Current Noncurrent Total

Various employees P=41,722,696 P=107,204,014 P=108,593,260 P=– P=40,333,450 P=– P=40,333,450

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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE E - PROPERTY AND EQUIPMENT

DECEMBER 31, 2015

Balance Balance at Beginning Additions Additions through Disposals and at End

Classification of Period at Cost Business Combination Reclassification Others of Period

Passenger Aircraft P=65,630,899,798 P=5,981,525,274 P=– P=2,118,681,561 (P=3,550,715,602) P=70,180,391,031Engines 6,155,955,141 2,644,999,286 – – – 8,800,954,427Rotables 2,662,189,267 574,778,528 – – (12,664,846) 3,224,302,949EDP Equipment, Mainframe and Peripherals 766,702,015 113,054,208 – – (13,815,996) 865,940,227Ground Support Equipment 475,209,294 40,689,115 – – (559,461) 515,338,948Leasehold Improvements 963,115,054 104,300 – 66,788,764 – 1,030,008,118Transportation Equipment 209,909,946 23,385,118 – – (1,500,000) 231,795,064Furniture, Fixtures and Office Equipment 152,616,549 7,645,062 – – (1,369,055) 158,892,556Special Tools 14,105,321 108,475 – – – 14,213,796Communication Equipment 12,736,501 2,297,716 – – (10,714) 15,023,503Maintenance and Test Equipment 6,681,631 - – – – 6,681,631Other Equipment 90,524,829 8,803,172 – – (180,390) 99,147,611Construction In-progress 8,629,008,939 4,132,577,761 – (2,185,470,325) – 10,576,116,375

P=85,769,654,285 P=13,529,968,015 P=– P=– (P=3,580,816,064) P=95,718,806,236

See Note 13 of the Consolidated Financial Statements

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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE F - ACCUMULATED DEPRECIATION

DECEMBER 31, 2015

BalanceAdditionsCharged

Additions Charged Balance

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

Passenger Aircraft P=16,984,521,548 P=3,916,430,206 P=– P=– (P=1,982,672,682) P=18,918,279,072Engines 1,560,099,494 711,091,541 – – – 2,271,191,035Rotables 473,914,125 205,371,623 – (28,506) (10,984,987) 668,272,255EDP Equipment, Mainframe and Peripherals 618,926,054 83,020,533 – – (13,810,129) 688,136,458Ground Support Equipment 343,494,842 48,698,036 – – (559,461) 391,633,417Leasehold Improvements 230,738,057 96,919,700 – – – 327,657,757Transportation Equipment 150,300,178 19,912,015 – – (1,500,000) 168,712,193Furniture, Fixtures and Office Equipment 81,009,265 20,650,716 – (545) (1,369,055) 100,290,381Special Tools 12,219,370 426,049 – – – 12,645,419Communication Equipment 9,257,432 1,411,090 – 28,506 (10,714) 10,686,314Maintenance and Test Equipment 6,498,213 92,112 – – – 6,590,325Other Equipment 71,550,339 7,520,103 – 545 (180,390) 78,890,597

P=20,542,528,917 P=5,111,543,724 P=– P=– (P=2,011,087,418) P=23,642,985,223

See Note 13 of the Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE H - LONG-TERM DEBT

DECEMBER 31, 2015

Amount Shown underCaption "Current Portion ofFinance Lease Obligation" in

Related Balance Sheet

Amount Shown underCaption " Finance LeaseObligation" in Related

Balance SheetTitle of Issue and

Type of Obligation Interest Rates Maturity Dates

Export Credit Agency-Backed Loans2.00% to 6.00% Various dates

through 2023 P=2,756,887,470 P=12,395,037,3181.00% to 2.00%

(US Dollar LIBOR)

Commercial Loans from banks4.00% to 6.00% Various dates

through 2017 2,666,811,714 18,770,248,9891.00% to 2.00%

(US Dollar LIBOR)Total P=5,423,699,184 P=31,165,286,307


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*SGVFS016520*

CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE K

CAPITAL STOCKDECEMBER 31, 2015

Number of SharesAuthorized

Number of Shares Reservedfor Options, Warrants,Conversion and Other

Rights

Number of Shares Issued Number of Shares Held byand Outstanding as

Directors,Officers andEmployees

Shown under RelatedTitle of Issue Balance Sheet Caption Affiliates Others

Common Stock 1,340,000,000 605,953,330 – 407,412,031 509 198,540,790


CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE OF ALL THE EFFECTIVE STANDARDS AND INTERPRETATIONS

List of Philippine Financial Reporting Standards (PFRSs) [which consist of PFRSs, PhilippineAccounting Standards (PASs) and Philippine Interpretations] and Philippine InterpretationsCommittee (PIC) Q&As effective as of December 31, 2015

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2015

Adopted NotAdopted

NotApplicable

Framework for the Preparation and Presentation of FinancialStatementsConceptual Framework Phase A: Objectives and qualitativecharacteristics

P

PFRSs Practice Statement Management Commentary P

Philippine Financial Reporting Standards P

PFRS 1(Revised)

First-time Adoption of Philippine Financial ReportingStandards P

Amendments to PFRS 1 and PAS 27: Cost of anInvestment in a Subsidiary, Jointly Controlled Entity orAssociate

P

Amendments to PFRS 1: Additional Exemptions for First-time Adopters P

Amendment to PFRS 1: Limited Exemption fromComparative PFRS 7 Disclosures for First-time Adopters P

Amendments to PFRS 1: Severe Hyperinflation andRemoval of Fixed Date for First-time Adopters P

Amendments to PFRS 1: Government Loans P

PFRS 2 Share-based Payment P

Amendments to PFRS 2: Vesting Conditions andCancellations P

Amendments to PFRS 2: Group Cash-settled Share-basedPayment Transactions P

PFRS 3(Revised)

Business CombinationsP

PFRS 4 Insurance Contracts P

Amendments to PAS 39 and PFRS 4: Financial GuaranteeContracts P

PFRS 5 Non-current Assets Held for Sale and DiscontinuedOperations P

PFRS 6 Exploration for and Evaluation of Mineral Resources P

PFRS 7 Financial Instruments: Disclosures P

Amendments to PFRS 7: Transition P

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets P

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Adopted NotAdopted

NotApplicable

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets - Effective Date and Transition P

Amendments to PFRS 7: Improving Disclosures aboutFinancial Instruments P

Amendments to PFRS 7: Disclosures - Transfers ofFinancial Assets P

Amendments to PFRS 7: Disclosures – Offsetting FinancialAssets and Financial Liabilities P

Amendments to PFRS 7: Mandatory Effective Date ofPFRS 9 and Transition Disclosures P

PFRS 8 Operating Segments P

PFRS 9 Financial Instruments P

Amendments to PFRS 9: Mandatory Effective Date ofPFRS 9 and Transition Disclosures P

PFRS 10 Consolidated Financial Statements P

PFRS 11 Joint Arrangements P

PFRS 12 Disclosure of Interests in Other Entities P

PFRS 13 Fair Value Measurement P

Philippine Accounting Standards

PAS 1(Revised)

Presentation of Financial Statements P

Amendment to PAS 1: Capital Disclosures P

Amendments to PAS 32 and PAS 1: Puttable FinancialInstruments and Obligations Arising on LiquidationAmendments to PAS 1: Presentation of Items of OtherComprehensive Income

P

P

PAS 2 Inventories P

PAS 7 Statement of Cash Flows P

PAS 8 Accounting Policies, Changes in Accounting Estimates andErrors P

PAS 10 Events after the Balance Sheet Date P

PAS 11 Construction Contracts P

PAS 12 Income Taxes P

Amendment to PAS 12 - Deferred Tax: Recovery ofUnderlying Assets P

PAS 16 Property, Plant and Equipment P

PAS 17 Leases P

PAS 18 Revenue P

PAS 19 Employee Benefits P

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Adopted NotAdopted

NotApplicable

Amendments to PAS 19: Actuarial Gains and Losses,Group Plans and Disclosures P

PAS 19(Amended)

Employee BenefitsP

PAS 20 Accounting for Government Grants and Disclosure ofGovernment Assistance P

PAS 21 The Effects of Changes in Foreign Exchange Rates P

Amendment: Net Investment in a Foreign Operation P

PAS 23(Revised)

Borrowing CostsP

PAS 24(Revised)

Related Party DisclosuresP

PAS 26 Accounting and Reporting by Retirement Benefit Plans P

PAS 27(Amended)

Separate Financial StatementsP

PAS 28(Amended)

Investments in Associates and Joint Ventures P

PAS 29 Financial Reporting in Hyperinflationary Economies P

PAS 31 Interests in Joint Ventures P

PAS 32 Financial Instruments: Disclosure and Presentation P

Amendments to PAS 32 and PAS 1: Puttable FinancialInstruments and Obligations Arising on Liquidation P

Amendment to PAS 32: Classification of Rights Issues P

Amendments to PAS 32: Offsetting Financial Assets andFinancial Liabilities P

PAS 33 Earnings per Share P

PAS 34 Interim Financial Reporting P

PAS 36 Impairment of Assets P

PAS 37 Provisions, Contingent Liabilities and Contingent Assets P

PAS 38 Intangible Assets P

PAS 39 Financial Instruments: Recognition and Measurement P

Amendments to PAS 39: Transition and Initial Recognitionof Financial Assets and Financial Liabilities P

Amendments to PAS 39: Cash Flow Hedge Accounting ofForecast Intragroup Transactions P

Amendments to PAS 39: The Fair Value Option P

Amendments to PAS 39 and PFRS 4: Financial GuaranteeContracts P

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Adopted NotAdopted

NotApplicable

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets P

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets – Effective Date and Transition P

Amendments to Philippine Interpretation IFRIC–9 and PAS39: Embedded Derivatives P

Amendment to PAS 39: Eligible Hedged Items P

PAS 40 Investment Property P

PAS 41 Agriculture P

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration andSimilar Liabilities P

IFRIC 2 Members' Share in Co-operative Entities and SimilarInstruments P

IFRIC 4 Determining Whether an Arrangement Contains a Lease P

IFRIC 5 Rights to Interests arising from Decommissioning,Restoration and Environmental Rehabilitation Funds P

IFRIC 6 Liabilities arising from Participating in a Specific Market -Waste Electrical and Electronic Equipment P

IFRIC 7 Applying the Restatement Approach under PAS 29Financial Reporting in Hyperinflationary Economies P

IFRIC 8 Scope of PFRS 2 P

IFRIC 9 Reassessment of Embedded Derivatives P

Amendments to Philippine Interpretation IFRIC–9 and PAS39: Embedded Derivatives P

IFRIC 10 Interim Financial Reporting and Impairment P

IFRIC 11 PFRS 2- Group and Treasury Share Transactions P

IFRIC 12 Service Concession Arrangements P

IFRIC 13 Customer Loyalty Programmes P

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction P

Amendments to Philippine Interpretations IFRIC- 14,Prepayments of a Minimum Funding Requirement P

IFRIC 16 Hedges of a Net Investment in a Foreign Operation P

IFRIC 17 Distributions of Non-cash Assets to Owners P

IFRIC 18 Transfers of Assets from Customers P

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments P

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine P

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Adopted NotAdopted

NotApplicable

SIC-7 Introduction of the Euro P

SIC-10 Government Assistance - No Specific Relation toOperating Activities P

SIC-12 Consolidation - Special Purpose Entities P

Amendment to SIC - 12: Scope of SIC 12 P

SIC-13 Jointly Controlled Entities - Non-Monetary Contributionsby Venturers P

SIC-15 Operating Leases - Incentives P

SIC-21 Income Taxes - Recovery of Revalued Non-DepreciableAssets P

SIC-25 Income Taxes - Changes in the Tax Status of an Entity orits Shareholders P

SIC-27 Evaluating the Substance of Transactions Involving theLegal Form of a Lease P

SIC-29 Service Concession Arrangements: Disclosures. P

SIC-31 Revenue - Barter Transactions Involving AdvertisingServices P

SIC-32 Intangible Assets - Web Site Costs P

Not applicable standards have been adopted but the Group has no significant covered transactions as of and for the yearsended December 31, 2015, 2014 and 2013.

*SGVFS016520*

CEBU AIR, INC. AND SUBSIDIARIESSUPPLEMENTARY SCHEDULE OF RETAINED EARNINGSAVAILABLE FOR DIVIDEND DECLARATIONFOR THE YEAR ENDED DECEMBER 31, 2015

The table below presents the retained earnings available for dividend declaration as ofDecember 31, 2015:

Unappropriated Retained Earnings, beginning P=6,359,642,669Adjustments:

Fair value adjustment arising from fuel hedging gains (P=393,007,855)Unrealized foreign exchange gain (1,157,619,451)Recognized deferred tax assets (1,970,475,861)Treasury stock (529,319,321) (4,050,422,488)

Unappropriated Retained Earnings, as adjusted to available for dividend distribution, beginning 2,309,220,181

Add: Net income actually earned/realized during the year:Net income during the period closed to Retained Earnings 4,104,026,507

Less: Non-actual/unrealized income net of tax:Recognized deferred tax asset (1,585,884,856)Unrealized foreign exchange gain (14,647,732) 2,503,493,919

Less:Dividend declaration during the year 908,929,995Appropriations of Retained Earnings during the year 1,000,000,000 (1,908,929,995)

Total Retained Earnings available for dividend declaration as of December 31, 2015 P=2,903,784,105

*SGVFS016520*

CEBU AIR, INC. AND SUBSIDIARIESMAP OF THE RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUP

CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE OF FINANCIAL RATIOSFOR THE YEARS ENDED December 31, 2015 and 2014

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

Financial Ratios 2015 2014Liquidity RatiosCurrent Ratio 37% 35%Quick Ratio 24% 24%

Capital Structure RatiosDebt-to-Equity Ratio (x) 1.47 1.57Net Debt-to Equity Ratio (x) 1.28 1.39Adjusted Net Debt-to Equity Ratio (x) 2.48 2.58Asset to Equity Ratio (x) 3.40 3.53Interest Coverage Ratio (x) 9.04 4.10

Profitability RatiosEBITDAR Margin 35% 24%EBIT Margin 17% 8%Pre-tax core net income margin 15% 6%Return on asset 5% 1%Return on equity 19% 4%