ANNUAL REPORT 2011
Who We Are / 2 Message to the Shareholders / 4 Board of Directors / 10 Senior Management & Consultants / 12 2011 Financial Performance Highlights / 14 Route Map & Destinations / 16 Our Fleet / 18 Our Products / 20 2011 Activity Highlights / 26 Corporate Social Responsibility / 32 Financial Statements / 35 Domestic & International Sales Offices / 116
who we are Vision
Values Accountability
Cebu Pacific
The most successful low cost carrier in the world.
We take responsibility for what we say, the decisions we make, and the actions we take.
Respect We uphold the dignity and individuality of each person.
Excellence We strive to be the best in everything we do.
Fun
Mission
“It’s time everyone flies.”
We enjoy our work and provide quality service in a fun-filled manner.
Integrity Cebu Pacific brings people together through safe, affordable, reliable and fun-filled air travel. We are committed to innovation and excellence in everything we do. We are an employer of choice providing opportunities for professional and personal growth.
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We have a deep sense of family values throughout our airline.
We are honorable. We do what is right, not what is expedient.
We enhance the quality of life of the communities we serve and are an active partner in our nation’s progress.
Teamwork
We offer our shareholders a fair return on their investments.
We value and harness the strengths of each team member. We collaborate and cooperate with each other to achieve our goals.
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message to shareholderS Dear Shareholders, The year 2011 was a challenging year for your company. The prices of jet fuel, our largest cost component, averaged $125.50/bbl in 2011, 39.3% higher than $90.09/bbl in 2010. The Philippine economy also posted a relatively slower growth rate of 3.7% in 2011 compared to 7.6% during the previous year. Demand for air travel also slowed. Statistics from the International Air Transport Association (IATA) showed global passenger traffic growth of 5.9% in 2011, lower than the 8.2% growth posted in 2010. Philippine air travel market, however, remained buoyant. According to statistics from the Civil Aeronautics Board (CAB), combined number of Philippine domestic and international passengers grew 11.6% to 34.43 million in 2011, from 30.85 million in 2010. The same data showed that the number of domestic passengers grew by 13.3% to 18.76 million while international passenger traffic was up by 9.7% to 15.67 million. We are pleased to report to you that for 2011, CEB posted record breaking revenues, passenger volumes, and seat load factors. Growth in our total passenger count outpaced the market, as we carried 11.93 million passengers in 2011, up 14.1% from previous year. We added five new Airbus A320 aircraft in 2011, and still posted an 86.3% seat load factor, our highest ever full year average. Total revenues for the year hit Php33.94 billion, 16.7% higher than the preceding year. As fuel prices increased, our net income declined, from Php6.92 billion for the year ended December 31, 2010, to Php3.62 billion for the year ended December 31, 2011. Whilst rising fuel prices squeezed our margins we were still able to record robust EBITDAR and net income margins of 23.2% and 10.7%, respectively, and we remain one of the most profitable airlines in the industry.
Lance Y. Gokongwei President & CEO
Record-breaking revenues, passenger volumes and seat load factor In 2011, we affirmed our status as the largest airline in the Philippines, as we carried a total of 11.93 million passengers, 14.1% higher than 2010. With the robust demand, our passenger volumes exceeded our capacity growth of 12.8%, thus improving system-wide load factor to 86.3%, our highest ever full year average. Total revenues increased 16.7% to Php33.94 billion in 2011, outpacing traffic growth of 14.1%. Passenger revenues, which constitute about 80.2% of total revenues, grew by 10.4% to Php27.21 billion. Ancillary revenue was a key growth driver coming in almost double last year’s performance to Php4.53 billion in 2011. Ancillary revenues per passenger grew 70.4% to Php380, from Php223 in 2010, driving average revenue per passenger up 3.1% from Php2,580 in 2010, to Php2,660 in 2011. Meanwhile, cargo revenues, which comprise 6.5% of total revenues, were up 4.7% to Php2.19 billion. In the domestic market we continued to dominate with a 45.2% passenger market share, and have maintained our market leading position on all key metrics– most passengers, most seats, highest seat load factor, and having the largest and most extensive domestic network. We have also kept our leading market share of 48.8% in the cargo front. Our domestic passenger traffic posted strong growth of 12.0% to 9.22 million for 2011. In the international markets we carried 21.6% more passengers than the previous year. International passenger traffic came in higher at 2.72 million as we were able to grow our markets in Korea, Thailand, Taiwan and China with additional flight frequencies to these key destinations. With the addition of 4 times weekly services from Manila to Pusan last June 2011 and 3 times daily flights to Incheon, our Korea operations to and from Manila and Cebu have expanded to 29 times weekly. We also increased frequencies to Bangkok from 7 times to 10 times weekly. Overall seat load factors in Taipei and Chinese destinations likewise improved to 91.0% and 75% respectively, in 2011. Hong Kong and Singapore remain our largest international markets, as we now fly 6 times daily to Hong Kong and 7 times daily to Singapore. In 2011, CEB maintained the second largest international passenger market share.
Ricardo J. Romulo Chairman
This photo courtesy of Flightglobal / Law Kian Yan (www.solotree.com)
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Amidst increased competition, we sustain our efficient operations and lowcost structure. Another major challenge we had to face during the year was increased competition. Several of our local competitors have accelerated capacity expansion during the year, while some foreign carriers have also started setting up operations in the Philippines. The combined additional capacity in the industry increased air traffic control congestion in our main hub of Manila. Amidst this backdrop, we continue to deliver industry leading operating performance, with an average daily utilization of 13.76 block hours/day for our Airbus fleet. We turned our aircraft at an average of 7.91 times per day, slightly lower than the same period in 2010 as we flew longer sectors. Our average on-time performance, however, declined to 76.7%, primarily due to air traffic control and consequential delays. We are working hard with the government to mitigate these air traffic congestion issues, while we continue to minimize controllable delays from our end. We likewise managed to reduce total cost (ex-fuel) per available seat kilometer (ASK) by 0.7% to Php1.228 in 2011. Higher cockpit crew cost was offset by reduction in cost per ASK of other cost items such as maintenance, reservation and sales, and passenger service. EBITDAR and pre-tax core net income declined 22.4% and 41.8% to Php7.9 billion and Php3.4 billion, respectively, although still healthy at 23.2% and 9.9% of revenues, respectively. This is reflective of the Company’s strong market position, strong demand for its services, and its continued focus on operational efficiency.
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Our balance sheet remains robust CEB’s balance sheet remains solid, with year ending cash and cash equivalents of Php12.33 billion, which translates to 36.3% of full year revenues. Total assets as of December 31, 2011 increased to Php55.68 billion from Php49.94 billion in the previous year as we added five new A320 jets into our fleet. Equity expanded by 7.0% to Php19.17 billion by December 31, 2011 from Php17.91 billion by the end 2010. Calculated gearing likewise keeps our debt levels healthy at 1.20 times. We intend to leverage on our robust financial condition to support further growth.
Effective Marketing and Distribution Strategies We are happy to report that at the beginning of this year, your company was voted 2011 Low Cost Carrier of the Year, and our President, Lance Gokongwei, as CEO of the Year during the Low Cost Airlines World Asia Pacific Conference, recognizing your company as a leader, innovator and a pioneer in Asia’s low cost airline industry. Together with our highly trained and dedicated cabin crew, we continue to deliver our promise of providing our passengers a fun travel experience. We also continue to leverage on the efficiency and effectiveness of the internet, as well as social media, to strengthen distribution, brand equity and awareness. In 2011, the share of sales from web bookings to total sales reached 48.6%, up 6.9 percentage points vs. 2010. We now have over 600,000 fans on Facebook, over 370,000 followers on Twitter, and close to 898,000 views on our Youtube page. We also launched a co-branding partnership with Citibank through the new Cebu Pacific – Citibank Card. Our innovative marketing and distribution strategies have resonated loudly with our customers.
Outlook According to the CAB, combined domestic and international passenger traffic through the Philippines is seen to grow by about 12% in 2012, with the implementation of Executive Order 29 or the ‘Pocket Open Skies Policy’, which aims to foster fair competition among carriers and more choices for passengers. CEB is a strong supporter of aviation liberalization, confident in the knowledge that we can successfully compete primarily because of our low unit costs. However, we continue to promote the concept of reciprocity in any air services negotiated by the government. We also support the Department of Tourism’s new promotional campaign, “It’s more fun in the Philippines!” This and other programs such as airport and other infrastructure improvements are in line with the government’s target to bring in 10 million tourists by 2016 up from almost 4 million in 2011. We are encouraged by these government initiatives to boost tourism in the Philippines. We will continue to implement our disciplined approach in expanding our fleet to reinforce our growth strategies. We ended the year 2011 with a fleet composed of 29 Airbus aircraft and eight ATR 72-500 turboprop planes. We are scheduled to take delivery of 25 Airbus A320s between 2012 to 2016 and have placed firm orders for 30 Airbus A321neo aircraft to arrive starting 2017. We also take pride in owning one of the youngest fleets in the world with an average age of 3.6 years as of end 2011. While we continue to recognize opportunities in the domestic market, we remain optimistic that our international business will continue to grow at a faster rate. We will continue to grow our North Asian markets, particularly China and Korea, with additional frequencies and more connectivity with other destinations within
our network. Just recently, we commenced operations from Kalibo to Hong Kong to make the island of Boracay easily accessible to foreign tourists. We also recently brought back our Manila to Hanoi flights, while our maiden flight to Siam Reap, Cambodia, took off last April 2012. We also intend to create unique city pairings across the country connecting secondary airports. We remain confident that these initiatives will further promote local travel within the Philippines and in the region. We continue to see the aggressive expansion of our competitors in the industry, exerting pressure on fares. Further, we anticipate 2012 to be another challenging year for us and the entire airline industry as fuel prices have not abated since last year. From an average of US$122.987/bbl in December 2011, jet fuel was already trading at US$136.18/bbl level as of March 2012. As approximately 50% of our operating expenses are fuel related, further price increases will affect our margins. In addition to fuel hedging activities, we continuously implement measures to mitigate fuel price vulnerability: Fuel Surcharge: We have petitioned the government for an upward adjustment in fuel surcharge between Php50-Php100 for local flights. Lite Fares: We expanded ancillary revenues last year as we unbundled more of our services and saw improved take-up of ancillary products such as baggage fees, web check-in, prepaid baggage, seat selector and sports equipment fee. We expect ancillary revenues to continue to be a key growth driver and differentiator for our company. Non-Fuel Cost Reduction: We will continue to build frequencies on existing routes, maximize aircraft utilization to spread out fixed expenses, and optimize our fleet mix as we add A320s which are more cost efficient on a per unit basis.
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Our biggest development in 2011 was the announcement of our plans to launch our own long-haul service in the third quarter of 2013. Unique to the Philippines is a significant and growing population of overseas Filipino workers. Currently, only two of the top ten long – haul markets are being served by a home-based carrier. Further, there are very limited direct services to some of these highpassenger-traffic destinations. We believe we can stimulate, grow and expand passenger traffic in many of these new routes, as we bring the benefits of low cost travel to the OFWs, their families and friends. To support this expansion, we recently signed operating lease agreements for four Airbus A330 widebody aircraft which will allow us to reach destinations within 11 hours from Manila. We view this undertaking as a giant leap forward as we apply our successful LCC strategies and make long haul travel more affordable. Another development which we undertook last year was the establishment of the Philippine Academy for Aviation Training (PAAT), a joint venture between Cebu Pacific and CAE Inc., a leader in aviation training. PAAT will have a simulator based aviation training facility located in Clark Freeport Zone, Pampanga, and will initially cater to Airbus A319/320/321 series pilot type-rating requirements. The new facility will serve as the main training center for Cebu Pacific’s roster, and will also offer training to aviation
Acknowledgements We would like to thank you, our shareholders, and the members of our Board of Directors for your continued trust and confidence in our Company. Our sincere gratitude also goes to our management team, our dedicated employees, suppliers, business partners, and all our loyal passengers who choose to fly with us through the years. Your unwavering trust and support continue to motivate us to sustain our successes, and weather any challenges that may arise along the way. We enter 2012 with cautious optimism as we unveil new opportunities to reaffirm our status as the country’s largest and preferred flag carrier. Rest assured that we remain committed in providing you with all year-round low fares, safe and fun flights, genuine hospitality, and warm and reliable service.
Thank you EVERY JUAN .
See you on your next f un f light!
Ricardo J. Romulo
Lance Y. Gokongwei President & CEO
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professionals from other airlines in the region. Scheduled to start operations by the third quarter of 2012, PAAT is envisioned to be a world class, major aviation training hub in Southeast Asia.
Chairman This photo courtesy of Flightglobal / Law Kian Yan (www.solotree.com)
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board of directors
Dick
Tony
Robina
Antonio L. Go
Robina Y. Gokongwei-Pe
Director
Director
John Ricardo J. Romulo
John L. Gokongwei, Jr.
Chairman
Director
Lance
Wee
Lance Y. Gokongwei
Wee Khoon Oh
PRESIDENT AND CEO
Director
Jose F. Buenaventura Director
James
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Frederick
James L. Go
Frederick D. Go
Director
Director
Chito
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Jimmy
senior
management
& consultants
Dondi Jaime I. Cabangis Chief Financial Officer
Titit
Victor Emmanuel B. Custodio
Rosita D. Menchaca
VP - Flight Operations
VP - In-flight Services
Robin
Candic
e
Candice Jennifer A. Iyog VP - Marketing & Distribution
Jomar
Joey Joseph G. Macagga
Antonio Jose L. Rodriguez
VP - Fuel & Cargo Operations
VP - Airport Services
Mark
en Jen J Robin C. Dui
Jeanette U. Yu
VP - Comptroller
VP - Treasurer
Mike Alex Xande
Garry 12
Garry R. Kingshott
Mark Breen
Chief Executive Adviser
Chief Operations Adviser
Michael S. Shau VP - People & Administration Services
r
Alejandro B. Reyes Alexander G. Lao General Manager – Long Haul Division VP – Commercial Planning
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key operating statistics Years Ended December 31
Passengers carried (‘000) Available seats (‘000) Seat load factor RPK (million) ASK (million) Number of sectors flown Fleet size at period end
2011
2010
2009
11,933 13,828 86.3% 10,531 12,369
10,461 12,256 85.4% 8,860 10,379
8,756 11,308 77.4% 7,056 9,369
2011 vs. 2010
Inc (Dec) % change
(Php m)
33,935
35,000
29,089
30,000
96,475 37
87,345 31
Loss) Net Income (
s Total Revenue
80,725 29
1,472 1,572 1,671 1,990 9,130 6
14.1% 12.8% 0.9 ppt 18.9% 19.2%
25,000
(Php m) 8,000
23,311
20,000
5,000
15,000
3,000
10,000
2,000
5,000
1,000
10.5% 19.4%
2009
6,922
6,000
2010
2009
2011
3,624
3,258
2010
2011
financial highlights Years Ended December 31
(Php million) Total revenues Total operating expenses Operating income (loss) Net income (loss)
2011
2010
2009
33,935 30,408 3,528 3,624
29,089 22,639 6,450 6,922
23,311 20,147 3,164 3,258
Total Assets
2011 vs. 2010
Inc (Dec) % change
4,847 7,769 (2,922) (3,298)
16.7% 34.3% -45.3% -47.6%
(Php m)
(Php m)
60,000
55,681
50,000
Pre-tax core net income EBITDAR Total assets Total liabilities Equity Basic/diluted earnings per share (Php)
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3,363 7,879
5,781 10,156
2,135 6,806
(2,418) (2,277)
-41.8% -22.4%
40,000
20,000
55,681 36,515 19,166
49,937 32,030 17,907
35,323 28,068 7,255
5,744 4,485 1,259
11.5% 14.0% 7.0%
5.93
11.78
5.59
(5.85)
-49.7%
T o t a l E q u it y
49,937
25,000
20,000
35,323
17,907
30,000
10,000
10,000
19,166
7,255
5,000
2009
2010
2011
2009
2010
2011
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route map & destinations
D o m e s t ic Philippines
Bacolod Boracay (Caticlan) Butuan Cagayan de Oro Cauayan Cebu Clark Coron (Busuanga) Cotabato Davao Dipolog Dumaguete General Santos Iloilo Kalibo Laoag Legazpi Manila Naga Ozamiz Pagadian Puerto Princesa Roxas San Jose (Mindoro) Siargao Surigao Tacloban Tagbilaran Tawi-Tawi Tuguegarao Virac Zamboanga
I n t e r n a t io n a l
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Brunei Darussalam
Hongkong
Malaysia
Taiwan
Bandar Seri Begawan (Brunei)
HongKong
Taipei
Indonesia
Kota Kinabalu Kuala Lumpur
Cambodia
Jakarta
Singapore
Bangkok
Siem Reap
Japan
Singapore
Vietnam
China
Osaka (Kansai)
South Korea
Beijing Guangzhou (Canton) Shanghai Xiamen
Macau
Busan Incheon
Hanoi Ho Chi Minh
Macau
Thailand
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our fleet Airbus
ATR 72-500
A ir b u s Cebu Pacific ended 2011 with 10 Airbus A319, and 19 Airbus A320 aircraft. Five brand-new Airbus A320 aircraft were delivered in 2011, with the last brand-new Airbus A320 aircraft arriving in Manila last December 10, 2011. The Airbus A320 has 180 seats, while the A319 has 156 seats. Both are utilized for the airline’s international and domestic flights. Cebu Pacific’s brand-new Airbus A320 is equipped with the latest avionics and fuel-efficient technology that allows the airline to pass on savings to its passengers. Between 2012 and 2021, Cebu Pacific expects delivery of 23 Airbus A320 and 30 Airbus A321neo aircraft orders, and 2 Airbus A320 aircraft on operating lease agreements.
ATR 72-500 Cebu Pacific has a fleet of 8 ATR 72-500 aircraft manufactured by Avions de Transport Regional (ATR) based in Toulouse, France. The ATR’s reliability, ease of maintenance, and ability to land on short runways makes it the top choice in the turbo-prop class. An ATR aircraft has 72 seats, and its cabin is 9 inches wider than its competitors. Cebu Pacific first took delivery of its ATR aircraft in 2008, to service its Boracay and Laoag flights. It has since then expanded its ATR operations to destinations such as Siargao, Naga, Busuanga (Coron), among others. Several ATR aircraft are also based in Cebu to further expand its inter-island operations.
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A320 Airbus Simulator On April 4, 2007, Cebu Pacific inaugurated the first and only flight simulator for Airbus aircraft in the Philippines. This multi-million dollar investment from CAE in Quebec, Canada has been used ever since for Cebu Pacific’s pilot training at Clark Aviation in Pampanga for its growing Airbus fleet. The full flight simulator replicates in every aspect the cockpit of the A320 aircraft. It also reproduces the visual atmosphere that the aircraft appears to be flying in, including thunderstorms, clouds, and the landing approaches of airports around the world. The CAE simulator also simulates sound and motion, including the banking and turning of the aircraft, accelerations, and the feel of tires as they roll across the bumps and cracks in the runway. Aircraft malfunctions, such as engine fire, smoke in the cockpit or electrical and hydraulic failures can also be replicated. CEB is expecting delivery of 1 more Airbus A320 full flight simulator in the third quarter of 2012 for the Philippine Academy for Aviation Training, a joint venture with CAE, Inc. 19
our products
Self-service Check-in For a more efficient check-in process, Cebu Pacific allows guests to do self-service check-in from 48 hours up to 1.5 hours before their flight on the web or at the airport. For guests without checked baggage traveling on flights within the Philippines, they may proceed straight to the pre-departure area to wait for their flight. Guests traveling on international flights may drop by the bag counter at least 45 minutes before the flight to have documents verified and bags checked in.
Lite Fares & Prepaid Baggage Cebu Pacific was the first to introduce Lite Fares in the Philippines, encouraging passengers to carry less baggage by offering lower fares. At the time of booking, passengers can pre-pay baggage allowance to save on time and money at check-in. Prepaid Baggage options range from 15 kilos to 30 kilos. Guests may avail of prepaid baggage at the time of booking until 4 hours before flight departure. Aside from lower fares and lighter planes, the Lite Fare product and Prepaid Baggage options also make the check-in process and airport operations faster and easier to manage.
Web check-in
Kiosk check-in
Cebu Pacific is the first airline in the Philippines to offer guests the option to check-in for their Airbus flights online. This is available to guests from 48 hours up to 4 hours before flight departure.
Kiosks are conveniently located in Philippine airports where Cebu Pacific operates. Guests may check-in at the kiosk for flights from 8 hours up to 1.5 hours before flight departure. This works well for guests who get to the airport earlier than 3 hours before their flight departure.
Using the “manage booking� section in www.cebupacificair.com, guests may check-in for their flight, get an assigned seat for free, and print their boarding pass.
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Seat Selector
Fun Shop
Every time a guest books a flight, seats can be selected for a minimum fee. Standard seats (PHP 100) are available for most seats, and additional leg room and easy access to the aisle are available with Premium seats (PHP 200).
Cebu Pacific presents a wide array of food items – sweet and savory snacks and drinks fit for everyone’s tastes. The airline’s buy-on-board menu has new offerings every month. Cebu Pacific branded souvenirs are also available.
Payment Centers Through payment centers, CEB guests who do not hold credit cards can book flights through the website and pay via the airline’s payment centers: • Over-the-counter at Robinsons Bank, Metrobank, Banco de Oro and Banco de Oro remittance centers in Hong Kong and Macau • BancNet Online • ATM Transactions using BancNet and Megalink member banks • LBC branches • Bayad Centers • Robinsons Department Store • SM Department Store
Sports Equipment Fee Guests can avail of Cebu Pacific’s sports equipment handling service for a minimum fee of PhP1,000 upon booking. It allows guests to bring their own favorite sports equipment, and not need to rent expensive sports equipment. Equipment covered by this service are: • Bicycles • Fishing equipment • Golf clubs • Scuba diving equipment • Surfboards/ wakeboards • Bowling balls
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Fun Shop Inflight Duty Free The Duty Free service is available on Cebu Pacific’s international flights to/from Manila and Cebu. A wide range of world-class cosmetics, skin care products, fragrances for men and women, jewelry, children’s gifts and chocolates are available to guests in-flight. Brands carried include Estee Lauder, Marc Jacobs, L’Occitane, Elizabeth Arden, Clinique, Hello Kitty and Godiva among others. CEB also accepts pre-order of Duty Free items – guests may place their order on their outbound flight and claim the items on their return flight.
TravelSure Cebu Pacific partnered with the Malayan Insurance Co., Inc. to offer TravelSure travel insurance to passengers. TravelSure allows guests to travel with peace of mind upon arrival at their destination. TravelSure covers: • Emergency medical treatment in case of accident or sickness during travel • Unexpected travel circumstances like cancellations or delays due to weather, loss of travel documents or luggage, and other unforeseen events • Personal accidents • Recovery of travel expenses or reimbursement of the unused portion of travel and accommodation expenses 23
Hotels
Smile Inflight Magazine
Guests can now immediately view options for hotel accommodations through our partners Agoda. com and Hotelbookings.com on the CEB website.
Smile is a hip, fun and smart publication with a readership of over 850,000 per issue. It showcases all things that are great about the Philippines and Cebu Pacific’s international destinations. The magazine includes lifestyle, event information, destination stories, fashion and shopping columns.
Car Rental with Europcar Cebu Pacific teamed up with the world’s leading leisure car rental company Europcar to provide guests a virtually worry-free travel experience. Represented in 170 countries, Europcar is CEB’s official land transport service for self and chauffeur-driven vehicles for its domestic and international destinations.
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For a smooth and relaxing travel experience, passengers can avail of Europcar’s transport services through CEB’s website, customer service and reservations hotline, travel agents, and walk-up booths at the airport.
CEB flyers also get a special discount once they present their boarding passes at the Europcar booth. Joint services of this partnership are available in Manila and Cebu’s domestic and international airports.
Cargo Services Cebu Pacific is the largest domestic cargo carrier, with close to 89.5 million kilos carried in 2011 and 49% market share. This tops the combined domestic cargo market shares of both Philippine Airlines and Airphil Express. It currently services more than two thousand accounts, tailor-fitting cargo products to the clients’ domestic and international cargo needs. This includes express cargo service, seamless transshipment, and 16 interline partnerships for worldwide reach. Cebu Pacific provides airport-to-airport cargo services on its domestic and international routes. It also provides cargo pick up services in selected areas in the Philippines. To inquire more about CEB cargo, forwarders and shippers can call 290-5321 or 22 or visit www. cebupacificaircargo.com.
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2011 activity highlights R e c o g n it io n s
& Awards
CEB is Budgie$ LCC of the year and Lance Gokongwei, CEO of the year The Asia-Pacific aviation community recognized CEB’s phenomenal success and awarded the airline two of its newest award categories in the prestigious Budgie$ and Travel Awards held in Singapore. CEB was awarded 2011 Low Cost Carrier of the Year, and CEB’s president and CEO was awarded CEO of the year. Representing the Philippines, CEB bested other airlines such as Air Asia, Jetstar, IndiGo, Spring Airlines and SpiceJet for LCC and LCC CEO of the Year.
Cebu Pacific ranks 5th most profitable LCC in the world CEB ranked fifth most profitable leading value airline in the world, according to the July 2011 issue of Air Transport World (ATW). ATW’s World Airline Report special feature cited CEB as 5th in net profit and 8th in operating profit in a list of international low-cost carriers including USA’s Southwest Airlines and Europe’s Ryanair. They based the financial rankings on data for the most recent fiscal year.
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CEB pilot – Captain Manny Osias, best in the country A Cebu Pacific pilot bested other contenders and earned the Airline Pilot of the Year Award given by the Aircraft Owners and Pilots Association—Philippines (AOPAP) and the Philippine International Hot Air Balloon Fiesta organizing committee. Capt. Manny Osias has been with CEB since 2001. He has been recognized as the CEB Pilot of the Year for 2008, and has garnered Safety Achievement Awards and Instructor of the Year Awards throughout his career. Since 2007, Osias has been an Airbus typerating instructor, certified by Airbus under the Airline Pilot Instructor Course held in the Airbus Facility in Toulouse, France. He qualifies CEB’s Airbus pilots, and maintains the proficiency of the airline’s pilots. “I am flattered at having won the award, especially since it was judged by my peers, fellow pilots and colleagues in the industry. I did nothing special, other than what is expected of me as a CEB pilot. I have been with CEB for 10 years, and I find it to be like family. I derive a lot of satisfaction from doing my job properly, because it affects other people’s lives,” Osias said.
CEB named the world’s most sociable airline Cebu Pacific was named the most sociable airline in the world by Planely.com, an air travelfocused social networking site that saw 142 airlines joining its contest. Other participating airlines include JetBlue, Lufthansa, SAS Scandinavian Airlines, SWISS, Virgin Atlantic, American Airlines, and Delta. According to Newsweek Budget Travel blogger Rachel Mosely, “All flights registered on Planely between April 13 and April 20 were tabulated, and after a Twitter campaign that corralled their more than 150,000 followers, Cebu Pacific, the participating airline with the most flights registered (an impressive 913), was crowned the winner...” Planely’s service allows passengers to register their flights, and the website shows them who they will be flying with so they can meet and help pass the time, network, or taxi-share. 27
CEB flies 50 millionth passenger to Beijing
G r o w th E x p a n s io n &
CEB doubles fleet with 3.8B USD Airbus Deal – A321neo orders es R o u te L a u n c h
CEB launches 24th international route, flies Manila-Busan CEB’s Manila-Busan service started June 15th last year with the maiden flight taking off from Manila at 4:15pm, and arriving in Busan at 8:40pm. Ambassador Lee Hye Min of the Republic of South Korea, Department of Tourism Secretary Alberto Lim and MIAA Senior Assistant General Manager Antonio Bautista sent off CEB’s first passengers from Manila to Busan.
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CEB launches Zamboanga – Tawi Tawi and Cagayan de Oro - Iloilo routes Representatives from the local government and community stakeholders sent off CEB’s first passengers from Zamboanga to Tawi-Tawi during the inaugural flight. On the same day, CEB also launched its Airbus A319 service from Cagayan de Oro to Iloilo.
Cebu Pacific announced its orders for 30 new Airbus A321neo and 7 A320 aircraft. The order at list price is valued at approximately USD3.8 billion, the largest single aircraft order ever made by a Philippine carrier. CEB turned into firm orders its existing options for 7 Airbus A320 aircraft, and has placed a new order for thirty (30) A321neo (New Engine Option) aircraft with options for a further ten (10) A321 aircraft. The A321neos will be a first of its type to operate in the Philippines, being a larger and longer-haul version of the familiar Airbus A320. The said orders for A320 and A321neo aircraft will be delivered between 2015 and 2021. These were on top of firm orders for 18 Airbus A320 aircraft to be delivered from the 2nd half of 2011 until 2014. This increased Cebu Pacific’s total orders of Airbus aircraft to 55.
First-time CEB passengers Harald Toifl and his wife Stephanie booked a BeijingPalawan trip online. Just when they were about to hop on the flight back to Beijing last January 2011, thinking their travel experience was coming to an end, Harald was named Cebu Pacific’s 50 millionth passenger. Toifl’s lucky turn earned him a oneyear unlimited travel pass to any of Cebu Pacific’s 19 international and 32 domestic destinations. As he and his wife made travel plans last year, he thanked the CEB team saying, “I am really honored being the 50 millionth passenger of your airline! At the same time, I want to congratulate all of you for the success of serving 50 million people, and wish you God’s blessing for the next 50 million passengers.”
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website / call center Reservation Hotline (Philippines)
CEB launches Free Web Check-in Cebu Pacific now offers free web check-in services for all flights using Airbus jet aircraft. Web check-in allows passengers to use the Internet to select seats, check in for their flight, and print boarding passes.
CEB operates the largest fleet in the Philippines Cebu Pacific ended 2011 with the largest aircraft fleet in the country. CEB operates 10 Airbus A319, 19 Airbus A320 and 8 ATR-72 500 aircraft. CEB’s fleet of 37 aircraft – with an average age of 3.6 years – is one of the youngest aircraft fleets in Asia. Its newest Airbus A320 aircraft landed in Manila last December 10, 2011.
CEB offers largest seat capacity in the Philippines Cebu Pacific is the largest airline in terms of seat capacity operating to, from and within the Philippines, according to a Centre for Asia Pacific Aviation (CAPA) article released August 21, 2011. In that report, CEB offered 258,120 seats, with its fleet of 100% brand-new 8 ATR 72-500, 10 Airbus A319 and 15 Airbus A320 aircraft. CAPA named the top 10 carriers in the Philippines by capacity, or seats per week based on August 22-28, 2011 CAPA and Innovata data. 30
e r v ic e s P r o d u c ts & S
CEB offers 50% off for the Black Eyed Peas Concert In September 2011, the airline cranked up the Black Eyed Peas concert promotions with a 50% off seat sale on nearly all domestic and international flights with over 35,000 discounted seats available.
(+632) 702-0888 or (+6332) 230-8888
Group Bookings groupbookings@cebupacificair.com
Website www.cebupacificair.com
Follow us on: @cebupacificair
CEB goes Lite on all fares Starting April 1, 2011, Cebu Pacific offered Lite Fares on all flights. These Lite Fares exclude free baggage allowance, but reduced fares by as much as 33%. Domestic flights are lowered by as much as P350, and international flights are lowered by as much as P800. Under Lite Fares, CEB passengers may avail of Prepaid Baggage Allowance if they want to check in bags. CEB’s Prepaid Baggage options are up to 67% less than other LCCs.
Cebu Pacific Air official page Cebupacificair Channel
31
corporate social responsibility Dreams on Flight
Youthful dreams take flight with Cebu Pacific and GMA Kapuso Foundation Cebu Pacific (CEB), in collaboration with GMA Kapuso Foundation, recently launched “Dreams on Flight” an educational experience that made 100 underprivileged children the first “passengers” aboard the airline’s newest plane. The first-grade students from Arinda Elementary School in Taytay, Rizal visited the CEB Airline Operations Center in Pasay City, courtesy of the Fermina Bus Corporation, and were treated to a day of fun and learning. The kids, who have never been near an aircraft before, were the first ones to sit inside CEB’s brand-new Airbus A320, which was newlydelivered from France.
32
Once inside the plane, they were instructed by the airline’s famed dancing flight attendants on basic safety measures. Afterwards the pilots and cabin crew talked to the kids about their professions and duties. The young guests were also treated to a filling Big Boy Hotdogs meal from Robina Agri Partners and Universal Robina Corporation snacks, as well as entertainment from the airline’s lovable mascot, Ceb. Everyone went home with souvenirs and prizes from the airline’s employee volunteers and Gifting Solutions Specialists Philippines. “Cebu Pacific has always been supportive of programs that are for education. The Dreams on Flight project is also a part of our mission to educate children. We believe it’s a good experience for them to know about air travel and all the opportunities that come along with it. We hope that through this activity, we are able to ignite their passion to keep dreaming of a bright future ahead,” says Candice Iyog, CEB VP for Marketing and Distribution.
Bright Skies for Every Juan
Cebu Pacific commits to 3-year WWF partnership to benefit Philippines’ Great Reefs Cebu Pacific (CEB) renewed its partnership with the World Wide Fund for Nature (WWFPhilippines), for CEB’s Bright Skies for Every Juan, a climate adaptation program to fight global warming. Now a three-year commitment to the environment, CEB’s Bright Skies program gives passengers an opportunity to help protect not only Apo Reef but also the Tubbataha Reef. Passengers get the chance to help coastal communities residing close to Apo and the Tubbataha Reefs adapt to climate change, by making donations as they book their CEB flights via www.cebupacificair.com. CEB’s website estimates carbon emissions based on the distance of their flight, and guests can opt to donate an amount based on that estimate, to effectively offset his or her carbon emissions. This photo by Jurgen Freund
Photos by WWF Philippines
This photo by Claus and Lene Topp for WWF Philippines
Since the program started in 2008, donations to the Bright Skies program have amounted to over PHP17M. Proceeds have previously supported only the community based climate adaptation project in Sablayan, Mindoro, the nearest coastal community to Apo Reef. Now, passengers’ donations to Bright Skies will support the Apo Reef and the Sablayan community, as well as the Tubbataha Reefs in Palawan and the Cagayancillo community. The biggest coral reefs in the country will ultimately benefit from stronger conservation and rehabilitation efforts funded by CEB passenger donations. “In the next three years, we are hoping to further expand our climate adaptation programs to more of the Philippines’ most productive coral reefs. We invite our passengers to make a difference for the environment with Bright Skies for Every Juan,” said CEB President and CEO Lance Gokongwei. Join the fight against climate change by booking flights online via www.cebupacificair.com and by donating to the Bright Skies for Every Juan program.
33
financial statements GMA Kapuso Foundation
Kapuso team to reach areas such as General Santos, Puerto Princesa, Tacloban, Iloilo and Davao.
Unang Hakbang sa Kinabukasan
Relief Operations
The project aims to provide school supplies to incoming Grade 1 pupils from underserved public schools in the Philippines. In 2011, Cebu Pacific transported GMA Kapuso Foundation school supplies to over nine thousand beneficiaries in Butuan (3,561 students), Cotabato (1,665 students), and Zamboanga (3,913 students). The project will be setting up more initiatives to serve 45,000 children in 2012.
Cebu Pacific also responded to various disasters that struck thousands of Filipino families. CEB transported more than 50,000 kilos of relief goods from GMA Kapuso Foundation, Rotary Butuan and other civic organizations and NGOs to Cagayan de Oro, Iligan, Butuan and Negros Oriental. These relief operations were for the benefit of thousands of families displaced by typhoon Sendong (international name: Nesat).
Give-A-Gift: Alay sa Batang Pinoy Christmas CEB was GMA Kapuso Foundation’s official carrier for the 2011 Give A Gift: Alay sa Batang Pinoy project. The foundation distributed Christmas gifts to underprivileged children in Bacolod, Cebu, and Iloilo, among others. CEB transported 16,000 kilos worth of gifts containing GMA Kapuso Foundation Noche Buena packages for the students and their families. The airline also provided tickets for the GMA 34
All photos courtesy of the GMA Kapuso Foundation
In partnership with a Filipino church organization based in Kuala Lumpur, CEB also transported 13 balikbayan boxes worth of relief goods from Kuala Lumpur to Cagayan de Oro, for distribution by the Iligan Disaster Rehabilitation and Coordination Centre (IDRCC) to communities affected by typhoon Sendong (international name: Washi) in Iligan City. CEB was also quick to answer to other calamities that affected Filipinos. The airline transported 100 sacks of GMA Kapuso Foundation relief goods for 1,000 families who were displaced by excessive flooding and destruction of a dike in Sultan Kudarat. It also hauled medicines for GMA Kapuso Foundation’s relief operations in Eastern and Northern Samar, when affected children and families suffered from cough and colds due to unrelenting rains and massive flash floods.
Medical Mission Cebu Pacific has supported several missions through a partnership with GMA Kapuso Foundation. Among these initiatives included sending a group of surgeons to Cagayan de Oro to provide free corrective surgery to children with congenital defects. 35
SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City, Philippines Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph BOA/PRC Reg. No. 0001, January 25, 2010, valid until December 31, 2012 SEC Accreditation No. 0012-FR-2 (Group A), February 4, 2010, valid until February 3, 2013
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors Cebu Air, Inc. 2nd Floor, Doña Juanita Marquez Lim Building Osmeña Boulevard, Cebu City We have audited the accompanying consolidated financial statements of Cebu Air, Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2011 and 2010, and the consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2011, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
36
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Cebu Air, Inc. and its subsidiaries as at December 31, 2011 and 2010, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2011 in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO.
Michael C. Sabado Partner CPA Certificate No. 89336 SEC Accreditation No. 0664-AR-1 (Group A), March 11, 2011, valid until March 10, 2014 Tax Identification No. 160-302-865 BIR Accreditation No. 08-001998-73-2009, June 1, 2009, Valid until May 31, 2012 PTR No. 3174824, January 2, 2012, Makati City March 13, 2012
37
CEBU AIR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31 2011
2010
ASSETS Current Assets Cash and cash equivalents (Note 7) Financial assets at fair value through profit or loss (Note 8) Receivables (Note 9) Expendable parts, fuel, materials and supplies (Note 10) Other current assets (Note 11) Total Current Assets Noncurrent Assets Property and equipment (Notes 12, 16, 29 and 30) Investment in shares of stock and joint ventures (Notes 13 and 32) Available-for-sale investment (Note 8) Other noncurrent assets (Note 14) Total Noncurrent Assets
LIABILITIES AND EQUITY Current Liabilities Accounts payable and other accrued liabilities (Note 15) Unearned transportation revenue (Notes 4 and 5) Current portion of long-term debt (Notes 12 and 16) Financial liabilities at fair value through profit or loss (Note 8) Due to related parties (Note 26) Total Current Liabilities Noncurrent Liabilities Long-term debt - net of current portion (Notes 12 and 16) Deferred tax liabilities - net (Note 24) Other noncurrent liabilities (Notes 17 and 22) Total Noncurrent Liabilities Total Liabilities Equity (Note 18) Common stock Capital paid in excess of par value Treasury stock Net unrealized losses on available-for-sale investment (Note 8) Retained earnings Total Equity
See accompanying Notes to Consolidated Financial Statements.
38
₱8,957,783,986 3,261,077,998 836,786,224 397,527,340 278,691,061 13,731,866,609
₱9,763,288,972 3,879,438,631 862,409,591 370,032,035 264,073,803 15,139,243,032
41,037,543,621
33,985,701,079
409,478,237 369,644,738 110,367,200 114,532,000 391,452,391 327,847,154 41,948,841,449 34,797,724,971 ₱55,680,708,058 ₱49,936,968,003
₱6,710,838,876 5,253,433,343 2,467,451,166 60,857,586 36,302,174 14,528,883,145
₱5,598,486,319 4,606,311,016 2,056,043,837 – 35,529,304 12,296,370,476
18,404,442,267 221,786,183 3,360,073,173 21,986,301,623 36,515,184,768
16,376,664,867 153,130,071 3,203,752,687 19,733,547,625 32,029,918,101
613,236,550 613,236,550 8,405,568,120 8,405,568,120 (529,319,321) – (5,630,261) (2,714,902) 10,681,668,202 8,890,960,134 19,165,523,290 17,907,049,902 ₱55,680,708,058 ₱49,936,968,003
CEBU AIR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31 2011 2010 REVENUE Sale of air transportation services (Note 4): Passenger Cargo Ancillary revenue (Note 19) EXPENSES Flying operations (Note 20) Aircraft and traffic servicing (Note 20) Depreciation and amortization (Note 12) Repairs and maintenance (Note 20) Aircraft and engine lease (Note 29) Reservation and sales General and administrative (Note 21) Passenger service Other expenses (Note 23) OPERATING INCOME OTHER INCOME (EXPENSE) Interest income (Notes 7 and 8) Fuel hedging gains (Note 8) Foreign exchange gains Equity in net income (loss) of joint venture (Note 13) Fair value gains (losses) of financial assets designated at fair value through profit or loss (Note 8) Interest expense (Notes 16 and 17) INCOME BEFORE INCOME TAX PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 24) NET INCOME Net unrealized losses on available-for-sale investment (Note 8) Benefit from income tax (Notes 8 and 24) OTHER COMPREHENSIVE INCOME, NET OF TAX TOTAL COMPREHENSIVE INCOME Basic/Diluted Earnings Per Share (Note 25)
2009
₱27,208,405,751 2,193,283,974 4,533,713,050 33,935,402,775
₱24,656,078,237 2,095,612,223 2,337,108,499 29,088,798,959
₱19,504,340,982 1,684,418,350 2,122,246,979 23,311,006,311
17,350,168,400 2,991,278,104 2,632,410,923 2,518,570,260 1,718,431,374 1,480,637,473 820,453,486 756,785,558 138,839,386 30,407,574,964 3,527,827,811
11,417,488,512 2,461,807,197 2,100,929,764 2,289,945,384 1,604,855,579 1,335,983,655 694,888,478 639,480,811 93,293,869 22,638,673,249 6,450,125,710
8,857,014,923 2,631,833,249 1,917,683,713 2,568,940,713 1,723,886,536 994,694,826 822,510,363 580,896,015 49,503,211 20,146,963,549 3,164,042,762
647,397,939 477,128,001 50,154,940
237,495,750 474,255,226 576,978,771
8,848,551 685,574,528 418,182,126
42,318,202
25,248,534
(25,474,123)
(143,554,705) (854,269,588) 219,174,789 3,747,002,600
107,631,255 (931,482,279) 490,127,257 6,940,252,967
– (1,012,826,822) 74,304,260 3,238,347,022
122,584,882 3,624,417,718
17,759,687 6,922,493,280
(19,501,683) 3,257,848,705
(4,164,799) 1,249,440
(3,878,432) 1,163,530
– –
(2,915,359) ₱3,621,502,359
(2,714,902) ₱6,919,778,378
– ₱3,257,848,705
₱5.93
₱11.78
₱5.59
See accompanying Notes to Consolidated Financial Statements.
39
40 Common Stock (Note 18) ₱582,574,750 – – – 30,661,800 – ₱613,236,550
See accompanying Notes to Consolidated Financial Statements.
Balance at January 1, 2009 Total comprehensive income Balance at December 31, 2009
Balance at January 1, 2010 Net income Other comprehensive income Total comprehensive income Issuance of shares Transaction costs Balance at December 31, 2010
Balance at January 1, 2011 Appropriation of retained earnings Net income Other comprehensive income Total comprehensive income Treasury stock Cash dividend declaration Balance at December 31, 2011
Common Stock (Note 18) ₱613,236,550 – – – – – – ₱613,236,550
Common Stock (Note 18) ₱582,574,750 – ₱582,574,750
Unappropriated Retained Earnings (Note 18) ₱8,890,960,134 (933,500,000) 3,624,417,718 – 2,690,917,718 – (1,833,709,650) ₱9,748,168,202
For the Year Ended December 31, 2009 Capital Paid in Retained Excess of Par Earnings Value (Note 18) (Deficit) ₱4,703,920,250 (₱1,289,381,851) – 3,257,848,705 ₱4,703,920,250 ₱1,968,466,854
For the Year Ended December 31, 2010 Net unrealized losses on Appropriated Unappropriated available-for-sale Retained Retained investment Earnings Earnings (Note 8) (Note 18) (Note 18) ₱– ₱– ₱1,968,466,854 – 6,922,493,280 (2,714,902) – – (2,714,902) – 6,922,493,280 – – – – – – (₱2,714,902) ₱– ₱8,890,960,134
For the Year Ended December 31, 2011 Net unrealized losses on Appropriated available-for-sale Retained Treasury Stock investment Earnings (Note 18) (Note 8) (Note 18) ₱– (₱2,714,902) ₱– – – 933,500,000 – – – – (2,915,359) – – (2,915,359) 933,500,000 (529,319,321) – – – – – (₱529,319,321) (₱5,630,261) ₱933,500,000
Capital Paid in Excess of Par Value (Note 18) ₱4,703,920,250 – – – 3,802,063,200 (100,415,330) ₱8,405,568,120
Capital Paid in Excess of Par Value (Note 18) ₱8,405,568,120 – – – – – – ₱8,405,568,120
CEBU AIR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Total Equity ₱3,997,113,149 3,257,848,705 ₱7,254,961,854
Total Equity ₱7,254,961,854 6,922,493,280 (2,714,902) 6,919,778,378 3,832,725,000 (100,415,330) ₱17,907,049,902
Total Equity ₱17,907,049,902 – 3,624,417,718 (2,915,359) 3,621,502,359 (529,319,321) (1,833,709,650) ₱19,165,523,290
CEBU AIR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation and amortization (Note 12) Interest expense (Notes 16 and 17) Fair value gain (loss) of financial assets at fair value through profit or loss (Note 8) Loss (gain) on disposal of property and equipment (Note 12) Provision for credit losses on receivables (Note 9) Unrealized foreign exchange gains Equity in net loss (income) of joint venture (Note 13) Fuel hedging gains (Note 8) Interest income (Notes 7 and 8) Operating income before working capital changes ecrease (increase) in: D Receivables Other current assets Expendable parts, fuel, materials and supplies Financial assets at fair value through profit or loss (derivatives) (Note 8) I ncrease (decrease) in: Accounts payable and other accrued liabilities Unearned transportation revenue Due to related parties Noncurrent liabilities Financial liabilities at fair value through profit or loss (derivatives) (Note 8) Net cash flow generated from operations Interest paid Interest received Net cash flow provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from a joint venture (Note 13) Proceeds from disposal of property and equipment (Note 12) Investment in shares of stocks (Notes 13 and 32) Acquisition of other noncurrent assets Acquisition of property and equipment (Notes 12 and 29) Advances to a related party (Note 26) Proceeds from disposal of other noncurrent assets Repayments of advances to a related party (Note 26) Net cash flow used in investing activities
2011
2010
2009
₱3,747,002,600
₱6,940,252,967
₱3,238,347,022
2,632,410,923 854,269,588
2,100,929,764 931,482,279
1,917,683,713 1,012,826,822
143,554,705
(107,631,255)
(1,168,434) – (29,680,099) (42,318,202) (477,128,001) (647,397,939) 6,179,545,141
4,050,103 2,127,309 (574,806,957) (25,248,534) (474,255,226) (237,495,750) 8,559,404,700
– 209,662,427 (452,738,225) 25,474,123 (685,574,528) (8,848,551) 5,256,832,803
58,936,320 (15,153,984) (27,495,305)
157,564,532 77,065,113 (21,059,547)
85,823,980 1,842,289,762 (193,665,823)
1,011,022,845
212,132,124
–
–
554,321,416 647,122,327 772,870 (368,066,004)
561,841,257 1,137,155,662 (2,400,212) 50,624,954
1,314,883,706 794,633,434 (60,627) (69,993,475)
– 8,041,005,626 (679,203,619) 633,365,232 7,995,167,239
– 10,732,328,583 (803,117,030) 94,496,407 10,023,707,960
(1,488,205,370) 7,542,538,390 (907,448,770) 8,848,551 6,643,938,171
36,234,703
21,959,482
19,443,595
2,575,551 (33,750,000) (63,605,237)
162,020,516 – (83,070,335)
– (33,813,500) –
(4,232,090,595) – – – (4,290,635,578)
(2,361,432,894) (3,662,583,961) – – (5,923,107,192)
(1,755,652,619) (1,792,140,000) 142,066,972 1,792,140,000 (1,627,955,552)
(Forward)
41
Years Ended December 31 CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common shares of stock (Note 18) Payments of transaction costs (Note 18) Acquisition of treasury shares (Note 18) Dividends paid Repayments of long-term debt Net repayments of borrowings from a related party (Note 28) Net cash flow provided by (used in) financing activities EFFECTS OF EXCHANGE RATE CHANGES IN CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 7) See accompanying Notes to Consolidated Financial Statements.
42
2011
2010
2009
₱– – (529,319,321) (1,833,709,650) (2,141,112,305)
₱3,832,725,000 (100,415,330) – – (1,791,793,102)
₱– – – – (1,814,268,254)
– (4,504,141,276)
(40,480,463) 1,900,036,105
(14,143,844) (1,828,412,098)
(5,895,371)
(78,207,356)
(805,504,986)
7,239,271
5,922,429,517
3,194,809,792
9,763,288,972
3,840,859,455
646,049,663
₱8,957,783,986
₱9,763,288,972
₱3,840,859,455
CEBU AIR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.
Corporate Information Cebu Air, Inc. (the Parent Company) was incorporated and organized in the Philippines on August 26, 1988 to carry on, by means of aircraft of every kind and description, the general business of a private carrier or charter engaged in the transportation of passengers, mail, merchandise and freight, and to acquire, purchase, lease, construct, own, maintain, operate and dispose of airplanes and other aircraft of every kind and description, and also to own, purchase, construct, lease, operate and dispose of hangars, transportation depots, aircraft service stations and agencies, and other objects and service of a similar nature which may be necessary, convenient or useful as an auxiliary to aircraft transportation. The principal place of business of the Parent Company is at 2nd Floor, Doña Juanita Marquez Lim Building, Osmeña Boulevard, Cebu City. The Parent Company has six special purpose entities (SPE) that it controls, namely: Cebu Aircraft Leasing Limited (CALL), IBON Leasing Limited (ILL), Boracay Leasing Limited (BLL), Surigao Leasing Limited (SLL), Sharp Aircraft Leasing Limited (SALL) and Vector Aircraft Leasing Limited (VALL) (collectively known as the “Group”). CALL, ILL, BLL, SLL, SALL and VALL are SPEs in which the Parent Company does not have equity interest. CALL, ILL, BLL, SLL, SALL and VALL acquired the passenger aircraft for lease to the Parent Company under finance lease arrangements (Note 12) and funded the acquisitions through long-term debt (Note 16). In accordance with Standards Interpretations Committee (SIC) 12, Consolidation - Special Purpose Entities, the consolidated financial statements include the accounts of these SPEs (Note 2). The Parent Company’s common stock was listed with the Philippine Stock Exchange (PSE) on October 26, 2010, the Parent Company’s initial public offering (IPO). The Parent Company’s ultimate parent is JG Summit Holdings, Inc. (JGSHI). The Parent Company is 66.15%-owned by CP Air Holdings, Inc. (CPAHI). In 1991, pursuant to Republic Act (RA) No. 7151, the Parent Company was granted a franchise to operate air transportation services, both domestic and international. In August 1997, the Office of the President of the Philippines gave the Parent Company the status of official Philippine carrier to operate international services. In September 2001, the Philippine Civil Aeronautics Board (CAB) issued the permit to operate scheduled international services and a certificate of authority to operate international charters. The Parent Company is registered with the Board of Investments (BOI) as a new operator of air transport on a pioneer and non-pioneer status. Under the terms of the registration and subject to certain requirements, the Parent Company is entitled to certain fiscal and non-fiscal incentives, including among others, an income tax holiday (ITH) for a period of four (4) years. The Parent Company can avail of bonus years in certain specified cases but the aggregate ITH availment (basic and bonus years) shall not exceed eight (8) years (Notes 24 and 31). Prior to the grant of the ITH and in accordance with the Parent Company’s franchise, which extends up to year 2031: a. The Parent Company is subject to franchise tax of five percent (5%) of the gross revenue derived from air transportation operations. For revenue earned from activities other than air
43
transportation, the Parent Company is subject to regular corporate income tax (RCIT) and to real property tax. b. In the event that any competing individual, partnership or corporation received and enjoyed tax privileges and other favorable terms which tended to place the Parent Company at any disadvantage, then such privileges shall have been deemed by the fact itself of the Parent Company’s tax privileges and shall operate equally in favor of the Parent Company. On May 24, 2005, the Reformed-Value Added Tax (R-VAT) law was signed as RA No. 9337 or the R-VAT Act of 2005. The R-VAT law took effect on November 1, 2005 following the approval on October 19, 2005 of Revenue Regulation (RR) No. 16-2005 which provides for the implementation of the rules of the R-VAT law. Among the relevant provisions of RA No. 9337 are the following: a. The franchise tax of the Parent Company is abolished; b. The Parent Company shall be subject to RCIT; c. The Parent Company shall remain exempt from any taxes, duties, royalties, registration license, and other fees and charges; d. Change in RCIT rate from 32.00% to 35.00% for the next three years effective on November 1, 2005, and 30.00% starting on January 1, 2009 and thereafter; e. 70.00% cap on the input VAT that can be claimed against output VAT; and f. Increase in the VAT rate imposed on goods and services from 10.00% to 12.00% effective on February 1, 2006. On November 21, 2006, the President signed into law RA No. 9361, which amends Section 110(B) of the Tax Code. This law, which became effective on December 13, 2006, provides that if the input tax, inclusive of the input tax carried over from the previous quarter exceeds the output tax, the excess input tax shall be carried over to the succeeding quarter or quarters. The Department of Finance through the Bureau of Internal Revenue issued RR No. 2-2007 to implement the provisions of the said law. Based on the regulation, the amendment shall apply to the quarterly VAT returns to be filed after the effectivity of RA No. 9361. On December 16, 2008, the Parent Company was registered as a Clark Freeport Zone (CFZ) enterprise and committed to provide air transportation services both domestic and international for passengers and cargoes at the Diosdado Macapagal International Airport. The registration provides incentives, rights and privileges such as imposition of five percent tax on gross income earned in lieu of national and local taxes.
2.
Basis of Preparation The accompanying consolidated financial statements of the Group have been prepared on a historical cost basis, except for financial assets and liabilities at fair value through profit or loss (FVPL) and available-for-sale (AFS) investment that have been measured at fair value. The financial statements of the Group are presented in Philippine Peso (₱), the Parent Company’s functional and presentation currency. All amounts are rounded to the nearest peso unless otherwise indicated. Statement of Compliance The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).
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Basis of Consolidation The consolidated financial statements include the financial statements of the Parent Company and the SPEs that it controls. SIC 12, prescribes guidance on the consolidation of SPE. Under SIC 12, an SPE should be consolidated when the substance of the relationship between the company and the SPE indicates that the SPE is controlled by the company. Control over an entity may exist even in cases where an enterprise owns little or none of the SPE’s equity, such as when an entity retains majority of the residual risks related to the SPE or its assets in order to obtain benefits from its activities. The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All significant intercompany transactions and balances, including intercompany profits and unrealized profits and losses, are eliminated in the consolidation.
3.
Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of new and amended PFRS and Philippine Interpretations from International Financial Reporting Interpretations Committee (IFRIC) that are discussed below. Except as otherwise indicated, the adoption of the new and amended PFRS and Philippine Interpretations did not have any effect on the consolidated financial statements of the Group. •
Amendment to Philippine Accounting Standards (PAS) 24, Related Party Disclosures This amended Standard clarified the definition of a related party. The new definitions emphasize a symmetrical view of related party relationships and clarify the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity.
•
PAS 32, Financial Instruments: Presentation (Amendment) - Classification of Rights Issues The Amendment alters the definition of a financial liability in PAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The Amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency.
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Amendment to Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement The Amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The Amendment permits a prepayment of future service cost by the entity to be recognized as a pension asset.
•
Amendment to Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities and Equity Instruments This Philippine Interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss.
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Improvements to PFRS 2010 Improvements to PFRS, an omnibus of amendments to standards, deal primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following interpretation and amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Group. • • • • • •
PFRS 3, Business Combinations PFRS 7, Financial Instruments Disclosures PAS 1, Presentation of Financial Statements PAS 27, Consolidated and Separate Financial Statements PAS 34, Interim Financial Statements Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
Future Changes in Accounting Policies The Group will adopt the following new and amended PFRS and Philippine Interpretations enumerated below when these become effective. Except as otherwise indicated, the following new and amended PFRS and Philippine Interpretations will not have significant impact on the consolidated financial statements of the Group: Effective 2012 •
PFRS 7, Financial Instruments: Disclosures (Amendment) - Enhanced Derecognition Disclosure Requirements (effective for annual periods beginning on or after July 1, 2011) The amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets.
•
Amendments to PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after January 1, 2012) The amendment clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in PAS 40, Investment Property, should be determined on the basis that its carrying value amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets are measured using revaluation model in PAS 16, Property, Plant and Equipment, always be measured on a sale basis of the asset.
Effective 2013 •
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PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2013) These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set-off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information.
This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and e) The net amount after deducting the amounts in (d) from the amounts in (c) above. The amendments to PFRS 7 are to be applied retrospectively. The amendment affects disclosures only and has no impact on the Group’s financial position or performance. •
PFRS 10, Consolidated Financial Statements (effective for annual periods beginning on or after January 1, 2013) PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27.
•
PFRS 11, Joint Arrangements (effective for annual periods beginning on or after January 1, 2013) PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC-13, Jointly-controlled Entities - Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.
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PFRS 12, Disclosures of Involvement with Other Entities (effective for annual periods beginning periods on or after January 1, 2013) PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required.
•
PFRS 13, Fair Value Measurement (effective for annual periods beginning on or before January 1, 2013) PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted.
•
PAS 1, Financial Statement Presentation - Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after July 1, 2012) The amendments to PAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon
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derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has therefore no impact on the Group’s financial position or performance. •
Amendments to PAS 19, Employee Benefits (effective for annual periods beginning on or after January 1, 2013) Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The Group is currently assessing the impact of the amendment to PAS 19.
•
Revised PAS 27, Separate Financial Statements (effective for annual periods beginning on or after January 1, 2013) As a consequence of the new PFRS 10, Consolidated Financial Statements, and PFRS 12, Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements.
•
Revised PAS 28, Investments in Associates and Joint Ventures (effective for annual periods beginning on or after January 1, 2013) As a consequence of the new PFRS 11, Joint Arrangements, and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates.
•
Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine (effective for annual periods beginning on or after January 1, 2013) This Philippine Interpretation applies to waste removal costs that are incurred in surface mining activity during the production phase of the mine (“production stripping costs”) and provides guidance on the recognition of production stripping costs as an asset and measurement of the stripping activity asset.
Effective 2014 •
PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2014) These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous.
Effective 2015
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•
PFRS 9, Financial Instruments: Classification and Measurement (effective for annual periods beginning on or after January 1, 2015) PFRS 9 as issued reflects the first phase on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. In subsequent phases, hedge accounting and impairment of financial assets will be addressed with the completion of this project expected on the first half of 2012. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities.
•
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate The implementation of the Philippine Interpretation is deferred until the final Review Standard is issued by IASB and after an evaluation on the requirements and guidance in
the standard vis-à-vis the practices and regulations in the Philippine real estate industry is completed. This Philippine Interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. This Philippine Interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion.
4.
Summary of Significant Accounting Policies Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates and other sales taxes or duty. The following specific recognition criteria must also be met before revenue is recognized: Sale of air transportation services Passenger ticket and cargo waybill sales are initially recorded under ‘Unearned transportation revenue’ account in the consolidated statement of financial position until recognized under Revenue account in the consolidated statement of comprehensive income when the transportation service is rendered by the Group (e.g., when passengers and cargo are lifted). Unearned tickets are recognized as revenue using estimates regarding the timing of recognition based on the terms and conditions of the ticket and historical trends. The related commission is recognized as outright expense upon the receipt of payment from customers, and is included under ‘Reservation and sales’ account. Ancillary revenue Revenue from in-flight sales and other services are recognized when the goods are delivered or the services are carried out. Interest income Interest on cash, cash equivalents, short-term cash investments and debt securities classified as financial assets at FVPL is recognized as the interest accrues using the effective interest method. Expense Recognition Expenses are recognized when it is probable that a decrease in future economic benefits related to decrease in an asset or an increase in liability has occurred and the decrease in economic benefits can be measured reliably. Expenses that arise in the course of ordinary regular activities of the Group include, among others, the operating expenses on the Group’s operation. Cash and Cash Equivalents Cash represents cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of placement and that are subject to an insignificant risk of changes in value. Cash and cash equivalents, excluding cash on hand, are classified and accounted for as loans and receivables.
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Financial Instruments Date of recognition Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized using the settlement date accounting. Derivatives are recognized on a trade date basis. Initial recognition of financial instruments Financial instruments are recognized initially at the fair value of the consideration given. Except for financial instruments at FVPL, the initial measurement of financial assets includes transaction costs. The Group classifies its financial assets into the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, AFS investments and loans and receivables. Financial liabilities are classified into financial liabilities at FVPL and other financial liabilities carried at cost or amortized cost. The Group has no HTM investments as of December 31, 2011 and 2010. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. Determination of fair value The fair value of financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and ask prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. The Group follows the hierarchy in Philippine Interpretations Committee (PIC) Question and Answer (Q&A) No. 2010-01: PAS 39.AG71-72, Rate used in determining the fair value of government securities in the Philippines, beginning January 1, 2010, for the determination of fair value of government securities in the Philippines, using market data published by the Philippine Dealing and Exchange Corporation or PDEx: a. Current bid yield, if available, on the reporting date. b. When a current bid yield is not available, the last or close yield on the reporting date. c. When there is no transaction for a security on the reporting date, the PDSI-R2 rate may be used. The consensus in the Q&A has been approved by the PIC on March 2, 2010 and approved by the Financial Reporting Standards Committee on June 4, 2010. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models. Any difference noted between the fair value and the transaction price is treated as expense or income, unless it qualifies for recognition as some type of asset or liability.
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‘Day 1’ profit or loss Where the transaction price in a non-active market is different from the fair value based on other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from an observable market, the Group recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in profit or loss unless it qualifies for recognition as some other type of asset or liability. In cases where the transaction price used is made of data which is not observable, the difference between the transaction price model value is only recognized in profit or loss, when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the ‘Day 1’ profit or loss amount. Financial assets and financial liabilities at FVPL Financial assets and financial liabilities at FVPL include financial assets and financial liabilities held for trading purposes, derivative instruments or those designated upon initial recognition as at FVPL. Financial assets and financial liabilities are designated by management on initial recognition when any of the following criteria are met: • • •
The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis; or The assets or liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance are evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.
As of December 31, 2011 and 2010, the Group’s financial assets at FVPL consist of derivative assets, as well as private and government debt and equity securities (Note 8). Financial assets and financial liabilities at FVPL are presented in the consolidated statement of financial position at fair value. Changes in fair value are reflected in profit or loss. Interest earned or incurred is recorded in interest income or expense, respectively, while dividend income is recorded in other revenue according to the terms of the contract, or when the right of the payment has been established. Derivatives recorded at FVPL The Group is a counterparty to certain derivative contracts such as commodity options. Such derivative financial instruments are initially recorded at fair value on the date at which the derivative contract is entered into and are subsequently re-measured at fair value. Any gains or losses arising from changes in fair values of derivatives (except those accounted for as accounting hedges) are taken directly to profit or loss. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified primarily as either: (a) a hedge of the fair value of an asset, liability or a firm commitment (fair value hedge); or (b) a hedge of the exposure to variability in cash flows attributable to an asset or liability or a forecasted transaction (cash flow hedge). The Group did not apply hedge accounting on its derivative transactions for the years ended December 31, 2011 and 2010. The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuel derivatives are not designated as accounting hedges. These derivatives are entered into for risk management purposes. The gains or losses on these instruments are accounted for directly
51
as charges to or credits against current operations under ‘Fuel hedging gains (losses)’ account in profit or loss. As of December 31, 2011 and 2010, the Group has no embedded derivatives. AFS investments AFS investments are those non-derivative investments which are designated as such or do not qualify to be classified or designated as financial assets at FVPL, HTM investments or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. After initial measurement, AFS investments are subsequently measured at fair value. The unrealized gains and losses are recognized directly in equity [other comprehensive income (loss)] under ‘Net unrealized gain (loss) on AFS investments’ account in the statement of financial position. When the investment is disposed of, the cumulative gain or loss previously recognized in the statement of comprehensive income is recognized in the statement of income. Where the Group holds more than one investment in the same security they are deemed to be disposed of on a first-in first-out basis. Dividends earned while holding AFS investments are recognized in the statement of income when the right of the payment has been established. The losses arising from impairment of such investments are recognized in the statement of income and removed from the ‘Net unrealized gain (loss) on AFS investments’ account. The AFS investment of the Group represents a quoted equity security (Note 8). Receivables Receivables are non-derivative financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. After initial measurement, receivables are subsequently carried at amortized cost using the effective interest method less any allowance for impairment loss. Amortized cost is calculated by taking into account any discount or premium on acquisition, and includes fees that are an integral part of the effective interest rate (EIR) and transaction costs. Gains and losses are recognized in profit or loss, when the receivables are derecognized or impaired, as well as through the amortization process. This accounting policy applies primarily to the Group’s trade and other receivables (Note 9) and certain refundable deposits. Financial liabilities Issued financial instruments or their components, which are not designated at FVPL are classified as other financial liabilities where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue. After initial measurement, other financial liabilities are subsequently measured at cost or amortized cost using the effective interest method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the EIR. Any effects of restatement of foreign currency-denominated liabilities are recognized in profit or loss.
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This accounting policy applies primarily to the Group’s accounts payable and other accrued liabilities, long-term debt, and other obligations that meet the above definition (Notes 15, 16 and 17). Impairment of Financial Assets The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Assets carried at amortized cost If there is objective evidence that an impairment loss on financial assets carried at amortized cost (i.e., receivables) has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original EIR. Time value is generally not considered when the effect of discounting is not material. The carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss shall be recognized in profit or loss. The asset, together with the associated allowance accounts, is written-off when there is no realistic prospect of future recovery. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in the collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. The Group performs a regular review of the age and status of these accounts, designed to identify accounts with objective evidence of impairment and provide the appropriate allowance for impairment loss. The review is accomplished using a combination of specific and collective assessment approaches, with the impairment loss being determined for each risk grouping identified by the Group. AFS investments The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of debt instruments classified as AFS investments, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Interest continues to be accrued at the original EIR on the reduced carrying
53
amount of the asset and is recorded under interest income in profit or loss. If, in a subsequent year, the fair value of a debt instrument increases, and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is also reversed through profit or loss. For equity investments classified as AFS investments, objective evidence would include a significant or prolonged decline in the fair value of the investments below its cost. The determination of what is significant and prolonged is subject to judgment. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized is removed from other comprehensive income and recognized in profit or loss. Impairment losses on equity investments are not reversed through the statement of comprehensive income. Increases in fair value after impairment are recognized directly in other comprehensive income. Derecognition of Financial Instruments Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of financial assets) is derecognized where: • •
the rights to receive cash flows from the asset have expired; the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or the Group has transferred its rights to receive cash flows from the asset and either: (a) has transferred substantially all the risks and rewards of ownership and retained control over the asset; or (b) has neither transferred nor retained the risks and rewards of the asset but has transferred the control over the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control over the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss. Offsetting Financial Instruments Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements; thus, the related assets and liabilities are presented gross in the consolidated statement of financial position. Expendable Parts, Fuel, Materials and Supplies Expendable parts, fuel, materials and supplies are stated at lower of cost and net realizable value (NRV). Cost of flight equipment expendable parts, materials and supplies are stated
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at acquisition cost determined on a moving average cost method. Fuel is stated at cost on a weighted average cost method. NRV is the estimated selling price in the ordinary course of business less estimated costs to sell. Property and Equipment Property and equipment are carried at cost less accumulated depreciation, amortization and impairment loss, if any. The initial cost of property and equipment comprises its purchase price, any related capitalizable borrowing costs attributed to progress payments incurred on account of aircraft acquisition under construction and other directly attributable costs of bringing the asset to its working condition and location for its intended use. Cost also includes asset retirement obligation (ARO) relating to the leased passenger aircraft. Subsequent costs are capitalized as part of ‘Property and equipment’ account only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Subsequent costs such as actual costs of heavy maintenance visits for passenger aircraft are capitalized and depreciated based on the estimated number of years or flying hours, whichever is applicable, until the next major overhaul or inspection. Generally, heavy maintenance visits are required every five to six years for airframe and ten years or 20,000 flight cycles, whichever comes first, for landing gear. All other repairs and maintenance are charged against current operations as incurred. Construction in-progress are transferred to the related ‘Property and equipment’ account when the construction or installation and related activities necessary to prepare the property and equipment for their intended use are completed, and the property and equipment are ready for service. Construction in-progress is not depreciated until such time when the relevant assets are completed and available for use. Depreciation and amortization of property and equipment commence once the property and equipment are available for use and are computed using the straight-line method over the estimated useful lives (EULs) of the assets, regardless of utilization. The EULs of property and equipment of the Group follows: Passenger aircraft* Engines Rotables Ground support equipment EDP Equipment, mainframe and peripherals Transportation equipment Furniture, fixtures and office equipment Communication equipment Special tools Maintenance and test equipment Other equipment
* With residual value of 15.00%
15 years 15 years 15 years 5 years 3 years 5 years 5 years 5 years 5 years 5 years 5 years
Leasehold improvements are amortized over the shorter of their EULs or the corresponding lease terms. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss, in the year the item is derecognized.
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The assets’ residual values, useful lives and methods of depreciation and amortization are reviewed and adjusted, if appropriate, at each financial year-end. ARO The Group is contractually required under various lease contracts to restore certain leased aircraft to its original condition and to bear the cost of restoration at the end of the contract period. The Group recognizes the present value of these costs as ARO asset (included under ‘Property and equipment’) and ARO liability (included under ‘Noncurrent liabilities’). The Group depreciates ARO asset on a straight-line basis over the EUL of the related asset or the lease term, whichever is shorter, or written off as a result of impairment of the related asset. The Group amortizes ARO liability using the effective interest method and recognizes accretion expense (included in interest expense) over the lease term. The Group regularly assesses the provision for ARO and adjusts the related asset and liability (Note 5). Aircraft Maintenance and Overhaul Cost The Group recognizes aircraft maintenance and overhaul expenses in accordance with the contractual terms. The maintenance contracts are classified into two: (a) those based on time and material basis (TMB), and (b) power-by-the-hour (PBH) contract. For maintenance contract under TMB, the Group recognizes expenses based on expense as incurred method. For maintenance contract under PBH, the Group recognizes expense on an accrual basis. Investment in Shares of Stock and Joint Ventures The investment in shares of stock represents 60% investment by the Group in Philippine Academy for Aviation Training, Inc. (PAAT). A joint venture (JV) is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. A jointly controlled entity is a JV that involves the establishment of a separate entity in which each venturer has an interest. The Group’s 49.00% and 35.00% investments in Aviation Partnership (Philippines) Corporation (A-plus) and SIA Engineering (Philippines) Corporation (SIAEP), respectively, are accounted for under the equity method (Note 13). Under the equity method, the investments in JV are carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the JV, less any allowance for impairment in value. The consolidated statement of comprehensive income reflects the Group’s share in the results of operations of the JV. Dividends received are treated as a revaluation of the carrying value of the investment. The financial statements of the investee companies used in the preparation of the consolidated financial statement are prepared as of the same date with the Group. The investee companies’ accounting policies conform to those by the Group for like transactions and events in similar circumstances. Impairment of Nonfinancial Assets This accounting policy applies primarily to the Group’s property and equipment and investments in JV. At each reporting date, the Group assesses whether there is any indication that its nonfinancial assets may be impaired. When an indicator of impairment exists or when an annual impairment
56
testing for an asset is required, the Group makes a formal estimate of recoverable amount. Recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is assessed as part of the cash generating unit to which it belongs. Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount, the asset (or cash-generating unit) is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or cash-generating unit). An assessment is made at each statement of financial position date as to whether there is any indication that a previously recognized impairment loss may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization expense is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining life. Impairment of Investment in JV The Group’s investment in JV is tested for impairment in accordance with PAS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, whenever application of the requirements in PAS 39 indicates that the investment may be impaired. An impairment loss recognized in those circumstances is not allocated to any asset that forms part of the carrying amount of the investment in a JV. Accordingly, any reversal of that impairment loss is recognized in accordance with PAS 36 to the extent that the recoverable amount of the investment subsequently increases. In determining the value in use of the investment, an entity estimates: (a) its share of the present value of the estimated future cash flows expected to be generated by the JV, including the cash flows from the operations of the JV and the proceeds on the ultimate disposal of the investment; or (b) the present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal. Common Stock Common stocks are classified as equity and recorded at par. Proceeds in excess of par value are recorded as ‘Capital paid in excess of par value’ in the consolidated statement of financial position. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds. Treasury Stock Own equity instruments which are acquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in the profit and loss on the purchase, sale, issue or cancellation of the Parent Company’s own equity instruments. Retained Earnings Retained earnings represent accumulated earnings of the Group less dividends declared.
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Dividends on Common Shares Dividends on common shares are recognized as a liability and deducted from equity when approved and declared by the BOD, in the case of cash dividends; or by the BOD and shareholders, in the case of stock dividends. Provisions and Contingencies Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a result of a past event; (b) it is probable (i.e., more likely than not) that an outflow of assets embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense in profit or loss. Contingent liabilities are not recognized in the consolidated statement of financial position but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized but disclosed in the consolidated financial statements when an inflow of economic benefits is probable. If it is virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognized in the consolidated financial statements. Pension Costs Pension cost is actuarially determined using the projected unit credit method. This method reflects services rendered by employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes to underlying assumptions occur. Pension cost includes current service cost, interest cost, expected return on any plan assets, actuarial gains and losses and the effect of any curtailment or settlement. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are credited to or charged against profit or loss when the net cumulative unrecognized actuarial gains and losses at the end of the previous period exceed 10.00% of the higher of the present value of the defined benefit obligation and the fair value of plan assets at that date. The excess actuarial gains or losses are recognized over the average remaining working lives of the employees participating in the plan. The asset or liability recognized in the consolidated statement of financial position in respect of defined benefit retirement plan is the present value of the defined benefit obligation as of statement of financial position date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The value of any asset is restricted to the sum of any past service cost not yet recognized and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. The defined benefit obligation is calculated annually by an independent actuary. The present value of the defined benefit obligation is determined by discounting the estimated future cash inflows using long term government bond risk-free interest rates that have terms to maturity approximating the terms of the related pension liability for applying a single weighted average discount rate that reflects the estimated timing and amount of benefit payments.
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Income Taxes Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted as of the reporting date. Deferred tax Deferred tax is provided using the liability method on all temporary differences, with certain exceptions, at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, with certain exceptions. Deferred tax assets are recognized for all deductible temporary differences with certain exceptions, and carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) over RCIT and unused net operating loss carryover (NOLCO), to the extent that it is probable that sufficient taxable income will be available against which the deductible temporary differences and carryforward benefits of unused tax credits from excess MCIT and unused NOLCO can be utilized. Deferred tax assets, however, are not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of transaction, affects neither the accounting income nor taxable profit or loss. Deferred tax liabilities are not provided on non-taxable temporary differences associated with interests in JV. With respect to interests in JV, deferred tax liabilities are recognized except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date, and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax assets to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as of the statement of financial position date. Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in profit or loss or other comprehensive income. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Leases The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement at inception date, and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:
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a. there is a change in contractual terms, other than a renewal or extension of the arrangement; b. a renewal option is exercised or an extension granted, unless that term of the renewal or extension was initially included in the lease term; c. there is a change in the determination of whether fulfillment is dependent on a specified asset; or d. there is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for (a), (c) and (d) scenarios above, and at the date of renewal or extension period for scenario (b). Group as lessee Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments and included under ‘Property and equipment’ account with the corresponding liability to the lessor included under ‘Long-term debt’ account in the consolidated statement of financial position. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the EUL of the asset and the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in profit or loss on a straight-line basis over the lease term. Group as lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the rental income. Contingent rents are recognized as revenue in the period in which they are earned. Borrowing Costs Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress, and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use. The Group had not capitalized any borrowing costs for the years ended December 31, 2011 and 2010 as all borrowing costs from outstanding long-term debt relate to assets that are at state ready for intended use (Note 16). Foreign Currency Transactions Transactions in foreign currencies are initially recorded in the Group’s functional currency using the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency using the Philippine Dealing and Exchange Corp. (PDEX) closing rate prevailing at the reporting date. All differences are taken to the consolidated statement of comprehensive income. Non-monetary
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items that are measured in terms of historical cost in a foreign currency are translated using the prevailing closing exchange rate as of the date of initial transaction. Earnings (Loss) Per Share (EPS) Basic EPS is computed by dividing net income applicable to common stock by the weighted average number of common shares issued and outstanding during the year, adjusted for any subsequent stock dividends declared. Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. For the years ended December 31, 2011 and 2010, the Parent Company does not have any dilutive potential ordinary shares. Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM). The CODM, who is responsible for resource allocation and assessing performance of the operating segment, has been identified as the President. The nature of the operating segment is set out in Note 6. Events After the Reporting Date Post-year-end events that provide additional information about the Group’s position at the reporting date (adjusting event) are reflected in the consolidated financial statements. Post-yearend events that are not adjusting events are disclosed in the consolidated financial statements, when material.
5.
Significant Accounting Judgments and Estimates In the process of applying the Group’s accounting policies, management has exercised judgments and estimates in determining the amounts recognized in the consolidated financial statements. The most significant uses of judgments and estimates follow. Judgments a. Going concern The management of the Group has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the Group is not aware of any material uncertainties that may cast significant doubts upon the Group’s ability to continue as a going concern. Therefore, the consolidated financial statements continue to be prepared on a going concern basis. b. Classification of financial instruments The Group exercises judgment in classifying a financial instrument, or its component, on initial recognition as either a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial asset, financial liability or equity instrument. The substance of a financial instrument, rather than its legal form, governs its classification in the consolidated statement of financial position.
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In addition, the Group classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination of whether quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions on an arm’s length basis. c. Fair values of financial instruments Where the fair values of certain financial assets and liabilities recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques, including the discounted cash flow model. The inputs to these models are taken from observable market data where possible, but where this is not feasible, estimates are used in establishing fair values. The judgments include considerations of liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. For derivatives, the Group generally relies on counterparties’ valuation. The fair values of the Group’s financial instruments are presented in Note 28. d. Impairment of financial assets In determining whether an impairment loss should be recorded in profit or loss, the Group makes judgments as to whether there is any objective evidence of impairment as a result of one or more events that has occurred after initial recognition of the asset and that loss event or events has an impact on the estimated future cash flows of the financial assets or the group of financial assets that can be reliably estimated. This observable data may include adverse changes in payment status of borrowings in a group, or national or local economic conditions that correlate with defaults on assets in the portfolio. e. Classification of leases Management exercises judgment in determining whether substantially all the significant risks and rewards of ownership of the leased assets are transferred to the Group. Lease contracts, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased items, are capitalized. Otherwise, they are considered as operating leases. The Group also has lease agreements where it has determined that the risks and rewards related to the leased assets are retained with the lessors. Such leases are accounted for as operating leases (Note 29). f. Consolidation of SPEs The Group periodically undertakes transactions that may involve obtaining the right to control or significantly influence the operations of other companies. These transactions include the purchase of aircraft and assumption of certain liabilities. Also, included are transactions involving SPEs and similar vehicles. In all such cases, management makes an assessment as to whether the Group has the right to control or significantly influence the SPEs, and based on this assessment, the SPE is consolidated as a subsidiary or associated company. In making this assessment, management considers the underlying economic substance of the transaction and not only the contractual terms. g. Determination of functional currency PAS 21 requires management to use its judgment to determine the entity’s functional currency such that it most faithfully represents the economic effects of the underlying transactions, events and conditions that are relevant to the entity. In making this judgment, each entity in the Group considers the following:
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a) the currency that mainly influences sales prices for financial instruments and services (this will often be the currency in which sales prices for its financial instruments and services are denominated and settled); b) the currency in which funds from financing activities are generated; and c) the currency in which receipts from operating activities are usually retained. The Group’s consolidated financial statements are presented in Philippine peso, which is also the Parent Company’s functional currency. h. Contingencies The Group is currently involved in certain legal proceedings. The estimate of the probable costs for the resolution of these claims has been developed in consultation with outside counsel handling the defense in these matters and is based upon an analysis of potential results. The Group currently does not believe that these proceedings will have a material adverse effect on the Group’s financial position and results of operations. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of the strategies relating to these proceedings (Note 29). i. Allocation of revenue, costs and expenses Revenue, costs and expenses are classified as exclusive and common. Exclusive revenue, cost and expenses such as passenger revenue, cargo revenue, excess baggage revenue, fuel and insurance surcharge, fuel and oil expense, hull/war/risk insurance, maintenance expense, depreciation (for aircraft under finance lease), lease expense (for aircraft under operating lease) and interest expense based on the related long-term debt are specifically identified per aircraft based on an actual basis. For revenue, cost and expense accounts that are not identifiable per aircraft, the Group provides allocation based on activity factors that closely relate to the earning process of the revenue. Estimates The key assumptions concerning the future and other sources of estimation uncertainty at the statement of financial position date that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are discussed below: a. Estimation of allowance for credit losses on receivables The Group maintains allowance for impairment losses at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Group’s relationship with the agents, customers and other counterparties, the payment behavior of agents and customers, other counterparties and other known market factors. The Group reviews the age and status of receivables, and identifies accounts that are to be provided with allowances on a continuous basis. The related balances follow (Note 9):
Receivables Allowance for credit losses
2011 ₱1,069,370,364 232,584,140
2010 ₱1,094,993,731 232,584,140
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b. Determination of NRV of expendable parts, fuel, materials and supplies The Group’s estimates of the NRV of expendable parts, fuel, materials and supplies are based on the most reliable evidence available at the time the estimates are made, of the amount that the expendable parts, fuel, materials and supplies are expected to be realized. In determining the NRV, the Group considers any adjustment necessary for obsolescence, which is generally providing 100.00% for nonmoving items for more than one year. A new assessment is made of NRV in each subsequent period. When the circumstances that previously caused expendable parts, fuel, materials and supplies to be written-down below cost no longer exist or when there is a clear evidence of an increase in NRV because of a change in economic circumstances, the amount of the write-down is reversed so that the new carrying amount is the lower of the cost and the revised NRV. The related balances follow (Note 10):
Expendable Parts, Fuel, Materials and Supplies At NRV At cost
2011
2010
₱243,906,026 153,621,314
₱246,212,162 123,819,873
As of December 31, 2011 and 2010, allowance for inventory write-down for expendable parts amounted to ₱20.5 million. No additional provision for inventory write-down was recognized by the Group in 2011 and 2010. c. Estimation of ARO The Group is contractually required under certain lease contracts to restore certain leased passenger aircraft to stipulated return condition and to bear the costs of restoration at the end of the contract period. Since the first operating lease entered by the Group in 2001, these costs are accrued based on an internal estimate which includes estimates of certain redelivery costs at the end of the operating aircraft lease. The Group recognizes the present value of these costs as ARO asset and ARO liability. Assumptions used to compute ARO are reviewed and updated annually by the Group. In 2011, the Group recognized additional ARO asset and ARO liability amounting ₱279.9 million for the costs of restoration of two (2) new leased passenger aircraft of the Group. In 2010, the Group contracted a third-party engineer to reassess the amount of future restoration costs. Based on the reassessment, the Group recognized additional ARO asset and ARO liability amounting to ₱705.7 million in 2010 (Note 17). As of December 31, 2011 and 2010, the present value of the cost of restoration is computed based on the Group’s average borrowing cost. The amount and timing of recorded expenses for any period would differ if different judgments were made or different estimates were utilized. The recognition of ARO would increase noncurrent assets and noncurrent liabilities, which results in increase of depreciation expense and interest expense. As of December 31, 2011 and 2010, the Group’s ARO liability (included under ‘Other noncurrent liabilities’ account in the statements of financial position) has a carrying value of ₱2,437.7 million and ₱2,070.1 million, respectively (Note 17). The related depreciation and amortization expense for the years ended December 31, 2011 and 2010 amounted to ₱317.5 million and ₱234.8 million, respectively (Note 12).
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d. Estimation of useful lives and residual values of property and equipment The Group estimates the useful lives of its property and equipment based on the period over which the assets are expected to be available for use. The Group estimates the residual value of its property and equipment based on the expected amount recoverable at the end of its useful life. The Group reviews annually the EULs and residual values of property and equipment based on factors that include physical wear and tear, technical and commercial obsolescence and other limits on the use of the assets. It is possible that future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the EUL or residual value of property and equipment would increase recorded depreciation and amortization expense and decrease noncurrent assets. As of December 31, 2011 and 2010, the carrying values of the Group’s property and equipment amounted to ₱41,037.5 million and ₱33,985.7 million, respectively (Note 12). The Group’s depreciation and amortization expense amounted to ₱2,632.4 million and ₱2,100.9 million as of December 31, 2011 and 2010, respectively (Note 12). e. Impairment of nonfinancial assets The Group assesses the impairment of nonfinancial assets, particularly property and equipment and investment in JV, whenever events or changes in circumstances indicate that the carrying amount of the nonfinancial asset may not be recoverable. The factors that the Group considers important which could trigger an impairment review include the following: • • •
significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for overall business; and significant negative industry or economic trends.
An impairment loss is recognized whenever the carrying amount of an asset or investment exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. The fair value less cost to sell is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or investments or, if it is not possible, for the cash-generating unit to which the asset belongs. In determining the present value of estimated future cash flows expected to be generated from the continued use of the assets, the Group is required to make estimates and assumptions that can materially affect the consolidated financial statements. As of December 31, 2011 and 2010, the carrying values of the Group’s property and equipment amounted to ₱41,037.5 million and ₱33,985.7 million, respectively (Note 12). Investment in shares of stock and JV amounted to ₱409.5 million and ₱369.6 million as of December 31, 2011 and 2010, respectively (Note 13). There were no provision for impairment losses on the Company’s property and equipment and investment in JV for the years ended December 31, 2011 and 2010. f. Estimation of pension and other employee benefit costs The determination of the obligation and cost of pension and other employee benefits is dependent on the selection of certain assumptions used in calculating such amounts. Those
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assumptions include, among others, discount rates and salary increase rates (Note 22). Actual results that differ from the Group’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While the Group believes that the assumptions are reasonable and appropriate, significant differences between actual experiences and assumptions may materially affect the cost of employee benefits and related obligations. The Group’s pension liability (included in ‘Other noncurrent liabilities’ account in the consolidated statements of financial position) amounted to ₱251.6 million and ₱210.2 million as of December 31, 2011 and 2010, respectively (Notes 17 and 22). The Group also estimates other employee benefit obligations and expense, including the cost of paid leaves based on historical leave availments of employees, subject to the Group’s policy. These estimates may vary depending on the future changes in salaries and actual experiences during the year. g. Recognition of deferred tax assets The Group assesses the carrying amounts of deferred income taxes at each reporting date and reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. As of December 31, 2011 and 2010, the Group had certain gross deductible and taxable temporary differences which are expected to expire or reverse within the ITH period, and for which deferred tax assets and deferred tax liabilities were not set up on account of the Parent Company’s ITH. As of December 31, 2011 and 2010, the Group has deferred tax assets amounting ₱1,069.3 million and ₱969.4 million, respectively (Note 24). Unrecognized deferred tax as of December 31, 2011 and 2010 amounted to ₱4.6 million and nil, respectively. h. Passenger revenue recognition Passenger sales are recognized as revenue when the obligation of the Group to provide transportation service ceases, either: (a) when transportation services are already rendered; or (b) when the Group estimates that unused tickets are already expired. The value of unused tickets is included as unearned transportation revenue in the consolidated statement of financial position and recognized as revenue based on estimates. These estimates are based on historical experience. While actual results may vary from these estimates, the Group believes it is unlikely that materially different estimates for future refunds, exchanges, and forfeited tickets would be reported based on other reasonable assumptions or conditions suggested by actual historical experience and other data available at the time the estimates were made. As of December 31, 2011 and 2010, the balances of the Group’s unearned transportation revenue amounted to ₱5,253.4 million and ₱4,606.3 million, respectively. Ticket sales that are not expected to be used for transportation are recognized as revenue using estimates regarding the timing of recognition based on the terms and conditions of the tickets and historical trends.
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6.
Segment Information The Group has one reportable operating segment, which is the airline business (system-wide). This is consistent with how the Group’s management internally monitors and analyzes the financial information for reporting to the CODM, who is responsible for allocating resources, assessing performance and making operating decisions. The revenue of the operating segment was mainly derived from rendering transportation services. All sales are made to external customers. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. The amount of segment assets and liabilities are based on the measurement principles that are similar with those used in measuring the assets and liabilities in the consolidated statement of financial position which is in accordance with PFRS. Segment information for the reportable segment is shown in the following table: Revenue Net income Depreciation and amortization Interest expense Interest income
2011 ₱35,152,401,857 3,624,417,718 2,632,410,923 854,269,588 647,397,939
2010 ₱30,510,408,495 6,922,493,280 2,100,929,764 931,482,279 237,495,750
2009 ₱24,423,611,516 3,257,848,705 1,917,683,713 1,012,826,822 8,848,551
The reconciliation of total revenue reported by reportable operating segment to revenue in the consolidated statements of comprehensive income is presented in the following table: Total segment revenue of reportable operating segment Nontransport revenue and other income Total revenue
2011
2010
2009
₱33,935,402,775
₱29,088,798,959
₱23,311,006,311
1,216,999,082 ₱35,152,401,857
1,421,609,536 ₱30,510,408,495
1,112,605,205 ₱24,423,611,516
The reconciliation of total income reported by reportable operating segment to total comprehensive income in the consolidated statements of comprehensive income is presented in the following table: Total segment income of reportable segment Add (deduct) unallocated items: Nontransport revenue and other income Nontransport expenses and other charges Benefit from (provision for) income tax Net income Other comprehensive loss, net of tax Total comprehensive income
2011
2010
2009
₱3,527,827,811
₱6,450,125,710
₱3,164,042,762
1,216,999,082
1,421,609,536
1,112,605,205
(997,824,293) (122,584,882) 3,624,417,718 (2,915,359) ₱3,621,502,359
(931,482,279) (17,759,687) 6,922,493,280 (2,714,902) ₱6,919,778,378
(1,038,300,945) 19,501,683 3,257,848,705 – ₱3,257,848,705
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The Group’s major revenue-producing asset is the fleet of aircraft owned by the Group, which is employed across its route network (Note 12). The Group has no significant customer which contributes 10.00% or more to the revenues of the Group.
7.
Cash and Cash Equivalents This account consists of:
Cash on hand Cash in banks (Note 26) Short-term placements (Note 26)
2011 ₱16,641,225 503,830,598 8,437,312,163 ₱8,957,783,986
2010 ₱14,424,238 669,548,018 9,079,316,716 ₱9,763,288,972
Cash in banks earns interest at the respective bank deposit rates. Short-term placements, which represent money market placements, are made for varying periods of up to three months depending on the immediate cash requirements of the Group. Short-term placements denominated in Philippine peso earn an average interest of 4.57%, 4.24% and 2.20% in 2011, 2010 and 2009, respectively. Moreover, short-term placements in US dollar earn an average of 1.55%, 1.20% and nil in 2011, 2010 and 2009, respectively. Interest income on cash and cash equivalents, presented in the consolidated statements of comprehensive income, amounted to ₱394.4 million, ₱133.5 million and ₱8.8 million in 2011, 2010 and 2009, respectively.
8.
Investment and Trading Securities Financial Assets at FVPL This account consists of:
Designated at FVPL Quoted debt securities: Private Government
Quoted equity securities
Derivative financial instruments not designated as accounting hedges
2011
2010
₱2,021,911,190 1,039,254,600 3,061,165,790 183,032,000 3,244,197,790
₱2,086,089,903 1,017,480,478 3,103,570,381 285,950,784 3,389,521,165
16,880,208 ₱3,261,077,998
489,917,466 ₱3,879,438,631
On June 30, 2010, the Group acquired from JGSHI the financial assets designated at FVPL and AFS by execution of deed of assignment.
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At inception, the Group classified this group of debt and equity securities as financial assets designated at FVPL since their performance are managed and evaluated on a fair value basis in accordance with the Group’s documented investment strategy. The information about these financial instruments is reported to management on that basis. In 2011 and 2010, the Group earned interest income of ₱222.4 million and ₱104.0 million, respectively, from debt securities as financial assets designated at FVPL. Also, the Group earned dividend income from equity securities amounting ₱21.4 million and nil in 2011 and 2010, respectively. The financial assets designated at FVPL are shown inclusive of unrealized gain (loss) amounting ₱1.1 million and (₱189.4) million in 2011 and 2010, respectively. Commodity options The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuel derivatives are not designated as accounting hedges. The gains or losses on these instruments are accounted for directly as a charge against or credit to profit or loss. As of December 31, 2011 and 2010, the Group has outstanding fuel hedging transactions with notional quantity of 600,000 US barrels and 845,000 US barrels, respectively. The notional quantity is the amount of the derivatives’ underlying asset or liability, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The options can be exercised at various calculation dates with specified quantities on each calculation date. The options have various maturity dates through December 31, 2012. Fair value changes on derivatives The changes in fair value of all derivative financial instruments not designated as accounting hedges follow: Balance at beginning of period Derivative assets Derivative liabilities Net changes in fair value of derivatives Fair value of settled instruments Balance at end of period Attributable to: Derivative assets Derivative liabilities
2011
2010
₱489,917,466 – 489,917,466 477,128,001 967,045,467 (1,011,022,845) (₱43,977,378)
₱227,794,364 – 227,794,364 474,255,226 702,049,590 (212,132,124) ₱489,917,466
₱16,880,208 (₱60,857,586)
₱489,917,466 ₱–
AFS Investment This account represents investment in a quoted equity security. As of December 31, 2011 and 2010, the carrying value of AFS investment amounted to ₱110.4 million and ₱114.5 million, respectively. The Group earned dividend income from equity securities amounting ₱9.2 million and nil as of December 31, 2011 and 2010, respectively. In 2011 and 2010, the Group recognized unrealized loss on AFS amounting ₱5.6 million and ₱2.7 million, net of tax amounting to ₱2.4 million and ₱1.2 million, respectively.
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9.
Receivables This account consists of: 2011 ₱546,244,400 146,244,351 35,174,259 341,707,354 1,069,370,364 232,584,140 ₱836,786,224
Trade receivables (Note 26) Interest receivable Due from related parties (Note 26) Others Less allowance for credit losses
2010 ₱471,465,815 134,819,376 86,576,474 402,132,066 1,094,993,731 232,584,140 ₱862,409,591
Trade receivables are noninterest-bearing and generally have 30 to 90 days terms. Interest receivable pertains to accrual of interest income from FVPL and short-term placements. Accrued interest income from FVPL amounted to ₱133.7 million and ₱120.3 million, in 2011 and 2010 respectively. Accrued interest income from short-term placements amounted to ₱12.5 million and ₱14.5 million in 2011 and 2010, respectively. Others include receivable under a sublease agreement denominated in US dollar equivalent to ₱225.4 million with another airline company. This receivable is fully provided with allowance for credit losses. The account also includes receivables from employees and counterparties. The changes in the allowance for credit losses on receivables follow:
Balance at beginning of year Unrealized foreign exchange gain on allowance for credit losses Provision for credit losses (Note 21) Write-off Balance at end of year
Balance at beginning of year Unrealized foreign exchange gain on allowance for credit losses Provision for credit losses (Note 21) Write-off Balance at end of year
Trade Receivables ₱6,330,875 – – – ₱6,330,875
2011
Others ₱226,253,265
Total ₱232,584,140
– – – ₱226,253,265
– – – ₱232,584,140
2010
Trade Receivables ₱6,330,875
Others ₱239,185,934
Total ₱245,516,809
– 2,127,309 (2,127,309) ₱6,330,875
(12,932,669) – – ₱226,253,265
(12,932,669) 2,127,309 (2,127,309) ₱232,584,140
As of December 31, 2011 and 2010, the specific allowance for credit losses on trade receivables and other receivables amounted to ₱6.3 million and ₱226.3 million. In 2010, the Group has written off receivables amounting ₱2.1 million.
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10. Expendable Parts, Fuel, Materials and Supplies
This account consists of:
At NRV: Expendable parts At cost: Fuel Materials and supplies
2011
2010
₱243,906,026
₱246,212,162
128,721,614 24,899,700 153,621,314 ₱397,527,340
100,926,756 22,893,117 123,819,873 ₱370,032,035
The cost of expendable and consumable parts, and materials and supplies recognized as expense (included under ‘Repairs and maintenance’ account in the consolidated statement of comprehensive income) for years ended December 31, 2011, 2010 and 2009 amounted to ₱180.2 million, ₱172.2 million and ₱94.5 million, respectively. The cost of fuel reported as expense under ‘Flying operations’ amounted to ₱15,220.7 million, ₱9,807.8 million and ₱7,360.3 million in 2011, 2010 and 2009, respectively (Note 20). 11. Other Current Assets
This account consists of:
Prepaid rent Advances to suppliers Prepaid insurance Others
2011 ₱163,245,902 55,060,231 39,222,963 21,161,965 ₱278,691,061
2010 ₱135,568,016 50,042,184 39,089,719 39,373,884 ₱264,073,803
Prepaid rent pertains to advance rental on aircraft under operating lease and on office spaces in airports (Note 29). Advances to suppliers include advances made for the purchase of various aircraft parts. Prepaid insurance consist of aviation insurance which represents insurance of hull, war, and risk, passenger and cargo insurance for the aircraft during flights and non aviation insurance represents insurance payments for all employees’ health and medical benefits, commission, casualty and marine insurance as well as car/motor insurance.
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72 ₱926,670,018
Communication Equipment
₱1,492,378,827
Furniture, Fixtures and Office Equipment
₱31,372,380,295
₱7,237,019 1,282,366 – – 8,519,385 4,347,656 1,098,142 – 5,445,798 ₱3,073,587
₱64,624,423 9,408,567 – – 74,032,990 41,582,454 8,228,192 – 49,810,646 ₱24,222,344
131,556,202 59,544,967 (2,365,257) 188,735,912
586,415,896 112,982,084 – 699,397,980
7,319,413,492 2,289,360,717 – 9,608,774,209
₱798,821,749 318,949,438 – (2,365,257) 1,115,405,930
Rotables
₱1,696,909,369 494,867,438 – – 2,191,776,807
Engines
₱34,334,987,863 5,001,893,470 1,644,273,171 – 40,981,154,504
Cost Balance at January 1, 2011 Additions Reclassification Disposals/others Balance at December 31, 2011 Accumulated Depreciation and Amortization Balance at January 1, 2011 Depreciation and amortization Disposals/others Balance at December 31, 2011 Net Book Value at December 31, 2011
Cost Balance at January 1, 2011 Additions Reclassification Disposals/others Balance at December 31, 2011 Accumulated Depreciation and Amortization Balance at January 1, 2011 Depreciation and amortization Disposals/others Balance at December 31, 2011 Net Book Value at December 31, 2011
Passenger Aircraft (Notes 16 and 30)
The composition and movements in this account follow:
12. Property and Equipment
11,219,201 385,839 – 11,605,040 ₱1,249,496
₱12,390,580 463,956 – – 12,854,536
Special Tools
5,721,144 162,902 – 5,884,046 ₱532,938
₱6,410,377 6,607 – – 6,416,984
Maintenance and Test Equipment
₱115,218,313
367,763,752 68,957,261 (8,549,941) 428,171,072
₱481,156,584 70,782,742 – (8,549,941) 543,389,385
EDP Equipment, Mainframe and Peripherals
2011
₱103,652,188
168,090,218 41,584,392 – 209,674,610
₱287,461,784 25,865,014 – – 313,326,798
Ground Support Equipment
2011
39,071,895 9,510,969 – 48,582,864 ₱21,993,422
₱67,213,501 3,362,805 – – 70,576,306
Other Equipment
₱49,598,461
99,528,562 19,817,569 – 119,346,131
₱156,829,956 – 12,114,636 – 168,944,592
Leasehold Improvements
Sub-total
Total
₱34,115,035,679
8,747,697,627 2,613,024,879 (14,951,588) 11,345,770,918
– – – – ₱6,871,436,135
8,849,639,977 2,632,410,923 (14,951,588) 11,467,099,312 ₱41,037,543,621
₱4,788,168,629 ₱42,835,341,056 3,739,655,313 9,685,660,582 (1,656,387,807) – – (16,358,705) 6,871,436,135 52,504,642,933
Construction In-progress
₱55,137,577
74,929,505 20,777,889 (4,036,390) 91,671,004
₱37,889,296,527 5,931,480,968 1,656,387,807 (5,443,507) (16,358,705) 146,808,581 45,460,806,597
₱133,129,222 19,122,866
Transportation Equipment
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500,303,926 95,647,460 (9,535,490) 586,415,896 ₱1,110,493,473
5,608,304,763 1,802,923,773 (91,815,044) 7,319,413,492
₱27,015,574,371
₱6,174,321 1,062,698 – – 7,237,019 3,407,186 940,470 – 4,347,656 ₱2,889,363
34,648,972 6,933,482 – 41,582,454 ₱23,041,969
Communication Equipment
₱667,265,547
87,047,351 46,311,472 (1,802,621) 131,556,202
₱645,242,966 249,857,038 – (96,278,255) 798,821,749
Rotables
₱54,222,266 10,402,157 – – 64,624,423
Furniture, Fixtures and Office Equipment
₱1,861,014,616 – – (164,105,247) 1,696,909,369
Engines
₱29,082,449,841 4,617,905,673 1,480,356,826 (845,724,477) 34,334,987,863
Cost Balance at January 1, 2010 Additions Reclassification Disposals/others Balance at December 31, 2010 Accumulated Depreciation and Amortization Balance at January 1, 2010 Depreciation and amortization Disposals/others Balance at December 31, 2010 Net Book Value at December 31, 2010
Cost Balance at January 1, 2010 Additions Reclassification Disposals/others Balance at December 31, 2010 Accumulated Depreciation and Amortization Balance at January 1, 2010 Depreciation and amortization Disposals/others Balance at December 31, 2010 Net Book Value at December 31, 2010
Passenger Aircraft (Notes 16 and 30)
10,720,871 498,330 – 11,219,201 ₱1,171,379
₱11,933,090 457,490 – – 12,390,580
Special Tools
2010
₱119,371,566
– 168,090,218
125,785,164 42,305,054
₱226,290,672 61,171,112 – – 287,461,784
Ground Support Equipment
2010
5,596,765 124,379 – 5,721,144 ₱689,233
₱5,697,385 712,992 – – 6,410,377
Maintenance and Test Equipment
₱113,392,832
– 367,763,752
306,959,766 60,803,986
₱401,958,225 79,198,359 – – 481,156,584
EDP Equipment, Mainframe and Peripherals
29,327,430 9,744,465 – 39,071,895 ₱28,141,606
₱59,654,657 7,558,844 – – 67,213,501
Other Equipment
₱57,301,394
84,204,878 15,353,198 (29,514) 99,528,562
₱123,328,105 – 33,634,663 (132,812) 156,829,956
Leasehold Improvements
Sub-total
Total
₱29,141,598,900
6,781,597,560 2,082,688,638 (116,588,571) 8,747,697,627
– 6,865,298,784 – 2,100,929,764 – (116,588,571) – 8,849,639,977 ₱4,788,168,629 ₱33,985,701,079
₱3,409,527,269 ₱36,020,470,174 3,027,480,866 8,069,677,765 (1,513,991,489) – (134,848,017) (1,254,806,883) 4,788,168,629 42,835,341,056
Construction In-progress
₱58,199,717
68,991,712 19,343,695 (13,405,902) 74,929,505
₱132,976,761 ₱32,473,261,186 13,870,536 5,022,002,718 – 1,513,991,489 (13,718,075) (1,119,958,866) 133,129,222 37,889,296,527
Transportation Equipment
Passenger Aircraft Held as Securing Assets Under Various Loans In 2005 and 2006, the Group entered into Export Credit Agency (ECA)-backed loan facilities (ECA loans) to partially finance the purchase of ten Airbus A319 aircraft. In 2007, the Group also entered into a commercial loan facility to partially finance the purchase of two Airbus A320 aircraft, one CFM 565B4/P engine, two CFM 565B5/P engines and one Quick Engine Change (QEC) Kit. In 2008, the Group entered into both ECA loans and commercial loans to partially finance the purchase of six Avion de Transport Regional (ATR) 72-500 turboprop aircraft. Then in 2009, ECA loans were availed to finance the purchase of two ATR 72-500 turboprop aircraft. In 2010, the Group entered into ECA loan to finance the purchase of three Airbus A320 aircraft. In 2011, the Group entered into ECA loan to finance the purchase of three additional Airbus A320 aircraft. Under the terms of the ECA loan and the commercial loan facilities (Note 16), upon the event of default, the outstanding amount of loan (including accrued interest) will be payable by CALL or ILL or BLL or SLL or SALL or VALL, or by the guarantors which are CPAHI and JGSHI. Failure to pay the obligation will allow the respective lenders to foreclose the securing assets. As of December 31, 2011 and 2010, the carrying amounts of the securing assets (included under the ‘Property and equipment’ account) amounted to ₱30.4 billion and ₱26.6 billion, respectively. On July 18, 2010, one ATR 72-500 turboprop aircraft was damaged due to a hard landing at the Ninoy Aquino International Airport (NAIA). The Company initially decided to repair the aircraft, however, in October 2010, the Company’s engineer concluded this as a constructive loss, wherein it is more beneficial to dispose the aircraft since the reparation cost is higher than the book value of the said aircraft. On November 30, 2010, the Group received insurance proceeds and terminated the related loan. Accordingly, rights over the aircraft went to the insurers. Operating Fleet As of December 31, 2011 and 2010, the Group’s operating fleet follows:
Owned (Note 16): Airbus A319 Airbus A320 ATR 72-500 Under operating lease (Note 29): Airbus A320
2011
2010
10 8 8
10 5 7
11 37
9 31
Construction in-progress represents the cost of aircraft and engine construction in progress and buildings and improvements and other ground property under construction. Construction in-progress is not depreciated until such time when the relevant assets are completed and available for use. As of December 31, 2011 and 2010, the Group’s capitalized pre-delivery payments as construction-in-progress amounted to ₱6.9 billion and ₱4.8 billion, respectively (Note 29). As of December 31, 2011 and 2010, the gross amount of fully depreciated property and equipment which are still in use by the Group amounted to ₱556.2 million and ₱430.4 million, respectively.
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13. Investment in Shares of Stock and Joint Ventures
The investment in shares of stock represents 60% investments by the Group in PAAT. PAAT was created to provide training for pilots, cabin crews, aviation management services and guest services for purposes of addressing the Group’s training requirements and to pursue business opportunities for training third parties in the commercial fixed wing aviation industry, including other local and international airline companies (Note 32). As of December 31, 2011, the Company has investment in PAAT amounting ₱33.8 million, net of subscription payable of ₱101.3 million. The investment in joint ventures represents the Group’s 49.00% and 35.00% interest in A-plus and SIAEP, respectively. A-plus and SIAEP were established for the purpose of providing line, light and heavy maintenance services to foreign and local airlines, utilizing the facilities and services at airports in the country, as well as aircraft maintenance and repair organizations. A-plus was incorporated on May 24, 2005 and started commercial operations on July 1, 2005 while SIAEP was incorporated on July 27, 2008 and started commercial operations on August 17, 2009. PAAT was incorporated on January 27, 2012. A-plus and SIAEP are foreign corporations while PAAT is a domestic corporation. The movements in the carrying values of the Group’s investments in joint ventures in A-plus and SIAEP follow:
Cost Accumulated Equity in Net Income (Loss) Balance at beginning of period Equity in net income (loss) for the period Dividends received Balance at end of period Net Carrying Value
Cost Accumulated Equity in Net Income (Loss) Balance at beginning of period Equity in net income (loss) for the period Dividends received Balance at end of period Net Carrying Value
A-plus ₱87,012,572 30,116,847
2011 SIAEP ₱304,763,900
Total ₱391,776,472
(52,248,581)
(22,131,734)
50,850,020 (36,234,703) 44,732,164 ₱131,744,736
(8,531,818) – (60,780,399) ₱243,983,501
42,318,202 (36,234,703) (16,048,235) ₱375,728,237
A-plus ₱87,012,572
2010 SIAEP ₱304,763,900
Total ₱391,776,472
21,590,662
(47,011,448)
(25,420,786)
(5,237,133) – (52,248,581) ₱252,515,319
25,248,534 (21,959,482) (22,131,734) ₱369,644,738
30,485,667 (21,959,482) 30,116,847 ₱117,129,419
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Selected financial information of A-plus and SIAEP follows: 2011 Total current assets Total assets Total current liabilities Total liabilities Net income (loss)
A-plus ₱396,481,683 449,545,110 178,874,540 178,874,540 84,118,310
SIAEP ₱267,039,671 871,670,211 228,070,700 228,070,700 (21,902,640)
2010 A-plus SIAEP ₱389,229,753 ₱198,601,718 440,003,102 827,498,709 199,744,327 136,071,974 199,744,327 136,071,974 62,215,647 (14,963,237)
The fiscal year-end of A-plus and SIAEP is every March 31. The undistributed earnings of A-plus included in the consolidated retained earnings amounted to ₱44.7 million and ₱30.1 million as of December 31, 2011 and 2010, respectively, which is not currently available for dividend distribution unless declared by A-plus. The Group has no share of any contingent liabilities or capital commitments as of December 31, 2011 and 2010. 14. Other Noncurrent Assets
This account consists of: Refundable deposits Creditable withholding tax Others
2011 ₱166,175,680 57,492,013 167,784,698 ₱391,452,391
2010 ₱9,240,000 105,122,460 213,484,694 ₱327,847,154
Refundable deposits pertain to security deposits provided to lessor for aircraft under operating lease. Others include option and commitment fees. 15. Accounts Payable and Other Accrued Liabilities
This account consists of: Accrued expenses Trade payables (Note 26) Airport and other related fees payable Advances from agents and others Accrued interest payable (Note 16) Other payables
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2011 ₱3,312,566,151 2,639,714,690 330,044,660 191,017,007 102,259,843 135,236,525 ₱6,710,838,876
2010 ₱2,756,352,038 1,995,958,241 435,286,079 159,557,017 118,666,608 132,666,336 ₱5,598,486,319
Accrued Expenses The Group’s accrued expenses include accruals for: Maintenance Compensation and benefits Advertising and promotion Training costs Navigational charges Landing and take-off fees Repairs and services Fuel Ground handling charges Rent (Note 29) Aircraft insurance Catering supplies Reservation costs Others
2011 ₱861,990,342 505,238,321 408,910,866 359,401,193 231,723,393 226,106,789 165,768,719 153,277,223 108,131,398 91,959,267 41,924,552 38,980,896 13,658,115 105,495,077 ₱3,312,566,151
2010 ₱637,721,177 519,578,237 292,832,984 221,810,780 185,830,569 237,135,007 115,290,273 66,914,013 185,902,242 71,405,104 41,059,836 38,441,922 11,773,991 130,655,903 ₱2,756,352,038
Others represent accrual of professional fees, security, utilities and other expenses. Trade Payables Trade payables, which consist mostly of payables related to the purchase of inventories, are noninterest-bearing and are normally settled on a 60-day term. These inventories are necessary for the daily operations and maintenance of the aircraft, which include aviation fuel, expendables parts, equipment and in-flight supplies. Airport and Other Related Fees Payable Airport and other related fees payable are amounts payable to the Philippine Tourism Authority and Air Transportation Office on aviation security, terminal fees and travel taxes. Interest Payable Interest payable is related to long-term debt and normally settled quarterly throughout the year. Advances from Agents and Others Advances from agents and others represent cash bonds required from major sales and ticket offices or agents. Other Payables Other payables are noninterest-bearing and have an average term of two months. This account includes commissions payable, refunds payable and other tax liabilities such as withholding taxes and output VAT.
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16. Long-term Debt
This account consists of: 2011
ECA loans
Interest Rates 3.37% to 5.83%
Maturities Various dates through 2023
0.85% to 2.05% (US Dollar LIBOR 6 months + margin or 3 months + margin) Commercial loans from foreign banks
4.11% to 5.67%
Various dates through 2017
1.65% to 1.71% (US Dollar LIBOR 6 months + margin)
Less current portion
US Dollar US$248,553,773
Philippine Peso Equivalent ₱10,896,597,403
175,556,066 424,109,839
7,696,377,955 18,592,975,358
47,428,768
2,079,277,203
4,553,852 51,982,620
199,640,872 2,278,918,075
476,092,459
20,871,893,433
56,283,101
2,467,451,166
US$419,809,358
₱18,404,442,267
2010
ECA loans
Interest Rates 3.37% to 5.83%
Maturities Various dates through 2022
0.86% to 2.54% (US Dollar LIBOR 6 months + margin or 3 months + margin) Commercial loans from foreign banks
4.11% to 5.67% 1.64% to 2.12% (US Dollar LIBOR 6 months + margin)
Less current portion
Various dates through 2017
US Dollar US$242,476,310
Philippine Peso Equivalent ₱10,630,161,421
117,484,686 359,960,996
5,150,528,642 15,780,690,063
54,455,626
2,387,334,644
6,037,500 60,493,126
264,683,997 2,652,018,641
420,454,122
18,432,708,704
46,898,810
2,056,043,837
US$373,555,312
₱16,376,664,867
ECA Loans In 2005 and 2006, the Group entered into ECA-backed loan facilities to partially finance the purchase of ten Airbus A319 aircraft. The security trustee of the ECA loans established CALL, a special purpose company, which purchased the aircraft from the supplier and leases such aircraft to the Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental payments made by the Parent Company to CALL correspond to the principal and interest payments made by CALL to the ECA-backed lenders. The quarterly lease rentals to CALL are guaranteed by CPAHI and JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the end of such leases.
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In 2008, the Group entered into ECA-backed loan facilities to partially finance the purchase of six ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established BLL, a special purpose company, which purchased the aircraft from the supplier and leases such aircraft to the Parent Company pursuant to ten-year finance lease agreements. The semi-annual rental payments made by the Parent Company to BLL corresponds to the principal and interest payments made by BLL to the ECA-backed lenders. The semi-annual lease rentals to BLL are guaranteed by JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the end of such leases. On November 30, 2010, the Parent Company pre-terminated the lease agreement with BLL related to the disposal of one ATR 72-500 turboprop aircraft. The outstanding balance of the related loans and accrued interests amounting ₱638.1 million (US$14.5 million) and ₱13.0 million (US$0.3 million), respectively, were also pre-terminated. The proceeds from the insurance claim on the related aircraft were used to settle the loan and accrued interest. JGSHI was released as guarantor on the related loans. In 2009, the Group entered into ECA-backed loan facilities to partially finance the purchase of two ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established SLL, a special purpose company, which purchased the aircraft from the supplier and leases such aircraft to the Parent Company pursuant to ten-year finance lease agreements. The semi-annual rental payments made by the Parent Company to SLL corresponds to the principal and interest payments made by SLL to the ECA-backed lenders. The semi-annual lease rentals to SLL are guaranteed by JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the end of such leases. In 2010, the Group entered into ECA-backed loan facilities to partially finance the purchase of four Airbus A320 aircraft, delivered between 2010 to January 2011. The security trustee of the ECA loans established SALL, a special purpose company, which purchased the aircraft from the supplier and leases such aircraft to the Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental payments made by the Parent Company to SALL corresponds to the principal and interest payments made by SALL to the ECA-backed lenders. The quarterly lease rentals to SALL are guaranteed by JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the end of such leases. In 2011, the Group entered into ECA-backed loan facilities to fully finance the purchase of three Airbus A320 aircraft, delivered between 2011 to January 2012. The security trustee of the ECA loans established VALL, special purpose company, which purchased the aircraft from the supplier and leases such aircraft to the Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental payments made by the Parent Company to VALL corresponds to the principal and interest payments made by VALL to the ECA-backed lenders. The quarterly lease rentals to VALL are guaranteed by JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the end of such leases. The terms of the ECA-backed facilities, which are the same for each of the ten Airbus A319 aircraft, seven ATR 72-500 turboprop aircraft and seven Airbus A320 aircraft, follow: • •
Term of 12 years starting from the delivery date of each Airbus A319 aircraft and Airbus A320, and ten years for each ATR 72-500 turboprop aircraft. Annuity style principal repayments for the first four Airbus A319 aircraft, eight ATR 72-500 turboprop aircraft and four Airbus A320 aircraft, and equal principal repayments for the last six Airbus A319 aircraft and last three Airbus A320 aircraft. Principal repayments shall be made on a semi-annual basis for ATR 72-500 turboprop aircraft. Principal repayments shall be made on a quarterly basis for Airbus A319 and A320 aircraft.
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•
•
•
• •
Interest on loans from the ECA lenders related to CALL and BLL is at fixed rates, which range from 3.78% to 5.83%. Interest on loans from ECA lenders related to SLL is fixed at 3.37% for one aircraft and US dollar LIBOR 6 months plus margin for the other aircraft. Interest on loans from the ECA lenders related to SALL and VALL for the seven Airbus A320 aircraft is US dollar LIBOR 3 months plus margin. As provided under the ECA-backed facility, CALL, BLL, SLL, SALL and VALL cannot create or allow to exist any security interest, other than what is permitted by the transaction documents or the ECA administrative parties. CALL, BLL, SLL, SALL and VALL must not allow impairment of first priority nature of the lenders’ security interests. The ECA-backed facilities also provide for the following events of default: (a) nonpayment of the loan principal or interest or any other amount payable on the due date, (b) breach of negative pledge, covenant on preservation of transaction documents, (c) misrepresentation, (d) commencement of insolvency proceedings against CALL or BLL or SLL or SALL or VALL becomes insolvent, (e) failure to discharge any attachment or sequestration order against CALL’s, BLL’s, SLL’s, SALL’s and VALL’s assets, (f) entering into an undervalued transaction, obtaining preference or giving preference to any person, contrary to the laws of the Cayman Islands, (g) sale of any aircraft under ECA financing prior to discharge date, (h) cessation of business, (i) revocation or repudiation by CALL or BLL or SLL or SALL or VALL, the Group, JGSHI or CPAHI of any transaction document or security interest, and (j) occurrence of an event of default under the lease agreement with the Parent Company. Upon default, the outstanding amount of loan will be payable, including interest accrued. Also, the ECA lenders will foreclose on secured assets, namely the aircraft. An event of default under any ECA loan agreement will occur if an event of default as enumerated above occurs under any other ECA loan agreement.
As of December 31, 2011 and 2010, the total outstanding balance of the ECA loans amounted to ₱18,593.0 million (US$424.1 million) and ₱15,780.7 million (US$360.0 million), respectively. Interest expense amounted to ₱549.8 million, ₱623.4 million and ₱732.8 million in 2011, 2010 and 2009, respectively. Commercial Loans from Foreign Banks In 2007, the Group entered into a commercial loan facility to partially finance the purchase of two Airbus A320 aircraft, one CFM 565B4/P engine, two CFM 565B5/P engines and one QEC Kit. The security trustee of the commercial loan facility established ILL, a special purpose company, which purchased the aircraft from the supplier and leases such aircraft to the Parent Company pursuant to (a) ten-year finance lease arrangement for the aircraft, (b) six-year finance lease arrangement for the engines and (c) five-year finance lease arrangement for the QEC Kit. The quarterly rental payments of the Parent Company correspond to the principal and interest payments made by ILL to the commercial lenders and are guaranteed by JGSHI. The Parent Company has the option to purchase the aircraft, the engines and the QEC Kit for a nominal amount at the end of such leases. In 2008, the Group also entered into a commercial loan facility, in addition to ECA-backed loan facility, to partially finance the purchase of six ATR 72-500 turboprop aircraft. The security trustee of the commercial loan facility established BLL, a special purpose company, which purchased the aircraft from the supplier and leases such aircraft to the Parent Company. The commercial loan facility is payable in 12 equal, consecutive, semi-annual installments starting six months after the utilization date.
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The terms of the commercial loans from foreign banks 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 72500 turboprop aircraft, and equal principal repayments for the engines and the QEC Kit. Principal repayments shall be made on a quarterly and semi-annual basis for the two Airbus A320 aircraft, engines and the QEC Kit and six ATR 72-500 turboprop aircraft, respectively. Interest on the commercial loan facility for the two Airbus A320 aircraft shall be US dollar LIBOR 3 months plus margin. On February 29, 2009, the interest rates on the two Airbus A320 aircraft, engines and QEC Kit were fixed ranging from 4.11% to 5.67%. Interest on the commercial loan facility for the six ATR 72-500 turboprop aircraft shall be US dollar LIBOR 6 months plus margin. 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, 2011 and 2010, the total outstanding balance of the commercial loans from foreign banks amounted to ₱2,278.9 million (US$52.0 million) and ₱2,652.0 million (US$60.5 million), respectively. Interest expense amounted to ₱113.0 million, ₱137.7 million and ₱173.1 million in 2011, 2010 and 2009, respectively. The Group is not in breach of any loan covenants as of December 31, 2011 and 2010. 17. Other Noncurrent Liabilities
This account consists of: ARO Accrued maintenance Pension liability (Note 22)
2011 ₱2,437,668,334 670,810,817 251,594,022 ₱3,360,073,173
2010 ₱2,070,145,159 923,451,428 210,156,100 ₱3,203,752,687
ARO The Group is legally required under certain lease contracts to restore certain leased passenger aircraft to stipulated return conditions and to bear the costs of restoration at the end of the contract period. These costs are accrued based on an internal estimate made by the work of both third party and the Group’s engineers in 2007, which includes estimates of certain redelivery costs at the end of the operating aircraft lease (Note 5). In 2010, the Group employed third party professionals to reevaluate the Group’s estimates on ARO. In relation to this, the Group recorded additional ARO asset and liability amounting ₱705.7 million.
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The rollforward analysis of the Group’s ARO follows:
Balance at beginning of year Additional provision for the year* Accretion expense** Capitalized during the year*** Payment of restorations during the year Balance at end of year
2011 ₱2,070,145,159 – 191,472,734 279,926,767 (103,876,326) ₱2,437,668,334
2010 ₱1,194,091,048 705,651,245 170,402,866 – – ₱2,070,145,159
*Related to the change in accounting estimates for the recognized ARO liability **Included under interest expense account in the consolidated statements of comprehensive income ***Related to recognized ARO liability for two additional Airbus A320 aircraft under operating lease agreements entered in 2011
Accrued Maintenance This account pertains to accrual of maintenance costs of aircraft based on the number of flying hours but will be settled beyond one year based on management’s assessment. 18. Equity
The details of the number of common shares and the movements thereon follow: Authorized - at ₱1 par value Beginning of year Treasury shares Issuance of shares during the year Issued and outstanding
2011 1,340,000,000 613,236,550 (7,283,220) – 605,953,330
2010 1,340,000,000 582,574,750 – 30,661,800 613,236,550
2009 1,340,000,000 582,574,750 – – 582,574,750
Issuance of Common Shares of Stock On October 26, 2010, the Parent Company listed with the PSE its common stock, by way of primary and secondary share offerings, wherein it offered 212,419,700 shares to the public at ₱125.0 per share. Of the total shares sold, 30,661,800 shares are newly issued shares with total proceeds amounting ₱3,800.0 million. The Parent Company’s share in the total transaction costs incurred incidental to the IPO amounting ₱100.4 million, which is charged against ‘Capital paid in excess of par value’ in the parent statement of financial position. Treasury Shares On February 28, 2011, the BOD of the Parent Company approved the creation and implementation of a share buyback program (SBP) up to ₱2,000.0 million worth of the Parent Company’s common share. The SBP shall commence upon approval and shall end upon utilization of the said amount, or as may be otherwise determined by the BOD. The Parent Company has outstanding treasury shares of 7,283,220 shares amounting ₱529.3 million as of December 31, 2011, restricting the Parent Company from declaring an equivalent amount from unappropriated retained earnings as dividends. Appropriation of Retained Earnings On December 9, 2011, the Parent Company’s BOD appropriated ₱933.5 million from its unrestricted retained earnings as of December 31, 2011 for purposes of the Parent Company’s re-fleeting program.
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Unappropriated Retained Earnings The income of the subsidiaries and JV that are recognized in the statements of comprehensive income are not available for dividend declaration unless these are declared by the subsidiaries and JV. Likewise, retained earnings are restricted for the payment of dividends to the extent of the cost of common shares held in treasury. On March 17, 2011, the BOD of the Parent Company approved the declaration of a regular cash dividend in the amount of ₱1,222.4 million or ₱2.00 per share and a special cash dividend in the amount of ₱611.2 million or ₱1.00 per share from the unrestricted retained earnings of the Parent Company to all stockholders of record as of April 14, 2011 and was paid on May 12, 2011. After reconstructing items which include fair value adjustments on financial instruments, foreign exchange gain and cost of common stocks held in treasury, the amount of retained earnings that is available for dividend declaration as of December 31, 2011 amounted to ₱6,048.0 million. Capital Management The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure, which composed of paid up capital and retained earnings, and makes adjustments to these ratios in light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital structure or issue capital securities. No changes have been made in the objective, policies and processes as they have been applied in previous years. The Group’s ultimate parent monitors the use of capital structure using a debt-to-equity capital ratio which is gross debt divided by total capital. The ultimate parent includes within gross debt all interest-bearing loans and borrowings, while capital represent total equity, less any net unrealized gains (losses) reserve. The Group’s debt-to-capital ratios follow: (a) Long term debt (Note 16) (b) Capital (c) Debt-to-capital ratio (a/b)
2011 2010 ₱20,871,893,433 ₱18,432,708,704 19,165,523,290 17,907,049,902 1.1:1 1.0:1
The JGSHI Group’s policy is to keep the debt to capital ratio at the 2:1 level as of December 31, 2011 and 2010. Such ratio is currently being managed on a group level by the Group’s ultimate parent.
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19. Ancillary Revenue
Ancillary revenue consists of: Excess baggage fees Rebooking, refunds and cancellation fees Others
2011 ₱2,173,466,124
2010 ₱778,395,570
2009 ₱733,642,196
516,128,172 1,844,118,754 ₱4,533,713,050
423,397,044 1,135,315,885 ₱2,337,108,499
690,763,508 697,841,275 ₱2,122,246,979
Others pertain to revenues from in-flight sales and services provided through reservation system such as advance seat selection, website administration as well as commissions. 20. Operating Expenses
Flying Operations Flying operations consists of: Aviation fuel expense Flight deck Aircraft insurance Others
2011 2010 ₱15,220,724,678 ₱9,807,825,079 1,709,156,542 1,360,779,082 176,697,232 152,573,085 243,589,948 96,311,266 ₱17,350,168,400 ₱11,417,488,512
2009 ₱7,360,258,422 1,175,907,540 146,903,306 173,945,655 ₱8,857,014,923
Aircraft and Traffic Servicing Aircraft and traffic servicing consists of: Airport charges Ground handling Others
2011 ₱1,715,448,209 941,465,556 334,364,339 ₱2,991,278,104
2010 ₱1,405,341,791 758,912,700 297,552,706 ₱2,461,807,197
2009 ₱1,625,449,978 768,108,059 238,275,212 ₱2,631,833,249
Others pertain to staff expenses incurred by the Company such as basic pay, employee training cost and allowances. Repairs and maintenance Repairs and maintenance expenses relate to the cost of maintaining, repairing and overhauling of all aircraft and engines, technical handling fees on pre-flight inspections and cost of aircraft spare parts and other related equipment. 21. General and Administrative Expenses
This account consists of staff-related expenses, provision for credit losses on receivables, travel and transportation, rent, non-aircraft repairs and maintenance, utilities and insurance.
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22. Employee Benefits
Employee Benefit Cost Total personnel expenses, consisting of salaries, expense related to defined benefit plans and other employee benefits, are included in flying operations, aircraft traffic and servicing, repairs and maintenance, reservation and sales, general and administrative, and passenger service. Defined Benefit Plan The Parent Company has an unfunded, noncontributory, defined benefit plan covering substantially all of its regular employees. The benefits are based on years of service and compensation on the last year of employment. As of December 2011, 2010 and 2009, the assumptions used to determine pension benefits of the Parent Company follow: Average remaining working life Discount rate Salary rate increase
2011 12 years 6.54% 5.50%
2010 10 years 9.93% 5.50%
2009 9 years 13.49% 5.50%
As of December 31, 2011, 2010 and 2009, the discount rate used in determining the pension liability is 6.54%, 9.93% and 13.49%, which is determined by reference to market yields at the reporting date on Philippine government bonds. The amounts recognized as pension liability (included under ‘Other noncurrent liabilities’ account in the consolidated statements of financial position) follow (Note 17):
Present value of defined benefit obligation (PVO) Unrecognized actuarial loss Pension liability at end of year
2011 ₱325,295,900 (73,701,878) ₱251,594,022
Movements in unrecognized actuarial gain (loss) follow: Balance at beginning of year Amortization of actuarial gain Actuarial loss due to PVO Balance at end of year Movements in the defined benefit liability follow: Balance at beginning of year Pension expense during year Benefits paid during year Balance at end of year
2010 ₱230,193,900 (20,037,800) ₱210,156,100
2011 (₱20,037,800) – (53,664,078) (₱73,701,878)
2010 ₱12,079,700 – (32,117,500) (₱20,037,800)
2011 ₱210,156,100 52,987,000 (11,549,078) ₱251,594,022
2010 ₱172,317,200 40,229,800 (2,390,900) ₱210,156,100
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Components of pension expense included in the consolidated statements of comprehensive income follow: 2011 ₱33,075,200 19,911,800 – ₱52,987,000
Current service cost Interest cost Amortization of actuarial gain Total pension expense
2010 ₱24,318,200 15,911,600 – ₱40,229,800
2009 ₱12,867,400 12,331,700 (5,937,300) ₱19,261,800
Changes in the present value of the defined benefit obligation follow: 2011 ₱230,193,900 33,075,200 19,911,800 (11,549,078) 53,664,078 ₱325,295,900
Balance at beginning of year Current service cost Interest cost Benefits paid Actuarial loss Balance at end of year
2010 ₱160,237,500 24,318,200 15,911,600 (2,390,900) 32,117,500 ₱230,193,900
Amounts for the current and previous periods follow: Present value of retirement obligation Experience adjustments (gain)/loss
2011
2010
2009
₱325,295,900 ₱230,193,900 ₱160,237,500 –
(1,435,700)
1,445,500
2008
2007
₱91,413,300 ₱101,178,300 1,199,000
(10,200,000)
23. Other Expenses
This account consists mainly of bank charges.
24. Income Taxes
Provision for (benefit from) income tax consists of: Current MCIT Deferred
2011
2010
₱52,679,330 69,905,552 ₱122,584,882
₱1,595,963 16,163,724 ₱17,759,687
2009 ₱4,585,763 (24,087,446) (₱19,501,683)
Provision for income tax pertains to RCIT or MCIT and deferred income tax. Income taxes include corporate income tax, as discussed below, and final taxes paid at the rate of 20.00% and 7.50% on peso-denominated and foreign currency-denominated short-term placements and cash in banks, respectively, which are final withholding taxes on gross interest income.
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The NIRC of 1997 also provides for rules on the imposition of a 2.00% MCIT on the gross income as of the end of the taxable year beginning on the fourth taxable year immediately following the taxable year in which the Parent Company commenced its business operations. Any excess MCIT over the RCIT can be carried forward on an annual basis and credited against the RCIT for the three immediately succeeding taxable years. In addition, the NIRC of 1997 allows the Parent Company to deduct from its taxable income for the current year its accumulated net operating losses carried over (NOLCO) from the immediately preceding three consecutive taxable years. Details of the Parent Company’s NOLCO and MCIT are as follows: NOLCO Year Incurred 2008 2009 2010
Amount ₱81,434,888 79,186,012 533,255,953 ₱693,876,853
Expired/Applied (₱81,434,888) (79,186,012) (267,084,527) (₱427,705,427)
Balance ₱– – 266,171,426 ₱266,171,426
Expiry Year 2011 2012 2013
In 2011, the Parent Company has applied NOLCO amounting ₱427.7 million. MCIT Year Incurred 2009 2010 2011
Amount ₱4,585,763 1,595,963 52,679,330 ₱58,861,056
Expired/Applied ₱– – – ₱–
Balance ₱4,585,763 1,595,963 52,679,330 ₱58,861,056
Expiry Year 2012 2013 2014
The Parent Company has the following registrations with the BOI as a new operator of air transport on a non-pioneer status under the Omnibus Investments Code of 1987 (Executive Order 226): Batch First Second Third Fourth Fifth Sixth Seventh
Date of Registration December 14, 2005 June 4, 2008 November 3, 2010 November 16, 2011 November 16, 2011 November 16, 2011 November 16, 2011
Registration Number 2005-213 2008-119 2010-180 2011-240 2011-241 2011-242 2011-243
ITH Period Jan 2007 - Dec 2010 Mar 2009 - Feb 2013 Jan 2011- Dec 2016 Nov 2011 - Nov 2015 Nov 2011 - Nov 2017 Nov 2011 - Nov 2015 Dec 2011 - Dec 2017
Number of Aircraft 20 8 5 1 1 1 1 37
On the above registrations, the Parent Company can avail of bonus years in certain specified cases but the aggregate ITH availment (basic and bonus years) shall not exceed eight (8) years. As of December 31, 2011 and 2010, the Parent Company has complied with externally imposed capital requirements set by the BOI in order to avail the ITH incentives for the first and second batch aircraft of registered activity (Note 31).
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The components of the Group’s deferred tax assets and liabilities follow: Deferred tax assets on: ARO - liability NOLCO Accrued retirement costs Allowance for credit losses MCIT Unrealized loss on financial assets designated at FVPL Unrealized loss on net derivative liability Unrealized loss on AFS investment* Deferred tax liabilities on: Unrealized foreign exchange gain - net ARO - asset Double depreciation Unrealized gain on derivative asset Unrealized gain on financial assets designated at FVPL
Net deferred tax liabilities
2011
2010
₱731,300,500 79,851,428 75,478,207 69,775,242 58,861,056
₱621,043,542 208,163,056 63,046,830 69,775,242 6,181,726
43,066,411 8,559,355 2,412,970 1,069,305,169
– – 1,163,530 969,373,926
504,354,224 220,320,170 566,416,958 –
529,838,886 248,190,060 194,506,665 117,679,009
– 1,291,091,352 ₱221,786,183
32,289,377 1,122,503,997 ₱153,130,071
* Movement under other comprehensive income
The Group’s recognized deferred tax assets and deferred tax liabilities are expected to be reversed more than twelve months after the statement of financial position date. The Group has the following gross deductible and taxable temporary differences which are expected to reverse within the ITH period, and for which deferred tax assets and deferred tax liabilities, respectively, were not set up on account of the Parent Company’s ITH. Deductible temporary differences: Unrealized loss on net derivative liability Taxable temporary differences: ARO - asset Unrealized gain on derivative asset
2011
2010
₱15,446,196
₱–
₱362,655,952 – ₱362,655,952
₱307,286,348 97,654,104 ₱404,940,452
A reconciliation of the statutory income tax rate to the effective income tax rate follows: Statutory income tax rate Adjustments resulting from: Income subject to ITH Interest income subjected to final tax Unrecognized deferred tax assets and liabilities Equity in net (income) loss of JV Nondeductible items Effective income tax rate
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2011 30.00% (23.85) (3.13) (0.49) (0.29) 1.03 3.27%
2010 30.00% (29.71) (0.49) 0.41 (0.11) 0.16 0.26%
2009 30.00% (27.33) (0.08) (3.46) 0.24 0.03 (0.60%)
Entertainment, Amusement and Recreation (EAR) Expenses Current tax regulations define expenses to be classified as EAR expenses and set a limit for the amount that is deductible for tax purposes. EAR expenses are limited to 0.50% of net sales for sellers of goods or properties or 1.00% of net revenue for sellers of services. For sellers of both goods or properties and services, an apportionment formula is used in determining the ceiling on such expenses. The Parent Company recognized EAR expenses (allocated under different expense accounts in the consolidated statements of comprehensive income) amounting ₱3.0 million, ₱4.8 million and ₱12.7 million in 2011, 2010 and 2009, respectively. 25. Earnings Per Share
The following reflects the income and share data used in the basic/dilutive EPS computations: (a) Net income attributable to common shareholders (b) Weighted average number of common shares for basic EPS (c) Basic/diluted earnings per share
2011
2010
2009
₱3,624,417,718 ₱6,922,493,280 ₱3,257,848,705 610,851,702 ₱5.93
587,685,050 ₱11.78
582,574,750 ₱5.59
The Group has no dilutive potential common shares in 2011, 2010 and 2009. 26. Related Party Transaction
The Group has entered into transactions with its ultimate parent, its JV and affiliates principally consisting of advances, sale of passenger tickets, reimbursement of expenses, regular banking transactions, maintenance and administrative service agreements. In addition to the related information disclosed elsewhere in the financial statements, the following are the year-end balances in respect of transactions with related parties, which were carried out in the normal course of business on terms agreed with related parties during the year. The significant transactions and outstanding balances of the Group with the related parties follow:
Ultimate parent company JGSHI Parent company CPAHI
Consolidated Statement of Financial Position Cash Due from Due to and Cash Related Related Trade Equivalents Parties Parties Receivables (Note 7) (Note 9) (Note 15) (Note 9) December 31, 2011 December 31, 2010 December 31, 2009
₱– – –
₱– – –
₱1,549,019 350,000 42,357,610
₱– – –
December 31, 2011 December 31, 2010 December 31, 2009
– – –
10,911,148 58,814,274 900,670
– – –
– – –
– – –
15,336,100 26,929,793 35,416,334
– – –
– – –
JV in which the Company is a venturer A-plus December 31, 2011 December 31, 2010 December 31, 2009 (Forward)
Trade Payables (Note 15) ₱– – 6,200 – – – ₱12,696,455 71,153,167 11,647,754
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Trade Payables (Note 15) ₱25,510,246 – –
SIAEP
December 31, 2011 December 31, 2010 December 31, 2009
PAAT, Inc.
December 31, 2011 December 31, 2010 December 31, 2009
– – –
2,187,605 – –
– – –
– – –
December 31, 2011 December 31, 2010 December 31, 2009
5,888,125,425 4,552,678,192 225,301,492
– – –
950,163 858,368 563,510
– 5,631 48,544
1,371,659 150,859 511,746
December 31, 2011 December 31, 2010 December 31, 2009
– – –
– – –
32,653,745 33,709,732 30,666,495
2,914,865 2,183,937 1,809,752
798,825 6,241,941 2,157,837
December 31, 2011 December 31, 2010 December 31, 2009
– – –
– – –
– – –
1,678,260 1,671,261 1,964,812
421,647 – 241,740
Robinsons Land Corporation (RLC)
December 31, 2011 December 31, 2010 December 31, 2009
– – –
– – –
– – 129,142
649,303 281,841 314,339
1,463,190 21,113 315,858
Summit Publishing, Inc. (SPI)
December 31, 2011 December 31, 2010 December 31, 2009
– – –
– – –
– – –
790,521 855,930 630,178
– – –
JG Petrochemical Corporation (JGPC)
December 31, 2011 December 31, 2010 December 31, 2009
– – –
– – –
– – –
56,048 263,484 3,396
– – –
Robinsons Inc.
December 31, 2011 December 31, 2010 December 31, 2009
– – –
– – –
December 31, 2011 December 31, 2010 December 31, 2009
– – –
– – –
Other related parties Robinsons Savings Bank (RSB) Universal Robina Corporation (URC) Digitel Telecommunication* (DIGITEL)
2,569,040 3,677,235 –
– – –
– – –
51,922 3,512 –
December 31, 2011 ₱5,888,125,425 ₱35,174,259 ₱36,302,174 December 31, 2010 ₱4,552,678,192 ₱86,576,474 ₱35,529,304 December 31, 2009 ₱225,301,492 ₱40,389,601 ₱73,716,757 *As of December 31, 2011, Digitel Telecommunication is no longer a related party Cebu Air, Inc.
₱6,596,765 ₱6,393,682 ₱5,271,935
₱44,882,984 ₱81,247,827 ₱14,881,135
Total
1,149,247 611,204 –
– – –
501,268 1,131,598 500,914
Unicon Insurance Brokers
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Consolidated Statement of Financial Position Cash Due from Due to and Cash Related Related Trade Equivalents Parties Parties Receivables (Note 7) (Note 9) (Note 15) (Note 9) ₱– ₱6,739,406 ₱– ₱6,500 – 832,407 – – – 4,072,597 – –
JV in which the Company is a venture A-plus
Year
Consolidated Statement of Comprehensive Income Sale of Air Transportation Service Interest Income Repairs and Maintenance
2011 2010 2009
₱– – –
₱– – –
₱277,178,544 259,226,381 260,736,827
2011 2010 2009
93,776 263,606 –
– – –
– – 4,053,972
2011 2010 2009
723,696 715,413 692,339
288,358,555 28,960,516 240,915
– – –
URC
2011 2010 2009
25,660,486 23,185,728 21,576,590
– – –
– – –
DIGITEL
2011 2010 2009
20,521,872 15,921,059 11,499,788
– – –
– – –
RLC
2011 2010 2009
10,321,822 6,035,538 7,723,286
– – –
– – –
SPI
2011 2010 2009
5,525,371 2,484,213 2,026,424
– – –
– – –
JGPC
2011 2010 2009
1,222,177 830,006 40,398
– – –
– – –
Robinsons Inc.
2011 2010 2009
15,700,314 12,292,291 –
– – –
– – –
Total
2011 2010 2009
₱79,769,514 ₱61,727,854 ₱43,558,825
₱288,358,555 ₱28,960,516 ₱240,915
₱277,178,544 ₱259,226,381 ₱264,790,799
SIAEP
Other related parties RSB
*Other related parties pertain to entities which are subsidiaries of JGSHI and therefore, entities under common control
There are no impairment losses recorded against outstanding balances with related parties as of December 31, 2011, 2010 and 2009. Also, these transactions are unsecured, interest-free and short-term in nature. The Group’s significant transactions with related parties follow: 1. In 2010 and 2009, the Group provides noninterest-bearing advances to JGSHI recorded as ‘Due from related parties’. In 2010, total advances made to JGSHI amounted to ₱3.7 billion, which was settled on June 30, 2010 by assigning debt and equity securities amounting to ₱3.7 billion (Note 28). In 2009, total advances made to JGSHI amounted to ₱1.8 billion, which were settled in the same year. 2. Expenses advanced by the Group on behalf of CPAHI. The said expenses are subject to reimbursement and are recorded under ‘Receivables’ in the consolidated statements of financial position.
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3. The Group entered into a Shared Services Agreement with A-plus. Under the aforementioned agreement, the Group will render certain administrative services to A-plus which include payroll processing and certain information technology-related functions. The Group also entered into a Ground Support Equipment (GSE) Maintenance Services Agreement with A-plus. Under the GSE Maintenance Services Agreement, the Group shall render routine preventive maintenance services on certain ground support equipment used by A-plus in providing technical GSE to airline operators in major airports in the Philippines. The Group also performs repair or rectification of deficiencies noted and supply replacement components. 4. For the aircraft maintenance program, the Group engaged SIAEC to render line maintenance, light aircraft checks and technical ramp handling services at various domestic and international airports which were performed by A-plus, and to maintain and provide aircraft heavy maintenance services which was performed by SIAEP. Cost of services are recorded as ‘Repairs and maintenance’ in the consolidated statements of comprehensive income and any unpaid amount as of statement of financial position date as trade payable under ‘Accounts payable and other accrued liabilities’. 5. The Group maintains deposit accounts and short-term investments with RSB which is reported as ‘Cash and cash equivalents’. The Group also incurs liabilities to RSB for loan payments of its employees and to URC primarily for the rendering of payroll service to the Group which are recorded as ‘Due to related parties’. 6. The Group provides air transportation services to certain related parties, for which unpaid amounts are recorded as trade receivables under ‘Receivables’ in the consolidated statements of financial position. The Group also purchases goods from URC for in-flight sales and recorded as trade payable, if unpaid, in the consolidated statements of financial position. Total amount of purchases in 2011, 2010 and 2009 amounted to ₱1.8 million, ₱6.4 million and ₱0.4 million, respectively. The compensation of the Group’s key management personnel by benefit type follows: Short-term employee benefits Post-employment benefits
2011 ₱119,792,501 14,136,670 ₱133,929,171
2010 ₱118,221,095 1,528,853 ₱119,749,948
2009 ₱92,213,212 3,404,135 ₱95,617,347
There are no agreements between the Group and any of its directors and key officers providing for benefits upon termination of employment, except for such benefits to which they may be entitled under the Group’s pension plans. 27. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments, other than derivatives, comprise cash and cash equivalents, financial assets at FVPL, AFS investments, receivables, payables and interestbearing borrowings. The main purpose of these financial instruments is to finance the Group’s operations and capital expenditures. The Group has various other financial assets and liabilities, such as trade receivables and trade payables which arise directly from its operations. The Group also enters into fuel derivatives to manage its exposure to fuel price fluctuations.
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The Group’s BOD reviews and approves policies for managing each of these risks and they are summarized in the succeeding paragraphs, together with the related risk management structure. Risk Management Structure The Group’s risk management structure is closely aligned with that of its ultimate parent. The Group has its own BOD which is ultimately responsible for the oversight of the Group’s risk management process which involves identifying, measuring, analyzing, monitoring and controlling risks. The risk management framework encompasses environmental scanning, the identification and assessment of business risks, development of risk management strategies, design and implementation of risk management capabilities and appropriate responses, monitoring risks and risk management performance, and identification of areas and opportunities for improvement in the risk management process. The Group and the ultimate parent with its other subsidiaries (JGSHI Group) created the following separate board-level independent committees with explicit authority and responsibility for managing and monitoring risks. Each BOD has created the board-level Audit Committee to spearhead the managing and monitoring of risks. Audit Committee The Group’s Audit Committee assists the Group’s BOD in its fiduciary responsibility for the overall effectiveness of risk management systems, and both the internal and external audit functions of the Group. Furthermore, it is also the Audit Committee’s purpose to lead in the general evaluation and to provide assistance in the continuous improvements of risk management, control and governance processes. The Audit Committee also aims to ensure that: a. financial reports comply with established internal policies and procedures, pertinent accounting and auditing standards and other regulatory requirements; b. risks are properly identified, evaluated and managed, specifically in the areas of managing credit, market, liquidity, operational, legal and other risks, and crisis management: c. audit activities of internal and external auditors are done based on plan, and deviations are explained through the performance of direct interface functions with the internal and external auditors; and d. the Group’s BOD is properly assisted in the development of policies that would enhance the risk management and control systems. Enterprise Risk Management Group (ERMG) The fulfillment of the risk management functions of the Group’s BOD is delegated to the ERMG. The ERMG is primarily responsible for the execution of the Enterprise Risk Management (ERM) framework. The ERMG’s main concerns include: • • • •
formulation of risk policies, strategies, principles, framework and limits; management of the fundamental risk issues and monitoring of relevant risk decisions; support to management in implementing the risk policies and strategies; and development of a risk awareness program.
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Corporate Governance Compliance Officer Compliance with the principles of good corporate governance is one of the objectives of the Group’s BOD. To assist the Group’s BOD in achieving this purpose, the Group’s BOD has designated a Compliance Officer who shall be responsible for monitoring the actual compliance of the Group with the provisions and requirements of good corporate governance, identifying and monitoring control compliance risks, determining violations, and recommending penalties for such infringements for further review and approval of the Group’s BOD, among others. Day-to-day Risk Management Functions At the business unit or company level, the day-to-day risk management functions are handled by four different groups, namely: 1. Risk-taking personnel - this group includes line personnel who initiate and are directly accountable for all risks taken. 2. Risk control and compliance - this group includes middle management personnel who perform the day-to-day compliance check to approved risk policies and risks mitigation decisions. 3. Support - this group includes back office personnel who support the line personnel. 4. Risk management - this group pertains to the Group’s Management Committee which makes risk mitigating decisions within the enterprise-wide risk management framework. ERM Framework The Group’s BOD is also responsible for establishing and maintaining a sound risk management framework and is accountable for risks taken by the Group. The Group’s BOD also shares the responsibility with the ERMG in promoting the risk awareness program enterprise-wide. The ERM framework revolves around the following eight interrelated risk management approaches: 1. Internal Environmental Scanning - it involves the review of the overall prevailing risk profile of the business unit to determine how risks are viewed and addressed by management. This is presented during the strategic planning, annual budgeting and mid-year performance reviews of the business unit. 2. Objective Setting - the Group’s BOD mandates the Group’s management to set the overall annual targets through strategic planning activities, in order to ensure that management has a process in place to set objectives which are aligned with the Group’s goals. 3. Risk Assessment - the identified risks are analyzed relative to the probability and severity of potential loss which serves as a basis for determining how the risks should be managed. The risks are further assessed as to which risks are controllable and uncontrollable, risks that require management’s attention, and risks which may materially weaken the Group’s earnings and capital. 4. Risk Response - the Group’s BOD, through the oversight role of the ERMG, approves the Group’s responses to mitigate risks, either to avoid, self-insure, reduce, transfer or share risk. 5. Control Activities - policies and procedures are established and approved by the Group’s BOD and implemented to ensure that the risk responses are effectively carried out enterprisewide. 6. Information and Communication - relevant risk management information are identified, captured and communicated in form and substance that enable all personnel to perform their risk management roles. 7. Monitoring - the ERMG, Internal Audit Group, Compliance Office and Business Assessment Team constantly monitor the management of risks through risk limits, audit reviews, compliance checks, revalidation of risk strategies and performance reviews.
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Risk Management Support Groups The Group’s BOD created the following departments within the Group to support the risk management activities of the Group and the other business units: 1. Corporate Security and Safety Board (CSSB) - under the supervision of ERMG, the CSSB administers enterprise-wide policies affecting physical security of assets exposed to various forms of risks. 2. Corporate Supplier Accreditation Team (CORPSAT) - under the supervision of ERMG, the CORPSAT administers enterprise-wide procurement policies to ensure availability of supplies and services of high quality and standards to all business units. 3. Corporate Management Services (CMS) - the CMS is responsible for the formulation of enterprise-wide policies and procedures. 4. Corporate Planning and Legal Affairs (CORPLAN) - the CORPLAN is responsible for the administration of strategic planning, budgeting and performance review processes of the business units. 5. Corporate Insurance Department (CID) - the CID is responsible for the administration of the insurance program of business units concerning property, public liability, business interruption, money and fidelity, and employer compensation insurances, as well as in the procurement of performance bonds. Risk Management Policies The main risks arising from the use of financial instruments are credit risk, liquidity risk and market risk, namely foreign currency risk, commodity price risk and interest rate risk. The Group’s policies for managing the aforementioned risks are summarized below. Credit Risk Credit risk is defined as the risk of loss due to uncertainty in a third party’s ability to meet its obligation to the Group. The Group trades only with recognized, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are being subjected to credit verification procedures. In addition, receivable balances are monitored on a continuous basis resulting in an insignificant exposure in bad debts. With respect to credit risk arising from the other financial assets of the Group, which comprise cash in bank and cash equivalents and certain derivative instruments, the Group’s exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amount of these instruments. Maximum exposure to credit risk without taking account of any credit enhancement The table below shows the gross to credit risk (including derivative assets) of the Group as of December 31, 2011 and 2010, without considering the effects of collaterals and other credit risk mitigation techniques.
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Financial assets at FVPL (Note 8) Designated at FVPL Quoted debt securities Private Government Quoted equity securities Derivative financial instruments not designated as accounting hedges AFS investments (Note 8) Quoted equity securities Loans and receivables Cash and cash equivalents* (Note 7) Receivables (Note 9) Trade receivables Interest receivable Due from related parties Others** Refundable deposits*** (Note 14)
2011
2010
₱2,021,911,190 1,039,254,600 3,061,165,790 183,032,000 3,244,197,790
₱2,086,089,903 1,017,480,478 3,103,570,381 285,950,784 3,389,521,165
16,880,208 3,261,077,998
489,917,466 3,879,438,631
110,367,200
114,532,000
8,941,142,761
9,748,864,734
546,244,400 146,244,351 35,174,259 341,707,354 1,069,370,364 166,175,680 ₱13,548,134,003
471,465,815 134,819,376 86,576,474 402,132,066 1,094,993,731 9,240,000 ₱14,847,069,096
*Excluding cash on hand **Include nontrade receivables from derivative counterparties and employees ***Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position
Risk concentrations of the maximum exposure to credit risk Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographical location. Such credit risk concentrations, if not properly managed, may cause significant losses that could threaten the Group’s financial strength and undermine public confidence. In order to avoid excessive concentrations of risk identified concentrations of credit risks are controlled and managed accordingly.
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The Group’s credit risk exposures, before taking into account any collateral held or other credit enhancements are categorized by geographic location as follows:
Philippines
Asia (excluding Philippines)
₱2,021,911,190 966,672,000 2,988,583,190 183,032,000 3,171,615,190
2011 Europe
Others
Total
₱– 72,582,600 72,582,600 – 72,582,600
₱– – – – –
₱2,021,911,190 1,039,254,600 3,061,165,790 183,032,000 3,244,197,790
– 3,171,615,190
– 72,582,600
16,880,208 16,880,208
₱– – – – – – – –
–
110,367,200
–
–
110,367,200
8,284,718,611
656,424,150
–
–
8,941,142,761
431,367,661 142,991,628 35,174,259 58,424,350 667,957,898 – ₱12,124,291,699
112,455,082 3,252,723
– 33,125,717 148,833,522 – ₱988,207,472
2,421,657 – – 250,157,287 252,578,944 166,175,680 ₱435,634,832
– – – – – – ₱–
546,244,400 146,244,351 35,174,259 341,707,354 1,069,370,364 166,175,680 ₱13,548,134,003
Philippines
Asia (excluding Philippines)
Quoted debt securities Private Government
₱159,862,560 948,259,200
₱17,853,621 69,221,278
Quoted equity securities
1,108,121,760 –
Financial assets at FVPL (Note 8) Designated at FVPL Quoted debt securities Private Government Quoted equity securities Derivative financial instruments not designated as accounting hedges AFS investments (Note 8) Quoted equity securities Loans and receivables Cash and cash equivalents* (Note 7) Receivables (Note 9) Trade receivables Interest receivable Due from related parties Others** Refundable deposits*** (Note 14)
*Excluding cash on hand **Include nontrade receivables from derivative counterparties and employees ***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position
16,880,208 3,261,077,998
2010 Europe
Others
Total
₱1,525,694,362 –
₱382,679,360 –
₱2,086,089,903 1,017,480,478
87,074,899 –
1,525,694,362 –
382,679,360 285,950,784
3,103,570,381 285,950,784
1,108,121,760
87,074,899
1,525,694,362
668,630,144
3,389,521,165
Financial assets at FVPL (Note 8) Designated at FVPL
Derivative financial instruments not designated as accounting hedges AFS investments (Note 8) Quoted equity securities Loans and receivables Cash and cash equivalents* (Note 7)
136,094,034
206,652,904
147,170,528
–
489,917,466
1,244,215,794
293,727,803
1,672,864,890
668,630,144
3,879,438,631
–
–
–
114,532,000
114,532,000
–
–
9,461,735,841
287,128,893
9,748,864,734
Receivables (Note 9) Trade receivables Interest receivable Due from related parties Others**
355,871,039 71,058,584 86,576,474 77,620,296
84,845,412 4,248,439 – 59,537,007
30,749,364 6,633,159 – 264,974,763
– 52,879,194 – –
471,465,815 134,819,376 86,576,474 402,132,066
Refundable deposits*** (Note 14)
591,126,393 –
148,630,858 –
302,357,286 9,240,000
52,879,194 –
1,094,993,731 9,240,000
₱11,297,078,028 ₱729,487,554 ₱1,984,462,176 ₱836,041,338 *Excluding cash on hand **Include nontrade receivables from derivative counterparties and employees ***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position
₱14,847,069,096
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The Group has no concentration of risk with regard to various industry sectors. The major industry relevant to the Group is the transportation sector and financial intermediaries. Credit quality per class of financial assets The Group rates its financial assets based on an internal and external credit rating system. The table below shows the credit quality by class of financial assets based on internal credit rating of the Group (gross of allowance for impairment losses) as of December 31, 2011 and 2010. 2011 Neither Past Due Nor Specifically Impaired High Standard Substandard Grade Grade Grade Financial assets at FVPL (Note 8) Derivative financial instruments not designated as accounting hedges
Past Due or Individually Impaired
Total
₱16,880,208
₱–
₱–
₱–
₱16,880,208
8,941,142,761
–
–
–
8,941,142,761
– – – – –
95,499,690 – – 226,253,265 –
546,244,400 146,244,351 35,174,259 341,707,354 166,175,680
₱9,757,001,904 ₱114,814,154 ₱– ₱321,752,955 *Excluding cash on hand **Include nontrade receivables from derivative counterparties and employees ***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position
₱10,193,569,013
Loans and receivables: Cash and cash equivalents* (Note 7) Receivables (Note 9) Trade receivables Interest receivable Due from related parties Others** Refundable deposits*** (Note 14)
335,930,556 146,244,351 35,174,259 115,454,089 166,175,680
114,814,154 – – – –
2010 Neither Past Due Nor Specifically Impaired High Standard Substandard Grade Grade Grade
Past Due or Individually Impaired
Total
Financial assets at FVPL (Note 8) Derivative financial instruments not designated as accounting hedges
₱489,917,466
₱–
₱–
₱–
₱489,917,466
Loans and receivables: Cash and cash equivalents* (Note 7)
9,748,864,734
–
–
–
9,748,864,734
Receivables (Note 9) Trade receivables Interest receivable Due from related parties Others** Refundable deposits*** (Note 14)
296,387,293 134,819,376 86,576,474 45,199,323 9,240,000
96,158,122 – – 83,708,347 –
– – – – –
78,920,400 – – 273,224,396 –
471,465,815 134,819,376 86,576,474 402,132,066 9,240,000
₱10,811,004,666
₱179,866,469
₱–
₱352,144,796
₱11,343,015,931
*Excluding cash on hand **Include nontrade receivables from derivative counterparties and employees ***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position
High grade cash and cash equivalents are short-term placements and working cash fund placed, invested, or deposited in foreign and local banks belonging to the top ten banks in terms of resources and profitability. High grade accounts are accounts considered to be of high value. The counterparties have a very remote likelihood of default and have consistently exhibited good paying habits.
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Standard grade accounts are active accounts with propensity of deteriorating to mid-range age buckets. These accounts are typically not impaired as the counterparties generally respond to credit actions and update their payments accordingly. Substandard grade accounts are accounts which have probability of impairment based on historical trend. These accounts show propensity to default in payment despite regular follow-up actions and extended payment terms. Past due or individually impaired accounts consist of past due but not impaired receivables amounting to ₱92.4 million and ₱119.6 million as December 31, 2011 and 2010, respectively, and past due and impaired receivables amounting ₱232.6 million as of December 31, 2011 and 2010, respectively. Past due but not impaired receivables are secured by cash bonds from major sales and ticket offices recorded under ‘Accounts payable and other accrued liabilities’ account in the consolidated statement of financial position. For the past due and impaired receivables, specific allowance for impairment losses amounted to ₱232.6 million as of December 31, 2011 and 2010, respectively (Note 9). For financial assets such as designated financial assets at FVPL and AFS investments, the Group assesses their credit quality using external credit ratings from Standard & Poor’s (S&P). Financial assets with at least A- are identified as high grade, at least B- as standard grade and not rated (NR) if the credit rating is not performed by an external credit rating agency. Below is a summary of the Group’s FVPL and AFS external credit rating classification: 2011 Neither Past Due Nor Specifically Impaired High Standard Not Rated Grade Grade Financial assets at FVPL (Note 8) Designated at FVPL Quoted debt securities Private BBB+ BB+ BB NR Government BB+ BB Quoted equity securities AAFS investments (Note 8) Quoted equity securities BBB-
Past Due or Individually Impaired
Total
₱– – – – –
₱47,540,096 232,352,000 228,968,100 – 508,860,196
₱– – – 1,513,050,994 1,513,050,994
₱– – – – –
₱47,540,096 232,352,000 228,968,100 1,513,050,994 2,021,911,190
– – –
72,582,600 966,672,000 1,548,114,796
– – 1,513,050,994
– – –
72,582,600 966,672,000 3,061,165,790
183,032,000 183,032,000
– 1,548,114,796
– 1,513,050,994
– –
183,032,000 3,244,197,790
– ₱183,032,000
110,367,200 ₱1,658,481,996
– ₱1,513,050,994
– ₱–
110,367,200 ₱3,354,564,990
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2010 Neither Past Due Nor Specifically Impaired High Grade
Standard Grade
Past Due
Not Rated
or Individually Impaired
Total
Financial assets at FVPL (Note 8) Designated at FVPL Quoted debt securities
Private BBB+ BB+ BB B+ BNR
₱– – – – – – –
₱47,785,600 160,021,480 81,662,412 234,719,360 159,862,560 – 684,051,412
₱– – – – – 1,402,038,491 1,402,038,491
₱– – – – – – –
₱47,785,600 160,021,480 81,662,412 234,719,360 159,862,560 1,402,038,491 2,086,089,903
₱– –
₱1,017,480,478 1,701,531,890
₱– 1,402,038,491
₱– –
₱1,017,480,478 3,103,570,381
285,950,784 285,950,784
– 1,701,531,890
– 1,402,038,491
– –
285,950,784 3,389,521,165
– ₱285,950,784
114,532,000 ₱1,816,063,890
– ₱1,402,038,491
– ₱–
114,532,000 ₱3,504,053,165
Government BB Quoted equity securities AAFS investments (Note 8) Quoted equity securities BBB-
The following tables show the aging analysis of the Group’s receivables: Neither Past Due Nor Impaired Trade receivables ₱450,744,710 Interest receivable 146,244,351 Due from related parties 31,977,638 Others* 115,454,089 ₱744,420,788
2011 Past Due But Not Impaired 31-60 days ₱43,594,752 – – – ₱43,594,752
61-90 days ₱40,712,136 – – – ₱40,712,136
*Include nontrade receivables from derivative counterparties and employees
Trade receivables Interest receivable Due from related parties Others*
Neither Past Due Nor Impaired ₱392,545,415 134,819,376 86,576,474 128,907,670 ₱742,848,935
91-180 days ₱1,591,235 – – – ₱1,591,235
2010 Past Due But Not Impaired 31-60 days ₱29,123,386 – – – ₱29,123,386
61-90 days ₱24,822,321 – – 739,356 ₱25,561,677
91-180 days ₱12,190,557 – – 38,400,282 ₱50,590,839
Past Over Due and 180 days Impaired Total ₱3,270,692 ₱6,330,875 ₱546,244,400 – – 146,244,351 3,196,621 – 35,174,259 – 226,253,265 341,707,354 ₱6,467,313 ₱232,584,140 ₱1,069,370,364
Past Over Due and 180 days Impaired Total ₱6,453,261 ₱6,330,875 471,465,815 – – 134,819,376 – – 86,576,474 7,831,493 226,253,265 402,132,066 ₱14,284,754 ₱232,584,140 ₱1,094,993,731
*Include nontrade receivables from derivative counterparties and employees.
Collateral or credit enhancements As collateral against trade receivables from sales ticket offices or agents, the Group requires cash bonds from major sales ticket offices or agents ranging from ₱50,000 to ₱2.1 million depending on the Group’s assessment of sales ticket offices and agents’ credit standing and volume of transactions. As of December 31, 2011 and 2010, outstanding cash bonds (included under ‘Accounts payable and other accrued liabilities’ account in the consolidated statement of financial position) amounted to ₱161.4 million and ₱136.9 million, respectively (Note 15). There are no collaterals for impaired receivables. Impairment assessment The Group recognizes impairment losses based on the results of its specific/individual and collective assessment of its credit exposures. Impairment has taken place when there is a presence of known difficulties in the servicing of cash flows by counterparties, infringement of
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the original terms of the contract has happened, or when there is an inability to pay principal overdue beyond a certain threshold. These and the other factors, either singly or in tandem, constitute observable events and/or data that meet the definition of an objective evidence of impairment. The two methodologies applied by the Group in assessing and measuring impairment include: (1) specific/individual assessment; and (2) collective assessment. Under specific/individual assessment, the Group assesses each individually significant credit exposure for any objective evidence of impairment, and where such evidence exists, accordingly calculates the required impairment. Among the items and factors considered by the Group when assessing and measuring specific impairment allowances are: (a) the timing of the expected cash flows; (b) the projected receipts or expected cash flows; (c) the going concern of the counterparty’s business; (d) the ability of the counterparty to repay its obligations during financial crises; (e) the availability of other sources of financial support; and (f) the existing realizable value of collateral. The impairment allowances, if any, are evaluated as the need arises, in view of favorable or unfavorable developments. With regard to the collective assessment of impairment, allowances are assessed collectively for losses on receivables that are not individually significant and for individually significant receivables when there is no apparent nor objective evidence of individual impairment yet. A particular portfolio is reviewed on a periodic basis in order to determine its corresponding appropriate allowances. The collective assessment evaluates and estimates the impairment of the portfolio in its entirety even though there is no objective evidence of impairment yet on an individual assessment. Impairment losses are estimated by taking into consideration the following deterministic information: (a) historical losses/write-offs; (b) losses which are likely to occur but have not yet occurred; and (c) the expected receipts and recoveries once impaired. Liquidity Risk Liquidity is generally defined as the current and prospective risk to earnings or capital arising from the Group’s inability to meet its obligations when they become due without recurring unacceptable losses or costs. The Group’s liquidity management involves maintaining funding capacity to finance capital expenditures and service maturing debts, and to accommodate any fluctuations in asset and liability levels due to changes in the Group’s business operations or unanticipated events created by customer behavior or capital market conditions. The Group maintains a level of cash and cash equivalents deemed sufficient to finance operations. As part of its liquidity risk management, the Group regularly evaluates its projected and actual cash flows. It also continuously assesses conditions in the financial markets for opportunities to pursue fund raising activities. Fund raising activities may include obtaining bank loans and availing of export credit agency facilities. Financial assets The analysis of financial assets held for liquidity purposes into relevant maturity grouping is based on the remaining period at the statement of financial position date to the contractual maturity date or if earlier the expected date the assets will be realized. Financial liabilities The relevant maturity grouping is based on the remaining period at the statement of financial position date to the contractual maturity date. When counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Group can be required to pay. When an entity is committed to make amounts available in installments, each installment is allocated to the earliest period in which the entity can be required to pay.
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The tables below summarize the maturity profile of financial instruments based on remaining contractual undiscounted cash flows as of December 31, 2011 and 2010: 2011 Less than one month
1 to 3 months
3 to 12 months
1 to 5 years
More than 5 years
Total
Financial Assets Financial assets at FVPL Designated at FVPL
Quoted debt securities
Private
₱–
₱–
₱–
₱1,726,543,574
₱295,367,616
₱2,021,911,190
1,039,254,600
1,039,254,600
1,726,543,574
1,334,622,216
3,061,165,790
Government Quoted equity securities Derivative financial instruments not designated as accounting hedges
–
–
–
–
183,032,000
183,032,000
–
–
–
1,726,543,574
1,517,654,216
3,244,197,790
–
4,212,529
12,667,679
–
–
4,212,529
12,667,679
1,726,543,574
1,517,654,216
–
3,261,077,998
16,880,208
110,367,200
110,367,200
AFS investments Quoted equity securities
–
–
–
–
–
–
–
Loans and receivables Cash and cash equivalents
8,941,142,761
–
8,941,142,761
Receivables: Trade receivables
450,744,710
Interest receivable
146,244,351
–
Due from related parties*
31,977,638
–
115,454,089
–
–
–
226,253,265
–
–
–
166,175,680
166,175,680
Others ** Refundable deposits
–
84,306,888
1,591,235
9,135,744
– 3,196,621
465,823
546,244,400
–
–
146,244,351
–
–
35,174,259 341,707,354
₱9,685,563,549
₱88,519,417
₱17,455,535
₱1,735,679,318
₱2,020,916,184
₱13,548,134,003
₱2,037,478,569 36,302,174
₱1,598,466,188 –
₱2,543,947,944 –
₱137,383,870 –
₱23,124,550 –
₱6,340,401,121 36,302,174
230,707,985
615,196,217
2,371,584,782
12,372,862,317
8,727,988,097
24,318,339,398
Financial Liabilities On-balance sheet Accounts payable and other accrued liabilities*** Due to related parties* Long-term debt Derivative financial instruments not designated as accounting hedges
–
–
Others****
–
–
2,304,488,728
2,213,662,405
60,857,586 – 4,976,390,312
–
–
60,857,586
670,810,817
–
670,810,817
13,181,057,004
8,751,112,647
31,426,711,096
Off-balance sheet Contingent liability*****
– ₱2,304,488,728
– ₱2,213,662,405
10,747,455,131
58,081,640,175
₱15,723,845,443
₱71,262,697,179
*Receivable and payable on demand **Include nontrade receivables from derivative counterparties and employees ***Excluding government-related payables ****Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position. *****Pertains to capital expenditure commitments (Note 29)
102
– ₱8,751,112,647
68,829,095,306 ₱150,255,806,402
2010 Less than one month
1 to 3 months
3 to 12 months
1 to 5 years
More than 5 years
Total
₱51,745,229
₱6,510,240
₱13,472,306
₱1,868,966,549
₱2,299,273,923
₱4,239,968,247
32,606,000
2,144,050
312,750,450
1,338,688,650
1,686,189,150
39,116,240
15,616,356
2,181,716,999
3,637,962,573
5,926,157,397
Financial Assets Financial assets at FVPL Designated at FVPL
Quoted debt securities
Private Government
– 51,745,229
Quoted equity securities
– 51,745,229
Derivative financial instruments not designated as accounting hedges
– 51,745,229
– 39,116,240
– 15,616,356
139,059,297
351,425,270
178,175,537
367,041,626
– 2,181,716,999
– 2,181,716,999
285,950,784
285,950,784
3,923,913,357
6,212,108,181
–
490,484,567
3,923,913,357
6,702,592,748
104,120,000
104,120,000
AFS investments Quoted equity securities
–
–
–
–
–
–
–
Loans and receivables Cash and cash equivalents
9,776,460,386
–
9,776,460,386
Receivables: Trade receivables
386,222,100
Interest receivable
134,819,376
Due from related parties* Others ** Refundable deposit
86,576,474 135,284,134 –
56,120,518 – – 39,319,282 –
11,647,971
17,009,403
–
–
–
–
969,633
305,752
–
–
465,823 – – 226,253,265
471,465,815 134,819,376 86,576,474 402,132,066
9,240,000
9,240,000
₱10,571,107,699
₱273,615,337
₱379,659,230
₱2,199,032,154
₱4,263,992,445
₱17,687,406,865
Accounts payable and other accrued liabilities***
₱1,538,738,776
₱1,469,497,765
₱1,727,247,931
₱361,781,897
₱19,886,872
₱5,117,153,241
Due to related parties*
35,529,304
–
–
–
–
35,529,304
213,007,746
566,294,911
2,079,034,332
10,616,930,315
8,713,422,758
22,188,690,062
Financial Liabilities On-balance sheet
Long-term debt Others****
–
–
–
923,451,428
–
923,451,428
1,787,275,826
2,035,792,676
3,806,282,263
11,902,163,640
8,733,309,630
28,264,824,035
Off-balance sheet Contingent liability*****
–
–
6,711,777,434
24,777,021,191
–
31,488,798,625
₱1,787,275,826
₱2,035,792,676
₱10,518,059,697
₱36,679,184,831
₱8,733,309,630
₱59,753,622,660
*Receivable and payable on demand **Include nontrade receivables from derivative counterparties and employees ***Excluding government-related payables ****Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position. *****Pertains to capital expenditure commitments (Note 29)
Market Risk Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in foreign currency exchange rates, interest rates, commodity prices or other market changes. The Group’s market risk originates from its holding of foreign exchange instruments, interest-bearing instruments and derivatives. Foreign currency risk Foreign currency risk arises on financial instruments that are denominated in a foreign currency other than the functional currency in which they are measured. It is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group has transactional currency exposures. Such exposures arise from sales and purchases in currencies other than the Parent Company’s functional currency. During the years ended December 31, 2011, 2010 and 2009, approximately 25.0%, 24.40% and 23.20%, respectively, of the Group’s total sales are denominated in currencies other than the functional currency. Furthermore, the Group’s capital expenditures are substantially denominated in US Dollar. As of December 31, 2011 and 2010, 71.93% and 68.32%, respectively, of the Group’s financial liabilities
103
were denominated in US Dollar, respectively. The Group does not have any foreign currency hedging arrangements. The tables below summarize the Group’s exposure to foreign currency risk. Included in the tables are the Group’s financial assets and liabilities at carrying amounts, categorized by currency. Hong Kong Dollar
2011 Singaporean Dollar
Other Currencies*
₱2,021,911,190
₱–
₱–
₱–
₱2,021,911,190
1,039,254,600
–
–
–
1,039,254,600
3,061,165,790
–
–
–
3,061,165,790
183,032,000
–
–
–
183,032,000
3,244,197,790
–
–
–
3,244,197,790
16,880,208 3,261,077,998
–
–
–
16,880,208 3,261,077,998
US Dollar
Total
Financial Assets Financial Assets at FVPL
Designated at FVPL Quoted debt securities Private Government
Quoted equity securities
Derivative financial instruments not designated as accounting hedges
AFS investments:
Quoted equity securities
110,367,200
–
–
–
110,367,200
Cash and cash equivalents
712,920,906
287,899,905
33,375,457
328,292,828
1,362,489,096
Receivables
445,489,378
22,922,687
26,657,135
121,927,679
616,996,879
Refundable deposits**
166,175,680
–
–
–
166,175,680
₱4,696,031,162
₱310,822,592
₱60,032,592
₱450,220,507
₱5,517,106,853
₱3,335,028,805 20,871,893,433
₱39,759,803 –
₱33,404,496 –
₱131,471,536 –
₱3,539,664,640 20,871,893,433
Financial Liabilities Accounts payable and other accrued liabilities*** Long-term debt Derivative financial instruments not designated as accounting hedges Others****
60,857,586 670,810,817 ₱24,938,590,641
– –
– –
₱39,759,803
₱33,404,496
– – ₱131,471,536
60,857,586 670,810,817 ₱25,143,226,476
* 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 2010 US Dollar
Hong Kong Dollar
Singaporean Dollar
Other Currencies*
Total
₱2,086,089,903
₱–
₱–
₱–
₱2,086,089,903
1,017,480,478
–
–
–
1,017,480,478
3,103,570,381
–
–
–
3,103,570,381
285,950,784
–
–
–
285,950,784
3,389,521,165
–
–
–
3,389,521,165
489,917,466
–
–
–
489,917,466
3,879,438,631
–
–
–
3,879,438,631
Financial Assets Financial Assets at FVPL
Designated at FVPL
Quoted debt securities
Private
Government
Quoted equity securities
Derivative financial instruments not designated as accounting hedges
AFS investments:
Quoted equity securities
Cash and cash equivalents Receivables Refundable deposits**
(Forward)
104
114,532,000
114,532,000
1,567,055,465
45,463,367
348,009,633
6,836,340
9,240,000 ₱5,918,275,729
13,116,910 36,788,388 –
₱52,299,707
258,013,947 70,264,523 –
₱49,905,298
1,883,649,689 461,898,884 –
₱328,278,470
9,240,000 ₱6,348,759,204
2010 US Dollar
Hong Kong Dollar
Singaporean Dollar
Other Currencies*
Total
Accounts payable and other accrued liabilities***
₱2,527,277,204
₱35,990,964
₱45,849,225
₱79,987,436
₱2,689,104,829
Long-term debt
18,432,708,704
–
–
–
18,432,708,704
923,451,428
–
–
–
923,451,428
₱21,883,437,336
₱35,990,964
₱45,849,225
₱79,987,436
₱22,045,264,961
Financial Liabilities
Others****
* Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro ** Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position ***Excluding government-related payables **** Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position
The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilities as of December 31, 2011 and 2010 follow:
US dollar Singapore dollar Hong Kong dollar
2011 ₱43.84 to US$1.00 ₱33.85 to SGD1.00 ₱5.65 to HKD1.00
2010 ₱43.84 to US$1.00 ₱34.16 to SGD1.00 ₱5.64 to HKD1.00
The following table sets forth the impact of the range of reasonably possible changes in the US dollar - Philippine peso exchange value on the Group’s pre-tax income for the years ended December 31, 2011, 2010 and 2009 (in thousands). Changes in foreign exchange value Change in pre-tax income Change in equity
2011 ₱5 (₱5) (₱2,308,680) ₱2,308,680 ₱12,588 (₱12,588)
2010 ₱5 (₱5) (₱1,833,907) ₱1,833,907 ₱13,063 (₱13,063
2009 ₱5 (₱5) (₱2,161,052) ₱2,161,052 – –
Other than the potential impact on the Group’s pre-tax income and change in equity from AFS investments, there is no other effect on equity. The Group does not expect the impact of the volatility on other currencies to be material. Commodity price risk The Group enters into commodity derivatives to manage its price risks on fuel purchases. Commodity hedging allows stability in prices, thus offsetting the risk of volatile market fluctuations. Depending on the economic hedge cover, the price changes on the commodity derivative positions are offset by higher or lower purchase costs on fuel. A change in price by US$10.00 per barrel of jet fuel affects the Group’s fuel costs in pre-tax income by ₱1,121.0 million, ₱989.8 million and ₱938.3 million as of December 31, 2011, 2010 and 2009, respectively, in each of the covered periods, assuming no change in volume of fuel is consumed. Interest rate risk Interest rate risk arises on interest-bearing financial instruments recognized in the consolidated statement of financial position and on some financial instruments not recognized in the consolidated statement of financial position (i.e., some loan commitments, if any). The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt (Note 16).
105
106
Commercial loans from foreign banks (Note 16) Floating rate US Dollar LIBOR 6 months + margin
ECA-backed loans from foreign banks (Note 16) Floating rate US Dollar London Interbank Offering Rate (LIBOR) 6 months + margin US Dollar LIBOR 3 months + margin
Commercial loans from foreign banks (Note 16) Floating rate US Dollar LIBOR 6 months + margin
ECA-backed loans from foreign banks (Note 16) Floating rate US Dollar London Interbank Offering Rate (LIBOR) 6 months + margin US Dollar LIBOR 3 months+ margin
1,556,977 US$10,171,620
1,484,287
US$9,964,765
8,614,643
8,480,478
>1-2 years
<1 year
US$1,132,585 7,482,058
US$15,963,283
US$15,624,071
US$1,211,956 7,268,522
1,635,163
US$1,174,361 13,153,759 14,328,120
>1-2 years
1,557,084
14,066,987
US$1,256,891 12,810,096
<1 year
US$10,558,668
1,635,135
8,923,533
US$1,181,953 7,741,580
>2-3 years
US$16,063,580
1,361,605
US$1,224,172 13,477,803 14,701,975
>2-3 years
US$10,579,556
1,361,101
9,218,455
US$1,232,086 7,986,369
>3-4 years
US$15,095,474
–
US$1,276,096 13,819,378 15,095,474
>3-4 years
–
US$5,737,756 96,132,575 101,870,331
>5 years
4,553,852
US$11,998,761 163,557,305 175,556,066
Total (In US Dollar)
US$9,515,958
–
9,515,958
US$1,284,346 8,231,612
>4-5 years
December 31, 2010
6,037,500
117,484,686
US$13,334,635 104,150,051
US$72,731,619 US$123,522,186
–
72,731,619
US$7,291,709 65,439,910
>5 years
Total (In US Dollar)
US$15,493,179 US$101,870,331 US$180,109,918
–
US$1,329,485 14,163,694 15,493,179
>4-5 years
December 31, 2011
₱5,415,212,639
264,683,997
5,150,528,642
₱584,590,468 4,565,938,174
Total (in Philippine Peso)
₱7,896,018,828
199,640,873
₱526,025,684 7,170,352,271 7,696,377,955
Total (in Philippine Peso)
₱4,875,569,086
234,616,294
4,640,952,792
₱392,351,552 4,248,601,240
Fair Value
₱8,647,608,777
176,618,066
₱348,420,966 8,122,569,745 8,470,990,711
Fair Value
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 16):
The following table sets forth the impact of the range of reasonably possible changes in interest rates on the Group’s pre-tax income for the years ended December 31, 2011, 2010 and 2009. Changes in interest rates Changes in pre-tax income
2011 1.50% (1.50%) (₱104,185,842) ₱104,185,842
2010 1.50% (₱20,179,681)
(1.50%) ₱20,179,681
2009 1.50% (₱16,881,917)
(1.50%) ₱16,881,917
Fair value interest rate risk Fair value interest rate risk is the risk that the value/future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate risk relates primarily to the Group’s financial assets designated at FVPL.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s pre-tax income, through the impact of mark-to-market of financial assets designated at FVPL which are recognized in profit or loss.
Changes in market interest rates Changes in pre-tax income
1.50% (₱263,355,208)
Changes in market interest rates Changes in pre-tax income
1.50% (₱210,554,767)
2011
2010
(1.50%) ₱263,355,208 (1.50%) ₱248,358,396
Other than the potential impact on the Group’s pre-tax income, there is no other effect on equity. 28. Fair Value Measurement
The methods and assumptions used by the Group in estimating the fair value of its financial instruments are: Cash and cash equivalents (excluding cash on hand), Receivables and Accounts payable and other accrued liabilities Carrying amounts approximate their fair values due to the relatively short-term maturity of these instruments. Investments in quoted equity securities Fair values are based on quoted prices published in markets. Amounts due from and due to related parties Carrying amounts of due from/to related parties, which are receivable/payable and due on demand, approximate their fair values. Non interest-bearing refundable deposits The fair values are determined based on the present value of estimated future cash flows using prevailing market rates. The Group used discount rates of 5.03% in 2011 and 6.93% in 2010. Derivative instruments The fair values of fuel derivatives are based on quotes obtained from an independent counterparty.
107
Long-term debt The fair value of long-term debt is determined using the discounted cash flow methodology, with reference to the Group’s current incremental lending rates for similar types of loans. The discount curve used range from 3.67% to 4.44% as of December 31, 2011 and from 3.29% to 3.72% as of December 31, 2010. The following table summarizes the carrying amounts and fair values of all the Group’s financial instruments. 2011 Carrying Value Financial Assets Financial assets at FVPL (Note 8) Designated at FVPL Quoted debt securities Private Government Quoted equity securities Derivative financial instruments not designated as accounting hedges AFS investments (Note 8) Quoted equity securities Loans and receivables Cash and cash equivalents (Note 7) Receivables (Note 9) Trade receivables Interest receivable Due from related parties Others* Refundable deposits** (Note 14) Total financial assets Financial Liabilities Accounts payable and other accrued liabilities*** (Note 15) Long-term debt**** (Note 16) Derivative financial instruments not designated as accounting hedges Due to related parties Others***** Total financial liabilities
Fair Value
2010 Carrying Value
₱2,021,911,190 1,039,254,600 3,061,165,790 183,032,000 3,244,197,790
₱2,021,911,190 1,039,254,600 3,061,165,790 183,032,000 3,244,197,790
₱2,086,089,903 1,017,480,478 3,103,570,381 285,950,784 3,389,521,165
₱2,086,089,903 1,017,480,478 3,103,570,381 285,950,784 3,389,521,165
16,880,208 3,261,077,998
16,880,208 3,261,077,998
489,917,466 3,879,438,631
489,917,466 3,879,438,631
110,367,200
110,367,200
114,532,000
114,532,000
8,957,783,986
8,957,783,986
9,763,288,972
9,763,288,972
546,244,400 146,244,351 35,174,259 341,707,354
546,244,400 146,244,351 35,174,259 341,707,354
471,465,815 134,819,376 86,576,474 402,132,066
471,465,815 134,819,376 86,576,474 402,132,066
166,175,680 10,303,697,230 ₱13,564,775,228
126,709,251 10,264,230,801 ₱13,525,308,799
9,240,000 10,982,054,703 ₱14,861,493,334
5,870,794 10,978,685,497 ₱14,858,124,128
₱6,340,401,121
₱6,340,401,121
₱5,117,153,241
₱5,117,153,241
20,871,893,433
18,461,269,306
18,432,708,704
16,164,927,534
60,857,586 36,302,174 670,810,817 ₱27,980,265,131
60,857,586 36,302,174 670,810,817 ₱25,569,641,004
– 35,529,304 923,451,428 ₱24,508,842,677
– 35,529,304 923,451,428 ₱22,241,061,507
* Include nontrade receivables from derivative counterparties and employees ** Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position *** Excluding government-related payables **** Includes current portion ***** Included under ‘Other noncurrent liabilities’ in the consolidated statements of financial position
108
Fair Value
The Group uses the following hierarchy for determining and disclosing the fair value of financial assets designated at FVPL, derivative financial instruments and AFS investments by valuation techniques: (a) Level 1: quoted (unadjusted) prices in an active market for identical assets or liabilities; (b) Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and (c) Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. The table below shows the Group’s financial instruments carried at fair value hierarchy classification: 2011 Level 1
2010 Level 2
Level 1
Level 2
Financial Assets Financial assets at FVPL (Note 8) Designated at FVPL Quoted debt securities Private Government
₱2,021,911,190 1,039,254,600
₱– –
₱2,086,089,903 1,017,480,478
₱– –
Quoted equity securities
3,061,165,790 183,032,000
– –
3,103,570,381 285,950,784
– –
3,244,197,790
–
3,389,521,165
–
Derivative financial instruments not designated as accounting hedges
– 3,244,197,790
AFS investments (Note 8) Quoted equity securities
110,367,200 ₱3,354,564,990
Financial Liabilities Derivative financial instruments not designated as accounting hedges
₱–
16,880,208 16,880,208 –
– 3,389,521,165 114,532,000
₱16,880,208 ₱3,504,053,165
₱60,857,586
₱–
489,917,466 489,917,466 – ₱489,917,466
₱–
There are no financial instruments measured at Level 3. There were no transfers within any hierarchy level of fair value measurements for the years ended December 31, 2011 and 2010, respectively.
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29. Commitments and Contingencies
Operating Aircraft Lease Commitments The Group entered into operating lease agreements with certain leasing companies which cover the following aircraft: A320 aircraft The following table summarizes the specific lease agreements on the Group’s Airbus A320 aircraft: Date of Lease Agreement December 23, 2004 April 23, 2007 May 29, 2007
March 14, 2008 March 14, 2008 July 13, 2011
Original Lessors CIT Aerospace International (CITAI)
New Lessors Wilmington Trust SP Services (Dublin) Limited* Celestial Aviation Trading 17 Inishcrean Limited (CAT 17) Leasing Limited (Inishcrean)** CITAI –
Celestial Aviation Trading 19 GY Aviation Limited (CAT 19) Lease 0905 Co. Limited*** Celestial Aviation Trading 23 – Limited (CAT 23) RBS Aerospace Limited –
No. of Units Lease Term 2 May 2005 - May 2012 June 2005 - June 2012 1
October 2007 - October 2016
4
2
March 2008 - March 2014 April 2008 - April 2014 May 2008 - May 2014 October 2008 - October 2014 January 2009 - January 2017
2
October 2011 - October 2019
2
March 2012 - February 2018
* Effective November 21, 2008 for the first aircraft and December 9, 2008 for the second aircraft ** Effective June 24, 2009 *** Effective March 25, 2010
On March 14, 2008, the Group entered into an operating lease agreement with CAT 19 for the lease of two Airbus A320 aircraft, which were delivered in 2009. On the same date, the Group also entered into another lease agreement with Celestial Aviation Trading 23 Limited (CAT 23) for the lease of two additional Airbus A320 aircraft to be received in 2012. In November 2010, the Group signed an amendment to the operating lease agreements with CAT 23, advancing the delivery of the two Airbus A320 aircraft to 2011 from 2012. Lease agreements with CITAI, CAT 17 and CAT 19 were amended to effect the novation of lease rights by the original lessors to new lessors as allowed under the existing lease agreements. On July 13, 2011, the Group entered into an operating lease agreement with RBS Aerospace Ltd. for the lease of two Airbus A320 aircraft, which shall be delivered in March 2012. This aircrafts shall replace the two aircrafts under Wilmington Trust SP Services (Dublin) Ltd. which contract shall expire on May 2012 and June 2012. Lease expenses relating to aircraft leases (included in ‘Aircraft and engine lease’ account in the consolidated statements of comprehensive income) amounted to ₱1,718.4 million, ₱1,604.9 million and ₱1,723.9 million in 2011, 2010 and 2009, respectively. Boeing 757 aircraft On August 22, 2001, the Group entered into aircraft operating lease agreements with PALSI, Inc. (PALSI) and Pegasus Aviation IV, Inc. (Pegasus) for the lease of one B757-236 aircraft from each company. The respective lease terms are for a period of seven years. The delivery dates of the aircraft which were leased from Pegasus and PALSI were December 13, 2001 and
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February 18, 2002, respectively. The lease agreements expired on December 13, 2008 and February 18, 2009, and the two aircraft were returned to the lessors in June and October 2009. Under the aforementioned aircraft lease agreements, the Group paid PALSI and Pegasus monthly maintenance expenses based on billing statements (included in ‘Accounts payable and other accrued liabilities’ account in the consolidated statements of financial position) throughout the lease term. On March 18, 2006, the Group entered into a sub-lease agreement with Air Slovakia for the sublease of the two B757-236 aircraft which were leased from PALSI and Pegasus. The sub-lease agreements were for a period of two years, which expired on February 18, 2009 and December 13, 2008. Rent income earned (included in the consolidated statements of comprehensive income) under the aforementioned sub-lease agreement amounted to ₱131.7 million in 2009. A330 aircraft On December 6, 2011, the Group entered into an aircraft operating lease Memorandum of Understanding (MOU) with CIT Aerospace International for the lease of four Airbus A330-300 aircrafts, which are scheduled to be delivered from June 2013 to 2014. These aircrafts shall be used for the long-haul network expansion programs of the Group. Future minimum lease payments under the above-indicated operating aircraft leases follow: 2011
Within one year After one year but not more than five years Over five years
2010
US dollar US$46,796,685
Philippine peso equivalent ₱2,051,566,670
303,869,815 312,695,865 US$663,362,365
13,321,652,690 13,708,586,722 ₱29,081,806,082
2009
US dollar US$37,805,531
Philippine peso equivalent ₱1,657,394,460
US dollar US$33,749,946
Philippine peso equivalent ₱1,559,247,483
113,948,252 8,408,350 US$160,162,133
4,995,491,378 368,622,089 ₱7,021,507,927
118,485,725 25,541,362 US$177,777,033
5,474,040,499 1,180,010,948 ₱8,213,298,930
Operating Non-Aircraft Lease Commitments The Group has entered into various lease agreements for its hangar, office spaces, ticketing stations and certain equipment. These leases have remaining lease terms ranging from one to ten years. Certain leases include a clause to enable upward revision of the annual rental charge ranging from 5.00% to 10.00%. Future minimum lease payments under these noncancellable operating leases follow:
Within one year After one year but not more than five years Over five years
2011 ₱104,835,557 466,379,370 394,888,300 ₱966,103,227
2010 ₱101,622,518 443,485,392 124,367,033 ₱669,474,943
2009 ₱92,283,350 406,896,291 230,752,642 ₱729,932,283
Lease expenses relating to both cancellable and non-cancellable non-aircraft leases (allocated under different expense accounts in the consolidated statements of comprehensive income) amounted to ₱240.3 million, ₱231.2 million and ₱239.7 million in 2011, 2010 and 2009, respectively.
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Aircraft and Spare Engine Purchase Commitments As of December 31, 2009, the Group has existing commitments to purchase 15 additional new Airbus A320 aircraft, which are scheduled for delivery between 2010 and 2014, and one spare engine to be delivered in 2011. In 2010, the Group exercised its option to purchase five Airbus A320 aircraft and entered into a new commitment to purchase two Airbus A320 aircraft to be delivered between 2011 and 2014. On May 2011, the Group turned into firm orders its existing options for the seven Airbus A320 aircraft which are scheduled to be delivered in 2015 to 2016. As of December 31, 2011, the Group has existing commitments to purchase 26 new Airbus A320 aircraft, three of which were delivered on January 25, September 29 and December 8, 2011, respectively. The remaining 23 Airbus A320 aircraft are scheduled to be delivered between 2012 and 2016, one of which was delivered in January 2012. The spare ending was delivered as scheduled in 2011. Also in 2007, the Group has committed to purchase six ATR 72-500 turboprop aircraft and has exercised an option to purchase additional four ATR 72-500 turboprop aircraft. These turboprop aircraft will cater to destinations in the country’s smaller airports. The Group has taken delivery of the initial six aircraft in 2008 and the remaining two were received during the first quarter of 2009. One ATR 72-500 turboprop aircraft was delivered in March 2011 to replace the aircraft disposed last November 2010. The Group terminated the purchase commitment for one ATR 72-500 turboprop aircraft. On August 2011, the Group entered in a new commitment to purchase firm orders of thirty new A321 NEO Aircraft and ten addition option orders. These aircraft are scheduled to be delivered from 2017 to 2021. These aircraft shall be used for a longer range network expansion programs. The above-indicated commitments relate to the Group’s re-fleeting and expansion programs. Capital Expenditure Commitments The Group’s capital expenditure commitments relate principally to the acquisition of aircraft fleet, aggregating to ₱68.83 billion as of December 31, 2011.
Within one year After one year but not more than five years
US dollar US$245,151,805
Philippine peso equivalent ₱10,747,455,131
1,324,854,931 US$1,570,006,736
58,081,640,175 ₱68,829,095,306
Contingencies The Group has pending suits and claims for sums of money against certain general sales agents which are either pending decision by the courts or being contested, the outcome of which are not presently determinable. The estimate of the probable costs for the resolution of these claims has been developed in consultation with outside counsel handling the defense in these matters and is based upon an analysis of potential results. The Group currently does not believe that these proceedings will have a material adverse effect on the Group’s financial position and results of operations. The Parent Company has a pending tax preassessment, the outcome of which is not presently determinable.
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30. Supplemental Disclosures to the Consolidated Statements of Cash Flows
The principal noncash activities of the Group were as follows: a. On June 30, 2010, JGSHI settled its payable to the Group through transfer of quoted debt and equity securities amounting ₱3.7 billion and accrued interest receivable amounting to ₱71.4 million. The transfer price was at fair value. These investments are classified by the Group as designated financial assets at FVPL and AFS investments amounting ₱3.5 billion and ₱118.4 million, respectively (Notes 8 and 26). b. On February 28, 2010, the Group sold an engine for ₱89.5 million with a book value of ₱72.2 million to a third party maintenance service provider (buyer). The transaction was settled through direct offset against the Group’s US-dollar denominated liability to the buyer amounting to ₱88.3 million. c. On December 31, 2011, the Group recognized a liability based on the schedule of pre-delivery payments amounting to ₱564.2 million with a corresponding debit to ‘Construction-in progress’ account. The liability was paid on January 3, 2012. d. In 2011, the additions in ‘Passenger aircraft’ account include capitalized ARO asset related to new operating lease agreements amounting ₱279.9 million (Note 17). In 2010, the additions in ‘Passenger aircraft’ account include increase in ARO asset amounting to ₱705.7 million due to change in accounting estimates. The above capitalized ARO asset has corresponding recognition of ARO liability with the same amount. e. In 2011 and 2010, the Group acquired a total of six passenger aircraft by assuming direct liabilities (Notes 12 and 16). This transaction is considered as a non-cash financing activity. 31. Registration with the BOI
The Parent Company is registered with the BOI as a new operator of air transport on a pioneer status on one (1) ATR72-500 and six (6) A320 and non-pioneer status for five (5) ATR72-500 and five (5) Airbus A320 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: a. ITH for • Registration no. 2008-119: four (4) years from March 2009 to February 2013; • Registration no. 2010-180: six (6) years from January 1, 2011 to December 31, 2016; • Registration no. 2011-240: four (4) years from November 16, 2011 to November 16, 2015 • Registration no. 2011-241: six (6) years from November 16, 2011 to November 16, 2017; • Registration no. 2011-242: four (4) years from November 16, 2011 to November 16, 2015; • Registration no. 2011-243: six (6) years from December 14, 2011 to December 13, 2017; a.i. Only income directly attributed to the revenue generated from the registered project shall be qualified for ITH. For this purpose, the Parent Company shall submit audited segregated income statements for this project. Net income from operation of registered activity shall be certified under oath by Chief Executive Officer or Chief Financial Officer.
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a.ii. The Parent Company shall submit the list of cost items common to all its projects/ activities (whether BOI or non-BOI registered) and its methodology adopted in allocating common cost. The methodology to be adopted in accounting fixed assets particularly the plant, property and equipment account shall be the straight line depreciation method. a.iii. Furthermore, the interest expense on the firm’s liabilities shall proportionately be allocated for this project. b. Employment of foreign nationals. This may be allowed in supervisory, technical or advisory positions for five (5) years from date of registration. The president, general manager and treasurer of foreign-owned registered firms or their equivalent shall be subject to the foregoing limitations. c. Importation of capital equipment, spare parts and accessories at zero (0%) duty from date of registration to June 16, 2011 pursuant to E.O. 528 and its Implementing Rules and Regulations. d. Avail of a bonus year in each of the following cases but the aggregated ITH availment (regular and bonus years) shall not exceed eight (8) years. • The ratio of total of imported and domestic capital equipment to the number of workers for the project does not exceed US$10,000 to one (1) worker; or • The net foreign exchange savings or earnings amount to at least US$500,000 annually during the first three (3) years of operation. • The indigenous raw materials used in the manufacture of the registered product must at least be fifty percent (50%) of the total cost of raw materials for the preceding years prior to the extension unless the BOI prescribes a higher percentage. e. For the first five (5) years from date of registration, the Parent Company shall be allowed an additional deduction from taxable income of fifty percent (50%) of the wages corresponding to the increment in number of direct labor for skilled and unskilled workers in the year of availment as against the previous year if the project meets the prescribed ration of capital equipment to the number of workers set by the BOI of US$10,000 to one worker and provided that this incentive shall not be availed of simultaneously with the ITH. f. Tax credit equivalent to the national internal revenue taxes and duties paid on raw materials and supplies and semi-manufactured products used in producing its export product and forming part thereof for a ten (10) years from start of commercial operations. Request for amendment of the date of start of commercial operation for purposes of determining the reckoning date of the 10-year period, shall be files within one (1) year from date of committed start of commercial operation. g. Simplification of customs procedures for the importation of equipment, spare parts, raw materials and suppliers. h. Access to Customs Bonded Manufacturing Warehouse (CBMW) subject to the customs rules and regulations provided the Parent Company exports at least 70% of production output. i. Exemption from wharfage dues, any export tax, duties, imports and fees for a ten (10) year period. j. Importation of consigned equipment for a period of ten (10) years from date of registration subject to posting of re-export bond.
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k. Exemption from taxes and duties on imported spare parts and consumable supplies for export producers with CBMW exporting at least 100% of production. The Parent Company shall submit to the BOI a quarterly report on the actual investments, employment and sales pertaining to the registered project. The report shall be due 15 days after the end of each quarter. 32. Events After the Reporting Date
On January 13, 2012, JGSHI acquired all of the Group’s debt and equity securities classified as financial assets at FVPL and AFS financial assets in exchange for a settlement amounting ₱3,458.0 million. Market value of financial assets at FVPL and AFS financial assets at date of settlement amounted to ₱3,347.0 million and ₱110.4 million, respectively. The Company entered into a joint venture agreement with CAE International Holdings Limited on December 13, 2011. On December 19, 2011, the Company paid ₱33.7 million representing payment for its 25% out of the 135,000,000 Class A subscribed shares at ₱1.0 par value. The joint venture named Philippine Academy For Aviation Training, Inc. was formally incorporated on January 27, 2012 (Note 13). 33. Approval of the Consolidated Financial Statements
The accompanying consolidated financial statements were approved and authorized for issue by the BOD on March 13, 2012.
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directory D o m e s ti c METRO MANILA Access Universe 24 Bohol Ave., South Triangle, Quezon City Tel: (02) 928-8911 to 12 / 924-1348 Express Ticket Office Terminal 1, Manila Domestic Airport, Pasay Hrs: 4 AM - 8 PM, Daily Hankook Air Services, Inc. 101, The Le Domaine Condo, 104 Tordesillas St., Salcedo Village Makati Tel: (02) 894-0086 Robinson’s Galleria West Lane, Level 1, Ortigas Ave., Pasig Hrs: 10 AM - 9 PM, Daily Robinsons Place Manila Pedro Gil corner Adriatico Sts., Ermita, Manila Hrs: 7 AM - 9 PM, Daily Samonette Philippines, Inc 2859 Danlig St., Pinagkaisahan, Makati Tel: (02) 882-0159 Fax: (02) 882-0156 Summit World Manila Level 5 SM Megamall, Mandaluyong City Tel: (02) 631-2277 / 635-0775 Supersonic Services Makati G/F Colonnade Residences C. Palanca St., Legaspi Village, Makati Tel: (02) 840-2952 / 893-9614 T3 Sales Office Level 3 Departure Hall, Naia Terminal 3, Andrews Ave., Pasay Universal Storefront Services Corp (USSC) 711 EDSA Cubao, Quezon City Tel: (02) 449-3888 LUZON Caritas Tours & Travel Rm 32 Colegio Business Center Nuevo Segovia St., Vigan City, Ilocos Sur Tel: (077) 722-1800/(02) 246-1518 (0922) 863-1800 Caritas Tours & Travel 2/F New Area Bldg., JP Rizal St., Laoag, Ilocos Sur
Tel: (077) 771-5464 / (0917) 799-4800 East Asia Ticketing Services Inc. 178 Rizal Ave., Puerto Princesa Tel: (048) 434-1329 / 433-5541 Airport Puerto Princesa Airport Tel: (048) 434-1680 / 434-1624 Coron Brgy 3 Don Pedro St., Coron, Palawan Tel: (048) 723-1224 Eurogate Travel and Tours 103 Regala Bldg., Fields Ave., Balibago, Angeles City, Pampanga 2009 Tel: (045) 892-0962 / 625-6355 / 892-4749 Gateway 21 Holidays Naga (Near SM - Naga across Central Bus Terminal) CBD Plaza Hotel, CBD II, Brgy Triangulo, Naga Tel: (054) 472-5777 / 475-5202 Legaspi City Airport Airport Site, Mayon Airport Canteen, Legazpi Tel: (052) 480-5055 / 820-2121
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Metroglass Office Peñaranda St., Legazpi Tel: (052) 480-5005 / 820-5252 Masbate Masbate Lodge, Quezon St., Masbate Tel: (056) 333-2184 / 487-5103 San Jose (Mindoro) Liboro St., San Jose, Occidental Mindoro Tel: (043) 491-2134 Sorsogon Sorsogon Commercial Piot, Sorsogon Tel: (056) 421-5756 / 421-55555 Virac 019 Sta Cruz St., Virac Catanduanes Tel: (052) 811-1738 GD Travel & Ground Services Cauayan E&A Canciller Bldg., Canciller Avenue, Cauayan Tel: (078) 652-2719 Tuguegarao Airport Tuguegarao Airport Terminal, Tuguegarao Tel: (078) 846-8889 / 846-1050 / 304-1814 Tuguegarao City Metropolitan Cathedral Bldg., Rizal St. Tel: (078) 844-8888 / 846-8880 / 844-7066 / 846-1312 Golden Ace Resources Corporation Legazpi Airport Airport Site, Legazpi Tel: (+63 52) 480-9667 Legazpi Casablanca Hotel Penaranda, Legazpi Tel: (+63 52) 481-2328 Naga (Head Office) 2 Taal St., Mayon Ave., Naga Tel: (+63 54) 473-9669 Naga Crown Hotel, Elias Angeles St., Naga Tel: (+63 54) 478-8933 Catanduanes San Juan St., Virac, Catanduanes Tel: (+63 52) 811-2788 Goodluck Travel World Services 67 Rizal St., Centro 10, Virac, Tuguegarao Tel: (078) 844-9387 Kendi Air Travel Agency - San Jose (Occ. Mindoro) Burgos St., Brgy. 6, San Jose, Occidental Mindoro Tel: (043) 491-4745 Airport Road Airport Road, Brgy. San Roque, San Jose, Occidental Mindoro Tel: (043) 491-1308 RCL Ticketing Outlet 183 National Highway, Brgy 5 Coron, Palawan Tel: (048) 725-4425 Robinsons Place-Imus 4L, Aguinaldo Highway Imus, Cavite Hours: 10 AM - 8 PM, Daily Small World Travel and Tours Agency 28 G/F Butagan Bldg., Balzain Highway, Tuguegarao City Tel: (078) 844-8267 Supersonic Services Clark Unit 106 Marlim Mansions, Balibago, Angeles Tel: (045) 892-5397 Travel Ilocandia Tours & Travel G/F CF Bldg., 80 Gen. Luna St., 2900 Laoag City, Ilocos City Tel: (077) 770-5050 / 770-4049 Fax: (077) 771-1295
VISAYAS Cebu Airport Ticket Office Mactan International Airport, Lapu-Lapu, Hrs: 1 AM - 9 PM / Sun, Mon, Thu, Fri Hrs: 5 AM - 9 PM / Tue, Wed, Sat Robinsons Place - Cebu F. Ramos St., Cebu City Hrs: 9AM - 8 PM, Daily BACOLOD Access World 5 R. Erillo Realty Ventures Bldg., J.Y. Perez High way, Kabankalan City, Negros Occidental Tel: (034) 471-2189 Garnet Travel Services Centrum Arcade Bldg., Ballesteros-Araneta St., Bacolod Tel: (034) 704-2430 Skytrip Travel Services Inc. Door 9 Victorina Arcade, Rizal St., Bacolod Tel: (034) 433-1825 Summit World Negros (Main Office) G/F Victorina Arcade, Rizal St., Bacolod Tel: (034) 434-2021 to 23 / 25 Airport Ticket Office New Bacolod-Silay Airport, Hacienda Panaogao, Silay City YM Travel Services Corner 12 & 13th Streets, G/F Mayfair Plaza, Lacson St., Bacolod Tel: (034) 435-5795 Boracay Filipino Travel - Boracay Tourist Center, Manocmanoc Malay, Aklan Tel: (036) 288-3704 Cebu ATJ Travel & Tours Rm 103 G/F Dona Luisa Bldg., Fuente, Osmena Tel: (032) 253-6953 / 253-6957 Boracay Getaway Tour Door 1 Teves Apartment San Vicente Village Subangdaku Mandaue, Cebu Tel: (032) 346-9316 / 420-7594 Buddy Sky Travel & Mktg Rizal St., Poblacion, Danao City, Cebu Tel: (032) 583-8632 Cebu Genesis Transport Inc. 40 Arlington Pond, Cebu City Tel: (032) 268-5527 Club Corea Tours Unit 403B Pdi Condominium, Archbishop Reyes Ave corner J. Panis St., Banilad, Cebu City Tel: (032) 233-1021 Comfort & Leisure Travel Agency Cebu North Road, Labogon, Mandaue Tel: (032) 420-6750 / 422-9335 Countryside Tourism, Travel & Tour Services The Marinas Compound, F. Paras corner C. Causin Streets, Poblacion Barili, Cebu Tel: (032) 417-9078 / 518-4757 Fly Dragon International G/F Door N, Borromeo Arcade, Borromeo St. Tel: (032) 415-7771 Global Link Tourism International, Inc. Arcade I, Capitol Commercial Complex, Escario St., Cebu Tel: (032) 254-2696 / 254-4539
Golden JC Holiday Travel 272 Ayala Center, Cebu City Tel: (032) 231-0200 Grand Hope Travel Lower G/F SM City North, Reclamation Area, Cebu City Tel: (032) 233-8530 / 234-0764 Grandeur Travel & Tours Services Daulin St., Sta Cruz, Balamban, Cebu Tel: (032) 333-2690 Greatways Travel & Tours Inc Unit 16 The Gallery, Juan Luna Ave., Mabolo Tel: (032) 412-2722 I Go Travel & Business Center 191 Gorordo Ave., Camputhaw, Cebu Tel: (032) 412-2535 Jaka Travel l & Tours Unit 203 Raintree Mall Bldg., Gen Maxilom Ave., Cebu City Tel: (032) 414-5513 JY Travel Consultants 2 Grand Legacy Subdivision, Buena Hills, Guadalupe, Cebu City Tel: (032) 262-8765 Land & Sky Travel Travel Service Inc. The River Gate Complex, Gen Maxilom Ave., Cebu City Tel: (032) 253-5439 / 253-9022 Lily’s General Merchandise 1449 Poblacion Minglanilla, Cebu City Tel: (032) 272-5703 / 490-0824 Local Destinations Travel Unit 1 Marsons Bldg.,San Vicente St., Bogo City Tel: (032) 434- 8388 / 511-2940 Neotravellers Agency Inc. Level 2 Gaisano Country Mall, Banilad Tel: (032) 232-4933 Oli’s Eload Retailer 191 SB Cabahug St., Ibabao-Estancia, Mandaue Tel: (032) 344-1768 Pinoycare Travel World 5F CFI Bldg., Escario St., Capitol Site, Cebu Tel: (032) 514-0282 Rainbow Tours & Travels 1 Josefa Arcade, Gen Maxilom Ave., Cebu Tel: (032) 233-3944 / 46 Skyliner Services Main Office G/F Elizabeth Mall, Leon Kilat St., Cebu Tel: (032) 2531-925 / 253-1926 Ayala South Parking Area, Ayala Mall Cebu Business Park, Cebu City Tel: (032) 234-2582 / 232-0131 SM Cebu G/F SM City Cebu, North Reclamation Rd. Tel: (032) 232-0131 Skywaves Cebu South Road, Tabunok, Talisay, Cebu Tel: (032) 273-0695 Speedway & Ads Services G/F Cansaga Consolacion, Cebu Tel: (032) 512-2784 Sports Adventure Travel Services Stall 3 Leyson St., Talamban, Cebu Tel: (032) 236-6563 Sweet Vacation Travel & Tours G/F Taft Financial Bldg., Cebu Business Park Tel: (032) 231-3131 / 231-3636
Tabunok Fortune Travel International Inc. 2/F Gaisano Grand Fiesta Mall Arcade Highway Tabunok, Talisay City, Cebu Tel: (032) 272-9988 TD Baguio Business Call Station 2nd Level, JY Square Mall, Lahug, Cebu Tel: (032) 234-0677 Tour Topia Travel Corporation A & H Bldg., 2/F Luce Hair Café Paradise Village, Banilad, Cebu City Tel: (032) 416-2882 Travelite Travel & Tours Co Mango 1 Arcade, Gen. Maxilom St. Cebu City Tel: (032) 255-3264 Uhx Travel Central Unit 5E Jl Millennium Bldg., Don Jose Avila St., Cebu Tel: (032) 312-1473 / 412-4089 Wanderlanes Travel (Banilad) Ginza Place, Old Banilad Road Tel: (032) 231-3935 Westlink Travel And Tours Juana Osmena St., Cebu City Tel: (032) 505-3927 White Sails Ticketing Services 86-A Mabini St., San Roque, Cebu City Tel: (032) 316-9228 Wow Travel & More Inc 3/L Robinson’s Place, Fuente Osmena Cebu City Tel: (032) 254-2640 / 340-0888 Dumaguete Dreamland Travel & Tours Agency Lupega Bldg., Locsin St., Dumaguete City Tel: (035) 003-1427 Ramar Services Main Office 479 Perdices St., Poblacion 3, Dumaguete Tel: (035) 422-4966 / 422-9281 Airport Ticket Office Dumaguete City RRCS Travel And Tours Jabil Bldg., Looc, Dumaguete City Tel: (035) 421-0791 / 422-1805 Tabloza Travel & Tours Magallanes St., Tanjay City, Negros Oriental Tel: (035) 415-9751 / 415-9559 ILOILO Amigo Travel & Tours G/F Carlos Young Bldg., Solis St., Iloilo Tel: (033) 337-2839 / 336-8653 Iexplore Travels 1A AJL Bldg., General Luna St., Iloilo Tel: (033) 336-6011 Iloilo Great Travel & Tours Iloilo Supermart-Molo, Locsin-Avancena St., Molo, Iloilo City Tel: (033) 396-5168 Lanz Travel & Tours Gen Fullon St., Brgy 8 (Pob) San Jose, Antique Tel: (036) 540-7003 Maves Marymart Ticket Office (Main) 127 G/F Marymart Mall, Valeria St., Iloilo Tel: (033) 508-7144 SM City Ticket Office Lower G/F., SM City Iloilo, Diversion Rd., Mandurriao, Iloilo
Gaisano Ticket Office G/F Gaisano City, Luna St., La Paz, Iloilo Tel: (033) 508-5288 Airport Ticket Office Iloilo Airport, Cabatuan, Iloilo Tel: (033) 333-0022 Partners Travel & Tours G/F The Residence Hotel, 44 Gen Luna St., Iloilo Tel: (033) 336-8174 Reina Travel & Tours 48 Burgos St., Lapaz, Iloilo City Tel: (033) 508-7762 Star Gate Travel & Tours Ledesma St., Brgy Magsaysay Tel: (033) 335-5588 / 334-4938 Travel Marketing Experts Corp 29A Amigo Plaza Mall, Iznart St., Iloilo Tel: (033) 508-5858 / 338-2828 VF Travel Services 32 Brgy Bacagay, West Maasin, Iloilo Tel: (033) 302-9669 Zelhart Travel Rm. 105 St., Joseph Bldg., Gen Fullon St., San Jose, Antique Tel: (036) 653-0047 / 540-8440 Kalibo Jonar Resources Kalibo Main Office Toting Reyes St., Poblacion, Kalibo, Aklan Tel: (036) 268-2913 Airport Ticket Office Kalibo International Airport, Pook Aklan Gaisano Ticket Office Gaisano Mall (outside stall), Arnaldo Blvd., Roxas Ormoc Agencia Ormocana Pawnshop & Jewelry Store Rizal St., District 7, Ormoc City Tel: (053) 255-4707 / 561-9730 Arco Travel & Tours 777 Bonifacio corner Lopez Jaena Sts., Ormoc Tel: (053) 255-7878 LGM Ticketing Center 791 Lopez Jaena St., Ormoc City, Leyte Tel: (053) 255-2564 ROxas C&L Travel & Tour Plaridel St., Poblacion VIII, Roxas City Tel: (036) 621-0926 Go Capiz Travel & Tours 2/F Pastrana Bldg., Legaspi corner Hughes Streets, Roxas City Tel: (036) 621-7380 Jonar Resources Roxas Main Office Roxas City Airport, Arnaldo Blvd, Roxas Tel: (036) 621-0307 / 621-4548 Airport Ticket Office Roxas Airport, Arnaldo Blvd, Roxas TACLOBAN/LEYTE/SAMAR ALS Traveller’s Shoppe P. Inocentes St., Naval Biliran, Samar Tel: (053) 500-9697 DM Bautista General Merchandise Candao Dulag Leyte Tel: (053) 322-2491 DM Officemate Enterprises L15 Tlhrd Bldg., Calanipawan Road, Tacloban City, Leyte Tel: (053) 523-3533
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Itinerary Thirty Ticketing A. Bonifacio St., Baybay City, Leyte Tel: (053) 335-2561 / 523-4930 Marg Services G.H. del Pilar St., Barangay Mabolo Catarman, Northern Samar Tel: (055) 500-9041 Quests Travel & Tours Cor Cabrera & R. Kangleon Sts, Tagnipa, Maasin City, Southern Leyte Tel: (053) 570-8637 / 381-0505
Islands Airlink Datu Halun St., Bongao, Tawi-Tawi Tel: (068) 268-1255 or (0919) 935-3436 Jet Aviation & Shipping Services Brgy Sanga-Sanga, Bongao, Tawi-Tawi Tel: (0920) 960-0888 / (0917) 576-3893
Skyline Travel ‘Tour Gomez St., Aguit-itan (Pob) Calbayog City, Western Samar Tel: (055) 209-1364
Juana’s Travel & Tours G/F Hotel Juana, Datu Halun St., Bongao, Tawi-Tawi Tel: (068) 268-1018
Summit World Tacloban Main Office Libertad, Brgy 1 & 4, Tacloban City Tel: (053) 325-7747 to 49 Airport Ticket Office Daniel Z. Romualdez Airport, Tacloban
Marian Air, Inc. 044 Montilla Blvd., 8600 Butuan City, Agusan Del Norte Tel: (085) 341-8879 / 225-9012 Telefax: (085) 341-6958
Trip Makers Travel & Tours 156 San Bartolome St., Catbalogan, Samar Tel: (055) 251-2028 / 251-5021 TAGBILARAN/BOHOL Alturas Supermarket Corporation B. Inting St., Tagbilaran City, Bohol Tel: (038) 501-6297 Angelswings Travel & Tours Manigue Bldg., M.H. Del Pilar St., Tagbilaran City, Bohol Tel: (038) 411-2645 / 501-7653 Lydia’s Ticketing Outlet Poblacion Talibon, Bohol Tel: (038) 515-0355 Tarsier Travel & Tours Main Office CPG Ave., Tagbilaran City, Bohol Tel: (038) 411-3615 / 412-7203 Airport Ticket Office Tagbiliran Airport, Brgy Taloto, Tagbilaran Tel: (038) 411-5707 Mindanao
Summit World Group Cagayan De Oro Summit World Philippines Cor Archbishop Hayes–Rizal Sts., 9000 Cagayan De Oro, Misamis Oriental Tel: (088) 856-3936 Telefax: (088) 857-6661 Cotabato 17 Hua Hing Bldg., Door 4, Sinsuat Ave., Cotabato City Tel: (064) 421-8873 to 74 Fax: (064) 421-1206 Davao Del Sur 2/F Victoria Plaza Mall, Bajada 8000 Davao City, Davao Del Sur Tel: (082) 225-3246 Fax: (082) 305-1124 Zamboanga Del Sur G/F Lantaka Hotel Bldg., NS Valderroza St., 7000 Zamboanga Del Sur Tel: (062) 993-1146 / 993-1166 Telefax: (062) 991-3650 Pacific Wide Travel & Tours Mezzanine Gaisano Mall, J. Catolico Sr. St., 9500 Gen. Santos City, South Cotabato Telefax: (083) 301-7820
Ancer Travel & Tours G/F Hotel Alindahaw, Rizal Ave., San Francisco District, 7016 Pagadian City, Zamboanga Del Sur Tel: (062) 215-3831
QSC Travel & Tours G/F Quality Shopping Center Washington St., 50th Barangay, 7200 Ozamiz City, Misamis Occidental Tel: (088) 521-1525 Telefax: (088) 521-5365
Caberte Travel & Tours 2/F Caberte Bldg., Rizal Ave. Balangasan District, Pagadian City Tel: (062) 214-3181 / 850-7179
Ramar Services Balboza Bldg., General Luna St., 7100 Dipolog City, Zamboanga Del Norte Telefax: (065) 212-9005
DIMDI, Inc. J. Catolico Sr. St., 9500 Gen. Santos City, South Cotabato Tel: (083) 302-3456 Telefax: (083) 552-8336
Sade Marketing 03765 Narciso St., 8400 Surigao City, Surigao Del Norte Telefax: (086) 826-5230
Dipag Travel Agency 106 Bonifacio St., 7100 Dipolog City, Zamboanga Del Norte Tel: (065) 212-8229 / 212-6516 Fax: (065) 909-0209 ECL Travel & Tours 2/F Geege Megamall, Tinago, 7200 Ozamiz City, Misamis Occidental Telefax: (088) 521-5912 Exceline Travel & Tours Osmena St., Central Barangay, 7100 Dipolog City, Zamboanga Del Norte Telefax: (065) 212-4888 / 908-0778
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Ilang-Ilang Travel Agency B. Aquino corner Cabrera Sts., Gatas Pagadian City, Zamboanga Del Sur Tel: (062) 214-2777 / 215-2222 Telefax: (062) 214-1300
Sky Team Services, Inc. 2/F KCC Mall of Gensan, J. Catolico, Sr. St., 9500 Gen. Santos City, South Cotabato Telefax: (083) 301-0083 Virgox Travel Agency & Cargo Handling Services 2/F Chua Bldg., Kaimo corner Narciso Sts., 8400 Surigao, Surigao Del Norte Tel: (086) 826-5550
I n te r n a ti o n a l BANGKOK Aviation (Thailand) Co. Ltd. 140/17 ITF 11/F, Silom Road, Suriyawongse, Bangrak, Bangkok Tel: (662) 235-8280 to 83 / (668) 0591-0022 Fax: (662) 231-6488
Thai Sky NTT Tours Co., Ltd. 1362 Suthisarnvinijchai Rd., Dindaeng, Bangkok 10400 Tel: (662) 693-7888 / 6550 Fax: (662) 693-7575 BEIJING Beijing Meiya International Air Service Co., Ltd. 709 China Life Tower, 16 Chaowai St., Chaoyang District, Beijing 100020 Tel: 86-10-85699606 Fax: 86-10-85699618 China Space Travel Service Co., Ltd. 6/F Bldg. A, Shimao Mansion, 92 Jiangguo Rd., Chaoyang District, Beijing 100022 Tel: 86-10-65812757 Fax: 86-10-85891188 Pacific Aviation Marketing (Beijing) Ltd. 1108, 11/F Tower 3, Beijing International Center,
38 Dong San Huan Bei Rd., Chao Yang District, Beijing 100026 Tel: 86-10-85879358 / 400 678 3993 (Toll Free – China Only ) Fax:
86-10-85261084
BRUNEI Anthony Tours and Travel Agency Sdn Bhd 1 Lot 20171 Jalan Laksamana Abdul Razak Km2 Jalan Tutong Bandar Seri Begawan Tel: (673) 222-2666 / 222-7965 / 222-8668 Fax: (673) 222-7889 Pan Bright Travel Services BSB Branch Office Suite 101-102, Bangunan HJ Ahmad Laksamana, 38-39Jalan Sultan Bandar Seri Begawan Negara Tel: (673) 224-0985 / 2240980 Fax: (673) 224-0979 Kuala Belait Branch Office 37 Jalan Pretty PO BO 218, Kuala Belait KA 1189 Negara Tel: (673) 3341154 / 3341143 (for ads) Fax: (673) 333 5704 GUANGZHOU (CANTON) Hong Thai International Travel Service Ltd. Rm A-D, 7/F Guang Fa Garden Bldg., 498 Huanshidong Rd., Guangzhou 510075 Tel: (86-20) 876-08833 Fax: (86-20) 876-04355 / 876-06146 Meiya Air Service & Tour Co. Ltd. 910 Main Tower, G.D. International Hotel, 339 Huanshi Dong Lu, Guangzhou 510098 Tel: (86-20) 223-72818 Fax: (86-20) 223-73109 HANOI Exotissimo Travel Vietnam Company Limited 26 Tran Nhat Duat, Hoan Kiem District Tel: (84-4)-3828-2150 Fax: (84-4) 3828-2146 Nam Thanh Travel 51 Dao Duy Tu St., Hoan Kiem District Tel: (84-4) 926-2144 Fax: (84-4) 926-2157
Worldwide Agency Han 1308A ,13/F Bac A Bldg., 9 Dao Duy Anh St., Dong Da District Tel: (844) 3575 7369 Fax : (844) 3574 2146
PT Mega Trans Nusantara JL, Tomang Raya No. 47 I-J Kelurahan Tomang, West Jakarta Municipality Tel: (6221) 5682555 / 5682388 Fax: (6221) 5682322
HO CHI MINH (SAIGON)
KOREA
Exotissimo Travel Vietnam Company Limited 64 Dong Du St., District 1, Ho Chi Minh Tel: (84-8) 38272-911 Fax: (84-8) 38272-912 Branch Office SC4-1 My Khanh 3, Nguyen Duc Canh St., District 7, Ho Chi Minh Tel: (848) 5412-2761 Fax:(848) 5412-2759 Branch Office 41 Thao Dien, District 2, Ho Chi Minh Tel: (848) 3519-4111 Fax: (848) 3519-4379
Global Vision Ways (SEL Office) 902 Kwang Hwa Mun Bldg., 211 Sejongno, Chongno-Ku, Seoul Tel SEL: (822) 3708-8585 to 90 Fax: (822) 3708-8580
Flight Travel Co. LTD 2 Bis Cong Truong Quoc te. Ward 06, District 3, Ho Chi Minh Tel: (848) 39140180 EXT 207 Fax: (848) 39140179 Satellite Ticket Office 121 Hai Ba Trung, District 1, Ho Chi Minh Tel: (848) 38247744 EXT 106 Fax: (848) 38220230 Lac Hong Voyages Co., Ltd. 71/2/24 Nguyen Bac St., Ward 3, Tan Binh District, Ho Chi Minh City Tel: (84-8) 3991-9256 / 3991-9219 Ext l03. 104, l05, & 106 Fax: (84-8) 3991-9257
Lac Hong Voyages Co., Ltd. 89 Cong Hoa Road, Ward 4, Tan Binh District, Ho Chi Minh City Tel : (848) 39483269 to 71 Fax: (848) 39483276
Busan Ofc: 18/F Hanjin Haeun Bldg. 79-9, Juangangdong 4-ga, Jung-gu, Busan 600-755 Tel: (8251) 462-0686 Fax: (8251) 468-1540 KOTA KINABALU Popular Express Travel SDN BHD 33, Jalan Tugu, Kampung Air, 88000 Tel: (6088) 214-692 / 221-313 Fax: (6088) 213-036 Skyzone Tours & Travel (Borneo) SDN BHD Suite G-02(b), G/F Menara MAA No. 6, Lorong Api-Api 1, 88000 Tel: (6088) 448-871 Fax: (6088) 447-217 KUALA LUMPUR Bestour & Travel (M) SDN BHD Lot 3.10, 3/F Wisma Cosway Jalan Raja Chulan, 50200 Tel: (603) 2142-1741 Fax: (603) 2143-2048 Golden Deluxe Travel Service Agency SDN BHD 10-1 Jalan Khoo Teik Ee, Off Jalan Imbi, 55100 Tel: (603) 2144-9888 / 2144-6888 Fax: (603) 2142-8631 / 2144-4245
Worldwide Agency Co. Ltd 12/F Green Power Bldg., 35 Ton Duc Thang, Ben Nghe Ward District 1, Ho Chi Minh Tel: (84 8) 2221-7660 / 2221-7620 Ext. 116 Fax: (84 8) 2221-7655
Skyzone Tours & Travel SDN BHD Lot 3.05-08, 3F Shaw Parade, Changkat Thambi Dollah, 55100 Tel: (603) 2118-7888 Fax: (603) 2118-7899
HONG KONG
Borneo Tours SDN BHD 206A Blok A Mentari Business Park 2, Jalan PJS 8/5 46150 Petaling Jaya Tel: (603) 5631-2988 Fax: (603) 5637-0988
Rm 407, 4F Mirror Tower, 61 Mody Road, Tsim Sha Tsui, East Kowloon, Hong Kong Tel: (852) 2722-0609/ 2722-0804 Fax: (852) 2722-1993 JAKARTA Pt. Andalan Usaha Cemerlang Main Office JI. Petogogan 2, 13A Block A - Kebayoran Baru, Jakarta Selatan 12160 Tel: (6221) 7279-0111 Fax: (6221) 7279-0222 West Jakarta Branch Grogol JL. Dr. Muwardi 3, No. 37, Grogol Jakarta 11450 Tel: (6221) 569-60874 Fax: (6221) 569-60765 Surabaya Branch Sales Office JL Gunungsari Indah JJ/46, Surabaya 60223 Tel: (6231) 4005-9329 Fax: (6231) 766-7239 PT AVS Indonesia Allianz Tower, 27/F Unit C JL HR Rasuma Said Super Block 2 Kawasan Kumingan Persada Jakarta 12980 Tel: (6221) 2907 9796 to 97 Fax: (6221) 2907 9699
MACAU Macau 24 Hours Travel Agency Limited Unit 10B, AIA Tower, No. 251A-301, Avenida Comercial De Macau Tel: (853) 2875-3126 Fax: (853) 2875-3173 New Sintra Tours Ltd. 2003 Macau Pier Office, Nova Jetfoil Terminal Tel: (853) 287-28050 Fax: (853) 287-28053
OSAKA Air System Inc. Hommachi Hua Tong Bldg., 5F 5-16, 4-chome, Hommachi Chuo-ku Osaka 541-0053 Japan Tel: (06-626) 52535 Fax: (06-626) 52501 SHANGHAI China Air Service Ltd. Shanghai Office Rm 805, No.28 Jin Ling Road (W) Jin Ling Mansion, Shanghai 200021 Tel: (86-21) 515-03966 / 515-03977 Fax: (86-21) 330-80774 Shanghai Citic International Travel Co. Ltd. Rm 1609, 1018 Xikang Rd., Shanghai 200060 Tel: (86-21) 517-80659 / 517-80606 Fax: (86-21) 322-70623 SINGAPORE Metro Tours Singapore PTE LTD 51 Cuppage Rd., 01-14, 229469 Tel: (65) 6735-7155 / 6735-2669 / 6737-0577 Fax: (65) 6735-7592 Pen Travel and Tours Singapore PTE LTD 304 Orchard Rd., 03-75 Lucky Plaza, 238863 Tel: (65) 6737-9231 / 6735-1600 to 02 Fax: (65) 6735-1604 Worldwide Aviation Sales PTE LTD 100 Tras St., 09-01 Amara Corporate Tower, 079027 Tel: (65) 6220-5966 Fax: (65) 6220-3173 SIEM REAP Tourex Asia Co., LTD 207 EO, Kampuchea Krom Boulevard, Mittapheap Quarter, Makara District, Phom Penh Tel: (023) 882 666 Fax: (023) 882 228 5 Oceans Co. LTD. 147 St., 51 (Pasteur), Sangkat BoeungRaing, Khan Daun Penh, Phnom Penh Tel: (855) 23 221 537 Fax: (855) 12 540 983 TAIPEI Aviation Travel Services Co. Ltd. 10 /F, No.19, Sec. 3, Nan-King East Road, Taipei 104, Taiwan Tel: (886-2) 2509-6665 / 2509-6632 Fax: (886-2) 2509-6623 XIAMEN China International Travel Service Co., Ltd. Rm A-D, 2/F, 228, Binglang Xili Siming District Tel: (86-592) 5095636 / (86) 1380-6006067 Fax: (86-592) 5095636
STDM Tours-Travel Agency Ltd. Rua De Bruxelas No. 70, Praca Kin Heng Long Ed, Heng Hoi Kuok, Kin Fu Kuok, R/C, W. Macau Tel: (853) 283-55700 Fax: (853) 283-55736 Wan Tung Wan Kau Travel Co. Ltd. Rua Dois Do Bairro Iao Hon, No. 22 Loji B064 R/C, Macau Tel: (853) 2841-2770 Fax: (853) 2841-5158
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Independent Public Accountants
Sycip, Gorres, Velayo & Co. SGV Building, 6760 Ayala Avenue 1226 Makati City, Philippines
Legal Counsel
Romulo, Mabanta, Buenaventura, Sayoc & de los Angeles Law Office 21/F Philamlife Tower, 8767 Paseo de Roxas St., 1226 Makati City, Philippines
Stock Transfer and Dividend Paying Agent
Banco de Oro Unibank, Inc. 15/F BDO South Tower, Makati Avenue corner H.V. dela Costa St., 1200 Makati City, Philippines
Investor Relations
investor.relations@cebupacificair.com