C O V E R S H E E Tfor

AUDITED FINANCIAL STATEMENTS

SEC Registration Number

1 5 4 6 7 5

C O M P A N Y N A M E

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

S

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

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

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

r d , C e b u C i t y

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

1 7 - A S E C N / A

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

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

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

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

91 5/25 12/31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation

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

Robin C. Dui Robin.Dui@cebupacificair.com (632) 802-7060 N/A

CONTACT PERSON’s ADDRESS

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

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

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

*SGVFS026572*

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

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

OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended December 31, 2017

2. SEC Identification No. 154675

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

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

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

6. Industry Classification Code: (SEC Use Only)

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

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

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

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

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

Common Stock, P=1.00 Par Value 605,953,330 shares

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

Yes [x] No [ ]

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12. Indicate by check mark whether the registrant:

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

Yes [x] No [ ]

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

Yes [x] No [ ]

13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. Theaggregate market value shall be computed by reference to the price at which the stock was sold, or theaverage bid and asked prices of such stock, as of a specified date within 60 days prior to the date offiling. If a determination as to whether a particular person or entity is an affiliate cannot be madewithout involving unreasonable effort and expense, the aggregate market value of the common stockheld by non-affiliates may be calculated on the basis of assumptions reasonable under thecircumstances, provided the assumptions are set forth in this Form.

The aggregate market value of stocks held by non-affiliates is P=19,866,042,378.

TABLE OF CONTENTS

Page No.

PART I – BUSINESS AND GENERAL INFORMATION

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

Item 2 Properties…………………………………………………………………. 16

Item 3 Legal Proceedings………………………………………………………… 16

Item 4 Submission of Matters to a Vote of Security Holders……………………. 16

PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5 Market for Registrant’s Common Equity and Related Stockholder Matters………………………………………………. 16

Item 6 Management’s Discussion and Analysis or Plan of Operation…………………………………………………………. 18

Item 7 Financial Statements……………………………………………………… 35

Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure…………………………………….. 36

PART III – CONTROL AND COMPENSATION INFORMATION

Item 9 Board of Directors and Executive Officers of the Registrant…………….. 36

Item 10 Executive Compensation…………………………………………………. 44

Item 11 Security Ownership of Certain Beneficial Owners and Management……………………………………………………………… 46

Item 12 Certain Relationships and Related Transactions…………………………. 48

PART IV – CORPORATE GOVERNANCE

Item 13 Corporate Governance……………………….…………………………… 48

PART V – EXHIBITS AND SCHEDULES

Item 14 Exhibits and Reports on SEC Form 17-C………………………………… 48

SIGNATURES................................................................................................................. 49

INDEX TO FINANCIAL STATEMENTS ANDSUPPLEMENTARY SCHEDULES………………………………………………….. 51

PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business

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

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

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

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

The Parent Company has ten special purpose entities (SPE) that it controls, namely: Cebu AircraftLeasing Limited, Boracay Leasing Limited, Surigao Leasing Limited, Vector Aircraft LeasingLimited, Panatag One Aircraft Leasing Limited, Panatag Two Aircraft Leasing Limited, PanatagThree Aircraft Leasing Limited, Summit A Aircraft Leasing Limited, Summit B Aircraft LeasingLimited and Summit C Aircraft Leasing Limited.

On March 20, 2014, the Parent Company acquired 100% ownership of Tiger Airways Philippines(TAP), including 40% stake in Roar Aviation II Pte. Ltd. (Roar II), a wholly owned subsidiary ofTiger Airways Holdings Limited (TAH). On April 27, 2015, with the approval of the Securitiesand Exchange Commission (SEC), TAP was rebranded and now operates as CEBGO, Inc. TheParent Company, its ten SPEs and CEBGO, Inc. (collectively known as “the Group”) areconsolidated for financial reporting purposes.

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

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

On March 1, 2018, the Parent Company incorporated 1Aviation Groundhandling ServicesCorporation (a wholly-owned subsidiary).

As of December 31, 2017, the Group operates an extensive route network serving 76 domesticroutes and 37 international routes with a total of 2,485 scheduled weekly flights. It operates fromseven hubs, including the Ninoy Aquino International Airport (NAIA) Terminal 3 and Terminal 4both located in Pasay City, Metro Manila; Mactan-Cebu International Airport located in

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Lapu-Lapu City, part of Metropolitan Cebu; Diosdado Macapagal International Airport (DMIA)located in Clark, Pampanga; Davao International Airport located in Davao City, Davao del Sur;Ilo-ilo International Airport located in Ilo-ilo City, regional center of the western Visayas region;Kalibo International Airport in Kalibo, Aklan and Laguindingan Airport in Misamis Oriental.

As of December 31, 2017, the Group operates a fleet of 61 aircraft which comprises ofone (1) Airbus A319, thirty-six (36) Airbus A320, eight (8) ATR 72-500, eight (8) ATR 72-600and eight (8) Airbus A330 aircraft. It operates its Airbus aircraft on both domestic andinternational routes and operates the ATR 72-500 and ATR 72-600 aircraft on domestic routes,including destinations with runway limitations. The average aircraft age of the Group’s fleet isapproximately 5.01 years as of December 31, 2017.

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

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

For the Years Ended December 312017 2016 2015

Passenger Services 73.4% 68.5% 75.5%Cargo Services 6.8% 5.2% 6.2%Ancillary Services 19.8% 17.3% 18.3%

100.0% 100.0% 100.0%

On May 16, 2016, the Group and seven other market champions in Asia Pacific, announced theformation of the world’s first, pan-regional low cost carrier alliance, the Value Alliance. TheGroup, together with Jeju Air (Korea), Nok Air (Thailand), NokScoot (Thailand), Scoot(Singapore), Tigerair Singapore, Tigerair Australia and Vanilla Air (Japan) will deliver greatervalue, connectivity and choice for travel throughout Southeast Asia, North Asia and Australia, asthe airlines bring their extensive networks together. The Value Alliance airlines collectively fly tomore than 160 destinations from 17 hubs in the region.

On February 23, 2015 and May 12, 2016, the Group signed a forward sale agreement with asubsidiary of Allegiant Travel Company (collectively known as “Allegiant”), covering theGroup’s sale of ten (10) Airbus A319 aircraft. The delivery of the aircraft to Allegiant isscheduled to start on various dates in 2015 until 2018.

In May 2017 and November 2017, the Group entered into sale and operating leasebacktransactions with Ibon Leasing Limited and JPA No. 78/79/80/81 Co., Ltd. which transferredeconomic ownership of two (2) and four (4) Airbus A320 aircraft, respectively.

Aside from these, there are no material reclassifications, merger, consolidation, or purchase or saleof a significant amount of assets not in the ordinary course of business that was made in the pastthree years. The Group has not been subjected to any bankruptcy, receivership or similarproceeding in the said period.

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Distribution Methods of Products or Services

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

Internet

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

As part of the strategic alliance between the Parent Company and TAH, the two carriers enteredinto an interline agreement with the first interline flights made available for sale in TAH’s websitestarting July 2014. Interline services were made available in Cebu Pacific’s website inSeptember 2014. With this, guests of both airlines now have the ability to cross-book flights on asingle itinerary and enjoy seamless connections with an easy one-stop ticketing for connectingflights and baggage check-in. In December 2014, the Group also launched its official mobileapplication which allows guests to book flights on-the-go through their mobile devices.

The Group’s participation in the Value Alliance with other low-cost carriers in the region willincrease its distribution reach by enabling its customers to view, select and book the best-availableairfares on flights from any of the airlines in a single transaction, directly from each partner’swebsite. This is made possible through the groundbreaking technology developed by Air BlackBox (ABB). ABB allows guests to enjoy the full suite of ancillary choices they have come toappreciate from low cost carriers across all partner airline sectors in a single itinerary.

Booking Offices and Call Centers

As of December 31, 2017, the Group has a network of nine booking offices located throughout thePhilippines and two regional booking offices, one in Hong Kong and another in Seoul, SouthKorea. It directly operates these booking offices which also handle customer service issues, suchas customer requests for change of itinerary. In addition, the Group operates two in-house callcenters, one in Manila and the other in Cebu. It also uses a third-party call center outsourcingservice to help accommodate heavy call traffic. Its employees who work as reservation agents arealso trained to handle customer service inquiries and to convert inbound calls into sales.Purchases made through call centers can be settled through various modes, such as credit cards,payment centers and authorized agents.

Government/Corporate Client Accounts

As of December 31, 2017, the Group has government and corporate accounts for passenger sales.It provides these accounts with direct access to its reservation system and seat inventory as well ascredit lines and certain incentives. Further, clients may choose to settle their accounts bypost-transaction remittance or by using pre-enrolled credit cards.

Third Party Sales Outlets

As of December 31, 2017, the Group has a network of distributors in the Philippines selling itsdomestic and international air services within an agreed territory or geographical coverage. Eachdistributor maintains and grows its own client base and can impose on its clients a service or

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transaction fee. Typically, a distributor’s client base would include agents, travel agents or endcustomers. The Group also has a network of foreign general sales agents, wholesalers, andpreferred sales agents who market, sell and distribute the Group’s air services in other countries.

Publicly Announced New Product or Service

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

The Group plans to expand its fleet over the course of the next three years by additional(thirty-two) 32 aircraft (before any returns and sale of aircraft) by the end of 2020. The additionalaircraft will support the Group’s plans to increase frequency on current routes and to add new citypairs and destinations. The Group continued to boost its domestic growth and market share duringthe year by deploying more A330 aircraft to Cebu and Davao, upgrading key domestic routes fromATR to A320 aircraft, boosting inter-island connectivity with the introduction of new flights fromManila to Tablas, Masbate and Siargao; from Clark to Caticlan and Busuanga; from Cebu toBusuanga, Cotabato and Masbate; from Cagayan de Oro to Bacolod, Caticlan, Dumaguete,Tagbilaran and Zamboanga; from Davao to Dumaguete, Tacloban and Tagbilaran; from Kalibo toClark; and from Zamboanga to Cotabato and increasing frequencies on existing routes such asManila to Caticlan, Davao and Dumaguete; and Cebu to Siargao. The Group has also announcedits plan to launch direct flights between Manila and Batanes starting March 25, 2018. Frequencieson some international routes were also increased such as Manila to Bali, Hanoi, Osaka, Nagoya,Tokyo (Narita) and Sydney. The Group also upgraded selected flights between Manila and HongKong from Airbus A320 to the larger A330 aircraft to accommodate additional passenger traffic.Three long haul routes were suspended during the year namely Manila to Riyadh, Kuwait andDoha. A330 aircraft used for these suspended flights were redeployed to serve other key domesticand regional markets.

Further, the Group has a firm order for sixteen (16) ATR 72-600 with options to acquire anadditional ten (10) ATR 72-600. The new ATR 72-600 will be equipped with the high densityArmonia cabin, the widest cabin in the turboprop market. It will be fitted with seventy-eight (78)slim-line seats and wider overhead bins with 30% more stowage space for greater comfort forpassengers. Eight (8) out of the sixteen (16) ATR 72-600 aircraft were received in 2016 and 2017while the rest are scheduled for delivery from 2018 to 2020. The Group also has an existing orderfor thirty-two (32) Airbus A321 NEO (New Engine Option) aircraft with options for a further tenAirbus A321 NEO. Airbus A321 NEO will be the first of its type to operate in the Philippines,being a larger and longer-haul version of the familiar Airbus A320. These 220-seater aircraft willhave a much longer range which will enable the Group to serve cities in Australia, India andNorthern Japan, places the A320 cannot reach. This order for A321 NEO aircraft will bedelivered between 2018 and 2022. On June 7, 2017, the Group also placed an order with AirbusS.A.S to purchase seven (7) new A321 CEO aircraft due for delivery starting 2018 to meet itsincreased capacity requirements.

Competition

The Philippine aviation authorities deregulated the airline industry in 1995 eliminating certainrestrictions on domestic routes and frequencies which resulted in fewer regulatory barriers to entryinto the Philippine domestic aviation market. On the international market, although thePhilippines currently operates under a bilateral framework, whereby foreign carriers are grantedlanding rights in the Philippines on the basis of reciprocity as set forth in the relevant bilateralagreements between the Philippine government and foreign nations, in March 2011, the Philippine

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government issued E.O. 29 which authorizes the Civil Aeronautics Board (CAB) and thePhilippine Air Panels to pursue more aggressively the international civil aviation liberalizationpolicy to boost the country’s competitiveness as a tourism destination and investment location.

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

The Group’s major competitors in the Philippines are Philippine Airlines (“PAL”), a full-servicePhilippine flag carrier; PAL Express (formerly Airphil Express) a low-cost domestic operator andwhich code shares with PAL on certain domestic routes and leases certain aircraft from PAL; andPhilippines Air Asia (a merger between former Air Asia Philippines and Zest Air). Most of theGroup’s domestic and international destinations are also serviced by these airlines. The Group isthe leading domestic airline in the Philippines by passengers carried, with a market share of 56%.

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

Raw Materials

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

The Group’s fuel suppliers at its international stations include Shell-Singapore, Shell-Hong Kong,Shell-Dubai, Shell-Narita, SK Corp-Korea, Chevron-Sydney and World Fuel-China among others.It also purchases fuel from local suppliers like Petron, Chevron Manila and Shell Manila. TheGroup purchases fuel stocks on a per parcel basis, in such quantities as are sufficient to meet itsmonthly operational requirements. Most of the Group’s contracts with fuel suppliers are on ayearly basis and may be renewed for subsequent one-year periods.

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

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

Transactions with and/or Dependence on Related Parties

The Group’s significant transactions with related parties are described in detail in Note 27 of thenotes to consolidated financial statements.

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

Trademarks

Trademark registrations with the Intellectual Property Office of the Philippines (IPOPhil) prior tothe effective date of Republic Act (R.A) No. 8293, or the current Intellectual Property Code of the

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Philippines, are valid for twenty (20) years from the date of issue of the certificate of registration.Meanwhile, trademark registrations covered by R.A. No. 8293 are valid for ten years from the dateof the certificate of registration. Regardless of whether the trademark registration is for 20 yearsor ten years, the same may be renewed for subsequent ten-year terms.

The Group holds the following valid and subsisting trademark registrations:

· CEBU PACIFIC, the Cebu Pacific feather-like device, CEBU PACIFIC AIR, CEBUPACIFIC AIR.COM;

· The CEB Mascot;· Various trademarks for the Parent Company’s branding campaigns such as WHY

EVERYONE FLIES, WHY EVERYJUAN FLIES, and the logos used for such purposes;· CEBGO and the Cebgo logo;· A trademark for the strategic alliance entered into by the Parent Company and TAH; and· GETGO and the GetGo logo for its lifestyle rewards program

On June 1, 2015, the Parent Company rolled out its new logo which features shades of thePhilippines’ land, sea, sky and sun. This new branding also symbolizes the airline's growth andevolution from a low-cost pioneer to its larger operations today. The new logo and new brandinghave been registered as trademarks of the Group.

Meanwhile, the Group has 26 trademarks registered with the Intellectual Property Office of Chinaand three (3) trademarks with the Intellectual Property Office of Singapore.

The Parent Company has also incorporated the business names “Cebu Pacific” and “Cebu PacificAir” with its Articles of Incorporation, as required by Memorandum Circular No. 21-2013 issuedby the SEC. Registering a business name with the SEC precludes another entity engaged in thesame or similar business from using the same business name as one that has been registered.

The Group, together with other airline members, also has trademarks registered for the ValueAlliance logo in various jurisdictions.

Licenses / Permits

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

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

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

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Franchise

In 1991, pursuant to R.A. No. 7151, the Parent Company was granted a franchise to operate airtransportation services, both domestic and international. In accordance with the ParentCompany’s franchise, this extends up to year 2031:

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

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

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

Kindly refer to Note 1 of the notes to consolidated financial statements.

Government Approval of Principal Products or Services

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

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

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

Effects of Existing or Probable Government Regulations on the Business

Civil Aeronautics Administration and CAAP

Policy-making for the Philippine civil aviation industry started with R.A. No. 776, known as theCivil Aeronautics Act of the Philippines (the “Act”), passed in 1952. The Act established thepolicies and laws governing the economic and technical regulation of civil aeronautics in thecountry. It established the guidelines for the operation of two regulatory organizations, CAB forthe regulation of the economic activities of airline industry participants and the Air TransportationOffice, which was later transformed into the CAAP, created pursuant to R.A. No. 9497, otherwiseknown as the Civil Aviation Authority Act of 2008.

The CAB is authorized to regulate the economic aspects of air transportation, to issue generalrules and regulations to carry out the provisions of R.A. No. 776, and to approve or disapprove the

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conditions of carriage or tariff which an airline desires to adopt. It has general supervision andregulation over air carriers, general sales agents, cargo sales agents, and airfreight forwarders, aswell as their property, property rights, equipment, facilities and franchises.

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

The Group complies with and adheres to existing government regulations.

Aviation Safety Ranking and Regulations

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

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

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

In September and December 2014, the Group received CAAP’s approval for extended rangeoperations in the form of a certification for Extended Diversion Time Operations (EDTO) of up to90 and 120 minutes, respectively. EDTO refers to a set of rules introduced by the ICAO forairlines operating twin-engine aircraft on routes beyond 60 minutes flying time from the nearest

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airport. This certification allows the Group to serve new long haul markets and operate moredirect routes between airports resulting to more fuel savings and reduced flight times.

These developments open the opportunity for the Group to establish new routes to other countriesin the U.S. and Europe.

E.O. 28 and 29

In March 2011, the Philippine government issued E.O. 28 which provides for the reconstitutionand reorganization of the existing Single Negotiating Panel into the Philippine Air NegotiatingPanel (PANP) and Philippine Air Consultation Panel (PACP) (collectively, the Philippine AirPanels). The PANP shall be responsible for the initial negotiations leading to the conclusion ofthe relevant ASAs while the PACP shall be responsible for the succeeding negotiations of suchASAs or similar arrangements.

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

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

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

The issuance of the foregoing EOs may significantly increase competition.

ASEAN Open Skies Agreement

In February 2016, the Philippine government ratified the ASEAN Open Skies agreement whichallows designated carriers of ASEAN countries to operate unlimited flights between capitals,leading to better connectivity and more competitive fares and services. Subject to regulatoryapprovals, this liberalized and equitable air services agreement further allows carriers to upgradeits ASEAN flights to wide-bodied aircraft and increase capacity without the need for air talks thusallowing airlines to focus on expanding its operations, stimulating passenger traffic, andimproving customer experience rather than spending valuable resources on negotiating foradditional air rights.

Air Passenger Bill of Rights

The Air Passenger Bill of Rights (the “Bill”), which was formed under a joint administrative orderof the Department of Transportation and Communications, the CAB and the Department of Tradeand Industry, was signed and published by the Government on December 11, 2012 and came intoeffect on December 21, 2012. The Bill sets the guidelines on several airline practices such asoverbooking, rebooking, ticket refunds, cancellations, delayed flights, lost luggage and misleadingadvertisement on fares.

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R.A. No. 10378 - Common Carriers Tax Act

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

Among the relevant provisions of the act follows:

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

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

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

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

Research and Development

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

Cost and Effects of Compliance with Environmental Laws

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

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

· R.A. No. 8749 (The Implementing Rules and Regulations of the Philippine Clean Air Act of1999) requires operators of aviation fuel storage tanks, which are considered as a possiblesource of air pollution, to obtain a Permit to Operate from the applicable regional office of theEnvironment Management Bureau (EMB). The Group’s aviation fuel storage tanks aresubject to and are compliant with this requirement.

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· R.A. No. 9275 (Implementing Rules and Regulations of the Philippine Clean Water Act of2004) requires owners or operators of facilities that discharge regulated effluents to securefrom the Laguna Lake Development Authority (LLDA) (Luzon area) and/or the applicableregional office of the EMB (Visayas and Mindanao areas) a Discharge Permit, which is thelegal authorization granted by the Department of Energy and Natural Resources for thedischarge of waste water. The Group’s operations generate waste water and effluents for thedisposal of which a Discharge Permit was obtained from the LLDA and the EMB of Region 7which enables it to discharge and dispose of liquid waste or water effluent generated in thecourse of its operations at specifically designated areas. The Group also contracted theservices of government-licensed and accredited third parties to transport, handle and disposeits waste materials.

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

On an annual basis, the Group spends approximately P=21,400.00 in connection with itscompliance with applicable environmental laws.

Employees

As of December 31, 2017, the Group has 4,363 permanent full time employees, categorized asfollows:

Division: EmployeesOperations 3,219Commercial 669Support Departments(1) 475

4,363

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

The Group anticipates having approximately 4,360 employees by the end of 2018.

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

Risk

The major business risks facing the Group are as follows:

(1) Cost and Availability of Fuel

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

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

(2) Competition

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

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

(3) Economic Downturn

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

(4) Availability of Debt Financing

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

(5) Foreign Exchange and Interest Rate Fluctuations

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

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

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(6) Airport and Air Traffic Control Infrastructure Constraints

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

(7) Reliance on Third Party Facilities and Service Providers

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

(8) Safety and Security

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

The Group is committed to operational safety and security. Its commitment to safety andsecurity is reflected in its rigorous aircraft maintenance program and flight operationsmanuals, intensive flight crew, cabin crew and employee training programs and strictcompliance with applicable regulations regarding aircraft and operational safety and security.The Group also continues to invest in the latest technology such as data driven safetymanagement software, wireless ground link for real-time transfer of flight data, electronicflight bag for timely distribution of information to flight crew and others.

(9) Maintenance Cost and Performance of Maintenance Repair Organizations

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

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

(10) Reliance on Automated Systems and the Internet

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

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

The Group’s success depends to a significant extent upon the continued services of itsexecutive officers and other key management personnel. The unavailability of any of itsexecutive officers and other key management or failure to recruit suitable or comparablereplacements could have a material adverse effect on its business, prospects, financialcondition and results of operations.

(12) Retaining and Attracting Qualified Personnel

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

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

(13) Availability of Insurance

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

(14) Regulations

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

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

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

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

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

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management could result to work slowdowns or stoppages or disruptions which could beharmful to the business.

(17) Restrictions under the Philippine Constitution and other Laws

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

(18) Relationship with Third Party Sales Outlets

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

(19) Outbreaks

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

(20) Domestic Concentration

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

(21) Investment Risk

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

(22) Information technology (IT) Risk

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

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

Item 2. Properties

As of December 31, 2017, the Group does not own any land. However, it owns an office buildingwhich serves as its corporate headquarters and training center located at the Domestic Road,Barangay 191, Zone 20, Pasay City. The land on which said office building stands is leased fromthe Manila International Airport Authority (MIAA). The Group also leases its hangar, aircraftparking and other operational space from MIAA. Kindly refer to Notes 13, 18 and 30 of the Notesto consolidated financial statements for the detailed discussions on properties, leases, purchasesand capital expenditure commitments.

Item 3. Legal Proceedings

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

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

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

PART II - OPERATIONAL AND FINANCIAL INFORMATION

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

Market Information

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

High LowYear 2017

October to December 2017 P=113.40 P=95.00July to September 2017 113.00 94.90April to June 2017 109.80 94.00January to March 2017 100.00 89.00

High LowYear 2016

October to December 2016 P=113.50 P=89.70July to September 2016 125.50 97.70April to June 2016 102.10 85.50January to March 2016 92.50 74.00

As of March 22, 2018, the latest trading date prior to the completion of this annual report, salesprice of the common stock is at P=96.00.

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Holders

The number of shareholders of record as of December 31, 2017 was ninety-one (91). Commonshares outstanding as of December 31, 2017 were 605,953,330.

List of Top 20 Stockholders of Record

As of December 31, 2017

Name of StockholdersNumber of

Shares Held% to Total

Outstanding1. CPAir Holdings, Inc. 400,816,841 66.15%3. PCD Nominee Corporation (Non-Filipino) 102,501,239 16.92%2. PCD Nominee Corporation (Filipino) 95,703,538 15.79%4. JG Summit Holdings, Inc. 6,595,190 1.09%5. Pablo M. Pagtalunan &/or Francisca P. Pagtalunan 50,000 0.01%6. Elizabeth Yu Gokongwei 40,000 0.01%7. Amon Trading Corporation 38,200 0.01%8. Clifford James L. Uy 36,000 0.01%8. Stephen Earl L. Uy 36,000 0.01%9. Raul Veloso Del Mar 16,000 0.00%10. Elizabeth Reyes 13,900 0.00%11. Acris Corporation 12,500 0.00%12. Luis Gantioqui Romero 10,300 0.00%13. Roseller A. Mendoza 6,500 0.00%14. Eric Macario Bernabe 5,000 0.00%14. Estevez Villaruz (Esvill), Inc. 5,000 0.00%14. John T. Lao 5,000 0.00%15. Brigida T. Guingona 4,800 0.00%16. Francisco Paulino V. Cayco 4,000 0.00%16. Sally Chua Co 4,000 0.00%16. Vicente Lim Co 4,000 0.00%17. Frederic Francois Favre-Marinet 3,950 0.00%18. Eric Macario Bernabe 3,000 0.00%19. Leodigario S.P. Aquino &/or Danah R. Antonio 2,800 0.00%20. Antonio F. Lagarejos 2,000 0.00%20. Estate of Angelina T. Locsin 2,000 0.00%20. Marita Ann Ong 2,000 0.00%20. Anthony V. Rosete 2,000 0.00%20. Mario F. Sales 2,000 0.00%Other stockholders 25,702 0.00%Total Outstanding 605,953,330 100.00%

Dividends

On May 19, 2017, the Group’s Board of Directors (BOD) approved the declaration of a regularand a special cash dividend both in the amount of P=1.00 per share and a special cash dividend inthe amount of P=1.75 per share from the unrestricted retained earnings of the Parent Company to allstockholders of record as of June 9, 2017 and payable on July 5, 2017.

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On May 20, 2016, the Group’s BOD approved the declaration of a regular cash dividend in theamount of P=1.00 per share and a special cash dividend in the amount of P=1.00 per share from theunrestricted retained earnings of the Group to all stockholders of record as of June 9, 2016 andpayable on July 5, 2016.

On June 24, 2015, the Group’s BOD approved the declaration of a regular cash dividend in theamount of P=1.00 per share and a special cash dividend in the amount of P=0.50 per share from theunrestricted retained earnings of the Group to all stockholders of record as of July 16, 2015 andpayable on August 11, 2015.

Recent Sales of Unregistered Securities

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

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

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

Results of Operations

Year Ended December 31, 2017 Compared with Year Ended December 31, 2016

RevenuesThe Group generated revenues of P=68.029 billion for the year ended December 31, 2017, 9.9%higher than the P=61.899 billion revenues earned last year. Growth in revenues is accounted for asfollows:

Passenger RevenuesPassenger revenues increased by P=3.339 billion or 7.2% to P=49.931 billion for the year endedDecember 31, 2017 from P=46.593 billion posted in 2016. This was mainly attributable to the3.2% growth in passenger volume to 19.7 million from 19.1 million last year driven by theincrease in number of flights by 3.6% in 2017 as the Group added more aircraft to its fleet.The number of aircraft increased from 57 aircraft as of December 31, 2016 to 61 aircraft as ofDecember 31, 2017. The increase in average fares by 3.8% to P=2,529 for the year endedDecember 31, 2017 from P=2,436 for the same period last year also contributed to the increase inrevenues.

Cargo RevenuesCargo revenues grew by P=1.040 billion or 29.2% to P=4.603 billion for the year endedDecember 31, 2017 from P=3.564 billion for the year ended December 31, 2016 following theincrease in the cargo volume and yield in 2017.

Ancillary RevenuesAncillary revenues went up by P=1.751 billion or 14.9% to P=13.494 billion for the year endedDecember 31, 2017 from P=11.743 billion posted last year consequent to the 3.2% increase inpassenger traffic and 11.3% increase in ancillary revenue per passenger. This was driven byimproved online bookings, pricing adjustments and introduction of new ancillary revenue productsand services.

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ExpensesThe Group incurred operating expenses of P=57.895 billion for the year ended December 31, 2017higher by 16.6% than the P=49.648 billion operating expenses recorded for the year endedDecember 31, 2016. The increase was primarily due to the rise in fuel prices in 2017 coupled withthe weakening of the Philippine Peso against the U.S. Dollar as referenced by the depreciation ofthe Philippine Peso to an average of P=50.40 per U.S. Dollar for the year ended December 31, 2017from an average of P=47.50 per U.S. Dollar last year based on the Philippine Dealing and ExchangeCorporation (PDEx) weighted average rates. The growth in the airline’s seat capacity from theacquisition of new aircraft also contributed to the increase in expenses.

Flying OperationsFlying operations expenses increased by P=4.167 billion or 21.2% to P=23.861 billion for the yearended December 31, 2017 from P=19.694 billion incurred in the same period last year. This isprimarily attributable to the 23.9% increase in aviation fuel expenses to P=19.595 billion for theyear ended December 31, 2017 from P=15.821 billion for the same period last year consequent tothe increase in jet fuel prices as referenced by the increase in the average published fuel MOPSprice of U.S. $65.31 per barrel for the year ended December 31, 2017 from U.S. $52.83 per barrelin 2016. The increase in fuel cost was further influenced by the weakening of the Philippine Pesoagainst the U.S. Dollar as referenced by the depreciation of the Philippine Peso to an average ofP=50.40 per U.S. Dollar for the year ended December 31, 2017 from an average of P=47.50 perU.S. Dollar last year based on the Philippine Dealing and Exchange Corporation (PDEx) weightedaverage rates.

Aircraft and Traffic ServicingAircraft and traffic servicing expenses increased by P=1.128 billion or 17.2% to P=7.706 billion forthe year ended December 31, 2017 from P=6.578 billion reported in the same period in 2016. Thiswas driven by the increase in the number of flights by 3.6% with the launch of new domesticconnections and addition of more frequencies on existing routes in 2017. Higher expenses werealso attributable to operating more flights using the bigger Airbus A330 aircraft for which airportand ground handling charges were generally higher compared to other aircraft types. Theweakening of the Philippine Peso against the U.S. Dollar as referenced by the depreciation of thePhilippine Peso to an average of P=50.40 per U.S. Dollar for the year ended December 31, 2017from an average of P=47.50 per U.S. Dollar last year also contributed to the increase ininternational airport charges.

Depreciation and AmortizationDepreciation and amortization expenses grew by P=840.668 million or 14.0% to P=6.839 billion forthe year ended December 31, 2017 from P=5.999 billion for the year ended December 31, 2016.Depreciation and amortization expenses increased consequent to the arrival of one (1) AirbusA330 and six (6) ATR 72-600 aircraft during the year, net of three (3) Airbus A319 aircraft soldand six (6)Airbus A320 aircraft placed under operating lease in 2017.

Repairs and MaintenanceRepairs and maintenance expenses went up by 15.6% to P=7.553 billion for the year endedDecember 31, 2017 from P=6.531 billion posted last year. This was largely attributable to theweakening of the Philippine Peso against the U.S. Dollar as referenced by the depreciation of thePhilippine Peso to an average of P=50.40 per U.S. Dollar for the year ended December 31, 2017from an average of P=47.50 per U.S. Dollar last year. This was also partly driven by the increase inprovisions for return cost by P=88.316 million to P=1.209 billion for the year ended December 31,2017 from P=1.121 billion for the same period last year. Higher maintenance costs were alsoconsequent to the growth of the Group’s fleet from 57 to 61 aircraft as well as to the incurrence of

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direct costs from repairs for older aircraft, in particular the remaining A319 fleet, the ATR fleet,and the early deliveries of A320 aircraft.

Aircraft and Engine LeaseAircraft and engine lease expenses moved up by P=381.279 million or 9.0% to P=4.635 billion forthe year ended December 31, 2017 from P=4.254 billion charged for the year ended December 31,2016. Increase was due to additional operating leases on six Airbus A320 aircraft, coupled withthe effect of the depreciation of the Philippine Peso against the U.S. Dollar during the currentperiod.

Reservation and SalesReservation and sales expenses increased by P=462.897 million or 14.4% to P=3.675 billion for theyear ended December 31, 2017 from P=3.212 billion for the year ended December 31, 2016. Thiswas primarily attributable to higher commission expenses relative to the increase in onlinebookings, passenger volume and cargo sales year on year.

General and AdministrativeGeneral and administrative expenses grew by P=297.661 million or 16.4% to P=2.111 billion for theyear ended December 31, 2017 from P=1.813 billion incurred for the year endedDecember 31, 2016. Growth in general and administrative expenses was primarily attributable tothe increased flight and passenger activity in 2017. The Group also incurred additional costs forvarious information technology projects to improve efficiency which likewise contributed to theincrease in general and administrative expenses.

Passenger ServicePassenger service expenses slightly dropped by P=52.538 million or 3.4% to P=1.515 billion for theyear ended December 31, 2017 from P=1.568 billion posted for the year ended December 31, 2016.This was largely caused by the decrease in pre-ordered meals due to the suspension of flights inthe Middle East partially offset by the additional cabin crew hired for new aircraft acquired duringthe period and annual increase in crew salary rates.

Operating IncomeAs a result of the foregoing, the Group finished with an operating income of P=10.134 billion forthe year ended December 31, 2017, 17.3% lower than the P=12.251 billion operating income earnedlast year.

Other Income (Expenses)

Interest IncomeInterest income increased by P=69.281 million or 60.9% to P=182.953 million for the year endedDecember 31, 2017 from P=113.672 million earned in the same period last year due to the increasein the balance of cash in bank and short-term placements year on year and to higher interest ratesin short-term placements.

Hedging Gains (Losses)The Group incurred a hedging loss of P=132.570 million for the year ended December 31, 2017, adecrease by P=1.720 billion from a hedging gain of P=1.588 billion in the same period last year as aresult of lower mark-to-market valuation on fuel hedging positions in 2017.

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Foreign Exchange LossesNet foreign exchange losses of P=797.976 million for the year ended December 31, 2017 resultedfrom the weakening of the Philippine Peso against the U.S. Dollar as referenced by thedepreciation of the Philippine Peso to P=49.93 per U.S. Dollar for the year endedDecember 31, 2017 from P=49.72 per U.S. Dollar for the year ended December 31, 2016 based onPDEx closing rates. The Group’s major exposure to foreign exchange rate fluctuations is inrespect to U.S. Dollar denominated long-term debt incurred in connection with aircraftacquisitions.

Equity in Net Income of Joint VentureThe Group had equity in net income of joint venture of P=140.331 million for the year endedDecember 31, 2017, P=37.978 million lower than the P=178.309 million equity in net income ofjoint venture earned in the same period last year. The decrease was attributable to lower netincome of Aviation Partnership (Philippines) Corporation (A-plus) and Philippine Academy forAviation Training, Inc. (PAAT) during the period.

Interest ExpenseInterest expense increased by P=251.355 million or 21.5% to P=1.422 billion for the year endedDecember 31, 2017 from P=1.170 billion registered in 2016. Higher interest expense incurredduring the year was due to the additional loans availed to finance the acquisition of the additionalaircraft delivered in 2017 and by the effect of the weakening of the Philippine Peso against theU.S. Dollar during the current period.

Gain on sale of aircraftIn 2017, the Group sold and delivered three Airbus A319 aircraft to a subsidiary of AllegiantTravel Company (Allegiant) and entered into lease amendment agreements which transferredeconomic ownership of six Airbus A320 aircraft to the counterparty which resulted to a gain ofP=102.574 million. In 2016, the Group sold and delivered four Airbus A319 aircraft to Allegiantwhich resulted to a loss of P=962.609 million.

Income before Income TaxAs a result of the foregoing, the Group recorded income before income tax of P=8.208 billion forthe year ended December 31, 2017, a decline of 15.5% or P=1.508 billion lower than theP=9.716 billion income before income tax posted for the year ended December 31, 2016.

Provision for Income TaxProvision for income tax for the year ended December 31, 2017 amounted to P=300.206 million, ofwhich, P=134.353 million pertains to provision for current income tax recognized as a result of thetaxable income earned in 2017. Provision for deferred income tax amounted to P=165.853 millionresulting from the decrease in deferred tax assets on future deductible amounts recognized duringthe period.

Net IncomeNet income for the year ended December 31, 2017 amounted to P=7.908 billion, a decrease of18.9% from the P=9.754 billion net income earned in 2016.

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Year Ended December 31, 2016 Compared with Year Ended December 31, 2015

RevenuesThe Group generated revenues of P=61.899 billion for the year ended December 31, 2016, 9.6%higher than the P=56.502 billion revenues earned in 2015. Growth in revenues is accounted for asfollows:

Passenger RevenuesPassenger revenues grew by P=3.911 billion or 9.2% to P=46.593 billion for the year endedDecember 31, 2016 from P=42.681 billion registered in 2015. This increase was primarily due tothe 4.1% growth in passenger volume to 19.1 million from 18.4 million for the year endedDecember 31, 2015. Such steady growth resulted from the increase in the Group’s fleet from55 aircraft as of December 31, 2015 to 57 aircraft as of December 31, 2016, and the overallimprovement in seat load factor from 82.6% to 86.0%. The increase in average fares by 4.9% toP=2,436 for the year ended December 31, 2016 from P=2,323 in 2015 also contributed to theincrease in revenues.

Cargo RevenuesCargo revenues grew by P=102.616 million or 3.0% to P=3.564 billion for the year endedDecember 31, 2016 from P=3.461 billion for the year ended December 31, 2015 following theincrease in the cargo prices in 2016.

Ancillary RevenuesAncillary revenues went up by P=1.384 billion or 13.4% to P=11.743 billion for the year endedDecember 31, 2016 from P=10.359 billion posted in 2015 consequent to the 4.1% increase inpassenger traffic and 8.9% increase in ancillary revenue per passenger. Improved onlinebookings, together with a wider range of ancillary revenue products and services, also contributedto the increase.

ExpensesThe Group incurred operating expenses of P=49.648 billion for the year ended December 31, 2016,higher by 6.1% than the P=46.801 billion operating expenses recorded for the year endedDecember 31, 2015. The increase is attributable to higher aircraft maintenance and advertisingand promotions costs, coupled with the weakening of the Philippine Peso against the U.S. Dollaras referenced by the depreciation of the Philippine Peso to an average of P=47.50 per U.S. Dollarfor the year ended December 31, 2016 from an average of P=45.51 per U.S. Dollar in 2015 basedon the PDEx weighted average rates. The increase was however partially offset by the drop infuel costs compared to the same period last year due to the decline in global jet fuel prices.

Flying OperationsFlying operations expenses decreased by P=1.222 billion or 5.8% to P=19.694 billion for the yearended December 31, 2016 from P=20.916 billion incurred in 2015. This is primarily attributable tothe 10.4% decline in aviation fuel expenses to P=15.821 billion for the year ended December 31,2016 from P=17.659 billion in 2015 consequent to the significant drop in jet fuel prices asreferenced by the reduction in the average published fuel MOPS price of U.S. $52.83 per barrel inthe twelve months ended December 31, 2016 from U.S. $64.79 per barrel in 2015. The drop infuel prices, however, was partially offset by the weakening of the Philippine Peso against the U.S.Dollar as referenced by the depreciation of the Philippine Peso to an average of P=47.50 per U.S.Dollar for the year ended December 31, 2016 from an average of P=45.51 per U.S. Dollar in 2015based on PDEx weighted average rates.

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Aircraft and Traffic ServicingAircraft and traffic servicing expenses increased by P=730.885 million or 12.5% to P=6.578 billionfor the year ended December 31, 2016 from P=5.847 billion registered in 2015. This was driven bythe increase in the number of international flights by 6.1% in 2016 for which airport and groundhandling charges were generally higher compared to domestic flights. International flightsincreased due to added frequencies on existing routes and the launch of new services to Fukuoka,Japan in December 2015 and Guam, the airline’s first US destination, last March 2016. Theweakening of the Philippine Peso against the U.S. Dollar as referenced by the depreciation of thePhilippine Peso to an average of P=47.50 per U.S. Dollar for the year ended December 31, 2016from an average of P=45.51 per U.S. Dollar in 2015 also contributed to the increase internationalairport charges.

Depreciation and AmortizationDepreciation and amortization expenses grew by P=887.152 million or 17.4% to P=5.999 billion forthe year ended December 31, 2016 from P=5.112 billion for the year ended December 31, 2015.Depreciation and amortization expenses increased consequent to the arrival of three (3) AirbusA320 aircraft and two (2) ATR 72-600 aircraft during the year.

Repairs and MaintenanceRepairs and maintenance expenses went up by P=1.290 billion or 24.6% to P=6.531 billion for theyear ended December 31, 2016 from P=5.240 billion posted in 2015. This was driven by theincrease in provisions for return cost by P=257.139 million to P=1.121 billion for the year endedDecember 31, 2016 from P=863.961 million for the same period last 2015. Additional repairs andmaintenance were also attributable to the increase in the Group’s fleet from fifty-five (55) tofifty-sever (57) aircraft as well as direct costs from repairs incurred for older aircraft, in particular,the remaining A319 fleet, the ATR fleet, and the early deliveries of A320 aircraft. The weakeningof the Philippine Peso against the U.S. Dollar as referenced by the depreciation of the PhilippinePeso to an average of P=47.50 per U.S. Dollar for the year ended December 31, 2016 from anaverage of P=45.51 per U.S. Dollar in 2015 also contributed to the increase in repairs andmaintenance.

Aircraft and Engine LeaseAircraft and engine lease expenses moved up by P=229.125 million or 5.7% to P=4.254 billion forthe year ended December 31, 2016 from P=4.025 billion charged for the year endedDecember 31, 2015. Increase in aircraft lease was due to the effect of the depreciation of thePhilippine Peso against the U.S. Dollar during the current period.

Reservation and SalesReservation and sales expenses increased by P=586.240 million or 22.3% to P=3.212 billion for theyear ended December 31, 2016 from P=2.625 billion registered in 2015. This was primarilyattributable to the higher commission expenses for international passengers as well as the overallgrowth in passenger volume year on year. Additional expenses were also due to higheradvertising and promotional expenses incurred for the Group’s brand refresh campaign and loyaltyprogram, among others.

General and AdministrativeGeneral and administrative expenses grew by P=260.895 million or 16.8% to P=1.813 billion for theyear ended December 31, 2016 from P=1.552 billion incurred in 2015. Growth in general andadministrative expenses was primarily attributable to the increased passenger activity in 2016.The Group also incurred additional costs for various information technology projects to improveefficiency which likewise contributed to the increase in general and administrative expenses.

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Passenger ServicePassenger service expenses went up by P=83.984 million or 5.7% to P=1.568 billion for the yearended December 31, 2016 from P=1.484 billion posted for the year ended December 31, 2015.This was primarily caused by additional cabin crew hired for the three (3) Airbus A320,two (2) ATR 72-600 and one (1) Airbus A330 aircraft acquired in 2016 and the annual increase incabin crew salary.

Operating IncomeAs a result of the foregoing, the Group finished with an operating income of P=12.251 billion forthe year ended December 31, 2016, a 26.3% improvement compared to the P=9.700 billionoperating income earned in 2015.

Other Income (Expenses)

Interest IncomeInterest income increased by P=30.665 million or 36.9% to P=113.672 million for the year endedDecember 31, 2016 from P=83.007 million recorded in 2015 due to the increase in the balance ofcash in bank and short-term placements year on year and to higher interest rates in short-termplacements.

Hedging Gains (Losses)The Group incurred a hedging gain of P=1.588 billion for the year ended December 31, 2016, a154.2% improvement from the hedging loss of P=2.931 billion incurred in the same period in 2015due to the improvement of forward prices of fuel for 2016, as compared to forward fuel prices asof the end of 2015.

Foreign Exchange LossesNet foreign exchange losses of P=2.282 billion for the year ended December 31, 2016 resulted fromthe weakening of the Philippine Peso against the U.S. Dollar as referenced by the depreciation ofthe Philippine Peso to P=49.72 per U.S. Dollar for the year ended December 31, 2016 fromP=47.06 per U.S. Dollar for the twelve months ended December 31, 2015 based on PDEx closingrates. The Group’s major exposure to foreign exchange rate fluctuations is in respect toU.S. Dollar denominated long-term debt incurred in connection with aircraft acquisitions.

Equity in Net Income of Joint VentureThe Group had equity in net income of joint ventures of P=178.309 million for the twelve monthsended December 31, 2016, P=142.890 million or 403.4% higher than the P=35.418 million equity innet income of joint venture earned in the same period in 2015. The increase was attributable to thenet income from current operations earned by the joint ventures in 2016.

Interest ExpenseInterest expense increased by P=97.071 million or 9.0% to P=1.170 billion for the year endedDecember 31, 2016 from P=1.073 billion registered in 2015. Higher interest expense incurredduring the year was due to the additional loans availed to finance the acquisition of the additionalaircraft delivered in 2016 and by the effect of the weakening of the Philippine Peso against theU.S. Dollar during the current period.

Loss on sale of aircraftIn 2016, the Group sold and delivered four Airbus A319 aircraft to a subsidiary of AllegiantTravel Company (Allegiant) which resulted to a loss of P=962.609 million. In 2015, the Group soldand delivered two Airbus A319 aircraft to Allegiant and incurred a loss of P=80.267 million.

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Income before Income TaxAs a result of the foregoing, the Group recorded income before income tax of P=9.716 billion forthe year ended December 31, 2016, a growth of 175.3% or P=6.187 billion higher than theP=3.529 billion income before income tax posted for the year ended December 31, 2015.

Benefit from Income TaxBenefit from income tax for the year ended December 31, 2016 amounted to P=37.971 million, ofwhich, P=162.595 million pertains to current income tax recognized as a result of the taxableincome in 2016. This was offset by the benefit from deferred income tax of P=200.566 millionresulting from the recognition of deferred tax assets on future deductible amounts during theperiod.

Net IncomeNet income for the year ended December 31, 2016 amounted to P=9.754 billion, an increase of122.3% from the P=4.387 billion net income earned in 2015.

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

RevenuesThe Group generated revenues of P=56.502 billion for the year ended December 31, 2015,8.7% higher than the P=52.000 billion revenues earned in 2014. Growth in revenues is accountedfor as follows:

Passenger RevenuesPassenger revenues grew by P=2.493 billion or 6.2% to P=42.681 billion for the year endedDecember 31, 2015 from P=40.188 billion registered in 2014. This increase was primarily due tothe 8.9% growth in passenger volume to 18.4 million from 16.9 million for the year endedDecember 31, 2014 driven by the increased number of flights in 2015. Number of flights went upby 7.6% year on year as the Group added more aircraft to its fleet, particularly, its acquisition ofwide-body Airbus A330 aircraft with a configuration of more than 400 all-economy class seats.The number of aircraft increased from fifty-two (52) aircraft as of December 31, 2014 to fifty-five(55) aircraft as of December 31, 2015. The decrease in average fares by 2.5% to P=2,323 for theyear ended December 31, 2015 from P=2,382 in 2014 partially offset the increase in revenues.

Cargo RevenuesCargo revenues grew by P=315.053 million or 10.0% to P=3.461 billion for the year endedDecember 31, 2015 from P=3.146 billion for the year ended December 31, 2014 following theincrease in the volume of cargo transported in 2015.

Ancillary RevenuesAncillary revenues went up by P=1.694 billion or 19.6% to P=10.359 billion for the year endedDecember 31, 2015 from P=8.665 billion in 2014 consequent to the 8.9% increase in passengertraffic and 9.8% increase in ancillary revenue per passenger. Improved online bookings, togetherwith a wider range of ancillary revenue products and services, also contributed to the increase.

ExpensesThe Group incurred operating expenses of P=46.801 billion for the year ended December 31, 2015,slightly lower by 2.2% than the P=47.843 billion operating expenses recorded for the year endedDecember 31, 2014. The decrease is attributable to the substantial reduction in fuel costs incurredfor the year ended December 31, 2015 compared in 2014 due to the sharp decline in global jet fuelprices. The drop in fuel costs, however, was offset by the increase in majority of the Group’soperating expenses driven by its expanded long haul operations, growth in seat capacity from the

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acquisition of new aircraft and the weakening of the Philippine Peso against the U.S. Dollar asreferenced by the depreciation of the Philippine Peso to an average of P=45.51 per U.S. Dollar forthe year ended December 31, 2015 from an average of P=44.40 per U.S. Dollar in 2014 based onthe PDEx weighted average rates.

Flying OperationsFlying operations expenses decreased by P=5.236 billion or 20.0% to P=20.916 billion for the yearended December 31, 2015 from P=26.152 billion incurred in 2014. This is primarily attributable tothe 23.9% decline in aviation fuel expenses to P=17.659 billion for the year ended December 31,2015 from P=23.210 billion for the same period last year consequent to the significant drop in jetfuel prices as referenced by the reduction in the average published fuel MOPS price of U.S.$64.79 per barrel in the twelve (12) months ended December 31, 2015 from U.S. $112.48 perbarrel in 2014. The drop in fuel prices, however, was partially offset by the weakening of thePhilippine Peso against the U.S. Dollar as referenced by the depreciation of the Philippine Peso toan average of P=45.51 per U.S. Dollar for the year ended December 31, 2015 from an average ofP=44.40 per U.S. Dollar in 2014 based on the PDEx weighted average rates.

Aircraft and Traffic ServicingAircraft and traffic servicing expenses increased by P=1.042 billion or 21.7% to P=5.847 billion forthe year ended December 31, 2015 from P=4.805 billion registered in 2014 as a result of the overallincrease in the number of flights flown in 2015. Higher expenses were particularly attributable tomore international flights operated for which airport and ground handling charges were generallyhigher compared to domestic flights. International flights increased by 6.0% year on year with thelaunch of new destinations namely Doha, Qatar and Fukuoka, Japan, introduction of new routeslike Cebu to Taipei and Davao to Singapore and increased frequencies of existing routes. Theweakening of the Philippine Peso against the U.S. Dollar as referenced by the depreciation of thePhilippine Peso to an average of P=45.51 per U.S. Dollar for the year ended December 31, 2015from an average of P=44.40 per U.S. Dollar in 2014 also contributed to the increase internationalairport charges.

Depreciation and AmortizationDepreciation and amortization expenses grew by P=830.019 million or 19.4% to P=5.112 billion forthe year ended December 31, 2015 from P=4.282 billion for the year ended December 31, 2014.Depreciation and amortization expenses increased consequent to the arrival of four Airbus A320aircraft during the year.

Repairs and MaintenanceRepairs and maintenance expenses went up by P=808.041 million or 18.2% to P=5.240 billion for theyear ended December 31, 2015 from P=4.432 billion in 2014. Increase was driven by the overallincrease in the number of flights coupled with the weakening of the Philippine Peso against theU.S. Dollar as referenced by the depreciation of the Philippine Peso to an average ofP=45.51 per U.S. Dollar for the year ended December 31, 2015 from an average of P=44.40 perU.S. Dollar in 2014. The acquisition of four Airbus A320 aircraft and the delivery of one (1)Airbus A330 aircraft in 2015 also contributed to the increase in repairs and maintenance expenses.

Aircraft and Engine LeaseAircraft and engine lease expenses moved up by P=521.115 million or 14.9% to P=4.025 billion forthe year ended December 31, 2015 from P=3.503 billion charged for the year endedDecember 31, 2014. Increase in aircraft lease was due to the delivery of one (1) Airbus A330aircraft under operating lease in 2015 coupled with the effect of the depreciation of the PhilippinePeso against the U.S. Dollar during the current period.

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Reservation and SalesReservation and sales expenses increased by P=471.469 million or 21.9% to P=2.625 billion for theyear ended December 31, 2015 from P=2.154 billion registered in 2014. This was mainly due tothe increase in commission expenses and online bookings relative to the overall growth inpassenger volume year on year.

General and AdministrativeGeneral and administrative expenses grew by P=255.331 million or 19.7% to P=1.552 billion for theyear ended December 31, 2015 from P=1.297 billion incurred in 2014. Growth in general andadministrative expenses was primarily attributable to the increased flight and passenger activity in2015.

Passenger ServicePassenger service expenses went up by P=267.006 million or 21.9% to P=1.484 billion for the yearended December 31, 2015 from P=1.217 billion posted for the year ended December 31, 2014.This was primarily caused by additional cabin crew hired for the Airbus A320 and A330 aircraftdelivered in 2015 and the increase in passenger food and supplies from pre-ordered meals beingoffered in international flights.

Operating IncomeAs a result of the foregoing, the Group finished with an operating income of P=9.700 billion for theyear ended December 31, 2015, a 133.3% improvement compared to the P=4.157 billion operatingincome earned in 2014.

Other Income (Expenses)

Interest IncomeInterest income increased by P=3.080 million or 3.9% to P=83.007 million for the year endedDecember 31, 2015 from P=79.927 million recorded in 2014 due to the increase in the balance ofcash in bank and short-term placements year on year and higher interest rates.

Hedging Gains (Losses)The Group incurred a hedging loss of P=2.931 billion for the year ended December 31, 2015, anincrease of 26.7 % from hedging loss of P=2.314 billion in 2014 as a result of lower mark-to-marketvaluation on fuel hedging positions consequent to the material decline in fuel prices in 2015.

Foreign Exchange LossesNet foreign exchange losses of P=2.205 billion for the year ended December 31, 2015 resulted fromthe weakening of the Philippine Peso against the U.S. Dollar as referenced by the depreciation ofthe Philippine Peso to P=47.06 per U.S. Dollar for the year ended December 31, 2015 from P44.72per U.S. Dollar for the twelve months ended December 31, 2014 based on PDEx closing rates.The Group’s major exposure to foreign exchange rate fluctuations is in respect to U.S. Dollardenominated long-term debt incurred in connection with aircraft acquisitions.

Equity in Net Income of Joint VentureThe Group had equity in net income of joint ventures of P=35.418 million for the twelve monthsended December 31, 2015, P=60.908 million or 63.2% lower than the P=96.326 million equity in netincome of joint venture earned in 2014. The decrease was primarily due to the net loss fromcurrent operations incurred by Philippine Academy for Aviation Training, Inc. (PAAT) and SIAEngineering (Philippines) Corporation (SIAEP) in 2015.

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Interest ExpenseInterest expense increased by P=59.868 million or 5.9% to P=1.073 billion for the year endedDecember 31, 2015 from P=1.013 billion registered in 2014. Higher interest expense incurredduring the year was due to the additional loans availed to finance the acquisition of four AirbusA320 aircraft in 2015 and by the effect of the weakening of the Philippine Peso against theU.S. Dollar during the current period.

Loss on Sale of AircraftIn 2015, the Group sold and delivered two Airbus A319 aircraft to Allegiant and incurred a loss ofP=80.267 million.

Income before Income TaxAs a result of the foregoing, the Group recorded income before income tax of P=3.529 billion forthe year ended December 31, 2015, a growth of 301.6% or P=2.650 billion higher than theP=878.636 million income before income tax posted for the year ended December 31, 2014.

Benefit from Income TaxBenefit from income tax for the year ended December 31, 2015 amounted to P=858.431 million, ofwhich, P=125.929 million pertains to current income tax recognized as a result of the taxableincome in 2015. This was offset by the benefit from deferred income tax of P=984.360 millionresulting from the recognition of deferred tax assets on future deductible amounts during theperiod.

Net IncomeNet income for the year ended December 31, 2015 amounted to P=4.387 billion, an increase of414.0% from the P=853.498 million net income earned in 2014.

Financial Position

December 31, 2017 versus December 31, 2016

As of December 31, 2017, the Group’s consolidated balance sheet remains solid, with net debt toequity of 0.64 [total debt after deducting cash and cash equivalents (including financial assetsheld-for-trading at fair value and available-for-sale assets) divided by total equity]. Consolidatedassets grew to P=109.077 billion from P=100.514 billion as of December 31, 2016 as the Groupadded aircraft to its fleet. Equity grew to P=39.786 billion from P=33.505 billion in the prior yearwhile book value per share amounted to P=65.66 as of December 31, 2017 from P=55.29 as ofDecember 31, 2016.

The Group’s cash requirements have been mainly sourced through cash flow from operations andfrom borrowings. Net cash from operating activities amounted to P=17.795 billion per consolidatedfinancial statements. As of December 31, 2017, net cash used in investing activities amounted toP=8.788 billion per consolidated financial statements which pertains to payments in connectionwith the purchase of aircraft net of proceeds from sale of aircraft. Net cash used in financingactivities amounted to P=3.747 billion which refer to repayments of long-term debt net of proceedsand the payment of cash dividends to the Group’s stockholders.

As of December 31, 2017, except as otherwise disclosed in the financial statements and to the bestof the Group’s knowledge and belief, there are no events that will trigger direct or contingentfinancial obligation that is material to the Group, including any default or acceleration of anobligation.

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Material Changes in the 2017 Financial Statements(Increase/Decrease of 5% or more versus 2016)

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

Consolidated Statements of Financial Position - December 31, 2017 versus December 31, 2016

51.6% increase in Cash and Cash EquivalentsDue to increase in collections relative to the 9.9% growth in revenues and receipt of proceeds fromlong-term debt.

10.6% decrease in ReceivablesDue to improved collection of various receivables.

2.9% increase in Financial Assets at fair value through profit or loss (FVPL)Due to higher mark-to-market valuation of fuel derivative contracts.

35.6% increase in Expendable Parts, Fuel, Materials and SuppliesDue to increased volume of materials and supplies inventory relative to the larger fleet size duringthe period.

92.4% increase in Other Current AssetsDue to increase in advances to suppliers, advance rentals on leased aircraft and prepayment ofinsurance premiums.

4.4% increase in Investment in Joint VenturesDue to the share in net income of joint ventures during the period.

17.0% decrease in Deferred Tax Assets-netDue mainly to decrease in recognized deferred tax benefits for future deductible amounts onunused net operating loss carryover (NOLCO).

270.8% increase in Other Noncurrent AssetsDue to advance payments for Airbus A330 life limited engine parts.

12.7% increase in Accounts Payable and Other Accrued LiabilitiesDue to increase in trade payables and accruals of certain operating expenses as a result of theincreased passenger activity during the period.

2.7% decrease in Due to Related PartiesDue to payments made during the period.

11.2% increase in Unearned Transportation RevenueDue to the increase in sale of passenger travel services.

4.3% decrease in Long-Term Debt (including Current Portion)Due to repayment of outstanding long-term debt in accordance with the repayment schedule.

80.3% decrease in Income Tax Payable

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Due to lower income tax due in excess of available creditable withholding tax during the periodconsequent to the decrease in profit earned during the year.

12.0% increase in Pension liabilityDue to the accrual of pension liability during the period.

54.6% increase in Other Noncurrent LiabilitiesDue to the provision for asset retirement obligation (ARO) and recognition of deferred revenuesfrom unredeemed customer loyalty points during the period.

20.9% decrease in Other Comprehensive LossDue to the recognition of actuarial gain on pension liability during the year.

24.8% increase in Retained EarningsDue to net income during the period net of dividends declared and paid to stockholders.

For 2017, there are no significant element of income that did not arise from the Group’scontinuing operations.

The Group generally records higher revenues in January, March, April, May and December asfestivals and school holidays in the Philippines increase the Group’s seat load factors in theseperiods. Accordingly, the Group’s revenue is relatively lower in July to September due todecreased travel during these months. Any prolonged disruption in the Group’s operations duringsuch peak periods could materially affect its financial condition and/or results of operations.

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

December 31, 2016 versus December 31, 2015

As of December 31, 2016, the Group’s consolidated balance sheet remains solid, with net debt toequity of 0.99 [total debt after deducting cash and cash equivalents (including financial assetsheld-for-trading at fair value and available-for-sale assets) divided by total equity]. Consolidatedassets grew to P=100.514 billion from P=84.829 billion as of December 31, 2015 as the Group addedaircraft to its fleet. Equity grew to P=33.505 billion from P=24.955 billion in the prior year whilebook value per share amounted to P=55.29 as of December 31, 2016 from P=41.18 as ofDecember 31, 2015.

The Group’s cash requirements have been mainly sourced through cash flow from operations andfrom borrowings. Net cash from operating activities amounted to P=19.322 billion. As ofDecember 31, 2016, net cash used in investing activities amounted to P=17.060 billion whichmainly pertains to payments in connection with the purchase of aircraft. Net cash from financingactivities amounted to P=3.066 billion. Net cash from financing activities comprised of proceedsfrom long term debt net of repayments and the payment of cash dividends to the Group’sstockholders.

As of December 31, 2016, except as otherwise disclosed in the financial statements and to the bestof the Group’s knowledge and belief, there are no events that will trigger direct or contingentfinancial obligation that is material to the Group, including any default or acceleration of anobligation.

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Material Changes in the 2016 Financial Statements(Increase/Decrease of 5% or more versus 2015)

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

Consolidated Statements of Financial Position - December 31, 2016 versus December 31, 2015

118.8% increase in Cash and Cash EquivalentsDue to collections as a result of the expansion of the Group’s operations as evidenced by 9.6%growth in revenues and receipt of proceeds from long term debt.

22.4% increase in ReceivablesDue to increased trade receivables relative to the growth in revenues.

100.0% increase in Financial Assets at fair value through profit or loss (FVPL)Due to improved mark-to-market valuation of fuel derivative contracts.

29.5% increase in Expendable Parts, Fuel, Materials and SuppliesDue to a higher level of fuel inventory and increased volume of materials and supplies relative tothe larger fleet size during the period.

54.3% decrease in Other Current AssetsDue to return of collateral deposits from counterparties for fuel hedging transactions andliquidation of advances to suppliers.

13.6% increase in Property and EquipmentDue to the acquisition of three Airbus A320 aircraft, two ATR72-600 aircraft and oneA330 aircraft, net of four Airbus A319 aircraft sold during the period.

53.3% increase in Investment in Joint VenturesDue to the share in higher net income of joint ventures during the period, additional capitalcontribution to SIAEP and investment in Air Black Box.

22.5% increase in Deferred Tax Assets-netDue mainly to the increase in future deductible amounts on unused net operating loss carryover(NOLCO), excess minimum corporate income tax (MCIT) over regular corporate income tax(RCIT) and on unrealized foreign exchange losses.

8.5% increase in Accounts Payable and Other Accrued LiabilitiesDue to increase in trade payables and accruals of certain operating expenses as a result of theincreased passenger activity in the twelve months ended December 31, 2016.

1.1% decrease in Due to Related PartiesDue to payments made during the period.

16.8% increase in Unearned Transportation RevenueDue to the increase in sale of passenger travel services.

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17.0% increase in Long-Term Debt (including Current Portion)Due to additional loans availed to finance the purchase of the three (3) Airbus A320 aircraft,two (2) ATR 72-600 aircraft and one A330 aircraft acquired during the year partially offset by therepayment of certain outstanding long-term debt in accordance with the repayment schedule.

100.0% decrease in Financial Liabilities at FVPLDue to improved mark-to-market valuation of fuel derivative contracts resulting to a net derivativeasset position as of December 31, 2016.

20.5% increase in Income Tax PayableDue to higher taxable income in 2016.

4.1% increase in Pension liabilityDue to the accrual of pension liability during the period.

71.1% increase in Other Noncurrent LiabilitiesDue to the provision for ARO and recognition of deferred revenues from unredeemed customerloyalty points.

4.0% decrease in Other Comprehensive LossDue to the recognition of actuarial gain on pension liability during the year.

51.3% increase in Retained EarningsDue to net income during the period net of dividends declared and paid to stockholders.

Fuel prices have significantly decreased during in 2016 and this will have an impact on theGroup’s operating income.

For 2016, there are no significant element of income that did not arise from the Group’scontinuing operations.

The Group generally records higher revenues in January, March, April, May and December asfestivals and school holidays in the Philippines increase the Group’s seat load factors in theseperiods. Accordingly, the Group’s revenue is relatively lower in July to September due todecreased travel during these months. Any prolonged disruption in the Group’s operations duringsuch peak periods could materially affect its financial condition and/or results of operations.

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

December 31, 2015 versus December 31, 2014

As of December 31, 2015, the Group’s consolidated balance sheet remains solid, with net debt toequity of 1.28 [total debt after deducting cash and cash equivalents (including financial assetsheld-for-trading at fair value and available-for-sale assets) divided by total equity]. Consolidatedassets grew to P=84.829 billion from P=76.062 billion as of December 31, 2014 as the Group addedaircraft to its fleet. Equity grew to P=24.955 billion from P=21.539 billion in the prior year whilebook value per share amounted to P=41.18 as of December 31, 2015 from P=35.55 as ofDecember 31, 2014.

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The Group’s cash requirements have been mainly sourced through cash flow from operations andfrom borrowings. Net cash from operating activities amounted to P=12.395 billion. As ofDecember 31, 2015, net cash used in investing activities amounted to P=11.805 billion whichmainly pertains to payments in connection with the purchase of aircraft. Net cash from financingactivities amounted to P=39.672 million. Net cash from financing activities comprised of proceedsfrom long term debt net of repayments and the payment of cash dividends to the Group’sstockholders.

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

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

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

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

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

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

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

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

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

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

100.0% increase in Deferred Tax Assets-netDue mainly to the increase in future deductible amounts on unused net operating loss carryover(NOLCO) and on unrealized foreign exchange and hedging losses.

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

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

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

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

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

8.1% increase in Financial Liabilities at FVPLDue to lower mark-to-market valuation of fuel derivative contracts.

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

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

84.6% increase in Other Noncurrent LiabilitiesDue to the accretion of ARO, accrual for retirement liability made during the period andrecognition of deferred revenues from unredeemed customer loyalty points.

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

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

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

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

The Group generally records higher revenue in January, March, April, May and December asfestivals and school holidays in the Philippines increase the Group’s seat load factors in theseperiods. Accordingly, the Group’s revenue is relatively lower in July to September due todecreased travel during these months. Any prolonged disruption in the Group’s operations duringsuch peak periods could materially affect its financial condition and/or results of operations.

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

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Key Performance Indicators

The Group sets certain performance measures to gauge its operating performance periodically andto assess its overall state of corporate health. Listed below are major performance measures,which the Group has identified as reliable performance indicators. Analyses are employed bycomparisons and measurements based on the financial data for the years ended December 31,2017 and 2016:

Key Financial Indicators 2017 2016Total Revenue P=68.029 billion P=61.899 billionPre-tax Core Net Income P=9.001 billion P=11.373 billionEBITDAR Margin 33.5% 38.2%Cost per Available Seat Kilometer (ASK) (PHP) 2.21 1.91Cost per ASK (U.S. cents) 4.38 4.02Seat Load Factor 82% 86%

The manner by which the Group calculates the above key performance indicators for bothyear-end 2017 and 2016 is as follows:

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

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

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

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

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

As of December 31, 2017, except as otherwise disclosed in the financial statements and to the bestof the Group’s knowledge and belief, there are no known trends, demands, commitments, eventsor uncertainties that may have a material impact on the Group’s liquidity.

As of December 31, 2017, except as otherwise disclosed in the financial statements and to the bestof the Group’s knowledge and belief, there are no events that would have a material adverseimpact on the Group’s net sales, revenues and income from operations and future operations.

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Item 7. Financial Statements

The financial statements and schedules listed in the accompanying Index to Financial Statementsand Supplementary Schedules (page 51) are filed as part of this Form 17-A.

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

None.

Independent Public Accountants and Audit Related Fees

SyCip Gorres Velayo & Co. (SGV & Co.) has acted as the Group’s independent publicaccountant. The same accounting firm is tabled for reappointment for the current year at theannual meeting of stockholders. The representatives of the principal accountant have always beenpresent at prior year’s meetings and are expected to be present at the current year’s annual meetingof stockholders. They may also make a statement and respond to appropriate questions withrespect to matters for which their services were engaged. The current handling partner of SGV &Co. has been engaged by the Group in 2016 and is expected to be rotated every five years.

Audit Fees

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

2017 2016 2015Audit and non-audit-related fees P=5,205,000 P=3,775,000 P=3,627,847

PART III - CONTROL AND COMPENSATION INFORMATION

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

The tables below set forth certain information regarding the members of the Board of Directors,member of the advisory board and executive officers of the Group.

A. Board of Directors

Currently, the Board consists of nine members, of which two are independent directors.

Name Age Position CitizenshipRicardo J. Romulo 84 Chairman FilipinoJohn L. Gokongwei, Jr. 91 Director FilipinoJames L. Go 78 Director FilipinoLance Y. Gokongwei 51 Director, President and Chief

Executive Officer (CEO)Filipino

Jose F. Buenaventura 83 Director FilipinoRobina Y. Gokongwei-Pe 56 Director FilipinoFrederick D. Go 48 Director FilipinoAntonio L. Go* 77 Independent Director FilipinoWee Khoon Oh 59 Independent Director Singaporean*He is not related to any of the other directors

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

B. Member of the Advisory Board

Name Age Position CitizenshipGarry R. Kingshott 64 Member of the Advisory Board Australian

C. Executive Officers

Name Age Position Citizenship

Bach Johann M. Sebastian……. 56 Senior Vice President - ChiefStrategist & Compliance Officer.. Filipino

Andrew L. Huang…................... 61 Chief Finance Officer…................ Filipino/Canadian

Robin C. Dui………………….. 71 Vice President…………..………. FilipinoSamuel S. Avilla II………….... 50 Vice President…………..………. FilipinoRosita D. Menchaca…………... 55 Vice President .…………………. FilipinoAntonio Jose L. Rodriguez….... 64 Vice President .…………………. FilipinoJoseph G. Macagga…………… 52 Vice President .…………………. FilipinoJose Alejandro B. Reyes……… 50 Vice President…. .……………… FilipinoAlexander G. Lao……………... 42 Vice President ….............………. FilipinoCandice Jennifer A. Iyog……... 45 Vice President .…………………. FilipinoRhea M. Villanueva…………... 39 Vice President .…………………. FilipinoPaterno S. Mantaring, Jr………. 47 Vice President…. .……………… FilipinoMichael Ivan S. Shau…………. 54 Vice President…. .……………… FilipinoLaureen M. Cansana………….. 48 Chief Information Officer………. FilipinoMa. Elynore J. Villanueva..…… 55 Treasurer………………………... FilipinoRosalinda F. Rivera………….... 47 Corporate Secretary…………….. FilipinoWilliam S. Pamintuan……….... 55 Assistant Corporate

Secretary…………………........... Filipino

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

Name Age Citizenship

Michael B. Szucs…………. 52 British

Rick S. Howell……………. 53 Australian

All of the above directors, advisory board member and executive officers have served theirrespective offices since May 19, 2017. There are no other directors who resigned or declined tostand for re-election to the board of directors since the date of the last annual meeting of thestockholders for any reason whatsoever.

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A brief description of the business experience and other directorships held in other reportingcompanies of our directors, executive officers and senior consultants are provided as follows:

Ricardo J. Romulo has been the Chairman of the Board of the Group since December 1995. He isalso director of JG Summit Holdings, Inc. and a Senior Partner in Romulo Mabanta BuenaventuraSayoc & De Los Angeles. Mr. Romulo is also Chairman of FPG Insurance Co., Inc., InterPhilLaboratories, Inc., Sime Darby Pilipinas, Inc. and Towers Watson Philippines, Inc. He is adirector of BASF Philippines, Inc., Honda Philippines, Inc., Johnson & Johnson (Phils.), Inc.,Maersk-Filipinas, Inc., MCC Transport Philippines, Inc., Mercantile Ocean Maritime Co.(Filipinas), Inc., Damco Philippines, Inc., and Zuellig Pharma Corporation. He received hisBachelor of Laws degree from Georgetown University and Doctor of Laws degree from HarvardLaw School.

John L. Gokongwei, Jr. has been a director of our Company since December 1995. He is thefounder and Chairman Emeritus of JG Summit Holdings, Inc. and certain of its subsidiaries. Healso continues to be a member of the Executive Committee of JG Summit Holdings, Inc. andChairman Emeritus of certain of its subsidiaries. He is currently the Chairman of the GokongweiBrothers Foundation, Inc., Deputy Chairman and Director of United Industrial CorporationLimited and a director of Robinsons Retail Holdings, Inc. and Oriental Petroleum and MineralsCorporation. He was elected a director of Manila Electric Company on March 31, 2014. He isalso a non-executive director of A. Soriano Corporation. Mr. John L. Gokongwei, Jr. received aMasters degree in Business Administration from the De La Salle University and attended theAdvanced Management Program at Harvard Business School.

James L. Go has been a director of our Company since May 2002. He is the Chairman and ChiefExecutive Officer of JG Summit Holdings, Inc. and Oriental Petroleum and Minerals Corporation.He is the Chairman of Universal Robina Corporation, Robinsons Land Corporation, JG SummitPetrochemical Corporation and JG Summit Olefins Corporation. He is the Vice Chairman ofRobinsons Retail Holdings, Inc. and a director of Marina Center Holdings Private Limited, UnitedIndustrial Corporation Limited and Hotel Marina City Private Limited. He is also the Presidentand Trustee of the Gokongwei Brothers Foundation, Inc. He has been a director of the PhilippineLong Distance Telephone Company (PLDT) since November 3, 2011. He is a member of theTechnology Strategy Committee and Advisor of the Audit Committee of the Board of Directors ofPLDT. He was elected a director of Manila Electric Company on December 16, 2013. Mr. JamesL. Go received his Bachelor of Science Degree and Master of Science Degree in ChemicalEngineering from Massachusetts Institute of Technology, USA.

Lance Y. Gokongwei has been the President and Chief Executive Officer of our Company since1997. He is the President and Chief Operating Officer of JG Summit Holdings, Inc. He is theChairman and Chief Executive Officer of Robinsons Retail Holdings, Inc. and the President andChief Executive Officer of Universal Robina Corporation. He is the Vice Chairman and ChiefExecutive Officer of Robinsons Land Corporation and is a Director and Vice Chairman of ManilaElectric Company. He is the Chief Executive Officer of JG Summit Petrochemical Corporationand JG Summit Olefins Corporation and is the Chairman of Robinsons Bank Corporation. He is aDirector of Oriental Petroleum and Minerals Corporation, and United Industrial CorporationLimited. He is also a trustee and secretary of the Gokongwei Brothers Foundation, Inc. Mr. LanceY. Gokongwei received a Bachelor of Science degree in Finance and a Bachelor of Science degreein Applied Science from the University of Pennsylvania.

Jose F. Buenaventura has been a director of the Company since December 1995. He is a SeniorPartner in Romulo Mabanta Buenaventura Sayoc & de los Angeles. He is President and Directorof Consolidated Coconut Corporation. He is likewise a Director and Corporate Secretary of 2B3C

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Foundation, Inc. and Peter Paul Philippines Corporation. He is also a member of the Board ofBDO Unibank, BDO Securities Corporation, Eximious Holdings, Inc., GROW, Inc., GrowHoldings, Inc., Himap Properties Corporation, La Concha Land Investment Corp., Philippine FirstInsurance Co., Inc., Philplans First, Inc., Techzone Philippines, Inc., The Country Club, Inc., TotalConsolidated Asset Management, Inc., and Turner Entertainment Manila, Inc. Mr. Buenaventurareceived his Bachelor of Laws degree from the Ateneo de Manila University and his Master ofLaws degree from Georgetown University Law Center, Washington D.C. He was admitted to thePhilippine Bar in 1960.

Robina Y. Gokongwei-Pe has been a director of the Company since August 1, 2007. She is thePresident and Chief Operating Officer of Robinsons Retail Holdings, Inc. She is also a director ofJG Summit Holdings, Inc., Robinsons Land Corporation, and Robinsons Bank Corporation. She isa Trustee of the Gokongwei Brothers Foundation, Inc. and the Immaculate Conception AcademyScholarship Fund. She was also a member of the University of the Philippines CentennialCommission and was a former Trustee of the Ramon Magsaysay Awards Foundation. Sheattended the University of the Philippines-Diliman from 1978 to 1981 and obtained a Bachelor ofArts degree (Journalism) from New York University in 1984.

Frederick D. Go has been a director of the Company since August 1, 2007. He is currently thePresident and a Director of Robinsons Land Corporation and Robinsons RecreationCorporation. He is the Group General Manager of Shanghai Ding Feng Real Estate DevelopmentCompany Limited, Xiamen Pacific Estate Investment Company Limited, Chengdu Ding FengReal Estate Development Company Limited, and Taicang Ding Feng Real Estate DevelopmentGroup Limited. He also serves as a director of Universal Robina Corporation, JG SummitPetrochemical Corporation, Robinsons Bank Corporation and Cebu Light Industrial Park. He isalso the Vice Chairman of the Philippine Retailers Association. He received a Bachelor of Sciencedegree in Management Engineering from the Ateneo de Manila University.

Antonio L. Go has been an independent director of the Company since December 6, 2007. Healso currently serves as Director and President of Equitable Computer Services, Inc. and is theChairman of Equicom Savings Bank and ALGO Leasing and Finance, Inc. He is also a director ofMedilink Network, Inc., Maxicare Healthcare Corporation, Equicom Manila Holdings, EquicomInc., Equitable Development Corporation, United Industrial Corporation Limited, T32 DentalCentre Singapore, Dental Implant and Maxillofacial Centre Hongkong, Oriental Petroleum andMinerals Corporation, Pin-An Holdings, Inc., Equicom Information Technology, RobinsonsRetail Holdings, Inc., and Steel Asia Manufacturing Corporation. He is also a Trustee of Go KimPah Foundation, Equitable Foundation, Inc., and Gokongwei Brothers Foundation, Inc. Hegraduated from Youngstown University, United States with a Bachelor Science Degree inBusiness Administration. He attended the International Advance Management program at theInternational Management Institute, Geneva, Switzerland as well as the FinancialPlanning/Control program at the ABA National School of Bankcard Management, NorthwesternUniversity, United States.

Wee Khoon Oh has been an independent director of the Company since January 3, 2008. He is thefounder and managing director of Sobono Energy Private Limited. He served as the Vice Chairmanof the Sustainable Energy Association of Singapore until 2014. He is a director of SobonoResources Pte. Ltd., ATC Asia Pacific Pte. Ltd., and Transcend Infrastructure Holdings Pte. Ltd.He graduated with honors from the University of Manchester Institute of Science and Technologywith a Bachelor of Science degree in Mechanical Engineering. He obtained his Masters degree inBusiness Administration from the National University of Singapore.

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Garry R. Kingshott now serves as a member of the advisory board of the Group after serving as itssenior consultant since 2008. Before this, he was with Jet Lite (India) and Ansett InternationalLimited (Australia) as Chief Executive Officer. He has 26 years combined experience in theaviation consultancy and the airline industry.

Bach Johann M. Sebastian has been the Senior Vice President - Chief Strategist of the Group andHead of Corporate Strategy since May 5, 2007. He is also the Senior Vice President and Directorof Corporate Planning of JG Summit, URC and RLC. Prior to joining the Group in 2002, he wasSenior Vice President and Chief Corporate Strategist at PSI Technologies and RFM Corporation.He was also Chief Economist and Director of the Policy and Planning Group at the Department ofTrade and Industry. He received a Bachelor of Arts degree in Economics from the University ofthe Philippines and a Master’s degree in Business Management from the Asian Institute ofManagement. He has 14 years of experience in the airline industry, all of which have been withthe Group.

Andrew L. Huang was appointed as the Chief Finance Officer of the Group on October 1, 2015.He has over 32 years of extensive experience in Finance and Management with organizations suchas Chase Manhattan Bank, BA Finance Corp., Philippine Airlines, San Miguel Corporation andFilinvest Development Corporation. He has previously served as Board Member and ChiefOperating Officer of Wi-Tribe Telecoms Holding, Inc. and Easter TelecommunicationsPhilippines, Inc. Since 2013, he has also been an Adjunct Professor of Finance at the AsianInstitute of Management where he also finished his Master’s degree in Business Management aftergraduating from De La Salle University with a degree in Business Administration.

Robin C. Dui has been the Vice President - Comptroller of the Group since 1998. He wasformerly with the Audit Division of SGV & Co. for four years. He previously worked withPhilippine Airlines for 18 years as Manager - General Accounting, Director - OperationsAccounting, Director - Revenue Accounting and Vice President - Comptroller. He also previouslyheld the position of Director - Finance of GrandAir for one year. A Certified Public Accountant,he obtained a Bachelor of Science degree in Business Administration. He has 37 years ofexperience in the airline industry, 19 of which have been with the Group.

Capt. Samuel S. Avila II was appointed as Vice President for Flight Operations of Cebu Air, Inc.last June 2016. Prior to this, he also served as Vice President for Flight Operations of Cebgo, Inc.starting October 2015 and worked as Chief Pilot for the ATR fleet of Cebu Air since April 2005.He is a graduate of Ateneo De Manila University with a Degree in AB Management Economicsand worked as airline pilot of Philippine Airlines for 6 years. He has 26 years of experience in theairline industry, the last 20 years of which have been with the Group.

Rosita D. Menchaca has been the Vice President for Inflight Services of the Group sinceMay 2009 and was previously Vice President for Passenger Service from February 2007 to May2009. She joined the Group in 1996 as a Cabin Crew Supervisor and has since been promotedtwice, first to Director, Cabin Services, on November 1999 and on May 2006 to Head ofPassenger Services. She previously worked with Philippine Airlines as a flight attendant for twoyears and joined Saudi Arabian Airlines in 1985 as a Senior Flight Attendant for 8 years. Shereceived her Bachelor of Science degree in Psychology from Silliman University. She has 33years of experience in the airline industry, the last 21 of which have been with the Group.

Antonio Jose L. Rodriguez was appointed as the Vice President for Safety and Quality lastAugust 2016 after serving as the Group’s Vice President for Airport Services from February 2015.He was also previously the Vice President for Human Resources of the Group from 2004 to 2010and Vice President for Airport Services from 2010 to 2013. He was also a consultant for the

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Group’s Long Haul project from January 2014 to February 2015. Prior to joining the Group, hewas AVP-Human Resources of Allied Thread Co. Inc. from 1990 to 1992. Before this, he wasemployed with Triumph International (Phils.) Inc. from 1985 to1990. He is a graduate ofDe La Salle University where he completed Lia-Com a double degree course, majoring inBusiness Administration and Behavioural Sciences. He has 21 years of experience in the airlineindustry, all of which have been with the Group.

Joseph G. Macagga was appointed as Vice President for Fuel, Procurement and FacilitiesManagement last May 2016. Before this, he held the position of Vice President for Fuel andCargo Operations of the Group since September 2004. He started as Manager for Purchasing andhandled Internal Audit for more than two years. He served as Audit Manager for JG SummitHoldings, Inc. for five years and worked for the Audit Division of SGV & Co. for three years. ACertified Public Accountant, he received his Bachelor of Science degree in Commerce, Major inAccounting from the University of Sto. Tomas. He has 21 years of experience in the airlineindustry, all of which have been with the Group.

Jose Alejandro B. Reyes was appointed as the Vice President for Cargo last May 2016. Prior tothat, he served as the General Manager for long-haul operations starting February 2012. He wasalso the former Vice President for Commercial Planning of the Group from January 2008 toJanuary 2012. He previously worked as Senior Vice President of PhilWeb. Prior to this, he heldvarious positions with The Inquirer Group, the latest of which was Senior Vice President andChief Operating Officer of the Inquirer Publications, Inc. He graduated Summa Cum Laude fromGeorgetown University with a Bachelor of Science degree in International Economics. Hereceived his Master’s degree in Business Administration from the University of Virginia. He has10 years of experience in the airline industry, all of which have been with the Group.

Alexander G. Lao was appointed as the Vice President for Commercial Planning in February2012. Prior to this, he served as the Director of Revenue Management from October 8, 2007 toFebruary 2012. Before joining the Group, he worked as Assistant Vice President of Philamlifefrom August 2001 to September 2007 and as Business Development Assistant of Ayala Life from1998 to 1999. He graduated from Ateneo De Manila University with a Bachelor of Sciencedegree in Legal Management. He also received his Master’s degree in Business Administrationfrom the Asian Institute of Management. He has 11 years of experience in the airline industry, allof which have been with the Group.

Candice Jennifer A. Iyog has been with the Group since September 2003 and was appointed VicePresident for Marketing and Distribution on September 2008. Prior to this position, she was VicePresident for Marketing and Product from February 2007 to September 2008. She was formerlythe General Manager of Jobstreet.com and was also the marketing manager of NABISCO. Shealso worked at URC as Product Manager and, as such, handled major snack food brands of URCsuch as Chippy, Piattos and Nova. She received her Bachelor of Science degree in Managementfrom the Ateneo de Manila University. She has 14 years of experience in the airline industry, allof which have been with the Group.

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

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degree in Business Administration, Major in Human Resources Management, she has 16 years ofexperience in the airline industry, all of which have been with the Group.

Paterno S. Mantaring, Jr. was appointed as Vice President for Corporate Affairs onDecember 7, 2015. He joined the Group in May 2008 as Legal Counsel and was appointed asDirector - Legal Affairs in 2011. He also concurrently assumed the role of OIC - CorporateAffairs since January 2014. Prior to joining the Group, he held various positions with differentcompanies, the latest of which was a Senior Associate with Quasha Ancheta Peña & Nolasco LawOffice. He also served in some government offices such as the Department of Finance as LegalConsultant and the Senate of the Philippines as Legislative Staff Officer. He graduated from theUniversity of the Philippines with a Bachelor of Arts degree in Political Science and Bachelor ofLaws.

Michael Ivan S. Shau was appointed as Vice President for Airport Services last August 2016. Hewas previously the President and Chief Executive Officer of CEBGo, Inc. from October 2014 toAugust 2016. He joined the Group in May 2007 as Vice President for Airport and AdministrationServices and was appointed Vice President for People and Administration Services effectiveMarch 2010. On July 2013, he was appointed as Vice President for Ground Operations, overseeingthe following departments: Airport Services, Cargo Operations, Catering and FacilitiesManagement. He has been with the JG Summit Group since January 1999 and has held varioussenior management positions with his last assignment as Business Unit General Manager ofUniversal Robina Corporation - Packaging Division. He received a degree in IndustrialManagement Engineering, Minor in Mechanical Engineering and completed all academicrequirements for a Master’s degree in Business Management, both from De La Salle University.He has 11 years of experience in the airline industry, all of which have been with the Group.

Laureen M. Cansana was appointed as Chief Information Officer last November 7, 2016. Prior tojoining the Group, she was the Global IT Support Director for Coats, PLC from June 2013 toMarch 2016. She has 27 years of experience in information technology both on the applicationsand infrastructure environment. She assumed positions ranging from Chief Information Officer,Global IT Support Head, Global Program Manager, Project Management Office Director,Regional IT Services and Integration Director for Asia Pacific and Middle East, RegionalApplications Manager, Solutions Delivery and Applications Demand Manager and IT Consultant.She is a graduate of De La Salle University with a Bachelor of Science degree in ComputerScience Major in Information Technology.

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

Rosalinda F. Rivera was appointed Corporate Secretary of the Group effective October 31, 2006.She is also the Corporate Secretary of JG Summit Holdings, Inc., Universal Robina Corporation.Robinsons Land Corporation, Robinsons Retail Holdings, Inc., JG Summit PetrochemicalCorporation, JG Summit Olefins Corporation and CPAir Holdings, Inc. Prior to joining theJG Group, she was a Senior Associate at Puno and Puno Law Offices. She received a Juris Doctordegree from the Ateneo de Manila University School of Law and a Masters of Law degree inInternational Banking from the Boston University School of Law. She was admitted to the

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Philippine Bar in 1995. She has eight years of experience in the airline industry, all of which havebeen with the Group.

William S. Pamintuan has been the Assistant Corporate Secretary of the Group sinceDecember 1995. He is currently the First Vice President and Deputy General Counsel, AssistantCorporate Secretary, Compliance Officer, Head, Legal and Corporate Governance andCompliance Office and Chief Data Privacy Officer of Manila Electric Company. Atty. Pamintuanis the Corporate Secretary of Meralco PowerGen Corporation, Atimonan One Energy, Inc.,Calamba Aero Power Corporation, Kalilayan Power, Inc., MPG Mauban LP Corporation, MPGAsia Ltd., Redondo Peninsula Energy, Inc., St. Raphael Power Generation Corporation, FirstPacific Leadership Academy, Inc., MRail, Inc., and Meralco Industrial Engineering ServicesCorporation. He is one of the trustees of Meralco Power Foundation, Inc. and Meralco PensionFund. He also serves as Director of Atimonan Land Ventures Development Corporation, MPGHoldings Phils., Inc., Radius Telecoms, Inc., MSpectrum, Inc., Pure Meridian HydropowerCorporation, Comstech Integration Alliance, Inc., Meridian Atlantic Light Company Ltd.,Republic Surety and Insurance Company, Incorporated, PMHC Pulanai Inc., PMHC LalawinanInc. and Aurora Managed Power Services, Inc. He is currently the Officer-in-Charge of MeralcoEnergy, Inc. He was a former Director of MRail, Inc. He was the Corporate Secretary and SeniorVice President of Digital Telecommunications Phils., Inc. and Digitel Mobile Phils., Inc. and,General Manager of Digitel Crossing, Inc. Atty. Pamintuan holds a Bachelor of Arts Degree inPolitical Science and a Bachelor of Laws degree from the University of the Philippines. He has 23years of experience in the airline industry, all of which have been with the Group.

Michael B. Szucs is the Group’s Chief Executive Adviser. He provides advice to the Presidentwith respect to fare structuring, cost management, route development and market entry strategies.He has previously worked with British Airways and EasyJet in the UK and has also been theChief Executive Officer of Viva Aerobus in Mexico, Spanair in Spain, VivaColumbia in Columbiaand Al Maha in Saudi Arabia. He holds a first class honors degree in Aeronautical Engineeringfrom Manchester University, UK.

Rick S. Howell is the Group’s Chief Operations Adviser. Prior to that, he was the OperationsAdviser for Long Haul Operations from August 2012 to May 2013. He received a Bachelor’sdegree in Pure Mathematics & Aerodynamics at the University of Melbourne. He also graduatedwith credit from Royal Australian Air force Academy in 1985, where he served as a FlyingInstructor, Maritime Patrol Commander and a Low-level aerobic display pilot until 1992. Then,he became a Boeing 737 First Officer at QANTAS Airways and an Airbus 330 & 340 Captain forEmirates Airline. Moreover, he was also appointed as the Chief Operating Officer forSkyAirWorld and the General Manager for Flight Operations and Commercial Planning for VirginAustralia. Before returning to the Group, he was the Chief Operating Officer of Air North.Combining his experience, he has 36 years of expertise in the airline industry.

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

Involvement in Certain Legal Proceedings of Directors and Executive Officers

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

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excluding traffic violations and other minor offences; (iii) subjected to any order, judgment, ordecree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwiselimiting their involvement in any type of business, securities, commodities or banking activities;or (iv) found by a domestic or foreign court of competent jurisdiction (in a civil action), thePhilippine SEC or comparable foreign body, or a domestic or foreign exchange or other organizedtrading market or self-regulatory organization, to have violated a securities or commodities law orregulation and the judgment has not been reversed, suspended, or vacated.

Family Relationship

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

Item 10. Executive Compensation

The following are the Group’s Chief Executive Officer (“CEO”) and four most highlycompensated executive officers for the year ended 2017:

Name PositionLance Y. Gokongwei . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . President and CEOAndrew L. Huang. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Finance OfficerAlexander G. Lao. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice PresidentJose Alejandro B. Reyes. . . . . . . . . . . . . . . . . . . . . . . . . . . Vice PresidentMichael Ivan S. Shau…….. . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President

The following table identifies and summarizes the aggregate compensation of the Group’s CEO andthe four most highly compensated executive officers for the years ended 2016, 2017 and 2018estimates:

Actual - Fiscal Year 2016

Salaries BonusesOther

Income1 TotalCEO and four (4) most highly compensatedexecutive officers1. Lance Y. Gokongwei - President and CEO2. Andrew L. Huang - Chief Finance Officer3. Alexander G. Lao- Vice President4. Candice Jennifer A. Iyog - Vice President5. Jose Alejandro B. Reyes - Vice President

P=75,657,884 P=7,100,490 P=105,000 P=82,863,374Aggregate compensation paid to all officers anddirectors as a group unnamed P=114,611,162 P=13,438,060 P=675,000 P=128,724,222

1Includes per diem of directors

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Actual - Fiscal Year 2017

Salaries BonusesOther

Income1 TotalCEO and four (4) most highly compensatedexecutive officers1. Lance Y. Gokongwei - President and CEO2. Andrew L. Huang - Chief Finance Officer3. Alexander G. Lao - Vice President4. Jose Alejandro B. Reyes - Vice President5. Michael Ivan S. Shau - Vice President

P=86,956,094 P=7,863,777 P=105,000 P=94,924,871Aggregate compensation paid to all officers anddirectors as a group unnamed P=134,495,354 P=15,195,865 P=675,000 P=150,366,219

1Includes per diem of directors

Fiscal Year 2018 Estimates

Salaries BonusesOther

Income1 TotalCEO and four (4) most highly compensatedexecutive officers1. Lance Y. Gokongwei - President and CEO2. Andrew L. Huang - Chief Finance Officer3. Alexander G. Lao- Vice President4. Jose Alejandro B. Reyes - Vice President5. Michael Ivan S. Shau - Vice President

P=91,945,740 P=8,283,512 P=252,500 P=100,481,752Aggregate compensation paid to all officers anddirectors as a group unnamed P=143,128,268 P=15,932,141 P=1,900,000 P=160,960,409

1Includes per diem of directors

Standard Arrangements

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

Other Arrangements

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

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

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

Warrants and Options Outstanding

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

- 46 -

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

(1) Security Ownership of Certain Record and Beneficial Owners

As of December 31, 2017, the Group knows no one who beneficially owns in excess of 5% of theGroup’s common stock except as set forth in the table below.

Title ofClass

Names and addresses ofrecord owners and

relationship with theCorporation

Name ofbeneficial ownerand relationship

with record owner

Citizenship Number ofshares held

% to TotalOutstanding

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

Same as recordowner

(See note 1)

Filipino 400,816,841 66.15%

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

PDTC Participantsand their clients

(See note 2)

Non-Filipino 102,501,239(See note 3)

16.92%

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

PDTC Participantsand their clients

(See note 2)

Filipino 95,703,538(See note 3)

15.79%

Notes:1. CPAir Holdings, Inc. is a wholly-owned subsidiary of JG Summit Holdings, Inc. Under the By-Laws of CPAir

Holdings, Inc., the President is authorized to represent the corporation at all functions and proceedings. Theincumbent President of CPAir Holdings, Inc. is Mr. Lance Y. Gokongwei.

2. PCD Nominee Corporation is the registered owner of the shares in the books of the Corporation’s transfer agent.PCD Nominee Corporation is a corporation wholly-owned by Philippine Depository and Trust Corporation, Inc.(formerly the Philippine Central Depository) (“PDTC”), whose sole purpose is to act as nominee and legal title holderof all shares of stock lodged in the PDTC. PDTC is a private corporation organized to establish a central depositoryin the Philippines and introduce scripless or book-entry trading in the Philippines. Under the current system of thePDTC, only participants (brokers and custodians) are recognized by PDTC as the beneficial owners of the lodgedshares. Each beneficial owner of shares through his participant is the beneficial owner to the extent of the number ofshares held by such participant in the records of the PCD Nominee.

3. Out of the PCD Nominee Corporation account, “Citibank N.A.” and “The Hongkong and Shanghai Banking Corp.Ltd. – Clients Account” holds for various trust accounts the following shares of the Corporation as of December 31,2017:

No. of shares % to Outstanding Citibank N.A. 77,643,679 12.81% The Hongkong and Shanghai Banking Corp. Ltd. – Clients’ Account 41,487,881 6.85%

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

- 47 -

(2) Security Ownership of Management as of December 31, 2017

Title ofClass

Name of beneficialOwner Position

Amount &nature ofbeneficialownership

(Direct)

Citizenship % to TotalOutstanding

Named Executive Officers1

Common 1. Lance Y. Gokongwei Director, Presidentand CEO

1 Filipino *

- 2. Andrew L. Huang Chief FinanceOfficer

- Filipino/Canadian

-

- 3. Alexander G. Lao Vice President - Filipino -- 4. Jose Alejandro B. Reyes Vice President - Filipino -- 5. Michael Ivan S. Shau Vice President - Filipino -

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

(Independent)1 Filipino *

Common 13. Wee Khoon Oh Director(Independent)

1 Singaporean *

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

All directors and executive officers as a group unnamed 509 *Notes:1. As defined under Part IV (B) (1) (b) of Annex “C” of SRC Rule 12, the “named executive officers” to be listed refer

to the Chief Executive Officer and those that are the four (4) most highly compensated executive officers as ofDecember 31, 2017.

* less than 0.01%

(3) Voting Trust Holders of 5% or More

As of December 31, 2017, there are no persons holding more than 5% of a class under a votingtrust or similar agreement.

(4) Change in Control

As of December 31, 2017, there has been no change in the control of the Group since thebeginning of its last fiscal year.

- 48 -

Item 12. Certain Relationships and Related Transactions

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

PART IV - CORPORATE GOVERNANCE

Item 13. Corporate Governance

The Group adheres to the principles and practices of good corporate governance, as embodied inits Corporate Governance Manual, Code of Ethics and related SEC Circulars. Continuousimprovement and monitoring of governance and management policies have been undertaken toensure that the Group observes good governance and management practices. This is to assure theshareholders that the Group conducts its business with the highest level of integrity, transparencyand accountability.

The Group likewise consistently strives to raise its financial reporting standards by adopting andimplementing prescribed Philippine Financial Reporting Standards (PFRSs).

PART V - EXHIBITS AND SCHEDULES

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

Exhibits

See accompanying Index to Exhibits (page 51)

Reports on SEC Form 17-C

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

July 1, 2017 to December 31, 2017

None.

ANDREW L. HUANG Chief Finance Officer Date MAR 2 3 2018

01

C. DUI ice President - Comptroller

Date MAR 2 3 2018

SIGNATURES

Pursuant to the requirements of Section 17 of the SRC and Section 141 of the Corporation Code, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of PASA1 on MAR 2 3 2018 , 2018.

CEBU AIR, INC. Issuer

Pursuant to the requirements of the Securities Regulation Code, this annual report has been signed by the following persons in the capabilities and on the dates indicated.

By:

RICARDO J. ROMULO Chairman Date MAR 2 3 2018

ROSALINDA F. RIVERA Corporate Secretary Date MAR 2 3 2018

LANCE GOK GWEI President and Chief Executive Officer Date MAR 23 2018

Doc. No. Page No. Book No. Series of 2018.

NOTARY P113Li UNTii. DEG' ER 31.

NOTARIAL Ii5NSION ,

KNEC.; ■-f GROUND Vlij

NC. 0 7 11-

Rosalinda F. Rivera 33-2484959-1 (SSS ID)

A R 2 3 2018JSUBSCRIBED AND SWORN to before me this day or , 2018 affiants exhibiting to me his/their Government issued IDs/Philippine passports, as follows:

PLACE NAMES ID NO. DATE OF ISSUE OF ISSUE

Ricardo J. Romulo P3989237A August 10, 2017 until Manila (Philippine Passport) August 9, 2022

Lance Y. Gokongwei P0870174A November 11, 2016 until Manila (Philippine Passport) November 10, 2021

Andrew L. Huang P3044414A May 15, 2017 until Manila (Philippine Passport) May 14, 2022

Robin C. Dui

EC0037518 January 18, 2014 until Manila (Philippine Passport) January 17, 2019

PT, "

MCLE :•4 j. 29679

Cii) TIN: 172-.23-620-.00 0

- 51 -

CEBU AIR, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND

SUPPLEMENTARY SCHEDULESSEC FORM 17-A

CONSOLIDATED FINANCIAL STATEMENTS

Statement of Management’s Responsibility for Financial Statements

Report of Independent Auditors

Consolidated Statements of Financial Position as of December 31, 2017 and 2016

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015

Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015

Consolidated Statements of Cashflows for the Years Ended December 31, 2017, 2016 and 2015

SUPPLEMENTARY SCHEDULES

Report of Independent Auditors on Supplementary Schedules

I. Supplementary Schedules required by Annex 68-E

A. Financial Assets (Current Marketable Equity and Debt Securities and Other Short-TermCash Investments)

B. Amounts Receivable from Directors, Officers, Employees,Related Parties and Principal Stockholders (Other than Related parties)

C. Noncurrent Marketable Equity Securities, Other Long-Term Investments in Stocks andOther Investments*

D. Amounts Receivable from Related Parties which are eliminated during the Consolidationof Financial Statements*

E. Indebtedness of Unconsolidated Subsidiaries and Affiliates*

F. Property and Equipment

G. Accumulated Depreciation

H. Intangible Assets - Other Assets*

I. Long-Term Debt

J. Indebtedness to Affiliates and Related Parties*

K. Guarantees of Securities of Other Issuers*

L. Capital Stock

* These schedules, which are required by SRC Rule 68, have been omitted because they are eithernot required, not applicable or the information required to be presented is included/shown in therelated consolidated financial statements or in the notes thereto.

- 52 -

II. Schedule of all of the effective standards and interpretations (Part 1, 4J)

III. Reconciliation of Retained Earnings Available for Dividend Declaration(Part 1, 4C; Annex 68-C)

IV. Map of the relationships of the companies within the group (Part 1, 4H)

V. Schedule of Financial Ratios

./(

Ricardo J. Romulo Chairman of the Board

Lance Y. kongw President nd Chi Executive Officer

Andrew L. Hua Chief Finance Officer

Aebu paciFic Cebu Air, Inc. Cebu Pacific Building, Domestic Road, Pasay City 1301 Philippines

cebupacificair.com

STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Securities and Exchange Commission Secretariat Building, PICC Complex, Roxas Boulevard, Pasay City

The management of Cebu Air, Inc. and its Subsidiaries (collectively referred to as the Group) is responsible for the preparation and fair presentation of the consolidated financial statements including the schedules attached therein, for the years ended December 31, 2017, 2016 and 2015, in accordance with the prescribed financial reporting framework indicated therein, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

The Board of Directors is responsible for overseeing the Group's financial reporting process.

The Board of Directors reviews and approves the consolidated financial statements including the schedules attached therein, and submits the same to the stockholders.

SyCip, Gorres, Velayo & Co., the independent auditor appointed by the stockholders, has audited the consolidated financial statements of the Group in accordance with Philippine Standards on Auditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such audit.

Signed this Mat 3 2018 , 2018.

Subscribed and Sworn to before me this , 2018 in the fj;:yr V, u .3" OF PAS, of

exhibiting to me their Passport, as follows: A.

NAMES

PASSPORT NO. DA

F ISS E

PLACE OF ISSUE

Ricardo J. Romulo P3989237A

Lance Y. Gokongwei P0870174A

Andrew L. Huang P3044414A

/10/2017 until 8/09/2022

11/11/2016 unt .

1-I 1

51,F2 .1 §1.4

OTP.eksi PO ..CO- Y OF ..z/NY Manila

UNTiL r

/ BE 31, AO1S

YRUBLIC

Manila

Manila SA

il9

Doc. No. 1-Cti

Page No.--

MCLE Ck..! O. Vd-0002.830 4/14/2022.

OF griORNEYS NO. 29679

Cj TIN : 172-528-620-000

Series of

NOTA i

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pacific Cebu Air, Inc. Cebu Pacific Building, Domestic Road, Pasay City 1301 Philippines

cebupacificair.com

CERTIFICATE ON THE COMPILATION SERVICES FOR THE PREPARATION OF THE FINANCIAL STATEMENTS AND

NOTES TO THE FINANCIAL STATEMENTS

I hereby certify that I am the Certified Public Accountant (CPA) who performed the compilation services related to the preparation and presentation of financial information of an entity in accordance with an applicable financial reporting framework and reports as required by accounting and auditing standards for Cebu Air, Inc. and Subsidiaries for the period ending December 31, 2017.

In discharging this responsibility, I hereby declare that I, am the Director-Comptrollership of Cebu Air, Inc.

Furthermore, in my compilation services for the preparation of the Financial Statements and Notes to the Financial Statements, I was not assisted by or did not avail of the services of Sycip Gorres Velayo & Co. who is the external auditor who rendered the audit opinion for the said Financial Statements and Notes to the Financial Statements.

1 hereby declare, under penalties of perjury and violation of Republic Act No. 9298, that my statements are true and correct.

Vivian V. Lim SIGNATURE OVER PRINTED NAME

Professional Identification Card No. 71270 Valid Until: July 22, 2019

Accreditation Number: 2006 Valid Until: July 22, 2019

SUBSCRIBED AND SWORN to before me this VI to me her Philippine Passport No. EC8042919 issued on J and valid until June 15, 2021.

8 affiant exhibiting t DFA NCR South

Doc. No. 3 ; Page No. 41 ; Book No. 1/4419 Series of 2018

PASAY

DECE.r . 201.8

NOTARIAL CO

KNIGHT

6ROLINI) 51.000 tES: NALL

IBP NO. 1.1

PTR NO. 59.1.6C.C61 0110.1f P.C.

MCLE COMPLIANCE NO. VI-0002930 - et/7,4/2022

ROLL OF ATTORNEYS NO. 296 79

0 TiNi 174-52$-62o-90o

*SGVFS026572*

INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of DirectorsCebu Air, Inc.

Opinion

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

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

Basis for Opinion

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

Key Audit Matters

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

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

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global Limited

*SGVFS026572*

- 2 -

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

Passenger service revenue is earned when the service has been rendered to the passengers according toflight schedule. The amount of passenger bookings for which the related transportation service has notyet been rendered at the end of the reporting period is recorded as unearned transportation revenue in theconsolidated statement of financial position. Baggage fees and other ancillary fees are non-refundablefees which are recognized when the services are provided. Refer to Notes 5 and 21 of the consolidatedfinancial statements.

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

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

Estimation of Asset Retirement Obligation

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

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

A member firm of Ernst & Young Global Limited

*SGVFS026572*

- 3 -

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

Other Information

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

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

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

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

Responsibilities of Management and Those Charged with Governance for the ConsolidatedFinancial Statements

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

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

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

A member firm of Ernst & Young Global Limited

*SGVFS026572*

- 4 -

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

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

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

∂ Identify and assess the risks of material misstatement of the consolidated financial statements, whetherdue to fraud or error, design and perform audit procedures responsive to those risks, and obtain auditevidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detectinga material misstatement resulting from fraud is higher than for one resulting from error, as fraud mayinvolve collusion, forgery, intentional omissions, misrepresentations, or the override of internalcontrol.

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

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

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

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

A member firm of Ernst & Young Global Limited

*SGVFS026572*

- 5 -

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

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

We also provide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence, and to communicate with them all relationships and othermatters that may reasonably be thought to bear on our independence, and where applicable, relatedsafeguards.

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

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

SYCIP GORRES VELAYO & CO.

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

March 23, 2018

A member firm of Ernst & Young Global Limited

*SGVFS026572*

CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

December 312017 2016

ASSETS

Current AssetsCash and cash equivalents (Note 8) P=15,613,544,506 P=10,296,242,304Receivables (Note 10) 1,900,482,578 2,126,793,862Financial assets at fair value through profit or loss (Note 9) 454,400,088 441,773,905Expendable parts, fuel, materials and supplies (Note 11) 1,613,690,533 1,190,056,987Other current assets (Note 12) 2,108,954,919 1,096,270,685

Total Current Assets 21,691,072,624 15,151,137,743

Noncurrent AssetsProperty and equipment (Notes 13, 18, 30 and 32) 81,279,292,387 81,890,303,497Investments in joint ventures and in an associate (Note 14) 840,972,438 805,801,372Goodwill (Notes 7 and 15) 566,781,533 566,781,533Deferred tax assets - net (Note 25) 891,004,853 1,073,499,679Other noncurrent assets (Notes 7 and 16) 3,807,544,443 1,026,818,459

Total Noncurrent Assets 87,385,595,654 85,363,204,540P=109,076,668,278 P=100,514,342,283

LIABILITIES AND EQUITY

Current LiabilitiesAccounts payable and other accrued liabilities (Note 17) P=14,182,785,839 P=12,583,636,942Unearned transportation revenue 9,050,351,455 8,141,752,728Current portion of long-term debt (Notes 13 and 18) 5,969,257,624 7,040,253,460Due to related parties (Note 27) 38,716,423 37,689,554Income tax payable 4,746,325 24,152,004

Total Current Liabilities 29,245,857,666 27,827,484,688

Noncurrent LiabilitiesLong-term debt - net of current portion (Notes 13 and 18) 35,012,953,128 35,770,184,170Retirement liability (Note 24) 636,961,076 568,769,315Other noncurrent liabilities (Note 19) 4,395,317,042 2,842,631,591

Total Noncurrent Liabilities 40,045,231,246 39,181,585,076Total Liabilities 69,291,088,912 67,009,069,764

EquityCommon stock (Note 20) 613,236,550 613,236,550Capital paid in excess of par value (Note 20) 8,405,568,120 8,405,568,120Treasury stock (Note 20) (529,319,321) (529,319,321)Remeasurement loss on retirement liability (Note 24) (147,193,496) (186,025,376)Retained earnings (Note 20) 31,443,287,513 25,201,812,546

Total Equity 39,785,579,366 33,505,272,519P=109,076,668,278 P=100,514,342,283

See accompanying Notes to Consolidated Financial Statements.

*SGVFS026572*

CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 312017 2016 2015

REVENUESale of air transportation services Passenger P=49,931,290,735 P=46,592,511,272 P=42,681,069,939 Cargo 4,603,543,430 3,563,752,865 3,461,136,749Ancillary revenue (Note 21) 13,494,297,261 11,743,014,755 10,359,447,828

68,029,131,426 61,899,278,892 56,501,654,516

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

57,894,853,404 49,648,080,706 46,801,433,710

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

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

(1,926,225,694) (2,535,033,477) (6,171,425,517)

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

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

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

OTHER COMPREHENSIVE INCOME (LOSS),NET OF TAX

Other comprehensive income (loss) not to be reclassified to profitor loss in subsequent periods:

Actuarial gains (losses) on retirement liability (Note 24) 55,474,114 11,211,184 (83,002,333)Provision for (benefit from) income tax (Note 25) 16,642,234 3,363,357 (21,097,422)

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

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

Basic/Diluted Earnings Per Share (Note 26) P=13.05 P=16.10 P=7.24

See accompanying Notes to Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Common Stock(Note 20)

Capital Paid inExcess of Par

Value(Note 20)

Treasury Stock(Note 20)

RemeasurementGain (Loss) on

RetirementLiability(Note 24)

Retained Earnings

TotalEquity

Appropriated(Note 20)

Unappropriated(Note 20) Total

Balance at January 1, 2017 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=186,025,376) P=14,516,762,000 P=10,685,050,546 P=25,201,812,546 P=33,505,272,519Net income – – – − – 7,907,846,625 7,907,846,625 7,907,846,625Other comprehensive income – – – 38,831,880 – – – 38,831,880Total comprehensive income – – – 38,831,880 – 7,907,846,625 7,907,846,625 7,946,678,505Reversal of appropriations – – – – (14,516,762,000) 14,516,762,000 – –Appropriation of retained earnings (Note 20) – – – – 18,300,000,000 (18,300,000,000) – –Dividends paid (Note 20) – – – – – (1,666,371,658) (1,666,371,658) (1,666,371,658)Balance at December 31, 2017 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=147,193,496) P=18,300,000,000 P=13,143,287,513 P=31,443,287,513 P=39,785,579,366

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

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

See accompanying Notes to Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 312017 2016 2015

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax P=8,208,052,328 P=9,716,164,709 P=3,528,795,289Adjustments for: Depreciation and amortization (Note 13) 6,839,363,607 5,998,695,417 5,111,543,724 Interest expense (Note 18) 1,421,536,504 1,170,181,141 1,073,109,693 Provision for asset retirement obligation (Note 19) 1,209,416,327 1,121,100,139 863,960,835 Unrealized foreign exchange losses - net 214,663,356 1,672,077,988 1,709,750,714 Hedging losses (gains) - net (Note 9) 132,570,164 (1,587,708,081) 2,931,215,906 Loss on disposal of property and equipment (Note 13) 1,057,537 54,239,864 9,122,533 Loss (gain) on sale of aircraft (Note 13) (102,574,043) 962,608,741 80,267,191 Equity in net income of joint ventures (Note 14) (140,330,649) (178,308,842) (35,418,498) Interest income (Note 8) (182,952,825) (113,672,171) (83,006,926)Operating income before working capital changes 17,600,802,306 18,815,378,905 15,189,340,461 Decrease (increase) in: Receivables 206,671,372 (342,022,523) 143,435,357 Expendable parts, fuel, materials and supplies (423,633,546) (270,938,944) (239,802,973) Other current assets (1,067,415,685) 1,257,913,940 (430,603,370) Increase (decrease) in: Accounts payable and other accrued liabilities 1,598,242,475 1,163,682,731 932,068,099 Unearned transportation revenue 908,598,728 1,169,998,030 598,009,959 Retirement liability 68,191,761 22,288,601 116,841,632 Amounts of due to related parties 1,026,869 (426,249) (1,793,699) Other noncurrent liabilities 343,269,122 (10,320,610) (108,048,329) Financial liabilities at fair value through profit or loss (145,196,347) (1,297,560,962) (2,748,280,664)Net cash generated from operations 19,090,557,055 20,507,992,919 13,451,166,473Interest paid (1,389,252,059) (1,184,693,893) (1,078,011,092)Income tax paid with creditable withholding taxes (Note 31) (82,385,107) (112,546,224) (60,766,659)Interest received 176,304,913 111,505,087 82,638,335Net cash provided by operating activities 17,795,224,802 19,322,257,889 12,395,027,057

CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of property and equipment (Note 13) (14,776,336,747) (19,126,054,236) (13,047,934,091)Proceeds from sale of property and equipment 8,643,672,392 2,235,195,623 1,012,448,386Investments in shares of stocks in joint ventures and an associate – (225,118,923) –Dividends received from a joint venture 124,720,940 61,625,190 101,133,997Decrease (increase) in other noncurrent assets (2,780,725,984) (5,531,937) 129,307,803Net cash used in investing activities (8,788,669,399) (17,059,884,283) (11,805,043,905)

CASH FLOWS FROM FINANCING ACTIVITIESLong-term debt: Availments (Notes 18 and 31) 8,903,267,500 10,683,840,000 6,466,895,200 Payments of long-term debt (Note 18) (10,984,079,753) (6,405,748,273) (5,518,293,249)Dividends paid (Note 20) (1,666,371,658) (1,211,906,660) (908,929,995)Net cash provided by (used in) financing activities (3,747,183,911) 3,066,185,067 39,671,956

EFFECTS OF EXCHANGE RATE CHANGESIN CASH AND CASH EQUIVALENTS 57,930,710 261,593,568 112,522,272

NET INCREASE IN CASH AND CASH EQUIVALENTS 5,317,302,202 5,590,152,241 742,177,380

CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR 10,296,242,304 4,706,090,063 3,963,912,683

CASH AND CASH EQUIVALENTSAT END OF YEAR (Note 8) P=15,613,544,506 P=10,296,242,304 P=4,706,090,063

See accompanying Notes to Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Cebu Air, Inc. (the Parent Company) was incorporated and organized in the Philippines onAugust 26, 1988 to carry on, by means of aircraft of every kind and description, the general businessof a private carrier or charter engaged in the transportation of passengers, mail, merchandise andfreight, and to acquire, purchase, lease, construct, own, maintain, operate and dispose of airplanes andother aircraft of every kind and description, and also to own, purchase, construct, lease, operate anddispose of hangars, transportation depots, aircraft service stations and agencies, and other objects andservice of a similar nature which may be necessary, convenient or useful as an auxiliary to aircrafttransportation. The principal place of business of the Parent Company is at 2nd Floor, Doña JuanitaMarquez Lim Building, Osmeña Boulevard, Cebu City.

The Parent Company has ten special purpose entities (SPE) that it controls, namely: Cebu AircraftLeasing Limited (CALL), Boracay Leasing Limited (BLL), Surigao Leasing Limited (SLL),VectorAircraft Leasing Limited (VALL), Panatag One Aircraft Leasing Limited (POALL), Panatag TwoAircraft Leasing Limited (PTALL), Panatag Three Aircraft Leasing Limited (PTHALL), Summit AAircraft Leasing Limited (SAALL), Summit B Aircraft Leasing Limited (SBALL) and Summit CAircraft Leasing Limited (SCALL). CALL, BLL, SLL, VALL, POALL, PTALL and PTHALL areSPEs in which the Parent Company does not have equity interest. CALL, BLL, SLL, VALL, POALL,PTALL, PTHALL, SAALL, SBALL and SCALL acquired the passenger aircraft for lease to theParent Company under finance lease arrangements (Notes 13 and 30) and funded the acquisitionsthrough long-term debt (Note 18).

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

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

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

On March 1, 2018, the Parent Company incorporated 1Aviation Groundhandling ServicesCorporation (a wholly-owned subsidiary).

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

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

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

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

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

a. The Parent Company is subject to franchise tax of five percent (5%) of the gross revenue derivedfrom air transportation operations. For revenue earned from activities other than airtransportation, the Parent Company is subject to corporate income tax and to real property tax.

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

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

a. The franchise tax of the Parent Company is abolished;b. The Parent Company shall be subject to corporate income tax;c. The Parent Company shall remain exempt from any taxes, duties, royalties, registration license,

and other fees and charges;d. Change in corporate income tax rate from 32.00% to 35.00% for the next three years effective on

November 1, 2005, and 30.00% starting on January 1, 2009 and thereafter; ande. Increase in the VAT rate imposed on goods and services from 10.00% to 12.00% effective

on February 1, 2006.

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

2. Basis of Preparation

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

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

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Statement of ComplianceThe consolidated financial statements of the Group have been prepared in compliance with PhilippineFinancial Reporting Standards (PFRSs).

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

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

∂ Power over the investee (that is, existing rights that give it the current ability to direct the relevantactivities of the investee);

∂ Exposure, or rights, to variable returns from its involvement with the investee; and∂ The ability to use its power over the investee to affect the amount of the investor’s returns.

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

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

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

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

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

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3. Changes in Accounting Policies and Disclosures

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

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

∂ Amendments to Philippine Accounting Standard (PAS) 7, Statement of Cash Flows, DisclosureInitiativeThe amendments require entities to provide disclosure of changes in their liabilities arising fromfinancing activities, including both changes arising from cash flows and non-cash changes (suchas foreign exchange gains or losses).

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

∂ Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for UnrealizedLossesThe amendments clarify that an entity needs to consider whether tax law restricts the sources oftaxable profits against which it may make deductions upon the reversal of the deductibletemporary difference related to unrealized losses. Furthermore, the amendments provideguidance on how an entity should determine future taxable profits and explain the circumstancesin which taxable profit may include the recovery of some assets for more than their carryingamount.

4. Summary of Significant Accounting Policies

Current versus Noncurrent ClassificationThe Group presents assets and liabilities in the consolidated statement of financial position based oncurrent or noncurrent classification.

An asset is current when it is:

a. Expected to be realized or intended to be sold or consumed in normal operating cycle;b. Held primarily for the purpose of trading;c. Expected to be realized within twelve months after the reporting period; ord. Cash or cash equivalent, unless restricted from being exchanged or used to settle a liability for at

least twelve months after the reporting period.

All other assets are classified as noncurrent.

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A liability is current when:

a. It is expected to be settled in normal operating cycle;b. It is held primarily for the purpose of trading;c. It is due to be settled within twelve months after the reporting period; ord. There is no unconditional right to defer the settlement of the liability for at least twelve months

after the reporting period.

The Group classifies all other liabilities as noncurrent.

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

Financial Instruments - Initial Recognition and Subsequent MeasurementClassification of financial instrumentsFinancial instruments within the scope of PAS 39 are classified as:

a. Financial assets and financial liabilities at FVPL;b. Loans and receivables;c. Held-to-maturity investments;d. Available-for-sale financial assets; ande. Other financial liabilities.

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

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

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

Fair Value MeasurementThe Group measures derivatives at fair value at each reporting period. Also, for assets and liabilitieswhich are not measured at fair value in the consolidated statement of financial position but for whichthe fair value is disclosed, are included in Note 29.

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

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

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

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

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

∂ Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.∂ Level 2: Valuation techniques for which the lowest level input that is significant to the

measurement is directly or indirectly observable.∂ Level 3: Valuation techniques for the lowest level input that is significant to the fair value

measurement is unobservable.

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

Financial assets and financial liabilities at FVPLFinancial assets and financial liabilities at FVPL include financial assets and financial liabilities heldfor 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 whenany of the following criteria are met:

∂ The designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the assets or liabilities or recognizing gains or losses on them ona different basis; or

∂ The assets or liabilities are part of a group of financial assets, financial liabilities or both whichare managed and their performance are evaluated on a fair value basis, in accordance with adocumented risk management or investment strategy; or

∂ The financial instrument contains an embedded derivative, unless the embedded derivative doesnot significantly modify the cash flows or it is clear, with little or no analysis, that it would not beseparately recorded.

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

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

∂ The economic characteristics and risks of the embedded derivative are not closely related to theeconomic characteristics of the host contract;

∂ A separate instrument with the same terms as the embedded derivative would meet the definitionof a derivative; and

∂ The hybrid or combined instrument is not recognized at FVPL.

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

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

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

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

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

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

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

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

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

Offsetting of Financial InstrumentsFinancial assets and liabilities are offset and the net amount is reported in the consolidated statementof financial position if there is a currently enforceable legal right to offset the recognized amounts andthere is an intention to settle on a net basis, or to realize the asset and settle the liabilitysimultaneously. The Group assesses that it has a currently enforceable right to offset if the right isnot contingent on a future event, and is legally enforceable in the normal course of business, event ofdefault, and event of insolvency or bankruptcy of the Group and all of the counterparties.

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

∂ The rights to receive cash flows from the asset have expired;∂ The Group has transferred its rights to receive cash flows from the asset or has assumed an

obligation to pay the received cash flows in full without material delay to a third party under a‘pass-through’ arrangements; and either:ƒ The Group has transferred substantially all the risks and rewards of the asset; orƒ The Group has neither transferred nor retained substantially all the risks and rewards of the

asset, but has transferred control of the asset.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Passenger aircraft* 15 yearsEngines 15 yearsRotables 15 yearsGround support equipment 5 yearsEDP Equipment, mainframe and peripherals 3 yearsTransportation equipment 5 yearsFurniture, fixtures and office equipment 5 yearsCommunication equipment 5 yearsSpecial tools 5 yearsMaintenance and test equipment 5 yearsOther equipment 5 years*With residual value of 15.00%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The intangible assets of the Group have indefinite useful lives.

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

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

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

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

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

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

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

Aircraft Maintenance and Overhaul CostThe Group recognizes aircraft maintenance and overhaul expenses in accordance with the contractualterms.

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

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

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

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

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

Liability Under Lifestyle Rewards ProgramThe Group operates a lifestyle rewards program called ‘Getgo.’ A portion of passenger revenueattributable to the award of Getgo points, which is estimated based on expected utilization of thesebenefits, is deferred until utilized. The fair value of the consideration received in respect of the initialsale is allocated to the award credits based on its fair value. The deferred revenue is included under‘Other noncurrent liabilities’ in the consolidated statement of financial position. Any remainingunutilized benefits are recognized as revenue upon redemption or expiry.

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Common StockCommon stock is classified as equity and recorded at par. Proceeds in excess of par value arerecorded under ‘Capital paid in excess of par value’ account in the consolidated statement of financialposition. Incremental costs directly attributable to the issuance of new shares are shown in equity as adeduction from the proceeds.

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

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

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

Sale of air transportation servicesPassenger ticket and cargo waybill sales, excluding portion relating to awards under LifestyleRewards Program, are initially recorded under ‘Unearned transportation revenue’ account in theconsolidated statement of financial position until earned and recognized under ‘Revenue’ account inthe consolidated statement of comprehensive income when carriage is provided or when thepassenger is lifted.

Ancillary revenueRevenue from services incidental to the transportation of passengers such as excess baggage, inflightsales and rebooking and cancellation fees are recognized when the services are provided.

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

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

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

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

Retirement CostsThe Group maintains defined benefit plans covering substantially all of its employees. The cost ofproviding benefits under the defined benefit plans is actuarially determined using the projected unitcredit method. The method reflects services rendered by employees up to the date of valuation andincorporates assumptions concerning employees’ projected salaries. Actuarial valuations areconducted with sufficient regularity with the option to accelerate when significant changes tounderlying assumptions occur.

Retirement expense comprises the following:

a. Service cost; andb. Net interest on retirement liability.

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

Net interest on retirement liability is the change during the period in the retirement liability that arisesfrom the passage of time, which is determined by applying the discount rate based on high qualitycorporate bonds to the retirement liability. Net interest on retirement liability is recognized asexpense or income in profit or loss.

Remeasurements comprising actuarial gains and losses, excess of actual return on plan assets overinterest income and any change in the effect of the asset ceiling (excluding net interest on retirementliability) are recognized immediately in OCI in the period in which they arise. Remeasurements arenot reclassified to profit or loss in subsequent periods.

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

Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are notavailable to the creditors of the Group, nor can they be paid directly to the Group. The fair value ofplan assets is based on market price information. When no market price is available, the fair value ofplan assets is estimated by discounting expected future cash flows using a discount rate that reflectsboth the risk associated with the plan assets and the maturity or expected disposal date of those assets(or, if they have no maturity, the expected period until the settlement of the related obligations).

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

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

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

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

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

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

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

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

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

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

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LeasesThe determination of whether an arrangement is, or contains a lease, is based on the substance of thearrangement at inception date, and requires an assessment of whether the fulfillment of thearrangement is dependent on the use of a specific asset or assets and the arrangement conveys a rightto use the asset. A reassessment is made after inception of the lease only if one of the followingapplies:

a. There is a change in contractual terms, other than a renewal or extension of the arrangement;b. A renewal option is exercised or an extension granted, unless that term of the renewal or

extension was initially included in the lease term;c. There is a change in the determination of whether fulfillment is dependent on a specified asset; ord. There is a substantial change to the asset.

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

Group as lesseeFinance leases, which transfer to the Group substantially all the risks and benefits incidental toownership of the leased item, are capitalized at the inception of the lease at the fair value of the leasedproperty 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 areapportioned between the finance charges and reduction of the lease liability so as to achieve aconstant rate of interest on the remaining balance of the liability. Finance charges are chargeddirectly to profit or loss.

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

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

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

∂ If the sale price is below the fair value, then, the gain or loss is recognized immediately other thanto the extent that a loss is compensated for by future rentals at below market price, then the loss isdeferred and amortized over the period that the asset is expected to be used.

∂ If the sale price is above the fair value, then, any gain is deferred and amortized over the periodthat the asset is expected to be used.

∂ If the fair value of the asset is less than the carrying amount of the asset at the date of thetransaction, then that difference is recognized immediately as a loss on the sale.

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

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

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

Earnings Per Share (EPS)Basic EPS is computed by dividing net income applicable to common stockholders by the weightedaverage number of common shares issued and outstanding during the year, adjusted for anysubsequent stock dividends declared.

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

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

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

Events After the Reporting DatePost year-end events that provide additional information about the Group’s position at the reportingdate (adjusting event) are reflected in the consolidated financial statements. Postyear-end events that are not adjusting events are disclosed in the notes to the consolidated financialstatements, when material.

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5. Significant Accounting Judgments and Estimates

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

Judgments

a. Classification of leasesManagement exercises judgment in determining whether substantially all the significant risks andrewards of ownership of the leased assets are transferred to the Group. Lease contracts, whichtransfer to the Group substantially all the risks and rewards incidental to ownership of the leaseditems, are capitalized.

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

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

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

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

1. The currency that mainly influences sales prices for financial instruments and services (thiswill often be the currency in which sales prices for its financial instruments and services aredenominated and settled);

2. The currency in which funds from financing activities are generated; and3. The currency in which receipts from operating activities are usually retained.

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

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d. ContingenciesThe Group is currently involved in certain legal proceedings. The estimate of the probable costsfor the resolution of these claims has been developed in consultation with internal counselhandling the defense in these matters and is based upon an analysis of potential results. TheGroup currently does not believe that these will have a material adverse effect on the Group’sconsolidated financial position and consolidated financial performance. It is possible, however,that future financial performance could be materially affected by changes in the estimates or inthe effectiveness of the strategies relating to these proceedings (Note 30).

e. Allocation of revenue, costs and expenses for registered and non-registered activitiesRevenue, costs and expenses are classified as exclusive and common. Exclusive revenue, costand expenses such as passenger revenue, cargo revenue, baggage revenue, insurance surcharge,fuel and oil expense, hull/war/risk insurance, maintenance expense, depreciation, lease expense(for aircraft under operating lease) and interest expense based on the related long-term debt arespecifically identified per aircraft based on an actual basis. For revenue, cost and expenseaccounts that are not identifiable per aircraft, the Group allocates based on activity factors thatclosely relate to the earning process of the revenue.

f. Classification of joint arrangementsThe Group’s investments in JVs are structured in separate incorporated entities (Note 14). Eventhough the Group holds various percentage of ownership interest on these arrangements, theirrespective joint arrangement agreements require unanimous consent from all parties to theagreement for the relevant activities identified. The Group and the parties to the agreement onlyhave rights to the net assets of the JVs through the terms of the contractual arrangements.

g. Assessment of intangible assets with indefinite useful livesThe Group has intangible assets representing costs to establish brand and market opportunitiesunder the strategic alliance with CEBGO (Note 7). Management assessed that these assets haveindefinite useful lives because there is no foreseeable limit to the period over which these assetsare expected to generate net cash inflows to the Group.

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

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

As of December 31, 2017 and 2016, the Group has deferred tax assets amounting toP=3,399.1 million and P=4,015.7 million, respectively (Note 25).

b. Estimation of Asset Retirement Obligation (ARO)The Group is contractually required under certain lease contracts to restore certain leasedpassenger aircraft to stipulated return condition or to bear a proportionate costs of restoration atthe end of the contract period. Since the first operating lease entered by the Group in 2001, thesecosts are accrued based on an internal estimate which includes estimates of certain redelivery

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costs at the end of the operating aircraft lease. The contractual obligation includes regular aircraftmaintenance, overhaul and restoration of the leased aircraft to its original condition. Regularaircraft maintenance is accounted for as expense when incurred, while overhaul and restorationare accounted on an accrual basis.

Assumptions used to compute ARO are reviewed and updated annually by the Group. As ofDecember 31, 2017 and 2016, the cost of restoration is computed based on the Group’sassessment on expected future aircraft utilization.

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

As of December 31, 2017 and 2016, the Group’s ARO liability (included under ‘Other noncurrentliabilities’ account in the consolidated statement of financial position) has a carrying value ofP=3,675.1 million and P=2,465.7 million, respectively (Note 19). The related repairs andmaintenance expense for the years ended December 31, 2017, 2016 and 2015 amounted toP=1,209.4 million, P=1,121.1 million and P=864.0 million, respectively (Note 22).

c. Impairment of goodwill and intangible assetsThe Group determines whether goodwill and intangibles with indefinite useful lives are impairedat least on an annual basis. The impairment testing is performed annually as at December 31 andwhen circumstances indicate that the carrying amount is impaired. The impairment testing alsorequires an estimation of the recoverable amounts, which is the FVLCD or VIU of the CGUwhichever is higher, to which the goodwill and intangibles with indefinite useful lives areallocated.

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

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

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

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

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

f. Estimation of useful lives of property and equipmentThe Group estimates the useful lives of its property and equipment based on the period overwhich the assets are expected to be available for use. The Group reviews annually the EULs ofproperty and equipment based on factors that include physical wear and tear, technical andcommercial obsolescence and other limits on the use of the assets. It is possible that futureresults of operations could be materially affected by changes in these estimates brought about bychanges in the factors mentioned. A reduction in the EUL of property and equipment wouldincrease the recorded depreciation and amortization expense and decrease noncurrent assets.

As of December 31, 2017 and 2016, the carrying values of the Group’s property and equipmentamounted to P=81,279.3 million and P=81,890.3 million, respectively (Note 13).

The Group’s depreciation and amortization expense amounted to P=6,839.4 million,P=5,998.7 million and P=5,111.5 million for the years ended December 31, 2017, 2016 and 2015,respectively (Note 13).

g. Estimation of allowance for credit losses on receivablesThe Group maintains allowance for credit losses at a level considered adequate to provide forpotential uncollectible receivables. The level of this allowance is evaluated by management onthe basis of factors that affect the collectability of the accounts. These factors include, but are notlimited to, the length of the Group’s relationship with the agents, customers and othercounterparties, the payment behavior of agents and customers, other counterparties and otherknown market factors. The Group reviews the age and status of receivables, and identifiesaccounts that are to be provided with allowances on a continuous basis.

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

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

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

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i. Estimation of liability under the Lifestyle Rewards ProgramA portion of passenger revenue attributable to the award of lifestyle reward program points,estimated based on expected utilization on these benefits, is deferred until utilized. The pointsexpected to be redeemed are measured at fair value which is estimated using the Peso value of thepoints. Deferred revenue included as part of ‘Other noncurrent liabilities’ account amounted toP=720.2 million and P=377.0 million as of December 31, 2017 and 2016, respectively (Note 19).The rewards program started in 2015. Any remaining unredeemed points are recognized asrevenue upon expiration.

j. Estimation of retirement costsThe determination of the obligation and cost of retirement and other employee benefits isdependent on the selection of certain assumptions used in calculating such amounts. Thoseassumptions include, among others, discount rates and salary increase rates (Note 24).

While the Group believes that the assumptions are reasonable and appropriate, significantdifferences between actual experiences and assumptions may materially affect the cost ofemployee benefits and related obligations.

The Group’s retirement liability amounted to P=637.0 million and P=568.8 million as ofDecember 31, 2017 and 2016, respectively (Note 24).

6. Segment Information

The Group has one reportable operating segment, which is the airline business (system-wide). This isconsistent with how the Group’s management internally monitors and analyzes the financialinformation for reporting to the CODM, who is responsible for allocating resources, assessingperformance and making operating decisions. The CODM is the President and CEO of the ParentCompany.

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

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

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

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

2017 2016 2015Revenue P=68,454,988,943 P=63,778,967,986 P=56,620,079,940Earnings before interest, taxes,

depreciation, amortization, andrent (EBITDAR) 22,818,061,406 23,624,718,036 19,700,325,097

Depreciation and amortization 6,839,363,607 5,998,695,417 5,111,543,724Interest expense 1,421,536,504 1,170,181,141 1,073,109,693Interest income 182,952,825 113,672,171 83,006,926

(Forward)

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2017 2016 2015Earnings before interest and taxes

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

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

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

EBIT is the operating income before interest and taxes.

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

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

The reconciliation of total revenue reported by reportable operating segment to revenue in theconsolidated statements of comprehensive income is presented in the following table:

2017 2016 2015Total segment revenue of reportable

operating segment P=68,029,131,426 P=61,899,278,892 P=56,501,654,516Nontransport revenue and

other income 425,857,517 1,879,689,094 118,425,424Total revenue P=68,454,988,943 P=63,778,967,986 P=56,620,079,940

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

The reconciliation of total income reported by reportable operating segment to total comprehensiveincome in the consolidated statements of comprehensive income is presented in the following table:

2017 2016 2015Total segment income of

reportable segment P=10,134,278,022 P=12,251,198,186 P=9,700,220,806Add (deduct) unallocated items:

Nontransport revenue andother income 425,857,517 1,879,689,094 118,425,424

Nontransport expenses andother charges (2,352,083,211) (4,414,722,571) (6,289,850,941)

Benefit from (provision for)income tax (300,205,703) 37,971,487 858,430,586

Net income 7,907,846,625 9,754,136,196 4,387,225,875Other comprehensive gain (loss), net

of tax 38,831,880 7,847,827 (61,904,911)Total comprehensive income P=7,946,678,505 P=9,761,984,023 P=4,325,320,964

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

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

7. Business Combination

On February 10, 2014, the Parent Company signed a Sale and Purchase Agreement (SPA) to acquire100% shares of CEBGO, as part of the strategic alliance between the Parent Company and TigerAirways Holding Limited (TAH). Under the terms of the SPA, the closing of the transaction issubject to the satisfaction or waiver of each of the conditions contained in the SPA. OnMarch 20, 2014, all the conditions precedent have been satisfactorily completed. The ParentCompany has paid the purchase price covering the transfer of shares from TAH. Consequently, theParent Company gained control of CEBGO on the same date. The total consideration for thetransaction, at post-closing settlement date, amounted to P=265.1 million.

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

AmountTotal cash, receivables and other assets P=1,234,084,305Total accounts payable, accrued expenses and unearned income 1,535,756,691Net liabilities (301,672,386)Goodwill 566,781,533Acquisition cost at post-closing settlement date P=265,109,147

The goodwill arising from this business combination amounted to P=566.8 million (Note 15). TheParent Company also identified intangible assets representing costs to establish brand and marketopportunities under the strategic alliance with TAH (Note 16). The related deferred tax liability onthis business combination amounted to P=185.6 million (Note 25). The total purchase price afterclosing settlement date amounted to P=488.6 million.

8. Cash and Cash Equivalents

This account consists of:

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

P=15,613,544,506 P=10,296,242,304

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Cash in banks earns interest at the respective bank deposit rates. Short-term placements, whichrepresent money market placements, are made for varying periods depending on the immediate cashrequirements of the Group. Short-term placements denominated in Peso earn an average annualinterest of 3.30%, 2.35% and 2.35% in 2017, 2016 and 2015, respectively. Moreover, short-termplacements in US dollar (USD) earn interest on an average annual interest rate of 1.96%, 1.31% and0.77% in 2017, 2016 and 2015, respectively.

Interest income earned on cash in banks and short-term placements, presented in the consolidatedstatements of comprehensive income, amounted to P=183.0 million, P=113.7 million and P=83.0 millionin 2017, 2016 and 2015, respectively.

9. Financial Assets at Fair Value through Profit or Loss

This account consists of derivative financial assets and liabilities in as of December 31, 2017 and2016 that are not designated as accounting hedges. Derivative assets amounted to P=454.4 million andP=441.8 million as of December 31, 2017 and 2016, respectively.

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

Commodity Swaps and Zero Cost CollarsThe Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuelderivatives are not designated as accounting hedges. The gains or losses on these instruments areaccounted for directly as charges against or credit to profit or loss. As of December 31, 2017 and2016, the Group has outstanding fuel hedging transactions. The notional quantity is the amount of thederivatives’ underlying asset or liability, reference rate or index and is the basis upon which changesin the value of derivatives are measured. The swaps and collars can be exercised at variouscalculation dates with specified quantities on each calculation date. The collars have various maturitydates through December 31, 2019.

For the years ended December 31, 2017, 2016 and 2015, the Group recognized net changes in fairvalue of derivatives amounting to P=135.9 million loss, P=1,581.1 million gain and P=2,945.8 millionloss, respectively. These are recognized in ‘Hedging gains (losses) - net’ account under theconsolidated statements of comprehensive income.

Foreign Currency ForwardsIn 2015, the Group entered into foreign currency hedging arrangements with various counterparties tomanage its exposure to foreign currency fluctuations. Such derivatives are not designated asaccounting hedges. The gains or losses on these instruments are accounted for directly as a chargeagainst or credit to profit or loss. On the same year, the Group pre-terminated all foreign currencyderivative contracts, where the Group recognized realized gain amounting to P=14.6 million. For theyear ended December 31, 2015, such realized gain is recognized in ‘Hedging gains (losses) - net’account under the consolidated statements of comprehensive income. In 2016, the Parent Companyentered into foreign currency forward contracts which were pre-terminated in the same year, wherethe Parent Company recognized realized gain amounting to P=6.7 million.

In 2017, the Group entered into foreign currency forward transactions with one of its counterpartieswhere it recognized realized gain of P=14.1 million.

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Fair Value Changes on DerivativesThe changes in fair value of all derivative financial instruments not designated as accounting hedgesfollow:

2017 2016Balance at beginning of year

Derivative assets P=758,876,862 P=–Derivative liabilities 317,102,957 2,443,495,138

441,773,905 (2,443,495,138)Net changes in fair value of derivatives (132,570,164) 1,587,708,081

309,203,741 (855,787,057)Fair value of settled instruments 145,196,347 1,297,560,962Balance at end of year P=454,400,088 P=441,773,905Attributable to:

Derivative assets P=454,400,088 P=758,876,862Derivative liabilities P=– P=317,102,957

The net changes in fair value of derivatives is inclusive of the realized gains on foreign currencyforwards amounting to P=3.3 million, P=6.7 million and P=14.6 million in 2017, 2016 and 2015,respectively.

10. Receivables

This account consists of:

2017 2016Trade receivables P=1,512,258,048 P=1,667,078,389Due from related parties (Note 27) 121,520,658 124,270,740Interest receivable 10,192,032 3,544,120Others 594,502,513 663,230,536

2,238,473,251 2,458,123,785Less allowance for credit losses 337,990,673 331,329,923

P=1,900,482,578 P=2,126,793,862

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

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

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

2017Trade

Receivables Others TotalBalance at beginning of year P=8,511,194 P=322,818,729 P=331,329,923Unrealized foreign exchange gain on

allowance for credit losses 5,734 6,655,016 6,660,750Balance at end of year P=8,516,928 P=329,473,745 P=337,990,673

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2016Trade

Receivables Others TotalBalance at beginning of year P=8,438,558 P=307,971,526 P=316,410,084Unrealized foreign exchange gain on

allowance for credit losses 72,636 14,847,203 14,919,839Balance at end of year P=8,511,194 P=322,818,729 P=331,329,923

11. Expendable Parts, Fuel, Materials and Supplies

This account consists of:

2017 2016At NRV:

Expendable parts P=1,226,659,598 P=823,992,795At cost:

Fuel 349,633,742 299,341,207Materials and supplies 37,397,193 66,722,985

387,030,935 366,064,192P=1,613,690,533 P=1,190,056,987

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

The cost of expendable and consumable parts, and materials and supplies recognized as expense(included under ‘Repairs and maintenance’ account in the consolidated statements of comprehensiveincome) for the years ended December 31, 2017, 2016 and 2015 amounted to P=587.9 million,P=419.9 million and P=374.4 million, respectively (Note 22). The cost of fuel reported as expenseunder ‘Flying operations’ account amounted to P=19,595.0 million, P=15,821.3 million andP=17,659.1 million in 2017, 2016 and 2015, respectively (Note 22).

12. Other Current Assets

This account consists of:

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

P=2,108,954,919 P=1,096,270,685

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

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

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

Deposit to counterparties pertains to collateral deposits provided to counterparties for fuel hedgingtransactions.

Others include housing allowance and prepayments to other suppliers.

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13. Property and Equipment

The composition and movements in this account follow:

2017

PassengerAircraft

(Notes 18 and 32) Engines Rotables

GroundSupport

Equipment

EDPEquipment,

Mainframe andPeripherals

LeaseholdImprovements

TransportationEquipment Sub-total

CostBalance at beginning of year P=75,894,007,720 P=9,469,685,966 P=3,650,559,527 P=649,265,394 P=873,775,012 P=1,326,005,809 P=271,481,424 P=92,134,780,852Additions 3,901,431,635 1,733,136,545 718,000,450 96,552,181 159,241,727 – 57,415,778 6,665,778,316Reclassification 6,563,857,663 – – – – 25,661,207 – 6,589,518,870Disposals/others (16,023,691,516) (1,805,076,141) (238,317,162) (36,364) (11,759,403) – (6,704,464) (18,085,585,050)Balance at end of year 70,335,605,502 9,397,746,370 4,130,242,815 745,781,211 1,021,257,336 1,351,667,016 322,192,738 87,304,492,988Accumulated Depreciation

and AmortizationBalance at beginning of year 19,195,803,795 2,939,239,869 861,984,434 449,134,024 737,747,220 524,454,832 192,524,197 24,900,888,371Depreciation and amortization 4,506,575,827 1,530,373,577 341,661,205 70,824,693 108,171,401 205,887,523 35,927,457 6,799,421,683Reclassification – – – – – – – –Disposals/others (8,265,515,593) (1,091,569,255) (162,017,448) (36,364) (11,759,403) – (6,704,464) (9,537,602,527)Balance at end of year 15,436,864,029 3,378,044,191 1,041,628,191 519,922,353 834,159,218 730,342,355 221,747,190 22,162,707,527Net Book Value P=54,898,741,473 P=6,019,702,179 P=3,088,614,624 P=225,858,858 P=187,098,118 P=621,324,661 P=100,445,548 P=65,141,785,461

2017Furniture,

Fixtures andOffice

EquipmentCommunication

EquipmentSpecial

Tools

Maintenanceand Test

EquipmentOther

EquipmentConstruction

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

(Forward)

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2017Furniture,

Fixtures andOffice

EquipmentCommunication

EquipmentSpecial

Tools

Maintenanceand Test

EquipmentOther

EquipmentConstruction

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

2016

PassengerAircraft

(Notes 18 and 32) Engines Rotables

GroundSupport

Equipment

EDPEquipment,

Mainframe andPeripherals

LeaseholdImprovements

TransportationEquipment Sub-total

CostBalance at beginning of year P=70,180,391,031 P=8,800,954,427 P=3,224,302,949 P=515,338,948 P=865,940,227 P=1,030,008,118 P=231,795,064 P=84,848,730,764Additions 8,093,523,876 1,574,616,146 553,091,249 137,361,635 52,875,536 – 39,686,360 10,451,154,802Reclassification 4,351,607,461 – – – (1,240,000) 295,997,691 – 4,646,365,152Disposals/others (6,731,514,648) (905,884,607) (126,834,671) (3,435,189) (43,800,751) – – (7,811,469,866)Balance at end of year 75,894,007,720 9,469,685,966 3,650,559,527 649,265,394 873,775,012 1,326,005,809 271,481,424 92,134,780,852Accumulated Depreciation

and AmortizationBalance at beginning of year 18,918,279,072 2,271,191,035 668,272,255 391,633,417 688,136,458 327,657,757 168,712,193 23,433,882,187Depreciation and amortization 4,197,295,780 1,108,933,677 284,567,783 60,885,023 94,619,501 196,797,075 23,812,004 5,966,910,843Reclassification – – – – (1,240,000) – – (1,240,000)Disposals/others (3,919,771,057) (440,884,843) (90,855,604) (3,384,416) (43,768,739) – – (4,498,664,659)Balance at end of year 19,195,803,795 2,939,239,869 861,984,434 449,134,024 737,747,220 524,454,832 192,524,197 24,900,888,371Net Book Value P=56,698,203,925 P=6,530,446,097 P=2,788,575,093 P=200,131,370 P=136,027,792 P=801,550,977 P=78,957,227 P=67,233,892,481

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2016Furniture,

Fixtures andOffice

EquipmentCommunication

EquipmentSpecial

Tools

Maintenanceand Test

EquipmentOther

EquipmentConstruction

In-progress TotalCostBalance at beginning of year P=158,892,556 P=15,023,503 P=14,213,796 P=6,681,631 P=99,147,611 P=10,576,116,375 P=95,718,806,236Additions 34,976,928 11,303,157 594,216 32,589 6,966,369 8,621,026,175 19,126,054,236Reclassification – – – – 1,240,000 (4,647,605,152) –Disposals/others (1,126,698) – – (176,103) (2,467,460) – (7,815,240,127)Balance at end of year 192,742,786 26,326,660 14,808,012 6,538,117 104,886,520 14,549,537,398 107,029,620,345Accumulated Depreciation and AmortizationBalance at beginning of year 100,290,381 10,686,314 12,645,419 6,590,325 78,890,597 – 23,642,985,223Depreciation and amortization 21,635,398 2,674,955 429,938 57,720 6,986,563 – 5,998,695,417Reclassification – – – – 1,240,000 – –Disposals/others (1,151,040) 79,224 – (176,103) (2,451,214) – (4,502,363,792)Balance at end of year 120,774,739 13,440,493 13,075,357 6,471,942 84,665,946 – 25,139,316,848Net Book Value P=71,968,047 P=12,886,167 P=1,732,655 P=66,175 P=20,220,574 P=14,549,537,398 P=81,890,303,497

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Passenger Aircraft and Engines Held as Securing Assets Under Various LoansThe Group entered into various Export Credit Agency (ECA) and commercial loan facilities tofinance the purchase of its aircraft and engines. As of December 31, 2017 and 2016, the Group’spassenger aircraft and engines held as securing assets under various loans are as follows:

2017 2016ECA Loans Commercial Loans ECA Loans Commercial Loans

Airbus A320 6 17 10 19ATR 72-500 7 – 7 –Airbus A319 ‒ – 4 –ATR 72-600 ‒ 8 – 2Airbus A330 ‒ 2 – 1Engines ‒ 5 – 5

13 32 21 27

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

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

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

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

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

In 2016, the Parent Company signed another forward sale agreement with Allegiant covering the lastremaining four (4) A319 aircraft. The aircraft are scheduled for delivery on various dates in 2017 and2018.

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

Sale and Operating LeasebackIn May and November 2017, the Group entered into a sale and operating leaseback transactions withIbon Leasing Limited (ILL) and JPA No. 78/79/80/81 Co., Ltd. covering two (2) and four (4) AirbusA320, respectively (Note 29). The sale of aircraft required the prepayment of outstanding balance ofthe loan facility attributed to the sold Airbus A320 aircraft. The total amount of loans and breakagecosts paid amounted to P=4,162.6 million and P=12.32 million, respectively. The Group recognizedgain on sale of aircraft amounting to P=635.5 million from these transactions.

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

2017 2016Owned (Note 18):

Airbus A320 23 29ATR 72-500 8 8ATR 72-600 8 2Airbus A330 2 1Airbus A319 1 4

Under operating lease (Note 30):Airbus A320 13 7Airbus A330 6 6

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Construction in-progress represents the cost of airframe and engine construction in-progress andbuildings and improvements and other ground property under construction. Construction in-progressis not depreciated until such time when the relevant assets are completed and available for use. As ofDecember 31, 2017 and 2016, the Group’s capitalized pre-delivery payments as construction in-progress amounted to P=15,918.4 million and P=14,466.6 million, respectively (Note 30).

As of December 31, 2017 and 2016, the gross amount of fully depreciated property and equipmentwhich are still in use by the Group amounted to P=1,654.1 million and P=1,394.3 million, respectively.

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

14. Investments in Joint Ventures and in an Associate

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

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

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

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

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

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

In November 2016, the Parent Company acquired shares of stock in ABB amounting toP=43.7 million. ABB is an entity incorporated in Singapore in 2016 to manage the ABB settlementsystem, which facilitates the settlement of sales proceeds between the issuing and carrying airlines,and of the transaction fee due to ABB.

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

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

2017A-plus SIAEP PAAT Total

CostBalance at beginning of year P=87,012,572 P=486,168,900 P=134,873,645 P=708,055,117Accumulated Equity in

Net Income (Loss)Balance at beginning of year 143,617,164 (120,852,015) 31,267,183 54,032,332Equity in net income during the year 103,865,989 13,907,157 22,557,503 140,330,649Dividends declared (105,159,583) – – (105,159,583)Balance at end of year 142,323,570 (106,944,858) 53,824,686 89,203,398Net Carrying Value P=229,336,142 P=379,224,042 P=188,698,331 P=797,258,515

2016A-plus SIAEP PAAT Total

CostBalance at beginning of year P=87,012,572 P=304,763,900 P=134,873,645 P=526,650,117Investment made during the year ‒ 181,405,000 ‒ 181,405,000Balance at end of year 87,012,572 486,168,900 134,873,645 708,055,117Accumulated Equity in

Net Income (Loss)Balance at beginning of year 120,336,602 (123,621,797) 2,259,065 (1,026,130)Equity in net income during the year 146,530,942 2,769,782 29,008,118 178,308,842Dividends declared (123,250,380) ‒ ‒ (123,250,380)Balance at end of year 143,617,164 (120,852,015) 31,267,183 54,032,332Net Carrying Value P=230,629,736 P=365,316,885 P=166,140,828 P=762,087,449

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

2017A-plus SIAEP PAAT

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

2016A-plus SIAEP PAAT

Total current assets P=795,460,819 P=698,461,242 P=286,174,849Noncurrent assets 155,159,767 1,664,971,439 804,157,578Current liabilities (479,947,656) (384,081,485) (78,688,833)Noncurrent liabilities ‒ (935,588,667) (679,361,939)Equity 470,672,930 1,043,762,529 332,281,655Proportion of the Group’s ownership 49% 35% 50%Carrying amount of the investments P=230,629,736 P=365,316,885 P=166,140,828

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

2017A-plus SIAEP PAAT

Revenue P=1,048,531,465 P=1,511,437,871 P=291,754,990Expenses (787,755,096) (1,431,375,266) (207,365,599)Other income (expenses) 27,808,071 (29,617,330) (32,481,449)Income before tax 288,584,440 50,445,275 51,907,942Income tax expense 76,613,034 10,710,542 6,792,936Net income P=211,971,406 P=39,734,733 P=45,115,006Group’s share of profit for the year P=103,865,989 P=13,907,157 P=22,557,503

2016A-plus SIAEP PAAT

Revenue P=987,094,549 P=969,132,649 P=305,467,453Expenses (653,807,788) (937,444,460) (193,942,399)Other income (expenses) 62,291,042 (18,573,663) (46,126,617)Income before tax 395,577,803 13,114,526 65,398,437Income tax expense 96,535,066 5,200,863 7,382,199Net income P=299,042,737 P=7,913,663 P=58,016,238Group’s share of profit for the year P=146,530,941 P=2,769,782 P=29,008,118

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2015A-plus SIAEP PAAT

Revenue P=905,813,968 P=387,432,455 P=157,878,689Expenses (603,475,105) (562,632,105) (149,404,852)Other income (expenses) 8,283,751 (9,236,769) (40,522,812)Income (loss) before tax 310,622,614 (184,436,419) (32,048,975)Income tax expense 72,602,620 45,652 1,236,173Net income (loss) P=238,019,994 (P=184,482,071) (P=33,285,148)Group’s share of profit for the year P=116,629,797 (P=64,568,725) (P=16,642,574)

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

For the periods ended December 31, 2017 and 2016, the Parent Company received dividends fromA-plus amounting to P=124.7 million and P=61.6 million, respectively. Dividends received in 2017includes dividends declared in 2016 amounting to P=61.6 million. Outstanding dividends receivablefrom A-plus amounted to P=43.0 million and P=61.6 million as of December 31, 2017 and 2016,respectively.

The share of the Parent Company in the net income of A-plus included in the consolidated retainedearnings amounted to P=142.3 million and P=143.6 million as of December 31, 2017 and 2016,respectively, which is not currently available for dividend distribution unless declared by A-plus.

The share of the Parent Company in the net income of PAAT included in the consolidated retainedearnings amounted to P=53.8 million and P=31.3 million as of December 31, 2017 and 2016,respectively, which is not currently available for dividend distribution unless declared by PAAT.

As of December 31, 2017 and 2016, SIAEP’s accumulated losses amounted to P=106.9 million andP=120.9 million, respectively.

15. Goodwill

This account, which has a balance of P=566.8 million as of December 31, 2017 and 2016, representsthe goodwill arising from the acquisition of CEBGO (Note 7). Goodwill is attributed to thefollowing:

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

Defensive StrategyAcquiring a competitor enables the Parent Company to manage overcapacity in certain geographicalareas/markets.

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

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

∂ Future revenue, profit margins and revenue growth rates: These assumptions are based on the pastperformance of CEBGO, market developments and expectations in the industry.

∂ Discount rates: The discount rate used for the computation of the net present value is theweighted average cost of equity and was determined by reference to comparable entities.

Sensitivity to changes in assumptionsManagement believes that no reasonably possible change in any of the above key assumptions wouldcause the carrying values of goodwill and intangible assets arising from the acquisition of CEBGO tomaterially exceed their recoverable amounts.

16. Other Noncurrent Assets

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

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

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

17. Accounts Payable and Other Accrued Liabilities

This account consists of:

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

P=14,182,785,839 P=12,583,636,942

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Accrued ExpensesThe Group’s accrued expenses include accruals for:

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

P=5,626,405,247 P=5,104,775,244

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

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

Airport and Other Related Fees PayableAirport and other related fees payable are amounts payable to the Philippine Tourism Authority, AirTransportation Office, Mactan-Cebu International Airport and Manila International Airport Authorityarising from aviation security, terminal fees and travel taxes.

Advances from Agents and OthersAdvances from agents and others represent cash bonds required from major sales and ticket offices oragents. These also include commitment fees received for the sale and purchase agreement offour (4) A319 aircraft amounting P=49.9 million (US$1.0 million) and P=198.9 million(US$4.0 million) as of December 31, 2017 and 2016, respectively. Commitment fees applied for thedelivery of three (3) aircraft in 2017 and four (4) aircraft in 2016 amounted to P=152.0 million(US$3.0 million) and P=194.0 million (US$4.0 million), respectively.

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

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

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18. Long-term Debt

This account consists of:

2017Annual Interest Rates Range

(Note 28) Maturities US DollarPhilippine Peso

EquivalentECA loans 3.00% to 5.00% Various dates

through 2024US$28,434,642 P=1,419,741,691

2.00% to 5.00%(US Dollar LIBOR) 101,568,931 5,071,336,717

130,003,573 6,491,078,408

US Dollarcommercial loans

3.00% to 5.00% Various datesthrough 2025 86,000,000 4,293,980,000

2.00% to 5.00%(US Dollar LIBOR) 333,493,848 16,651,347,844

Philippine Pesocommercial loans

3.00% to 5.00%(PDST-R2)

2016 through2026 ‒ 13,545,804,500

419,493,848 34,491,132,344US$549,497,421 P=40,982,210,752

2016Annual Interest Rates Range

(Note 28) Maturities US DollarPhilippine Peso

EquivalentECA loans 2.00% to 6.00% Various dates

through 2024US$131,595,704 P=6,542,938,380

1.00% to 2.00%(US Dollar LIBOR) 117,841,373 5,859,073,088

249,437,077 12,402,011,468

US Dollarcommercial loans

3.00% to 6.00% Various datesthrough 2025 122,813,513 6,106,287,889

1.00% to 2.00%(US Dollar LIBOR) 376,581,824 18,723,648,273

Philippine Pesocommercial loans

2.00% to 3.00%(PDST-R2)

2016 through2026 ‒ 5,578,490,000

499,395,337 30,408,426,162US$748,832,414 P=42,810,437,630

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

2017

US DollarPhilippine Peso

EquivalentCurrent

US Dollar loans US$90,548,405 P=4,521,081,874Philippine Peso loans ‒ 1,448,175,750

90,548,405 5,969,257,624Noncurrent

US Dollar loans 458,949,016 22,915,324,378Philippine Peso loans ‒ 12,097,628,750

458,949,016 35,012,953,128US$549,497,421 P=40,982,210,752

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2016

US DollarPhilippine Peso

EquivalentCurrent

US Dollar loans US$130,378,207 P=6,482,404,460Philippine Peso loans ‒ 557,849,000

130,378,207 7,040,253,460Noncurrent

US Dollar loans 618,454,207 30,749,543,170Philippine Peso loans ‒ 5,020,641,000

618,454,207 35,770,184,170US$748,832,414 P=42,810,437,630

Long-term debt rollforward follows:

2017

US Dollar loansPhilippine Peso

EquivalentPhilippine Peso

Loans TotalBalances at beginning of

year US$748,832,414 P=37,231,947,630 P=5,578,490,000 P=42,810,437,630Availments ‒ − 8,903,267,500 8,903,267,500Payments (199,334,993) (10,048,126,753) (935,953,000) (10,984,079,753)

US$549,497,421 27,183,820,877 13,545,804,500 40,729,625,377Unrealized foreign

exchange loss 252,585,375 ‒ 252,585,375Balances at end of year P=27,436,406,252 P=13,545,804,500 P=40,982,210,752

2016

US Dollar loansPhilippine Peso

EquivalentPhilippine Peso

Loans TotalBalances at beginning of

year US$777,496,503 P=36,588,985,446 P=‒ P=36,588,985,446Availments 107,800,000 5,105,350,000 5,578,490,000 10,683,840,000Payments (136,464,089) (6,405,748,273) ‒ (6,405,748,273)

US$748,832,414 35,288,587,173 5,578,490,000 40,867,077,173Unrealized foreign

exchange loss 1,943,360,457 ‒ 1,943,360,457Balances at end of year P=37,231,947,630 P=5,578,490,000 P=42,810,437,630

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

ATR 72-500 turboprop aircraft and (b) twelve-year finance lease arrangement for the Airbus A319and A320 aircraft. The quarterly and semi-annual payments made by the Parent Company to theseSPEs correspond to the principal and interest payments made by the SPEs to the ECA-backed lenders.The quarterly and semi-annual lease rentals to the SPEs are guaranteed by CPAHI and JGSHI. TheParent Company has the option to purchase the aircraft for a nominal amount at the end of suchleases.

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In 2017 and 2016, the Parent Company exercised the option to purchase three and four of the tenAirbus A319 aircraft, respectively, which were subsequently sold to a third party as part of a forwardsale arrangement (Note 13). The purchase required the prepayment of the balance of the loan facilityattributed to the sold Airbus A319 aircraft. The total amount of loans paid amounted toP=494.1 million and P=870.5 million in 2017 and 2016, respectively. The breakage cost for the relatedloan prepayments amounted to P=12.0 million and P=45.6 million in 2017 and 2016, respectively.

The terms of the remaining ECA-backed facilities, which are the same for the six (6) Airbus A320aircraft and seven (7) ATR 72-500 turboprop aircraft, follow:

∂ Term of twelve (12) years starting from the delivery date of each Airbus A320 aircraft andTen (10) years for each ATR 72-500 turboprop aircraft.

∂ Combination of annuity style and equal principal repayments for the ATR 72-500 turbopropaircraft and Airbus A320 aircraft. Principal repayments shall be made on a semi-annual basis forATR 72-500 turboprop aircraft. Principal repayments shall be made on a quarterly basis forA320 aircraft.

∂ Interest on loans from the ECA lenders are a mix of fixed and variable rates. Fixed annualinterest rates ranges from 2.00% to 5.00% and variable rates are based on US dollar LIBOR plusmargin.

∂ As provided under the ECA-backed facility, the SPEs cannot create or allow to exist any securityinterest, other than what is permitted by the transaction documents or the ECA administrativeparties. SPEs must not allow impairment of first priority nature of the lenders’ security interests.

∂ The ECA-backed facilities also provide for the following events of default: (a) nonpayment of theloan principal or interest or any other amount payable on the due date, (b) breach of negativepledge, covenant on preservation of transaction documents, (c) misrepresentation,(d) commencement of insolvency proceedings against SPEs becomes insolvent, (e) failure todischarge any attachment or sequestration order against SPEs’ assets, (f) entering into anundervalued transaction, obtaining preference or giving preference to any person, contrary to thelaws of the Cayman Islands, (g) sale of any aircraft under ECA financing prior to discharge date,(h) cessation of business, (i) revocation or repudiation by the SPEs, the Group, JGSHI or CPAHIof any transaction document or security interest, and (j) occurrence of an event of default underthe lease agreement with the Parent Company.

∂ Upon default, the outstanding amount of loan will be payable, including interest accrued.Also, the ECA lenders will foreclose on secured assets, namely the aircraft (Note 13).

∂ An event of default under any ECA loan agreement will occur if an event of default asenumerated above occurs under any other ECA loan agreement.

As of December 31, 2017 and 2016, the total outstanding balance of the ECA loans amounted toP=6,491.1 million (US$130.0 million) and P=12,402.0 million (US$249.4 million), respectively.Interest expense amounted to P=291.6 million, P=401.0 million and P=487.7 million in 2017, 2016 and2015, respectively.

US Dollar Commercial LoansOn various dates from 2007 to 2016, the Group entered into a commercial loan facility to partiallyfinance the purchase of nineteen (19) Airbus A320 aircraft, one CFM 565B4/P engine and two CFM565B5/P engines. The security trustee of the commercial loan facility established SPEs, namelyPTALL, PTHALL, SAALL, SBALL and SCALL, which purchased the aircraft from the ParentCompany pursuant to (a) ten-year finance lease arrangement for the Airbus A320 aircraft; and(b) six-year finance lease arrangement for the engines. The quarterly and semi-annual paymentsmade by the Parent Company to these SPEs correspond to the principal and interest payments madeby the SPEs to the ECA-backed lenders. The Parent Company has the option to purchase the aircraftand the engines for a nominal amount at the end of such leases.

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The terms of the remaining commercial loans follow:

∂ Term of ten years starting from the delivery date of each aircraft.∂ Combination of annuity style and equal principal repayments made on a quarterly and

semi-annual basis for the aircraft and engines.∂ Interests on loans are a mix of fixed and variable rates. Interest rates ranges from 2.00% to

5.00%.∂ The facilities provide for material breach as an event of default, upon which, the outstanding

amount of loan will be payable, including interest accrued. The lenders will foreclose on securedassets, namely the aircraft.

As of December 31, 2017 and 2016, the total outstanding balance of the US dollar commercial loansamounted to P=20,945.3 million (US$419.5 million) and P=24,829.9 million (US$499.4 million),respectively. Interest expense amounted to P=780.6 million, P=751.9 million and P=585.4 million in2017, 2016 and 2015, respectively.

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

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

The terms of the commercial loans follow:

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

including interest accrued. The lenders will foreclose mortgaged assets, namely the aircraft.

Interest expense incurred from these loans amounted to P=349.3 million and P=17.3 million in 2017 and2016, respectively.

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

19. Other Noncurrent Liabilities

This account consists of:

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

P=4,395,317,042 P=2,842,631,591

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AROThe Group is contractually required under various lease contracts to restore certain leased aircraft toits original condition at its own cost or to bear a proportionate cost of restoration at the end of thecontract period. These costs are accrued based on estimates made by the Group’s engineers, whichinclude estimates of future aircraft utilization and certain redelivery costs at the end of the leaseperiod.

The rollforward analysis of the Group’s ARO follow:

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

In 2017, 2016 and 2015, ARO expenses included as part of repairs and maintenance amounted toP=1,209.4 million, P=1,121.1 million and P=864.0 million, respectively (Note 22).

Deferred Revenue on Rewards ProgramThis account pertains to estimated liability under the Getgo lifestyle rewards program.

20. Equity

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

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

Common StockOn October 26, 2010, the Parent Company listed with the PSE its common stock, by way of primaryand secondary share offerings, wherein it offered 212,419,700 shares to the public at P=125.00 pershare. Of the total shares sold, 30,661,800 shares are newly issued shares with total proceedsamounting to P=3,800.0 million. The Parent Company’s share in the total transaction costs incurredincidental to the IPO amounted to P=100.4 million, which is charged against ‘Capital paid in excess ofpar value’ in the consolidated statements of financial position. The registration statement wasapproved on October 11, 2010. After its listing with the PSE, there have been no subsequentofferings of common stock. The Group has 91 and 95 existing certified shareholders as ofDecember 31, 2017 and 2016, respectively.

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

The Parent Company has 7,283,220 shares held in treasury costing P=529.3 million as ofDecember 31, 2017 and 2016, restricting the Parent Company from declaring an equivalent amountfrom unappropriated retained earnings as dividends.

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Appropriation of Retained EarningsOn December 15, 2017, November 10, 2016 and December 3, 2015, the Parent Company’s BODappropriated P=18.3 billion, P=6.6 billion and P=1.0 billion, respectively, from its unrestricted retainedearnings for purposes of the Group’s re-fleeting program. The appropriated amount will be used forthe settlement of pre-delivery payments and aircraft lease commitments (Note 30). As ofDecember 31, 2017 and 2016, the Group has appropriated retained earnings totalingP=18,300.0 million and P=14,516.8 million, respectively.

Project name BOD approvalExpected Receipt

DateRe-fleeting program

2017 December 15, 2017 2018-20212016 November 10, 2016 2017-20212015 December 3, 2015 2016-2021

Unappropriated Retained EarningsThe income of the subsidiaries and JVs that are recognized in the consolidated statements ofcomprehensive income are not available for dividend declaration unless these are declared by thesubsidiaries and JVs (Note 14). Likewise, retained earnings are restricted for the payment ofdividends to the extent of the cost of common stock held in treasury amounting to P=529.3 million.

On May 19, 2017, the Parent Company’s BOD approved the declaration of a regular cash dividend inthe amount of P=606.0 million or P=1.00 per share and a special cash dividend in the amount ofP=1,060.4 million or P=1.75 per share from the unrestricted retained earnings of the Parent Company toall stockholders of record as of June 9, 2017 and payable on July 5, 2017. Total dividends declaredamounted to P=1,666.4 million for the period ended December 31, 2017.

On May 20, 2016, the Parent Company’s BOD approved the declaration of a regular cash dividend inthe amount of P=606.0 million or P=1.00 per share and a special cash dividend in the amount ofP=605.9 million or P=1.00 per share from the unrestricted retained earnings of the Parent Company toall stockholders of record as of June 9, 2016 and payable on July 5, 2016. Total dividends declaredamounted to P=1,211.9 million for the period ended December 31, 2016.

On June 24, 2015, the Parent Company’s BOD approved the declaration of a regular cash dividend inthe amount of P=606.0 million or P=1.00 per share and a special cash dividend in the amount ofP=302.9 million or P=0.50 per share from the unrestricted retained earnings of the Parent Company toall stockholders of record as of July 16, 2015 and payable on August 11, 2015. Total dividendsdeclared amounted to P=908.9 million for the period ended December 31, 2015.

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

Capital ManagementThe primary objective of the Group’s capital management is to ensure that it maintains healthy capitalratios in order to support its business and maximize shareholder value. The Group manages itscapital structure, which is composed of paid-up capital and retained earnings, and makes adjustmentsto 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 dividendpayment to shareholders, return capital structure or issue capital securities. No changes have beenmade in the objective, policies and processes as they have been applied in previous years.

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

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

2017 2016(a) Long-term debt (Note 18) P=40,982,210,752 P=42,810,437,630(b) Equity 39,785,579,366 33,505,272,519(c) Debt-to-equity ratio (a/b) 1.0:1 1.3:1

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

21. Ancillary Revenue

Ancillary revenue consist of:

2017 2016 2015Baggage fees P=6,503,929,372 P=5,496,894,601 P=4,955,384,497Rebooking, refunds, cancellation

fees, etc. 4,872,677,534 3,961,855,541 3,338,921,090Others 2,117,690,355 2,284,264,613 2,065,142,241

P=13,494,297,261 P=11,743,014,755 P=10,359,447,828

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

22. Operating Expenses

Flying OperationsThis account consists of:

2017 2016 2015Aviation fuel expense (Note 11) P=19,594,980,725 P=15,821,328,265 P=17,659,066,443Flight deck 3,544,702,215 3,310,321,766 2,797,680,638Aviation insurance 226,084,461 196,129,796 255,071,777Others 495,292,866 366,568,889 204,541,676

P=23,861,060,267 P=19,694,348,716 P=20,916,360,534

Aircraft and Traffic ServicingThis account consists of:

2017 2016 2015Airport charges P=4,388,454,073 P=3,931,733,367 P=3,508,816,000Ground handling 2,682,026,202 2,105,087,686 1,887,062,871Others 635,872,264 541,163,750 451,220,434

P=7,706,352,539 P=6,577,984,803 P=5,847,099,305

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

Repairs and MaintenanceRepairs and maintenance expenses relate to the cost of maintaining, repairing and overhauling of allaircraft and engines, technical handling fees on pre-flight inspections and cost of aircraft spare partsand other related equipment. The account includes related costs of other contractual obligationsunder aircraft operating lease agreements (Note 30). These amounted to P=1,209.4 million,P=1,121.1 million and P=864.0 million in 2017, 2016 and 2015, respectively (Note 19).

Reservation and SalesReservation and sales relate to the cost to sell or distribute airline tickets and other ancillariesprovided to passengers such as costs to maintain the Group’s web-based booking channel, reservationticketing office costs and advertising expenses. These amounted to P=3,674.6 million,P=3,211.7 million and P=2,625.5 million in 2017, 2016 and 2015, respectively.

23. General and Administrative Expenses

This account consists of:

2017 2016 2015Staff costs P=713,911,477 P=642,010,384 P=512,655,998Security and professional fees 589,737,525 498,893,458 487,854,049Utilities 144,290,695 133,315,208 145,433,281Rent expense 119,274,051 85,337,118 89,687,818Travel and transportation 53,113,095 32,378,068 24,674,634Others 490,378,109 421,109,241 291,843,153

P=2,110,704,952 P=1,813,043,477 P=1,552,148,933

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

24. Employee Benefits

Employee Benefit CostTotal personnel expenses, consisting of salaries, expense related to defined benefit plans and otheremployee benefits, are included in flying operations, aircraft and traffic servicing, repairs andmaintenance, reservation and sales, general and administrative, and passenger service.

Defined Benefit PlansThe Group has funded, noncontributory, defined benefit plans covering substantially all of its regularemployees. The benefits are based on years of service and compensation on the last year ofemployment.

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

2017 2016 2015Average remaining working life 7 - 9 years 11 - 18 years 8 - 12 yearsDiscount rate 5.73% - 5.76% 5.44% - 5.60% 5.00% - 5.13%Salary increase rate 5.70% - 5.50% 5.50% - 5.50% 5.00% - 5.70%

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

The amounts recognized as retirement liability follow:

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

P=636,961,076 P=568,769,315

Remeasurement gains recognized in OCI follow:

2017 2016Actuarial gains from benefit obligation P=83,944,869 P=26,153,078Return on plan assets, excluding amount included in

net interest cost (28,470,755) (14,941,894)Amount to be recognized in OCI P=55,474,114 P=11,211,184

Movements in the fair value of plan assets follow:

2017 2016Balance at beginning of year P=442,414,064 P=350,803,616Interest income included in net interest cost 21,486,540 16,028,970Actual contribution during the year 1,000 90,523,372Return on plan assets, excluding amount included in

net interest cost (28,470,755) (14,941,894)Balance at end of year P=435,430,849 P=442,414,064

The plan assets consist of:

2017 % 2016 %Cash P=117,577,762 27% P=308,307,900 70%Investment in debt securities 315,537,434 73% 132,884,688 30%Investment in equity securities 363,231 – – –Receivables 1,989,920 – 1,259,576 –

435,468,347 442,452,164Liabilities (37,498) – (38,100) –

P=435,430,849 100% P=442,414,064 100%

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The Group expects to contribute about P=116.8 million into the retirement fund for the year ending2018.

The actual returns on plan assets amounted to P=7.0 million losses in 2017 and P=1.1 million gains in2016.

Changes in present value of the defined benefit obligation follow:

2017 2016Balance at beginning of year P=1,011,183,379 P=897,284,330Current service cost 124,017,696 111,059,054Interest cost 52,464,588 43,351,629Benefits paid (31,328,869) (14,358,556)Actuarial loss/gain due to:

Experience adjustments 650,992 14,942,532Changes in financial assumption (4,188,561) (50,652,461)Changes in demographical assumption (80,407,300) 9,556,851

Balance at end of year P=1,072,391,925 P=1,011,183,379

Movements in retirement liability follow:

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

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

Components of retirement expense included in the Group’s consolidated statements of comprehensiveincome follow:

2017 2016 2015Current service cost P=124,017,696 P=111,059,054 P=99,123,882Interest cost 30,978,048 27,322,659 17,717,750Total retirement expense P=154,995,744 P=138,381,713 P=116,841,632

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

2017PVO

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

Salary increase rates 6.70% (+1.00%) 1,131,113,5324.70% (-1.00%) (937,242,141)

2016PVO

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

Salary increase 6.50% (+1.00%) 1,089,891,2044.50% (-1.00%) (870,361,689)

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

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

2017

Plan YearNormal

RetirementOther Normal

Retirement TotalLess than one year P=83,066,349 P=36,909,566 P=119,975,915One to less than five years 100,566,495 217,623,698 318,190,193Five to less than 10 years 409,212,531 396,721,336 805,933,86710 to less than 15 years 448,970,827 448,320,680 897,291,50715 to less than 20 years 511,864,635 432,141,338 944,005,97320 years and above 1,829,024,599 744,639,760 2,573,664,359

2016

Plan YearNormal

RetirementOther Normal

Retirement TotalLess than one year P=77,229,355 P=18,592,905 P=95,822,260One to less than five years 105,481,383 120,144,671 225,626,054Five to less than 10 years 399,188,712 260,049,032 659,237,74410 to less than 15 years 540,356,799 330,256,729 870,613,52815 to less than 20 years 726,038,877 368,907,725 1,094,946,60220 years and above 3,593,561,999 896,504,719 4,490,066,718

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The average duration of the expected benefit payments as of December 31, 2017 and 2016 is17.95 years and 20.73 years, respectively.

25. Income Taxes

Provision for (benefit from) income tax consists of:

2017 2016 2015Current:

MCIT P=134,353,111 P=162,594,552 P=125,929,367Deferred 165,852,592 (200,566,039) (984,359,953)

P=300,205,703 (P=37,971,487) (P=858,430,586)

Income taxes include corporate income tax, as discussed below, and final taxes paid at the rate of20.00% and 7.50% on peso-denominated and foreign currency-denominated short-term placementsand cash in banks, respectively, which are final withholding taxes on gross interest income.

The NIRC of 1997 also provides for rules on the imposition of a 2.00% MCIT on the gross income asof the end of the taxable year beginning on the fourth taxable year immediately following the taxableyear in which the Group commenced its business operations. Any excess MCIT over the RCIT canbe carried forward on an annual basis and credited against the RCIT for the three immediatelysucceeding taxable years.

In addition, under Section 11 of R.A. No. 7151 (Parent Company’s Congressional Franchise) andunder Section 15 of R.A. No. 9517 (CEBGO’s Congressional Franchise) known as the “ipso factoclause” and the “equality clause”, respectively, the Group is allowed to benefit from the tax privilegesbeing enjoyed by competing airlines. The Group’s major competitor, by virtue of P.D. No. 1590, isenjoying tax exemptions which are likewise being claimed by the Group, if applicable, including butnot limited to the following:

a. To depreciate its assets to the extent of not more than twice as fast the normal rate ofdepreciation; and

b. To carry over as a deduction from taxable income any NOLCO incurred in any year up to fiveyears following the year of such loss.

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

2017 2016Deferred tax assets on:

ARO - liability P=1,102,526,240 P=739,701,342Unrealized foreign exchange losses - net 903,411,993 1,154,300,719NOLCO 461,723,431 1,388,753,996MCIT 422,877,029 349,843,622Deferred revenue - Lifestyle rewards program 216,068,873 113,088,136Retirement liability 191,088,323 170,630,795Allowance for credit losses 101,397,202 99,398,977

3,399,093,091 4,015,717,587

(Forward)

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2017 2016Deferred tax liabilities on:

Double depreciation P=2,186,122,651 P=2,624,040,175Business combination (Note 7) 185,645,561 185,645,561Unrealized gain on net derivative assets 136,320,026 132,532,172

2,508,088,238 2,942,217,908Net deferred tax assets P=891,004,853 P=1,073,499,679

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

Movement in accrued retirement cost amounted to P=16.6 million and P=3.4 million in 2017 and 2016,respectively, is presented under OCI.

Parent CompanyDetails of the NOLCO and MCIT are as follows:

NOLCO

Year Incurred Amount Applied Balance Expiry Year2014 P=1,028,184,259 (P=1,028,184,259) P=– 20192015 955,474,545 (955,474,545) – 2020

P=1,983,658,804 (P=1,983,658,804) P=–

MCIT

Year Incurred Amount Expired Balance Expiry Year2014 P=61,319,704 (P=61,319,704) P=– 20172015 117,297,005 – 117,297,005 20182016 148,442,253 – 148,442,253 20192017 125,331,691 – 125,331,691 2020

P=452,390,653 (P=61,319,704) P=391,070,949

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

On 22 out of 23 registrations, the Parent Company can avail of bonus years in certain specified casesbut the aggregate ITH availments (basic and bonus years) shall not exceed eight years.

As of December 31, 2017 and 2016, the Parent Company has complied with capital requirements setby the BOI in order to avail the ITH incentives for aircraft of registered activity (Note 32).

CEBGODetails of NOLCO and MCIT are as follows:

NOLCO

Year Incurred Amount Applied Expired Balance Expiry Year2012 P=1,106,443,070 (P=377,927,614) (P=728,515,456) P=− 20172013 853,571,166 – – 853,571,166 20182014 685,506,938 – – 685,506,938 2019

P=2,645,521,174 (P=377,927,614) (P=728,515,456) P=1,539,078,104

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MCIT

Year Incurred Amount Expired/Applied Balance Expiry Year2015 P=8,632,361 P=– P=8,632,361 20182016 14,152,299 – 14,152,299 20192017 9,021,420 – 9,021,420 2020

P=31,806,080 P=– P=31,806,080

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

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

P=854,608,264

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

2017 2016 2015Statutory income tax rate 30.00% 30.00% 30.00%Adjustments resulting from:

Nondeductible items 0.20 0.09 0.19Interest income subjected to final tax (0.65) (0.33) (0.63)Others (0.51) (0.55) (1.29)Income subject to ITH (25.38) (29.60) (52.60)

Effective income tax rate 3.66% (0.39%) (24.33%)

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

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26. Earnings Per Share

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

2017 2016 2015(a) Net income attributable to

common shareholders P=7,907,846,625 P=9,754,136,196 P=4,387,225,875(b) Weighted average number of

common shares for basic EPS 605,953,330 605,953,330 605,953,330(c) Basic/diluted earnings per share P=13.05 P=16.10 P=7.24

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

27. Related Party Transaction

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

The Group has entered into transactions with its ultimate parent, its JVs and affiliates principallyconsisting of advances, sale of passenger tickets, reimbursement of expenses, regular bankingtransactions, maintenance and administrative service agreements. In addition to the relatedinformation disclosed elsewhere in the consolidated financial statements, the following are theyear-end balances in respect of transactions with related parties, which were carried out in the normalcourse of business on terms agreed with related parties during the year.

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

2017

Related PartyAmount/Volume

OutstandingBalance Terms Conditions

Parent company(1) CPAHI Due from related parties P=– P=65,800 Non-interest bearing Unsecured, No impairment

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

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

(4) PAAT, Inc.Due from related party

Loans 2,250,000 90,977,300 2% interest per annum Unsecured, No impairment Sublease agreement 29,432,744 2,627,838 Payable monthly Unsecured, No impairment Others 123,405 20,258 Non-interest bearing Unsecured, No impairment

Trade payables (171,272,125) (605,551) Non-interest bearing Unsecured

(Forward)

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2017

Related PartyAmount/Volume

OutstandingBalance Terms Conditions

Entities under common control(5) Robinsons Bank Corporation (RBC) Trade receivables P=3,619,543 P=50,052 Non-interest bearing Unsecured, No impairment Due to related parties (62,334,189) (2,527,313) Non-interest bearing Unsecured Trade payables (1,066,451,273) (10,582,543) Non-interest bearing Unsecured

Long-term debt (3,464,550,000) (3,400,418,750) Interest bearing Secured

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

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

(8) Robinsons Handyman, Inc. Trade payables (4,336,466) (7,334) Non-interest bearing Unsecured

(9) Summit Publishing Inc. (SPI) Trade receivables 1,164,416 319,150 Non-interest bearing Unsecured, No impairment Trade payables (6,841,858) – Non-interest bearing Unsecured

(10)JG Petrochemical Corporation(JGPC)

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

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

(12)Jobstreet.com Phils., Inc. Trade receivables 553,448 – Non-interest bearing Unsecured, No impairment Trade payables (863,500) – Non-interest bearing Unsecured

2016

Related PartyAmount/Volume

OutstandingBalance Terms Conditions

Parent company(1) CPAHI Due from related parties P=‒ P=65,800 Non-interest bearing Unsecured, No impairment

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

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

(4) PAAT, Inc.

Due from related partiesLoans 5,960,066 90,977,300 2% interest per annum Unsecured, No impairmentSublease agreement 32,530,938 5,012,599 Payable monthly Unsecured, No impairmentOthers 70,246 130,407 Non-interest bearing Unsecured, No impairment

Trade payables 141,115,807 ‒ Non-interest bearing Unsecured

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

(Forward)

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2016

Related PartyAmount/Volume

OutstandingBalance Terms Conditions

(6) Universal Robina Corporation (URC) Trade receivables P=41,868,371 P=4,255,851 Non-interest bearing Unsecured, No impairment Due to related parties 73,047 (36,121,604) Non-interest bearing Unsecured Trade payables 56,338,675 (1,905,670) Non-interest bearing Unsecured

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

(8) Robinsons Handyman, Inc. Trade payables 3,332,363 (253,778) Non-interest bearing Unsecured

(9) Summit Publishing Inc. (SPI) Trade receivables 2,390,852 82,676 Non-interest bearing Unsecured, No impairment Trade payables 18,618,073 (516,610) Non-interest bearing Unsecured

(10) JG Petrochemical Corporation(JGPC)

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

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

(12) Jobstreet.com Phils., Inc. Trade receivables 582,450 15,675 Non-interest bearing Unsecured, No impairment Trade payables 1,205,600 ‒ Non-interest bearing Unsecured

Consolidated Statement of Comprehensive Income

YearSale of Air

Transportation ServiceInterestIncome

AncillaryRevenues

Repairs andMaintenance

JV in which the Parent Company is a venturer 2017 P=– P=– P=– P=738,577,829A-plus 2016 P=– P=– P=– 701,792,101

2015 P=– P=– P=– 84,698,669

SIAEP 2017 960,594 – – 395,582,7132016 677,614 – – 196,800,1522015 439,483 – – –

PAAT 2017 – – 29,432,744 –2016 – – 32,530,938 –2015 – – 37,663,884 –

Entities under common controlRSB 2017 3,619,543 – – –

2016 3,369,060 – – –2015 2,472,792 – – –

URC 2017 43,504,985 – – –2016 44,137,335 – – –2015 40,768,879 – – –

RLC 2017 33,139,176 – – –2016 29,396,331 – – –2015 19,174,493 – – –

SPI 2017 1,164,416 – – –2016 2,721,457 – – –2015 3,498,402 – – –

JGPC 2017 1,302,261 – – –2016 845,291 – – –2015 921,695 – – –

(Forward)

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Consolidated Statement of Comprehensive Income

YearSale of Air

Transportation ServiceInterestIncome

AncillaryRevenues

Repairs andMaintenance

Robinsons Inc. 2017 P=31,898,994 P=– P=– P=–2016 P=33,749,652 P=– P=– P=–2015 P=29,549,943 P=– P=– P=–

Jobstreet.com Phils, Inc. 2017 553,448 – – –2016 582,450 – – –2015 682,300 – – –

Total 2017 P=116,143,417 P=– P=29,432,744 P=1,134,160,5422016 P=115,479,190 P=– P=32,530,938 P=898,592,2532015 P=97,507,987 P=– P=37,663,884 P=84,698,669

Terms and conditions of transactions with related partiesOutstanding balances at year-end are unsecured, interest-free and settlement occurs in cash. Also,these transactions are short-term in nature. There have been no guarantees provided or received forany related party receivables or payables. The Group has not recognized any impairment losses onamounts due from related parties for the years ended December 31, 2017, 2016 and 2015. Thisassessment is undertaken each financial year through a review of the financial position of the relatedparty and the market in which the related party operates.

The Group’s significant transactions with related parties follow:

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

2. The Group entered into a Shared Services Agreement with A-plus. Under the aforementionedagreement, the Group will render certain administrative services to A-plus, which include payrollprocessing and certain information technology-related functions. The Group also entered into aGround Support Equipment (GSE) Maintenance Services Agreement with A-plus. Under theGSE Maintenance Services Agreement, the Group shall render routine preventive maintenanceservices on certain ground support equipment used by A-plus in providing technical GSE toairline operators in major airports in the Philippines. The Group also performs repair orrectification of deficiencies noted and supply replacement components.

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

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

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

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The Group also purchases goods from URC for in-flight sales and recorded as trade payable, ifunpaid, in the consolidated statements of financial position. Total amount of purchases in 2017,2016 and 2015 amounted to P=38.6 million, P=37.2 million and P=44.8 million, respectively.

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

7. In 2013 and 2012, under the shareholder loan agreement, the Group provided a loan to PAAT tofinance the purchase of its Full Flight Simulator, other equipment and other working capitalrequirements. Aggregate loans provided by the Group amounted to P=155.4 million(US$3.5 million). The loans are subject to two percent (2%) interest per annum. In 2014, theGroup collected P=41.7 million (US$0.9 million) from PAAT as partial payment of the loan. Asof December 31, 2017 and 2016, loan to PAAT amounted to P=91.0 million (US$2.3 million).

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

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

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

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

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

2017 2016 2015Short-term employee benefits P=165,548,217 P=137,740,617 P=135,392,431Post-employment benefits 25,939,884 2,690,640 3,560,866

P=191,488,101 P=140,431,257 P=138,953,297

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

28. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments, other than derivatives, comprise cash and cashequivalents, financial assets at FVPL, receivables, payables and interest-bearing borrowings.The main purpose of these financial instruments is to finance the Group’s operations and capitalexpenditures. The Group has various other financial assets and liabilities, such as trade receivablesand trade payables, which arise directly from its operations. The Group also enters into fuelderivatives and foreign currency forward contracts to manage its exposure to fuel price and foreignexchange rate fluctuations, respectively.

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

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

The risk management framework encompasses environmental scanning, the identification andassessment of business risks, development of risk management strategies, design and implementationof risk management capabilities and appropriate responses, monitoring risks and risk managementperformance, and identification of areas and opportunities for improvement in the risk managementprocess.

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

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

Audit CommitteeThe Group’s Audit Committee assists the Group’s BOD in its fiduciary responsibility for theover-all effectiveness of risk management systems, and the internal audit functions of the Group.Furthermore, it is the Audit Committee’s purpose to lead in the general evaluation and to provideassistance 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 accountingand auditing standards and other regulatory requirements;

b. Risks are properly identified, evaluated and managed, specifically in the areas of managingcredit, 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 areexplained through the performance of direct interface functions with the internal and externalauditors; and

d. The Group’s BOD is properly assisted in the development of policies that would enhance therisk management and control systems.

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

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

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

Day-to-day risk management functionsAt the business unit or company level, the day-to-day risk management functions are handled by fourdifferent groups, namely:

1. Risk-taking personnel - This group includes line personnel who initiate and are directlyaccountable for all risks taken.

2. Risk control and compliance - This group includes middle management personnel who performthe day-to-day compliance check to approved risk policies and risks mitigation decisions.

3. Support - This group includes back office personnel who support the line personnel.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 frameworkThe Group’s BOD is also responsible for establishing and maintaining a sound risk managementframework and is accountable for risks taken by the Group. The Group’s BOD also shares theresponsibility with the ERMG in promoting the risk awareness program enterprise-wide.

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

1. Internal Environmental Scanning - It involves the review of the overall prevailing risk profile ofthe business unit to determine how risks are viewed and addressed by management. This ispresented during the strategic planning, annual budgeting and mid-year performance reviews ofthe business unit.

2. Objective Setting - The Group’s BOD mandates the Group’s management to set the overallannual targets through strategic planning activities, in order to ensure that management has aprocess in place to set objectives which are aligned with the Group’s goals.

3. Risk Assessment - The identified risks are analyzed relative to the probability and severity ofpotential loss which serves as a basis for determining how the risks should be managed. Therisks are further assessed as to which risks are controllable and uncontrollable, risks that requiremanagement’s attention, and risks which may materially weaken the Group’s earnings andcapital.

4. Risk Response - The Group’s BOD, through the oversight role of the ERMG, approves theGroup’s responses to mitigate risks, either to avoid, self-insure, reduce, transfer or share risk.

5. Control Activities - Policies and procedures are established and approved by the Group’s BODand implemented to ensure that the risk responses are effectively carried out enterprise-wide.

6. Information and Communication - Relevant risk management information are identified, capturedand communicated in form and substance that enable all personnel to perform their riskmanagement roles.

7. Monitoring - The ERMG, Internal Audit Group, Compliance Office and Business AssessmentTeam constantly monitor the management of risks through risk limits, audit reviews, compliancechecks, revalidation of risk strategies and performance reviews.

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Risk management support groupsThe Group’s BOD created the following departments within the Group to support the riskmanagement activities of the Group and the other business units:

1. Corporate Security and Safety Board (CSSB) - Under the supervision of ERMG, the CSSBadministers enterprise-wide policies affecting physical security of assets exposed to various formsof risks.

2. Corporate Supplier Accreditation Team (CORPSAT) - Under the supervision of ERMG, theCORPSAT administers enterprise-wide procurement policies to ensure availability of suppliesand services of high quality and standards to all business units.

3. Corporate Management Services (CMS) - The CMS is responsible for the formulation ofenterprise-wide policies and procedures.

4. Corporate Planning and Legal Affairs (CORPLAN) - The CORPLAN is responsible for theadministration of strategic planning, budgeting and performance review processes of the businessunits.

5. Corporate Insurance Department (CID) - The CID is responsible for the administration of theinsurance program of business units concerning property, public liability, business interruption,money and fidelity, and employer compensation insurances, as well as in the procurement ofperformance bonds.

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

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

With respect to credit risk arising from the other financial assets of the Group, which comprise cashin banks and cash equivalents and financial assets at FVPL, the Group’s exposure to credit risk arisesfrom default of the counterparty with a maximum exposure equal to the carrying amount of theseinstruments.

Maximum exposure to credit risk without taking account of any credit enhancementThe table below shows the gross maximum exposure to credit risk (including financial assets atFVPL) of the Group as of December 31, 2017 and 2016, without considering the effects of collateralsand other credit risk mitigation techniques.

2017 2016Loans and receivables

Cash and cash equivalents* P=15,581,594,100 P=10,263,876,130Receivables

Trade receivables 1,512,258,048 1,667,078,389Due from related parties 121,520,658 124,270,740

(Forward)

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2017 2016Interest receivable P=10,192,032 P=3,544,120Others** 594,502,513 663,230,536

Refundable deposits*** 30,639,912 29,182,000Financial assets at FVPL 454,400,088 441,773,905

P=18,305,107,351 P=13,192,955,820* Excluding cash on hand** Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position

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

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

2017

Philippines

Asia(excludingPhilippines) Europe Others Total

Loans and receivables Cash and cash equivalents* P=14,026,202,306 P=1,355,785,391 P=199,606,403 P=– P=15,581,594,100 Receivables Trade receivables 1,006,836,764 452,976,380 ‒ 52,444,904 1,512,258,048 Due from related parties 121,520,658 ‒ ‒ ‒ 121,520,658 Interest receivable 10,192,032 ‒ ‒ ‒ 10,192,032 Others** 293,923,390 43,832,946 256,746,177 ‒ 594,502,513 Refundable deposits*** ‒ 30,639,912 ‒ ‒ 30,639,912Financial assets at FVPL 454,400,088 ‒ ‒ ‒ 454,400,088

P=15,913,075,238 P=1,883,234,629 P=456,352,580 P=52,444,904 P=18,305,107,351***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position

2016

Philippines

Asia(excluding

Philippines) Europe Others TotalLoans and receivables Cash and cash equivalents* P=8,639,055,061 P=1,050,673,161 P=574,147,908 P=– P=10,263,876,130 Receivables Trade receivables 1,184,733,983 462,199,939 ‒ 20,144,467 1,667,078,389 Due from related parties 124,270,740 ‒ ‒ ‒ 124,270,740 Interest receivable 3,544,120 ‒ ‒ ‒ 3,544,120 Others** 134,917,703 176,248,494 255,664,333 96,400,006 663,230,536 Refundable deposits*** ‒ 29,182,000 ‒ ‒ 29,182,000Financial assets at FVPL 441,773,905 ‒ ‒ ‒ 441,773,905

P=10,528,295,512 P=1,718,303,594 P=829,812,241 P=116,544,473 P=13,192,955,820***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position

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The Group has no concentration of risk with regard to various industry sectors. The major industryrelevant to the Group is the transportation sector and financial intermediaries.

Credit quality per class of financial assetsThe Group rates its financial assets based on an internal and external credit rating system.

The tables below show the credit quality by class of financial assets based on internal credit rating ofthe Group (gross of allowance for impairment losses) as of December 31, 2017 and 2016:

2017Neither Past Due Nor Specifically Impaired Past Due

HighGrade

StandardGrade

SubstandardGrade

or IndividuallyImpaired Total

Cash and cash equivalents* P=15,581,594,100 P=– P=– P=– P=15,581,594,100 Receivables

Trade receivables 1,503,741,119 – – 8,516,929 1,512,258,048Due from related parties 121,520,658 – – – 121,520,658Interest receivable 10,192,032 – – – 10,192,032Others** 265,028,769 – – 329,473,744 594,502,513

Refundable deposits*** 30,639,912 – – – 30,639,912Financial assets at FVPL 454,400,088 ‒ ‒ ‒ 454,400,088

P=17,967,116,678 P=− P=− P=337,990,673 P=18,305,107,351***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position

2016Neither Past Due Nor Specifically Impaired Past Due

HighGrade

StandardGrade

SubstandardGrade

or IndividuallyImpaired Total

Cash and cash equivalents* P=10,263,876,130 P=– P=– P=– P=10,263,876,130 Receivables

Trade receivables 1,658,567,195 ‒ ‒ 8,511,194 1,667,078,389Due from related parties 124,270,740 ‒ ‒ ‒ 124,270,740Interest receivable 3,544,120 ‒ ‒ ‒ 3,544,120Others** 340,411,807 ‒ ‒ 322,818,729 663,230,536

Refundable deposits*** 29,182,000 ‒ ‒ ‒ 29,182,000Financial assets at FVPL 441,773,905 ‒ ‒ ‒ 441,773,905

P=12,861,625,897 P=‒ P=‒ P=331,329,923 P=13,192,955,820***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position

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

High grade accounts are accounts considered to be of high value. The counterparties have a veryremote likelihood of default and have consistently exhibited good paying habits.

Standard grade accounts are active accounts with propensity of deteriorating to mid-range agebuckets. These accounts are typically not impaired as the counterparties generally respond to creditactions and update their payments accordingly.

Substandard grade accounts are accounts which have probability of impairment based on historicaltrend. These accounts show propensity to default in payment despite regular follow-up actions andextended payment terms.

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

2017Neither Past Past Due But Not Impaired Past

Due NorImpaired 31-60 Days 61-90 Days 91-180 Days

Over180 Days

Due andImpaired Total

Trade receivables P=1,503,741,119 P=– P=– P=– P=– P=8,516,929 P=1,512,258,048Due from related parties 121,520,658 ‒ ‒ ‒ ‒ ‒ 121,520,658Interest receivable 10,192,032 ‒ ‒ ‒ ‒ ‒ 10,192,032Others* 265,028,769 ‒ ‒ ‒ ‒ 329,473,744 594,502,513

P=1,900,482,578 P=– P=– P=– P=– P=337,990,673 P=2,238,473,251*Include nontrade receivables from insurance, employees and counterparties

2016Neither Past Past Due But Not Impaired Past

Due NorImpaired 31-60 Days 61-90 Days 91-180 Days

Over180 Days

Due andImpaired Total

Trade receivables P=1,658,567,195 P=– P=– P=– P=– P=8,511,194 P=1,667,078,389Due from related parties 124,270,740 ‒ ‒ ‒ ‒ ‒ 124,270,740Interest receivable 3,544,120 ‒ ‒ ‒ ‒ ‒ 3,544,120Others* 340,411,807 ‒ ‒ ‒ ‒ 322,818,729 663,230,536

P=2,126,793,862 P=– P=– P=– P=– P=331,329,923 P=2,458,123,785*Include nontrade receivables from insurance, employees and counterparties

Past due and impaired receivables amounted to P=338.0 million and P=331.3 million as ofDecember 31, 2017 and 2016, respectively. Past due but not impaired receivables are secured bycash bonds from major sales and ticket offices recorded under ‘Accounts payable and other accruedliabilities’ account in the consolidated statements of financial position. For the past due and impairedreceivables, specific allowance for impairment losses amounted to P=338.0 million and P=331.3 millionas of December 31, 2017 and 2016, respectively (Note 10).

Collateral or credit enhancementsAs collateral against trade receivables from sales ticket offices or agents, the Group requires cashbonds from major sales ticket offices or agents ranging from P=50,000 to P=2.1 million depending onthe Group’s assessment of sales ticket offices and agents’ credit standing and volume of transactions.As of December 31, 2017 and 2016, outstanding cash bonds (included under ‘Accounts payable andother accrued liabilities’ account in the consolidated statements of financial position) amounted toP=237.9 million and P=244.1 million, respectively (Note 17).

There are no collaterals for impaired receivables.

Impairment assessmentThe Group recognizes impairment losses based on the results of its specific/individual and collectiveassessment of its credit exposures. Impairment has taken place when there is a presence of knowndifficulties in the servicing of cash flows by counterparties, infringement of the original terms of thecontract has happened, or when there is an inability to pay principal overdue beyond a certainthreshold. These and the other factors, either singly or in tandem, constitute observable events and/ordata that meet the definition of an objective evidence of impairment.

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

Under specific/individual assessment, the Group assesses each individually significant creditexposure for any objective evidence of impairment, and where such evidence exists, accordinglycalculates the required impairment. Among the items and factors considered by the Group whenassessing and measuring specific impairment allowances are: (a) the timing of the expected cashflows; (b) the projected receipts or expected cash flows; (c) the going concern of the counterparty’sbusiness; (d) the ability of the counterparty to repay its obligations during financial crises;

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

With regard to the collective assessment of impairment, allowances are assessed collectively forlosses on receivables that are not individually significant and for individually significant receivableswhen there is no apparent nor objective evidence of individual impairment yet. A particular portfoliois reviewed on a periodic basis in order to determine its corresponding appropriate allowances. Thecollective assessment evaluates and estimates the impairment of the portfolio in its entirety eventhough there is no objective evidence of impairment yet on an individual assessment. Impairmentlosses 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 riskLiquidity is generally defined as the current and prospective risk to earnings or capital arising fromthe Group’s inability to meet its obligations when they become due without recurring unacceptablelosses or costs.

The Group’s liquidity management involves maintaining funding capacity to finance capitalexpenditures and service maturing debts, and to accommodate any fluctuations in asset and liabilitylevels due to changes in the Group’s business operations or unanticipated events created by customerbehavior or capital market conditions. The Group maintains a level of cash and cash equivalentsdeemed sufficient to finance operations. As part of its liquidity risk management, the Group regularlyevaluates its projected and actual cash flows. It also continuously assesses conditions in the financialmarkets for opportunities to pursue fund raising activities. Fund raising activities may includeobtaining bank loans and availing of export credit agency facilities.

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

Financial liabilitiesThe relevant maturity grouping is based on the remaining period at the reporting date to thecontractual maturity date. When counterparty has a choice of when the amount is paid, the liability isallocated to the earliest period in which the Group can be required to pay. When the Group iscommitted to make amounts available in installments, each installment is allocated to the earliestperiod in which the Group can be required to pay.

The tables below summarize the maturity profile of financial instruments based on remainingcontractual undiscounted cash flows as of December 31, 2017 and 2016:

2017Less than one

month1 to 3

months3 to 12

months1 to 5years

More than5 years Total

Financial AssetsLoans and receivables Cash and cash equivalents P=12,467,954,506 P=3,145,590,000 P=– P=– P=– P=15,613,544,506 Receivables: Trade receivables 1,512,258,048 – – – – 1,512,258,048 Due from related parties* 121,520,658 – – – – 121,520,658

(Forward)

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2017Less than one

month1 to 3

months3 to 12

months1 to 5years

More than5 years Total

Interest receivable P=1,604,079 P=8,587,953 P=– P=– P=– P=10,192,032 Others ** 594,502,513 – – – – 594,502,513 Refundable deposits – – – 30,639,912 – 30,639,912Financial assets at FVPL – – – 454,400,088 – 454,400,088

P=14,697,839,804 P=3,154,177,953 P=– P=485,040,000 P=– P=18,337,057,757

Financial LiabilitiesOn-balance sheet

Accounts payable and otheraccrued liabilities*** P=12,590,750,489 P=12,399,834 P=123,784,857 P=– P=‒ P=12,726,935,180

Due to related parties* 38,716,423 – – – 38,716,423Long-term debt**** – – – 30,981,735,157 14,190,166,376 45,171,901,533

P=12,629,466,912 P=12,399,834 P=123,784,857 P=30,981,735,157 P=14,190,166,376 P=57,937,553,136***Receivable and payable on demand***Include nontrade receivables from insurance, employees and counterparties***Excluding government-related payables****Including future undiscounted interest payments

2016Less than one

month1 to 3

months3 to 12months

1 to 5years

More than5 years Total

Financial AssetsLoans and receivables Cash and cash equivalents P=10,183,729,447 P=112,512,857 P=– P=– P=– P=10,296,242,304 Receivables: Trade receivables 1,667,078,389 ‒ ‒ ‒ ‒ 1,667,078,389 Due from related parties* 22,093,143 3,464,762 98,712,835 ‒ ‒ 124,270,740 Interest receivable 3,544,120 – – – – 3,544,120 Others ** 663,230,536 – – – ‒ 663,230,536 Refundable deposits ‒ ‒ ‒ 29,182,000 ‒ 29,182,000Financial assets at FVPL ‒ ‒ ‒ 441,773,905 ‒ 441,773,905

P=12,539,675,635 P=115,977,619 P=98,712,835 P=470,955,905 P=‒ P=13,225,321,994

Financial LiabilitiesOn-balance sheet

Accounts payable and otheraccrued liabilities*** P=5,943,237,435 P=1,555,438,691 P=5,009,729,087 P=5,064,849 P=‒ P=12,513,470,062

Due to related parties* 38,618,547 ‒ ‒ ‒ ‒ 38,618,547Long-term debt**** ‒ ‒ ‒ 31,459,942,659 15,032,538,005 46,492,480,664

P=5,981,855,982 P=1,555,438,691 P=5,009,729,087 P=31,465,007,508 P=15,032,538,005 P=59,044,569,273***Receivable and payable on demand***Include nontrade receivables from insurance, employees and counterparties***Excluding government-related payables****Including future undiscounted interest payments

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

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

The Group has transactional currency exposures. Such exposures arise from sales and purchases incurrencies other than the Group’s functional currency. During the years ended December 31, 2017,2016 and 2015, approximately 40.0%, 32.0% and 31.0%, respectively, of the Group’s total sales aredenominated in currencies other than the functional currency. Furthermore, the Group’s capitalexpenditures are substantially denominated in USD. As of December 31, 2017, 2016 and 2015,58.0%, 67.0% and 67.4%, respectively, of the Group’s financial liabilities were denominated in USD.

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

The tables below summarize the Group’s exposure to foreign currency risk. Included in the tables arethe Group’s financial assets and liabilities at carrying amounts, categorized by currency.

2017

US DollarHong Kong

DollarSingaporean

DollarOther

Currencies* TotalFinancial AssetsCash and cash equivalents P=8,219,588,282 P=195,004,829 P=276,046,061 P=832,818,204 P=9,523,457,376Receivables 669,998,946 52,135,262 29,076,284 283,087,623 1,034,298,115Financial assets at FVPL 454,400,088 – – – 454,400,088Refundable deposits** 30,639,912 – – – 30,639,912

P=9,374,627,228 P=247,140,091 P=305,122,345 P=1,115,905,827 P=11,042,795,491

Financial LiabilitiesAccounts payable and other accrued liabilities*** P=4,062,510,380 P=42,227,898 P=22,765,217 P=41,194,698 P=4,168,698,193Long-term debt 27,436,406,252 – – – 27,436,406,252

P=31,498,916,632 P=42,227,898 P=22,765,217 P=41,194,698 P=31,605,104,445****Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro****Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position****Excluding government-related payables

2016

US DollarHong Kong

DollarSingaporean

DollarOther

Currencies* TotalFinancial AssetsCash and cash equivalents P=4,912,681,176 P=54,676,207 P=55,960,921 P=723,197,429 P=5,746,515,733Receivables 781,078,986 36,162,127 15,390,372 468,403,780 1,301,035,265Financial assets at FVPL 441,773,905 ‒ ‒ ‒ 441,773,905Refundable deposits** 29,182,000 ‒ ‒ ‒ 29,182,000

P=6,164,716,067 P=90,838,334 P=71,351,293 P=1,191,601,209 P=7,518,506,903

Financial LiabilitiesAccounts payable and other accrued liabilities*** P=570,793,915 P=29,556,483 P=42,767,198 P=3,329,850,478 P=3,972,968,074Long-term debt 37,231,947,630 ‒ ‒ ‒ 37,231,947,630

P=38,027,155,049 P=29,556,483 P=42,767,198 P=3,329,850,478 P=41,429,329,208****Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro****Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position****Excluding government-related payables

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

2017 2016US dollar P=49.9300 to US$1.00 P=49.720 to US$1.00Singapore dollar P=37.3228 to SGD1.00 P=34.354 to SGD1.00Hong Kong dollar P=6.3882 to HKD1.00 P=6.421 to HKD1.00

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

2017 2016 2015Changes in foreign exchange value P=2 (P=2) P=2 (P=2) P=2 (P=2)Change in pre-tax income (P=874,856) P=874,856 (P=1,315,342) P=1,315,342 (P=1,737,699) P=1,737,699

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

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

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

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

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

2017<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years Total Fair Value

ECA-backed loans from banks (in USDollar; Note 18) US$18,121,914 US$17,285,711 US$16,181,711 US$16,119,045 US$16,057,039 US$24,471,923 US$108,237,343 US$100,909,133

Commercial loans from banks (in USDollar; Note 18) 51,625,695 51,241,359 50,861,146 50,470,226 50,083,379 110,912,735 365,194,540 333,740,984

US$69,747,609 US$68,527,070 US$67,042,857 US$66,589,271 US$66,140,418 US$135,384,658 US$473,431,883 US$434,650,117US $ Loans (in Philippine Peso) P=3,482,498,117 P=3,421,556,605 P=3,347,449,850 P=3,324,802,301 P=3,302,391,071 P=6,759,755,974 P=23,638,453,918 P=21,702,080,320Commercial loans from banks (Note 18) 1,778,409,798 1,745,234,775 1,710,867,422 1,673,501,570 1,636,871,320 6,702,912,377 15,247,797,262 12,656,770,112

P=5,260,907,915 P=5,166,791,380 P=5,058,317,272 P=4,998,303,871 P=4,939,262,391 P=13,462,668,351 P=38,886,251,180 P=34,358,850,432

2016<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years Total Fair Value

ECA-backed loans from banks (in US Dollar;Note 18) US$18,183,919 US$18,121,914 US$17,285,711 US$16,181,711 US$16,119,045 US$40,528,962 US$126,421,262 US$117,873,252

Commercial loans from banks (in US Dollar;Note 18) 51,989,181 51,605,648 51,221,313 50,841,100 50,450,179 160,120,997 416,228,418 381,524,377

US$70,173,100 US$69,727,562 US$68,507,024 US$67,022,811 US$66,569,224 US$200,649,959 US$542,649,680 US$499,397,629US $ Loans (in Philippine Peso) P=3,489,006,518 P=3,466,854,378 P=3,406,169,218 P=3,332,374,166 P=3,309,821,811 P=9,976,316,001 P=26,980,542,092 P=24,830,050,134Commercial loans from banks (Note 18) 621,619,694 590,652,740 586,849,102 583,115,806 579,241,827 2,839,181,951 5,800,661,120 4,927,396,109

P=4,110,626,212 P=4,057,507,118 P=3,993,018,320 P=3,915,489,972 P=3,889,063,638 P=12,815,497,952 P=32,781,203,212 P=29,757,446,243

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

2017 2016 2015Changes in interest rates 1.50% (1.50%) 1.50% (1.50%) 1.50% (1.50%)Changes in pre-tax income (P=697,042,375) P=697,042,375 (P=392,086,223) P=392,086,223 (P=274,842,903) P=274,842,903

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

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

Change in BasisPoints

Effect on ProfitBefore Tax

2017 +100% P=131,974,355-100% (123,472,494)

2016 +100% 5,915,843-100% (5,768,865)

29. Fair Value Measurement

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

2017 2016Carrying Value Fair Value Carrying Value Fair Value

Financial AssetRefundable deposits* (Note 16) P=30,639,912 P=38,630,210 P=29,182,000 P=34,248,959

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

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

Refundable depositsThe fair values are determined based on the present value of estimated future cash flows usingprevailing market rates. The Group used discount rates of 3% to 4% in 2017 and 2016,respectively.

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

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

2017Level 1 Level 2 Level 3 Total

Assets and liabilities measured at fair value:Financial assets at FVPL (Note 9) P=– P=454,400,088 P=– P=454,400,088

Assets and liabilities for whichfair values are disclosed:

Refundable deposits P=− P=− P=38,630,210 P=38,630,210Long-term debt − (34,358,850,432) − (34,358,850,432)

2016Level 1 Level 2 Level 3 Total

Assets and liabilities measured at fair value:Financial assets at FVPL (Note 9) P=– P=441,773,905 P=– P=441,773,905

Assets and liabilities for whichfair values are disclosed:

Refundable deposits P=− P=− P=34,248,959 P=34,248,959Long-term debt − (29,757,446,243) − (29,757,446,243)

There were no transfers within any hierarchy level of fair value measurements for the years endedDecember 31, 2017 and 2016, respectively.

30. Commitments and Contingencies

Operating Aircraft Lease CommitmentsThe Group entered into operating lease agreements with certain leasing companies, which coverthe following aircraft:

A320 aircraftThe following table summarizes the specific lease agreements on the Group’s Airbus A320aircraft:

Date of Lease Agreement Lessors No. of Units Lease ExpiryApril 2007 Inishcrean Leasing Limited

(Inishcrean)1 October 2019

March 2008 GY Aviation Lease 0905 Co. Limited 2 January 2019March 2008 APTREE Aviation Trading 2 Co. Ltd 1 October 2019

Wells Fargo Bank NorthwestNational Assoc.

1 October 2019

(Forward)

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

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

In March 2008, the Parent Company entered into operating lease agreements with GY AviationLease 0905 Co. Limited (GY Aviation) for the lease of two (2) Airbus A320 aircraft, which weredelivered in 2009, and two Airbus A320 aircraft with two other lessors, which were received in2012. In November 2010, the Parent Company signed an amendment to the operating leaseagreements, advancing the delivery of the two Airbus A320 aircraft to 2011 from 2012.

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

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

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

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

A330 aircraftThe following table summarizes the specific lease agreements on the Group’s Airbus A330aircraft:

Date of Lease Agreement Lessors No. of Units Lease TermFebruary 2012 CIT Aerospace International 4 12 years with pre-termination

optionJuly 2013 A330 MSN 1552 Limited and A330

MSN 1602 Limited*2 12 years with pre-termination

option*New lessors per Deed of Novation and Amendment signed on August 2014 and March 2015

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

On July 19, 2013, the Group entered into an aircraft operating lease agreements with IntrepidAviation for the lease of two (2) Airbus A330-300 aircraft, which were delivered in September2014 and March 2015.

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

The first two (2) A330 aircraft were delivered in June 2013 and September 2013. Three (3) A330aircraft were delivered in February 2014, May 2014 and September 2014. One (1) A330 aircraftwas delivered in March 2015.

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

Future minimum lease payments under the above-indicated operating aircraft leases follow:

2017 2016 2015

US DollarPhilippine peso

Equivalent US DollarPhilippine Peso

Equivalent US DollarPhilippine Peso

EquivalentWithin one year US$104,064,795 P=5,195,955,222 US$88,821,146 P=4,416,187,364 US$90,260,208 P=4,247,645,406After one year but not more

than five years 353,043,295 17,627,451,745 345,847,247 17,195,525,129 309,193,470 14,550,644,708Over five years 140,369,930 7,008,670,575 206,018,543 10,243,241,938 332,977,141 15,669,904,258

US$597,478,020 P=29,832,077,542 US$640,686,936 P=31,854,954,431 US$732,430,819 P=34,468,194,372

Operating Non-Aircraft Lease CommitmentsThe Group has entered into various lease agreements for its hangar, office spaces, ticketingstations and certain equipment. These leases have remaining lease terms ranging from one to tenyears. Certain leases include a clause to enable upward revision of the annual rental chargeranging from 5.00% to 10.00%.

Future minimum lease payments under these noncancellable operating leases follow:

2017 2016 2015Within one year P=201,321,805 P=167,226,528 P=135,299,739After one year but not more than

five years 834,940,613 710,187,772 564,977,120Over five years 3,876,023,510 3,477,917,440 2,433,712,858

P=4,912,285,928 P=4,355,331,740 P=3,133,989,717

Lease expenses relating to both cancellable and noncancellable non-aircraft leases (allocated underdifferent expense accounts in the consolidated statements of comprehensive income) amounted toP=731.0 million, P=625.8 million and P=488.6 million in 2017, 2016 and 2015, respectively.

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

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

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On March 28, 2017, the Parent Company entered into a maintenance service contract with SocieteAir France for the lease, repair and overhaul services of parts and components of its A319, A320and A321 aircraft. These services include provision of access to inventories under lease basis,access to pooled components on a flat rate basis and repairs of aircraft parts and components.

Aircraft and Spare Engine Purchase CommitmentsIn August 2011, the Group entered in a commitment with Airbus S.A.S. to purchase firm orders ofthirty-two new A321 NEO Aircraft and ten addition option orders. These aircraft are scheduled tobe delivered from 2018 to 2022.

On June 28, 2012, the Group has entered into an agreement with United TechnologiesInternational Corporation Pratt & Whitney Division to purchase new PurePower® PW1100G-JMengines for its 32 firm and ten options A321 NEO aircraft to be delivered beginning 2018. Theagreement also includes an engine maintenance services program for a period of ten years fromthe date of entry into service of each engine.

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

On June 6, 2017, the Group placed an order with Airbus S.A.S to purchase seven (7) newA321 CEO Aircraft to be delivered starting 2018.

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

The above-indicated commitments relate to the Group’s re-fleeting and expansion programs.These agreements remained in effect as of December 31, 2017.

Capital Expenditure CommitmentsThe Group’s capital expenditure commitments relate principally to the acquisition of aircraft fleet,aggregating to P=127,323.3 million and P=117,804.1 million as of December 31, 2017 and 2016,respectively.

2017

US DollarPhilippine Peso

EquivalentWithin one year US$541,112,509 P=27,017,747,591After one year but not more than

five years 2,008,923,295 100,305,540,083US$2,550,035,804 P=127,323,287,674

2016

US DollarPhilippine Peso

EquivalentWithin one year US$483,178,223 P=24,023,621,236After one year but not more than

five years 1,886,172,565 93,780,499,949US$2,369,350,788 P=117,804,121,185

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

31. Supplemental Disclosures to the Consolidated Statements of Cash Flows

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

January 1,2017 Cash Flows

ForeignExchangeMovement Others*

December 31,2017

Current interest-bearingloans and borrowings P=7,040,253,460 (P=10,984,079,753) P=41,622,038 P=9,871,461,879 P=5,969,257,624

Noncurrent interest-bearingloans and borrowings 35,770,184,170 8,903,267,500 210,963,337 (9,871,461,879) 35,012,953,128

Dividends payable – (1,666,371,658) – 1,666,371,658 –Total liabilities from

financing activities P=42,810,437,630 (P=3,747,183,911) P=252,585,375 P=1,666,371,658 P=40,982,210,752*Others consist of reclassification of loans and borrowings from noncurrent to current and the declaration of cash dividend

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

a. Application of creditable withholding taxes against income tax payable amounting toP=71.4 million, P=45.9 million and P=51.0 million in 2017, 2016 and 2015, respectively; and

b. Acquisition of aircraft through loan financing amounting to P=10,106.3 million,P=12,322.1 million and P=8.037.8 million in 2017, 2016 and 2015, respectively.

32. Registration with the BOI

The Parent Company is registered with the BOI as a new operator of air transport on a pioneerstatus on 8 Airbus A320 and non-pioneer status for 11 Airbus A320 aircraft and four Airbus A330aircraft. Under the terms of the registration and subject to certain requirements, the ParentCompany is entitled to the following fiscal and non-fiscal incentives (Notes 1, 13 and 25):

Date of Registration Registration Number ITH PeriodNovember 16, 2011 2011-241 Nov 2011 - Nov 2017December 6, 2012 2012-262 Dec 2012 - Dec 2018February 11,2013 2013-045 Feb 2013 - Feb 2019April 11, 2013 2013-089 Apr 2013 - Apr 2019July 29, 2013 2013-166 July 2013 - July 2017September 13, 2013 2013-185 Sept 2013 - Sept 2019September 13, 2013 2013-186 Sept 2013 - Sept 2019October 3, 2013 2013-201 Oct 2013 - Oct 2017January 17, 2014 2014-012 Jan 2014 - Jan 2020February 19, 2014 2014-037 Feb 2014 - Feb 2020May 21, 2014 2014-080 May 2014 - May 2018May 21, 2014 2014-081 May 2014 - May 2018January 22, 2015 2015-011 Jan 2015 - Jan 2019

(Forward)

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

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

b. Employment of foreign nationals. This may be allowed in supervisory, technical or advisorypositions for five years from date of registration.

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

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

∂ The ratio of total of imported and domestic capital equipment to the number of workersfor the project does not exceed the ratio set by the BOI.

∂ The net foreign exchange savings or earnings amount to at least US$500,000 annuallyduring the first three years of operation.

∂ The indigenous raw materials used in the manufacture of the registered product must atleast be fifty percent (50%) of the total cost of raw materials for the preceding years priorto the extension unless the BOI prescribes a higher percentage.

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

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

g. Simplification of customs procedures for the importation of equipment, spare parts, rawmaterials and suppliers.

h. Access to Customs Bonded Manufacturing Warehouse (CBMW) subject to the customs rulesand regulations provided the Parent Company exports at least 70% of production output.

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

j. Importation of consigned equipment for a period of ten years from date of registration subjectto posting of re-export bond.

k. Exemption from taxes and duties on imported spare parts and consumable supplies for exportproducers with CBMW exporting at least 100% of production.

The Parent Company shall submit to the BOI a semestral report on the actual investments,employment and sales pertaining to the registered project. The report shall be due 15 days afterthe end of each semester.

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

33. Approval of the Consolidated Financial Statements

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

34. Standards issued but not yet Effective

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

Effective beginning on or after January 1, 2018

∂ Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based Payment TransactionsThe amendments to PFRS 2 address three main areas: the effects of vesting conditions on themeasurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; andthe accounting where a modification to the terms and conditions of a share-based paymenttransaction changes its classification from cash settled to equity settled.

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

∂ PFRS 9, Financial InstrumentsPFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, FinancialInstruments: Recognition and Measurement, and all previous versions of PFRS 9. Thestandard introduces new requirements for classification and measurement, impairment, andhedge accounting. Retrospective application is required but providing comparativeinformation is not compulsory. For hedge accounting, the requirements are generally appliedprospectively, with some limited exceptions.

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

∂ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, withPFRS 4The amendments address concerns arising from implementing PFRS 9, the new financialinstruments standard before implementing the new insurance contracts standard. Theamendments introduce two options for entities issuing insurance contracts: a temporaryexemption from applying PFRS 9 and an overlay approach. The temporary exemption is firstapplied for reporting periods beginning on or after January 1, 2018. An entity may elect theoverlay approach when it first applies PFRS 9 and apply that approach retrospectively tofinancial assets designated on transition to PFRS 9. The entity restates comparativeinformation reflecting the overlay approach if, and only if, the entity restates comparativeinformation when applying PFRS 9.

∂ PFRS 15, Revenue from Contracts with CustomersPFRS 15 establishes a new five-step model that will apply to revenue arising from contractswith customers. Under PFRS 15, revenue is recognized at an amount that reflects theconsideration to which an entity expects to be entitled in exchange for transferring goods orservices to a customer. The principles in PFRS 15 provide a more structured approach tomeasuring and recognizing revenue.

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

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

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

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

∂ Amendments to PAS 40, Investment Property, Transfers of Investment PropertyThe amendments clarify when an entity should transfer property, including property underconstruction or development into, or out of investment property. The amendments state that achange in use occurs when the property meets, or ceases to meet, the definition of investmentproperty and there is evidence of the change in use. A mere change in management’sintentions for the use of a property does not provide evidence of a change in use. The

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

∂ Philippine Interpretation IFRIC-22, Foreign Currency Transactions and AdvanceConsiderationThe interpretation clarifies that, in determining the spot exchange rate to use on initialrecognition of the related asset, expense or income (or part of it) on the derecognition of anon-monetary asset or non-monetary liability relating to advance consideration, the date of thetransaction is the date on which an entity initially recognizes the nonmonetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments orreceipts in advance, then the entity must determine a date of the transactions for each paymentor receipt of advance consideration. Entities may apply the amendments on a fullyretrospective basis. Alternatively, an entity may apply the interpretation prospectively to allassets, expenses and income in its scope that are initially recognized on or after the beginningof the reporting period in which the entity first applies the interpretation or the beginning of aprior reporting period presented as comparative information in the financial statements of thereporting period

Effective beginning on or after January 1, 2019

∂ Amendments to PFRS 9, Prepayment Features with Negative CompensationThe amendments to PFRS 9 allow debt instruments with negative compensation prepaymentfeatures to be measured at amortized cost or fair value through other comprehensive income.An entity shall apply these amendments for annual reporting periods beginning on or afterJanuary 1, 2019. Earlier application is permitted.

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

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

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

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

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

∂ Amendments to PAS 28, Long-term Interests in Associates and Joint VenturesThe amendments to PAS 28 clarify that entities should account for long-term interests in anassociate or joint venture to which the equity method is not applied using PFRS 9. An entityshall apply these amendments for annual reporting periods beginning on or afterJanuary 1, 2019. Earlier application is permitted.

∂ Philippine Interpretation IFRIC-23, Uncertainty over Income Tax TreatmentsThe interpretation addresses the accounting for income taxes when tax treatments involveuncertainty that affects the application of PAS 12 and does not apply to taxes or levies outsidethe scope of PAS 12, nor does it specifically include requirements relating to interest andpenalties associated with uncertain tax treatments.

The interpretation specifically addresses the following:

ƒ Whether an entity considers uncertain tax treatments separately;ƒ The assumptions an entity makes about the examination of tax treatments by taxation

authorities;ƒ How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax

credits and tax rates; andƒ How an entity considers changes in facts and circumstances.

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

Deferred Effectivity

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

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

INDEPENDENT AUDITOR’S REPORTON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsCebu Air, Inc.2nd Floor, Doña Juanita Marquez Lim BuildingOsmeña Boulevard, Cebu City

We have audited, in accordance with Philippine Standards on Auditing, the consolidated financialstatements of Cebu Air, Inc. and its Subsidiaries (the Group) as at December 31, 2017 and 2016 and foreach of the three years in the period ended December 31, 2016, included in this Form 17-A and haveissued our report thereon dated March 23, 2018. Our audits were made for the purpose of forming anopinion on the basic consolidated financial statements taken as a whole. The schedules listed in the Indexto Consolidated Financial Statements and Supplementary Schedules are the responsibility of the Group’smanagement. Thus, schedules are presented for the purpose of complying with Securities RegulationCode Rule 68, As Amended (2011), and are not part of the basic consolidated financial statements. Theseschedules have been subjected to the auditing procedures applied in the audit of the basic consolidatedfinancial statements and, in our opinion, fairly state, in all material respects, the information required tobe set forth therein in relation to the basic consolidated financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

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

March 23, 2018

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global Limited

*SGVFS026572*

CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE A - FINANCIAL ASSETS

(CURRENT MARKETABLE EQUITYAND DEBT SECURITIES AND OTHER SHORT-TERM CASH INVESTMENTS)DECEMBER 31, 2017

Amount Shown in Value Based onName of Issuing Entity and the Balance Sheet/ Market Quotations Income Received andDescription of Each Issue Notes at Balance Sheet Date Accrued

Various / USD Short-term cash investments P=5,992,425,166 P=5,992,425,166 P=36,292,572Various / PHP Short-term cash investments 5,831,759,021 5,831,759,021 135,787,694

P=11,824,184,187 P=11,824,184,187 P=172,080,266

Derivative Assets (Fuel Hedge) P=454,400,088 P=454,400,088 P=–

See Notes 8 and 9 of the Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE B

AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES AND PRINCIPAL STOCKHOLDERS(OTHER THAN RELATED PARTIES)

DECEMBER 31, 2017

Balance Balance at End of PeriodName and Designation at Beginning

of Debtor of Period Additions Collections Write Offs Current Noncurrent Total

Various employees P=47,313,218 P=229,066,529 P=238,696,800 P=– P=37,682,947 P= P=37,682,947

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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE F - PROPERTY AND EQUIPMENT

DECEMBER 31, 2017

Balance Additions Balance at Beginning Additions through Disposals and at End

Classification of Period at Cost Business Combination Reclassification Others of Period

Passenger Aircraft P=75,894,007,720 P=3,901,431,635 P=− P=6,563,857,663 (P=16,023,691,516) P=70,335,605,502Engines 9,469,685,966 1,733,136,545 − − (1,805,076,141) 9,397,746,370Rotables 3,650,559,527 718,000,450 − − (238,317,162) 4,130,242,815EDP Equipment, Mainframe and

Peripherals 873,775,012 159,241,727 − − (11,759,403) 1,021,257,336Ground Support Equipment 649,265,394 96,552,181 − − (36,364) 745,781,211Leasehold Improvements 1,326,005,809 − 25,661,207 − 1,351,667,016Transportation Equipment 271,481,424 57,415,778 − − (6,704,464) 322,192,738Furniture, Fixtures and Office

Equipment 192,742,786 24,938,414 −−

(1,602,972) 216,078,228Special Tools 14,808,012 1,010,705 − − (19,297) 15,799,420Communication Equipment 26,326,660 3,113,828 − − − 29,440,488Maintenance and Test Equipment 6,538,117 46,451 − − (41,642) 6,542,926Other Equipment 104,886,520 12,705,185 − − (184,068) 117,407,637Construction In-progress 14,549,537,398 8,068,743,848 − (6,589,518,870) − 16,028,762,376

P=107,029,620,345 P=14,776,336,747 P=– P=− (P=18,087,433,029) P=103,718,524,063

See Note 13 of the Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE G - ACCUMULATED DEPRECIATION

DECEMBER 31, 2017

Balance Additions Balanceat Beginning Additions through Disposals and at End

Classificationof Period Charged to Costs

and ExpensesBusiness Combination Reclassification Others of Period

Passenger Aircraft P=19,195,803,795 P=4,506,575,827 P=− P=− (P=8,265,515,593) P=15,436,864,029Engines 2,939,239,869 1,530,373,577 − − (1,091,569,255) 3,378,044,191Rotables 861,984,434 341,661,205 − − (162,017,448) 1,041,628,191EDP Equipment, Mainframe and

Peripherals 737,747,220 108,171,401 − − (11,759,403) 834,159,218Ground Support Equipment 449,134,024 70,824,693 − − (36,364) 519,922,353Leasehold Improvements 524,454,832 205,887,523 − − 730,342,355Transportation Equipment 192,524,197 35,927,457 − − (6,704,464) 221,747,190Furniture, Fixtures and Office

Equipment 120,774,739 27,079,556 − (1,601,246) 146,253,049Special Tools 13,075,357 521,294 − − (19,297) 13,577,354Communication Equipment 13,440,493 3,720,625 − − 17,161,118Maintenance and Test Equipment 6,471,942 36,039 − − (41,642) 6,466,339Other Equipment 84,665,946 8,584,410 − − (184,067) 93,066,289Construction In-progress − − − − − −

P=25,139,316,848 P=6,839,363,607 P=– P=− (P=9,539,448,779) P=22,439,231,676

See Note 13 of the Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE I - LONG-TERM DEBT

DECEMBER 31, 2017

Amount Shown underCaption "Current Portion ofLong-term Debt" in Related

Balance Sheet

Amount Shown underCaption "Long-term Debt"

in Related Balance SheetTitle of Issue and Type of Obligation Interest Rates Maturity Dates

Export Credit Agency-Backed Loans

2.00% to 6.00%Various datesthrough 2023

P=592,416,408

823,846,731

P=827,325,283

4,247,489,9861.00% to 2.00%

(US Dollar LIBOR)918,712,000 3,375,268,000

Commercial Loans from banks4.00% to 6.00% Various dates

through 2017 2,186,106,735 14,465,241,109

Commercial Loans from banks

1.00% to 2.00%(US Dollar LIBOR)

2.00% to 4.00%Various datesThrough 2026 1,448,175,750 12,097,628,750

Total(Phil. Pesos LIBOR)

P=5,969,257,624 P=35,012,953,128

See Note 18 of the Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE L

CAPITAL STOCKDECEMBER 31, 2017

Number of SharesAuthorized

Number of Shares Reservedfor Options, Warrants,Conversion and Other

Rights

Number of Shares Issued Number of Shares Held byand Outstanding as

Directors,Officers andEmployees

Shown under RelatedTitle of Issue Balance Sheet Caption Affiliates Others

Common Stock 1,340,000,000 605,953,330 − 407,412,031 509 198,540,790

See Note 20 of the Consolidated Financial Statements.

CEBU AIR, INC. AND SUBSIDIARIESMAP OF THE RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUP

CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE OF ALL THE EFFECTIVE STANDARDS AND INTERPRETATIONS

List of Philippine Financial Reporting Standards (PFRSs) [which consist of PFRSs, PhilippineAccounting Standards (PASs) and Philippine Interpretations] and Philippine InterpretationsCommittee (PIC) Q&As effective as of December 31, 2017

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2017

Adopted NotAdopted

NotApplicable

Framework for the Preparation and Presentation of FinancialStatementsConceptual Framework Phase A: Objectives and qualitative characteristics

P

PFRSs Practice Statement Management Commentary P

Philippine Financial Reporting Standards P

PFRS 1(Revised)

First-time Adoption of Philippine Financial ReportingStandards P

Amendments to PFRS 1 and PAS 27: Cost of an Investmentin a Subsidiary, Jointly Controlled Entity or Associate P

Amendments to PFRS 1: Additional Exemptions for First-time Adopters P

Amendment to PFRS 1: Limited Exemption fromComparative PFRS 7 Disclosures for First-time Adopters P

Amendments to PFRS 1: Severe Hyperinflation and Removalof Fixed Date for First-time Adopters P

Amendments to PFRS 1: Government Loans P

PFRS 2 Share-based Payment P

Amendments to PFRS 2: Vesting Conditions andCancellations P

Amendments to PFRS 2: Group Cash-settled Share-basedPayment Transactions P

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

Not early adopted

PFRS 3(Revised)

Business Combinations P

PFRS 4 Insurance Contracts P

Amendments to PAS 39 and PFRS 4: Financial GuaranteeContracts P

Amendments to PFRS 4: Insurance Contracts, ApplyingPFRS 9, Financial Instruments, with PFRS 4 Not early adopted

PFRS 5 Non-current Assets Held for Sale and DiscontinuedOperations P

PFRS 6 Exploration for and Evaluation of Mineral Resources P

PFRS 7 Financial Instruments: Disclosures P

- 2 -

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2017

Adopted NotAdopted

NotApplicable

Amendments to PFRS 7: Transition P

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets P

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets - Effective Date and Transition P

Amendments to PFRS 7: Improving Disclosures aboutFinancial Instruments P

Amendments to PFRS 7: Disclosures - Transfers of FinancialAssets P

Amendments to PFRS 7: Disclosures - Offsetting FinancialAssets and Financial Liabilities P

Amendments to PFRS 7: Mandatory Effective Date of PFRS9 and Transition Disclosures P

PFRS 8 Operating Segments P

PFRS 9 Financial InstrumentsNot early adoptedAmendments to PFRS 9: Mandatory Effective Date of PFRS

9 and Transition Disclosures

PFRS 10 Consolidated Financial Statements P

Amendments to PFRS 10 and PAS 28: Sale or Contributionof Assets between an Investor and its Associate or JointVenture

Not early adopted

PFRS 11 Joint Arrangements P

PFRS 12 Disclosure of Interests in Other Entities P

PFRS 13 Fair Value Measurement P

PFRS 14 Regulatory Deferral Accounts P

PFRS 15 Revenue from contracts with customersNot early adopted

PFRS 16 Leases

Philippine Accounting Standards

PAS 1(Revised)

Presentation of Financial Statements P

Amendment to PAS 1: Capital Disclosures P

Amendments to PAS 32 and PAS 1: Puttable FinancialInstruments and Obligations Arising on LiquidationAmendments to PAS 1: Presentation of Items of OtherComprehensive Income

P

P

PAS 2 Inventories P

PAS 7 Statement of Cash Flows P

PAS 8 Accounting Policies, Changes in Accounting Estimates andErrors P

PAS 10 Events after the Balance Sheet Date P

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2017

Adopted NotAdopted

NotApplicable

PAS 11 Construction Contracts P

PAS 12 Income Taxes P

Amendment to PAS 12 - Deferred Tax: Recovery ofUnderlying Assets P

PAS 16 Property, Plant and Equipment P

PAS 17 Leases P

PAS 18 Revenue P

PAS 19 Employee Benefits P

Amendments to PAS 19: Actuarial Gains and Losses, GroupPlans and Disclosures P

PAS 19(Amended)

Employee BenefitsP

PAS 20 Accounting for Government Grants and Disclosure ofGovernment Assistance P

PAS 21 The Effects of Changes in Foreign Exchange Rates P

Amendment: Net Investment in a Foreign Operation P

PAS 23(Revised)

Borrowing CostsP

PAS 24(Revised)

Related Party DisclosuresP

PAS 26 Accounting and Reporting by Retirement Benefit Plans P

PAS 27(Amended)

Separate Financial StatementsP

PAS 28(Amended)

Investments in Associates and Joint Ventures P

Amendments to PAS 28: Measuring an Associate or JointVenture at Fair Value

Not early adoptedAmendments to PAS 28: Long-term Interests in Associatesand Joint Ventures

PAS 29 Financial Reporting in Hyperinflationary Economies P

PAS 31 Interests in Joint Ventures P

PAS 32 Financial Instruments: Disclosure and Presentation P

Amendments to PAS 32 and PAS 1: Puttable FinancialInstruments and Obligations Arising on Liquidation P

Amendment to PAS 32: Classification of Rights Issues P

Amendments to PAS 32: Offsetting Financial Assets andFinancial Liabilities P

PAS 33 Earnings per Share P

PAS 34 Interim Financial Reporting P

- 4 -

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2017

Adopted NotAdopted

NotApplicable

PAS 36 Impairment of Assets P

PAS 37 Provisions, Contingent Liabilities and Contingent Assets P

PAS 38 Intangible Assets P

PAS 39 Financial Instruments: Recognition and Measurement P

Amendments to PAS 39: Transition and Initial Recognitionof Financial Assets and Financial Liabilities P

Amendments to PAS 39: Cash Flow Hedge Accounting ofForecast Intragroup Transactions P

Amendments to PAS 39: The Fair Value Option P

Amendments to PAS 39 and PFRS 4: Financial GuaranteeContracts P

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets P

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets – Effective Date and Transition P

Amendments to Philippine Interpretation IFRIC–9 and PAS39: Embedded Derivatives P

Amendment to PAS 39: Eligible Hedged Items P

PAS 40 Investment Property P

Amendments to PAS 40: Investment property, Transfers ofInvestment Property Not early adopted

PAS 41 Agriculture P

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration andSimilar Liabilities P

IFRIC 2 Members' Share in Co-operative Entities and SimilarInstruments P

IFRIC 4 Determining Whether an Arrangement Contains a Lease P

IFRIC 5 Rights to Interests arising from Decommissioning,Restoration and Environmental Rehabilitation Funds P

IFRIC 6 Liabilities arising from Participating in a Specific Market -Waste Electrical and Electronic Equipment P

IFRIC 7 Applying the Restatement Approach under PAS 29 FinancialReporting in Hyperinflationary Economies P

IFRIC 8 Scope of PFRS 2 P

IFRIC 9 Reassessment of Embedded Derivatives P

Amendments to Philippine Interpretation IFRIC–9 and PAS39: Embedded Derivatives P

IFRIC 10 Interim Financial Reporting and Impairment P

- 5 -

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2017

Adopted NotAdopted

NotApplicable

IFRIC 11 PFRS 2- Group and Treasury Share Transactions P

IFRIC 12 Service Concession Arrangements P

IFRIC 13 Customer Loyalty Programmes P

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction P

Amendments to Philippine Interpretations IFRIC- 14,Prepayments of a Minimum Funding Requirement P

IFRIC 16 Hedges of a Net Investment in a Foreign Operation P

IFRIC 17 Distributions of Non-cash Assets to Owners P

IFRIC 18 Transfers of Assets from Customers P

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments P

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine P

IFRIC 22 Foreign Currency Transactions and Advance ConsiderationNot early adopted

IFRIC 23 Uncertainty over Income Tax Treatments

SIC-7 Introduction of the Euro P

SIC-10 Government Assistance - No Specific Relation to OperatingActivities P

SIC-13 Jointly Controlled Entities - Non-Monetary Contributions byVenturers P

SIC-15 Operating Leases - Incentives P

SIC-21 Income Taxes - Recovery of Revalued Non-DepreciableAssets P

SIC-25 Income Taxes - Changes in the Tax Status of an Entity or itsShareholders P

SIC-27 Evaluating the Substance of Transactions Involving the LegalForm of a Lease P

SIC-29 Service Concession Arrangements: Disclosures. P

SIC-31 Revenue - Barter Transactions Involving AdvertisingServices P

SIC-32 Intangible Assets - Web Site Costs P

Not applicable standards have been adopted but the Group has no significant covered transactions as of and for the years endedDecember 31, 2017, 2016 and 2015.

CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE OF FINANCIAL RATIOSFOR THE YEARS ENDED December 31, 2017 and 2016

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

Financial Ratios 2017 2016Liquidity RatiosCurrent Ratio 74% 54%Quick Ratio 61% 46%

Capital Structure RatiosDebt-to-Equity Ratio (x) 1.03 1.28Net Debt-to Equity Ratio (x) 0.64 0.97Adjusted Net Debt-to Equity Ratio (x) 1.55 1.93Asset to Equity Ratio (x) 2.7 3.0Interest Coverage Ratio (x) 7.1 10.5

Profitability RatiosEBITDAR Margin 34% 38%EBIT Margin 15% 20%Pre-tax core net income margin 13% 18%Return on asset 8% 11%Return on equity 22% 33%

CEBU AIR, INC. AND SUBSIDIARIESSUPPLEMENTARY SCHEDULE OF RETAINED EARNINGSAVAILABLE FOR DIVIDEND DECLARATIONFOR THE YEAR ENDED DECEMBER 31, 2017

The table below presents the retained earnings available for dividend declaration as of December 31, 2017:

Unappropriated Retained Earnings, beginning P=8,940,308,051Adjustments:

Fair value adjustment arising from fuel hedging gains (P=1,980,715,936)Unrealized foreign exchange gain (1,200,184,770)Recognized deferred tax assets (3,556,360,717)Treasury stock (529,319,321) (7,266,580,744)

Unappropriated Retained Earnings, as adjusted to available for dividend distribution, beginning 1,673,727,307

Add (deduct): Net income actually earned/realized during the year:Net income during the period closed to Retained Earnings 7,823,019,572Non-actual/unrealized income net of tax:Recognized deferred tax asset (146,994,273)Fair value adjustment arising from fuel hedging loss 132,570,164Unrealized foreign exchange losses 259,141,128

9,741,463,898Less:

Dividend declaration during the year (1,666,371,658)Appropriation of retained Earnings during the year (18,300,000,000)Reversal of appropriations 14,516,762,000

Total Retained Earnings available for dividend declaration as of December 31, 2017 P=4,291,854,240