COVER SHEET

for
AUDITED FINANCIAL STATEMENTS

SEC Registration Number

1 5 4 6 7 5

COMPANY NAME

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

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

L e v e l 4 , U n i t 4 0 3 0 - 4 0 3 1 , R o b i n

s o n s G a l l e r i a C e b u , G e n e r a l M a

x i l o m A v e n u e c o r . S e r g i o O s m e ñ

a B o u l e v a r d , C e b u C i t y , C e b u

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

A A F S S E C N / A

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

N/A (632) 8802-7000 N/A

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

109 5/11 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

Mark Julius V. Cezar [email protected]

(632) 8802-7000 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 within
thirty (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 Commission and/or
non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies.

*SGVFS163038*
Christine R. Marilla

Subject: FW: Your BIR AFS eSubmission uploads were received

From: [email protected] <[email protected]>

Sent: Thursday, March 31, 2022, 12:23 PM
To: Robin C. Dui <[email protected]>
Cc: Mishiele O. Atangan - Villagracia <[email protected]>
Subject: Your BIR AFS eSubmission uploads were received

CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender
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Hi CEBU AIR INC,

Valid files

 EAFS000948229ITRTY122021.pdf
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Transaction Code: AFS-0-QTYYVT3N0C9BH9KL9MW4YVNSW0AL6J6ACB

Submission Date/Time: Mar 31, 2022 12:06 PM
Company TIN: 000-948-229

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1
SyCip Gorres Velayo & Co. Tel: (632) 8891 0307
6760 Ayala Avenue Fax: (632) 8819 0872
1226 Makati City ey.com/ph
Philippines

INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of Directors

Cebu Air, Inc.
Level 4, Unit 4030-4031, Robinsons Galleria Cebu
General Maxilom Avenue cor. Sergio Osmeña Boulevard, Cebu City, Cebu

Report on the Audit of the Parent Company Financial Statements

Opinion

We have audited the parent company financial statements of Cebu Air, Inc. (the Parent Company), which
comprise the parent company statements of financial position as at December 31, 2021 and 2020, and the
parent company statements of income, parent company statements of comprehensive income, parent
company statements of changes in equity and parent company statements of cash flows for the years then
ended, and notes to the parent company financial statements, including a summary of significant
accounting policies.

In our opinion, the accompanying parent company financial statements present fairly, in all material
respects, the financial position of the Parent Company as at December 31, 2021 and 2020, and its
financial performance and its cash flows for the years then ended in accordance with Philippine Financial
Reporting Standards (PFRSs).

Basis for Opinion

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

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

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

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

*SGVFS163038*
A member firm of Ernst & Young Global Limited
-2-

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

Auditor’s Responsibilities for the Audit of the Parent Company Financial Statements

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

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

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

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

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

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

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

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

*SGVFS163038*
A member firm of Ernst & Young Global Limited
-3-

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

Report on the Supplementary Information Required Under Revenue Regulations No. 15-2010

The supplementary information required under Revenue Regulations No. 15-2010 for the purpose of
filing with the Bureau of Internal Revenue is presented by the management of Cebu Air, Inc. in a separate
schedule. Revenue Regulations No. 15-2010 requires the information to be presented in the notes to
financial statements. Such information is not a required part of the basic parent company financial
statements. The information is also not required by Securities Regulation Code Rule 68, As Amended
(2019). Our opinion on the basic parent company financial statements is not affected by the presentation
of the information in a separate schedule.

The engagement partner on the audit resulting in this independent auditor’s report is
Wenda Lynn M. Loyola

SYCIP GORRES VELAYO & CO.

Wenda Lynn M. Loyola

Partner
CPA Certificate No. 109952
Tax Identification No. 242-019-387
BOA/PRC Reg. No. 0001, August 25, 2021, valid until April 15, 2024
SEC Partner Accreditation No. 109952-SEC (Group A)
Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions
SEC Firm Accreditation No. 0001-SEC (Group A)
Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions
BIR Accreditation No. 08-001998-117-2022, January 20, 2022, valid until January 19, 2025
PTR No. 8854316, January 3, 2022, Makati City

March 30, 2022

*SGVFS163038*
A member firm of Ernst & Young Global Limited
CEBU AIR, INC.
PARENT COMPANY STATEMENTS OF FINANCIAL POSITION

December 31
2021 2020
ASSETS
Current Assets
Cash and cash equivalents (Note 7) P
=17,436,064,073 P2,439,870,460
=
Restricted cash (Note 7) 1,440,604,130 1,096,422,478
Receivables (Note 9) 2,025,383,082 1,982,571,810
Expendable parts, fuel, materials and supplies (Note 10) 1,747,683,464 1,872,583,000
Other current assets (Note 11) 2,937,475,750 2,488,591,267
Total Current Assets 25,587,210,499 9,880,039,015
Noncurrent Assets
Property and equipment (Notes 12 and 33) 44,803,066,677 50,536,350,060
Right-of-use asset (Note 33) 58,904,641,201 57,457,125,313
Investment in subsidiaries (Note 13) 815,049,996 815,049,996
Investments in joint ventures and associates (Note 14) 612,873,645 656,587,567
Deferred tax assets - net (Note 28) 2,889,076,993 1,211,156,874
Other noncurrent assets (Note 15) 1,918,903,172 3,735,852,842
Total Noncurrent Assets 109,943,611,684 114,412,122,652
P
=135,530,822,183 =124,292,161,667
P

LIABILITIES AND EQUITY

Current Liabilities
Short-term debt (Note 18) P
=4,462,412,500 P4,802,300,000
=
Current portion of long-term debt (Notes 12 and 18) 1,333,333,333 1,333,333,321
Accounts payable and other accrued liabilities (Note 16) 14,742,024,052 12,375,050,778
Derivative financial liability at fair value through profit or loss (Notes 8 and 19) 1,730,960,768 –
Derivative financial liability at fair value through other comprehensive income
(Note 8) – 32,214,937
Current lease liability (Note 33) 7,519,083,563 9,719,834,689
Unearned transportation revenue (Note 17) 3,803,878,211 3,023,643,522
Due to related parties (Note 30) 27,855,289 95,042,933
Total Current Liabilities 33,619,547,716 31,381,420,180
Noncurrent Liabilities
Travel fund payable (Note 21) 1,850,858,526 3,432,618,652
Lease liability – net of current portion (Note 33) 51,741,998,410 41,151,885,674
Long-term debt – net of current portion (Notes 12 and 18) 17,512,458,426 18,845,791,771
Bonds payable (Note 19) 12,184,836,126 –
Retirement liability (Note 27) 323,198,825 427,906,321
Other noncurrent liabilities (Note 20) 8,167,347,703 7,886,069,616
Total Noncurrent Liabilities 91,780,698,016 71,744,272,034
Total Liabilities 125,400,245,732 103,125,692,214
Equity
Capital stock (Note 22) 942,183,918 613,236,550
Capital paid in excess of par value (Note 22) 20,544,153,993 8,405,568,120
Share-based payments (Note 23) 174,824,363 –
Treasury stock (Note 22) (950,881,502) (950,881,502)
Other comprehensive income (losses) (Note 31) 98,822,391 (53,950,788)
Retained earnings (deficit) (Note 22) (10,678,526,712) 13,152,497,073
Total Equity 10,130,576,451 21,166,469,453
P
=135,530,822,183 =124,292,161,667
P

See accompanying Notes to Parent Company Financial Statements.

*SGVFS163038*
CEBU AIR, INC.
PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31

2021 2020
REVENUE
Sale of air transportation services
Passenger P5,814,598,450
= =11,695,375,602
P
Cargo 6,203,706,703 5,179,526,751
Ancillary revenue (Note 24) 4,022,611,714 5,565,880,704
16,040,916,867 22,440,783,057
EXPENSES
Depreciation and amortization (Notes 12 and 33) 14,253,652,425 16,016,853,231
Repairs and maintenance (Notes 10, 20, 25 and 33) 9,485,269,607 8,312,745,909
Flying operations (Notes 10 and 25) 6,592,616,050 8,734,413,264
General and administrative (Note 26) 2,945,163,204 3,151,431,951
Aircraft and traffic servicing (Note 25) 2,614,533,034 3,240,908,466
Reservation and sales (Note 25) 862,142,366 1,391,272,485
Passenger service 599,209,988 913,636,263
Aircraft and engine lease (Note 33) 443,481,483 284,665,157
37,796,068,157 42,045,926,726
(21,755,151,290) (19,605,143,669)
OTHER INCOME (EXPENSES)
Interest income (Note 7) 34,511,348 107,166,743
Gain from:
Insurance claims (Note 12) 138,049,029 807,409,620
Re-measurement of investment in joint venture (Note 14) – 182,458,444
Gain (loss) on disposal – net (Note 12) 1,388,678,985 (259,994,278)
Loss from sale of an investment in joint venture (Note 14) – (99,029,580)
Impairment loss (Note 14) (43,713,922) –
Market valuation losses on derivative financial instruments – net
(Note 8) (1,318,117,077) (2,149,932,480)
Foreign exchange gains (losses) – net (1,193,082,201) 1,794,545,025
Interest expense (Notes 18, 19 and 33) (2,816,181,340) (2,485,031,300)
(3,809,855,178) (2,102,407,806)
LOSS BEFORE INCOME TAX (25,565,006,468) (21,707,551,475)
BENEFIT FROM INCOME TAX (Note 28) (1,733,982,683) (344,025,663)
NET LOSS (23,831,023,785) (21,363,525,812)
OTHER COMPREHENSIVE INCOME, NET OF TAX
Other comprehensive income (loss) not to be reclassified to profit or loss in
subsequent periods (Note 31):
Actuarial gains on retirement liability (Note 27) 181,130,408 394,180,573
Net fair value changes on cash flow hedge reserve (Note 8) 27,705,335 (284,522,331)
Tax effect (Note 28) 56,062,564 32,897,473
152,773,179 76,760,769
TOTAL COMPREHENSIVE LOSS (P
= 23,678,250,606) (P
=21,286,765,043)
Basic and Diluted Loss Per Share (Note 29) (P
= 40.36) (P
=35.68)

See accompanying Notes to Parent Company Financial Statements.

*SGVFS163038*
CEBU AIR, INC.
PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY

Other Comprehensive Income (Loss) Retained Earnings (Deficit)

Remeasurement
Capital Paid in Gain (Loss) on
Excess of Par Share-based Retirement Cash Flow Hedge
Capital Stock Value Payments Treasury Stock Liability Reserve Appropriated Unappropriated Total
(Note 22) (Note 22) (Note 23) (Note 22) (Note 27) (Note 8) Total (Notes 22 and 33) (Note 22) Total Equity
Balance at January 1, 2021 = 613,236,550
P =
P8,405,568,120 =–
P (P
= 950,881,502) (P
= 34,557,052) (P
= 19,393,736) (P
= 53,950,788) P
= 12,000,000,000 P = 1,152,497,073 P = 13,152,497,073 P
= 21,166,469,453
Net loss – – – – – – – – (23,831,023,785) (23,831,023,785) (23,831,023,785)
Other comprehensive income – – – – 140,121,711 12,651,468 152,773,179 – – – 152,773,179
Total comprehensive income (loss) – – – – 140,121,711 12,651,468 152,773,179 – (23,831,023,785) (23,831,023,785) (23,678,250,606)
Issuance of preferred shares 328,947,368 12,171,052,616 – – – – – – – – 12,499,999,984
Transaction costs – (32,466,743) – – – – – – – – (32,466,743)
Cost of restricted stock units – – 116,527,033 – – – – – – – 116,527,033
Cost of stock options – – 58,297,330 – – – – – – – 58,297,330
Reversal of appropriations – – – – – – – (12,000,000,000) 12,000,000,000 – –
Balance at December 31, 2021 = 942,183,918
P P
= 20,544,153,993 = 174,824,363
P (P
= 950,881,502) = 105,564,659
P (P
= 6,742,268) = 98,822,391
P = – (P
P = 10,678,526,712) (P
= 10,678,526,712) = 10,130,576,451
P

Balance at January 1, 2020 =613,236,550

P P
=8,405,568,120 =–
P (P
= 906,120,840) (P
= 310,483,453) =179,771,896
P (P
= 130,711,557) =
P26,000,000,000 P=8,516,022,885 P=34,516,022,885 P=42,497,995,158
Net loss – – – – – – – – (21,363,525,812) (21,363,525,812) (21,363,525,812)
Other comprehensive income (loss) – – – – 275,926,401 (199,165,632) 76,760,769 – – – 76,760,769
Total comprehensive income (loss) – – – – 275,926,401 (199,165,632) 76,760,769 – (21,363,525,812) (21,363,525,812) (21,286,765,043)
Reversal of appropriations – – – – – – – (26,000,000,000) 26,000,000,000 – –
Appropriation of retained earnings – – – – – – – 12,000,000,000 (12,000,000,000) – –
Purchase of treasury stock – – – (44,760,662) – – – – – – (44,760,662)
Balance at December 31, 2020 =613,236,550
P P
=8,405,568,120 =–
P (P
= 950,881,502) (P
= 34,557,052) (P
= 19,393,736) (P
= 53,950,788) P
=12,000,000,000 P=1,152,497,073 P=13,152,497,073 P=21,166,469,453

See accompanying Notes to Parent Company Financial Statements.

*SGVFS163038*
CEBU AIR, INC.
PARENT COMPANY STATEMENTS OF CASH FLOWS

Years Ended December 31

2021 2020

CASH FLOWS FROM OPERATING ACTIVITIES

Loss before income tax (P
= 25,565,006,468) (P
=21,707,551,475)
Adjustments for:
Depreciation and amortization (Notes 12 and 33) 14,253,652,425 16,016,853,231
Provision for asset retirement obligation (Note 20) 3,566,104,161 3,132,239,751
Interest expense (Notes 18, 19 and 33) 2,816,181,340 2,485,031,300
Unrealized foreign exchange losses (gains) net 1,475,974,917 (1,384,386,137)
Net changes in fair value of derivatives (Note 8) 1,318,117,077 2,149,932,480
Provision for heavy maintenance visits (Note 20) 849,950,290 345,964,168
Share-based payments (Note 23) 174,824,363 –
Provision for expected credit losses (Note 9) 102,532,835 102,043,756
Redeemed and expired portion of deferred revenue on rewards program
(Note 20) 47,159,065 (163,676,169)
Impairment loss in investment in associate (Note 14) 43,713,922
Gain from re-measurement of investment in joint venture (Note 14) – (182,458,444)
Loss from sale of an investment in joint venture (Note 14) – 99,029,580
Gain on sale of other PPE (Note 12) (62,857,738) (1,408,159)
Interest income (Note 7) (34,511,348) (107,166,743)
Loss (gain) on disposal – net (Note 12) (1,388,678,985) 259,994,278
Operating income (loss) before working capital changes (2,402,844,144) 1,044,441,417
Decrease (increase) in:
Receivables (128,768,070) 576,281,080
Expendable parts, fuel, materials and supplies 124,899,536 101,467,437
Other current assets 2,004,695,615 579,983,740
Restricted cash (344,181,652) (1,096,422,478)
Increase (decrease) in:
Accounts payable and other accrued liabilities (53,656,726) 1,325,793,200
Unearned transportation revenue 780,234,689 (7,757,849,894)
Amounts of due to related parties (67,187,644) (82,485,145)
Retirement liability 76,422,912 (46,688,211)
Financial liabilities at fair value through profit or loss 20,235,264 (3,118,041,861)
Other noncurrent liabilities (3,133,622,567) (2,535,689,551)
Net cash used in operations (3,123,772,787) (11,009,210,266)
Interest received 33,322,478 122,295,743
Income tax paid with creditable withholding taxes (Note 34) – (197,879,264)
Interest paid (1,355,909,420) (921,387,614)
Net cash used in operating activities (4,446,359,729) (12,006,181,401)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sales of:
Property and equipment (Note 12) 10,705,940,871 7,336,303,774
Shares of stocks in a joint venture (Note 14) – 373,377,600
Acquisitions of property and equipment (Note 12) (5,494,915,577) (1,816,179,426)
Refund of pre-delivery payments (Note 12) 5,911,374,086 1,231,661,594
Increase (decrease) in advances to suppliers and other noncurrent assets (636,630,427) 236,102,339
Acquisition of right of use assets (1,578,903) –
Investments in shares of stocks in joint ventures and an associate (Note 14) – (192,000,000)
Acquisition of a subsidiary (Note 14) – (270,499,915)
Net cash provided by investing activities 10,484,190,050 6,898,765,966

(Forward)

*SGVFS163038*
-2–

Years Ended December 31

2021 2020

CASH FLOWS FROM FINANCING ACTIVITIES

Long-term and short-term debt (Notes 18 and 34)
Availments P4,234,107,500
= P8,839,600,000
=
Payments (6,125,133,333) (2,070,132,808)
Payments for lease liability (Notes 33 and 34) (13,986,021,079) (13,800,829,988)
Proceeds from issuance of bonds payable net of bond issue cost
(Notes 19 and 34) 11,782,473,335 –
Proceeds from issuance of preferred shares, net of transaction costs
(Note 22) 12,467,533,241 –
Treasury stock (Note 22) – (44,760,662)
Net cash provided by (used in) financing activities 8,372,959,664 (7,076,123,458)

EFFECTS OF EXCHANGE RATE CHANGES

IN CASH AND CASH EQUIVALENTS 585,403,628 (217,370,719)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,996,193,613 (12,400,909,612)

CASH AND CASH EQUIVALENTS AT JANUARY 1 2,439,870,460 14,840,780,072

CASH AND CASH EQUIVALENTS AT DECEMBER 31 (Note 7) =17,436,064,073

P =2,439,870,460
P

See accompanying Notes to Parent Company Financial Statements.

*SGVFS163038*
-1 -

CEBU AIR, INC.

NOTES TO PARENT COMPANY FINANCIAL STATEMENTS

1. Corporate Information

Cebu Air, Inc. (the Parent Company) was incorporated and organized in the Philippines on
August 26, 1988, to carry on, by means of aircraft of every kind and description, the general business
of a private carrier or charter engaged in the transportation of passengers, mail, merchandise and
freight, and to acquire, purchase, lease, construct, own, maintain, operate and dispose of airplanes and
other aircraft of every kind and description, and also to own, purchase, construct, lease, operate and
dispose of hangars, transportation depots, aircraft service stations and agencies, and other objects and
service of a similar nature which may be necessary, convenient or useful as an auxiliary to aircraft
transportation. In 2019, the principal place of business of the Parent Company is at 2nd Floor,
Doña Juanita Marquez Lim Building, Osmeña Boulevard, Cebu City. On November 13, 2019 and
February 26, 2020, the Parent Company’s Board of Directors and stockholders, respectively,
approved the change in the Parent Company’s principal place of business to Level 4, Unit 4030-4031,
Robinsons Galleria Cebu, General Maxilom Avenue cor. Sergio Osmeña Boulevard, Cebu City,
Cebu. The change in principal place of business was approved by the Philippine Securities and
Exchange Commission on July 27, 2020.

The Parent Company’s operations are significantly affected by severe weather, natural disaster and
seasonal factors. Severe weather and natural disasters can require the Parent Company to suspend
flight operations resulting to decrease in revenue. On the other hand, the demand for the Parent
Company’s services increases significantly between dry season (March to June) and Christmas season
(September to December).

The Parent Company has eleven (11) special purpose entities (SPEs) that it controls, namely: Summit
C Aircraft Leasing Limited (SCALL), Tikgi One Aviation Designated Activity Company
(TOADAC), Summit D Aircraft Leasing Limited (SDALL), CAI Limited (CL), Sampaguita Leasing
Co. Ltd (SLCL), Dia Boracay Ltd. (DBL), Mactan Leasing Co., Ltd (MLCL), Cebuano Leasing Co.,
Ltd. (CLCL), Dia El Nido Ltd. (DENL), Tarsier Leasing Co., Ltd. (TLCL) and RAMEN Aircraft
Leasing Limited (RALL). Other than CL, these are SPEs in which the Parent Company does not
have equity interest, but have entered into finance lease arrangements with for funding of various
aircraft deliveries (see Notes 12, 18 and 33).

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

Corporation (1Aviation), a wholly-owned subsidiary before the sale of 60% equity ownership to
Philippine Airport Ground Support Solutions, Inc. (PAGSS) and an individual on July 1, 2018. As of
December 31, 2021, the remaining 40% equity stake owned by the Parent Company in 1Aviation is
accounted for as joint venture with equity method accounting treatment (see Note 14).

In April 2021, Panatag Two Aircraft Leasing Limited (PTALL) was dissolved following the full
payment of loans and transfer of ownership of related aircraft due to sale of four (4) A321 CEOs to
EOS Aviation 6 Ireland Limited.

The Parent Company’s common stock was listed with the Philippine Stock Exchange (PSE) on
October 26, 2010, the Parent Company’s initial public offering (IPO) (see Note 22).

The Parent Company’s ultimate parent is JG Summit Holdings, Inc. (JGSHI). The Parent Company
is 66.60%-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 to
operate air transportation services, both domestic and international. In August 1997, the Office of
the President of the Philippines gave the Parent Company the status of official Philippine carrier to
operate international services. In September 2001, the Philippine Civil Aeronautics Board (CAB)
issued the permit to operate scheduled international services and a certificate of authority to operate
international charters.

The Parent Company is registered with the Board of Investments (BOI) as a new operator of air
transport on a non-pioneer status. Under the terms of the registration and subject to certain
requirements, the Parent Company is entitled to certain fiscal and non-fiscal incentives, including
among others, an income tax holiday (ITH) which extends for a period of two (2) to four (4) years for
each batch of aircraft registered to BOI (see Notes 28 and 35).

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

a. The Parent Company is subject to franchise tax of five percent (5%) of the gross revenue derived
from air transportation operations. For revenue earned from activities other than air
transportation, the Parent Company is subject to corporate income tax (RCIT) and to real property
tax.
b. In the event that any competing individual, partnership or corporation received and enjoyed tax
privileges and other favorable terms which tended to place the Parent Company at any
disadvantage, then such privileges shall have been deemed by the fact itself of the Parent
Company’s tax privileges and shall operate equally in favor of the Parent Company (see
Note 35).

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

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

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

Refer to Note 28 for changes in tax rates applicable to the Parent Company due to implementation of
Corporate Recovery and Tax Incentives for Enterprises (CREATE Law).

Status of Operations
The Parent Company incurred a net loss of P =23.8 billion and =
P21.4 billion and net cash outflows from
operations of =
P4.4 billion and =
P12.0 billion for the years ended December 31, 2021 and 2020,
respectively. Also, the Parent Company’s current liabilities exceeded its current assets by
=8.0 billion and =
P P21.5 billion as of December 31, 2021 and 2020, respectively. The Parent Company
incurred deficit amounting to =P10.7 billion as of December 31, 2021. The COVID-19 pandemic has
disrupted the business of the Parent Company in 2021 and 2020, resulting in significant deterioration
of earnings and cashflows, and may continue to significantly disrupt the business activities of the
Parent Company.

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The Parent Company has undertaken various measures, including the implementation of
comprehensive business transformation program, to address the impact of the COVID-19 pandemic
to its operational and financial performance. As at March 30, 2022, the Parent Company has
undertaken various financing activities intended to ensure availability of sufficient financial resources
to enable the Parent Company to continue as a going concern. Its cash and cash equivalent balance of
=17.44 billion as of December 31, 2021 is sufficient to support the operations of the Parent Company.
P
Based on management’s cash flow projections for the next twelve months, the Parent Company will
maintain sufficient cash and cash equivalents from internally generated cash flows and available
credit facilities to finance the Parent Company’s operations and pay its debts as and when they fall
due. Accordingly, management has assessed that the Parent Company, will have sufficient financial
resources to enable the Parent Company to continue as a going concern for at least the next twelve
months from December 31, 2021.

2. Basis of Preparation and Statement of Compliance

The Parent Company’s financial statements have been prepared on a historical cost basis, except for
financial assets and liabilities at fair value through profit or loss (FVPL) and financial assets and
financial liabilities through other comprehensive income (FVOCI) that have been measured at fair
value.

The Parent Company financial statements are presented in Philippine Peso (P

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

Statement of Compliance
The Parent Company financial statements have been prepared in compliance with Philippine
Financial Reporting Standards (PFRSs).

3. Changes in Accounting Policies and Disclosures

The accounting policies adopted are consistent with those of the previous financial year, except for
the adoption of new standards and amendments effective as of January 1, 2021. The Parent Company
did not early adopt any other standard, interpretation or amendment that has been issued but is not yet
effective. The adoption of these pronouncements is not expected to have a significant impact on the
Parent Company’s financial statements unless otherwise indicated.

 Amendment to PFRS 16, COVID-19-related Rent Concessions beyond June 30, 2021

The amendment provides relief to lessees from applying the PFRS 16 requirement on lease
modifications to rent concessions arising as a direct consequence of the COVID-19 pandemic. A
lessee may elect not to assess whether a rent concession from a lessor is a lease modification if it
meets all of the following criteria:
 The rent concession is a direct consequence of COVID-19;
 The change in lease payments results in a revised lease consideration that is substantially the
same as, or less than, the lease consideration immediately preceding the change;
 Any reduction in lease payments affects only payments originally due on or before
June 30, 2022; and
 There is no substantive change to other terms and conditions of the lease.

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A lessee that applies this practical expedient will account for any change in lease payments
resulting from the COVID-19 related rent concession in the same way it would account for a
change that is not a lease modification, i.e., as a variable lease payment.

The amendment is effective for annual reporting periods beginning on or after April 1, 2021.
Early adoption is permitted.

The Parent Company adopted the amendment beginning April 1, 2021. The Parent Company’s
lease concessions were accounted for as lease modification. Accordingly, the adoption of the
amendment did not impact the Parent Company’s financial statements.

 Amendments to PFRS 9, PFRS 7, PFRS 4 and PFRS 16, Interest Rate Benchmark Reform –
Phase 2
The amendments provide the following temporary reliefs which address the financial reporting
effects when an interbank offered rate (IBOR) is replaced with an alternatively nearly risk-free
interest rate (RFR):
 Practical expedient for changes in the basis for determining the contractual cash flows as a
result of IBOR reform
 Relief from discontinuing hedging relationships
 Relief from the separately identifiable requirement when an RFR instrument is designated as
a hedge of a risk component

The Parent Company shall also disclose information about:

 The nature and extent of risks to which the entity is exposed arising from financial
instruments subject to IBOR reform, and how the entity manages those risks; and
 Their progress in completing the transition to alternative benchmark rates, and how the entity
is managing that transition

The Parent Company adopted the amendments beginning January 1, 2021. The adoption of the
amendment did not impact the Parent Company’s financial statements as of December 31, 2021.

4. Summary of Significant Accounting Policies

Current versus Noncurrent Classification

The Parent Company presents assets and liabilities in Parent Company statement of financial position
based on current or noncurrent classification.

An asset is current when it is:

a. Expected to be realized or intended to be sold or consumed in normal operating cycle;
b. Held primarily for the purpose of trading;
c. Expected to be realized within twelve months after the reporting period; or
d. Cash or cash equivalents, 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.

A liability is current when:

a. It is expected to be settled in normal operating cycle;
b. It is held primarily for the purpose of trading;
c. It is due to be settled within twelve months after the reporting period; or

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d. There is no unconditional right to defer the settlement of the liability for at least twelve months
after the reporting period.

The Parent Company classifies all other liabilities as noncurrent.

Fair Value Measurement

The Parent Company measures derivatives at fair value at each reporting period. Also, for assets and
liabilities which are not measured at fair value in the Parent Company’s statement of financial
position but for which the fair value is disclosed, are included in Note 32.

The fair value is the price that would be received to sell an asset in an ordinary transaction between
market participants at the measurement date. The fair value measurement is based on the
presumption that the transaction to sell the asset or transfer the liability takes place either:
 In the principal market for the asset or liability; or
 In the absence of a principal market, in the most advantageous market for the asset or liability.

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

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

All assets and liabilities for which fair value is measured or disclosed in the Parent Company
financial statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:
 Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
 Level 2: Valuation techniques for which the lowest level input that is significant to the
measurement is directly or indirectly observable.
 Level 3: Valuation techniques for the lowest level input that is significant to the fair value
measurement is unobservable.

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

Cash and Cash Equivalents

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

Restricted Cash
Restricted cash are cash in bank set aside as security for letters of credit issued to aircraft lessors. The
nature of restriction is assessed by the Parent Company to determine its eligibility to be classified as
cash and cash equivalents. The Parent Company classifies restricted cash as current and noncurrent
assets depending on the tenure of the restriction.

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Financial Instruments – Initial Recognition and Subsequent Measurement

Classification of financial instruments
Financial instruments are classified, at initial recognition, as subsequently measured at amortized
cost, fair value through OCI, financial assets and financial liabilities at FVPL and other financial
liabilities.

The classification of financial assets at initial recognition depends on the financial asset’s contractual
cash flow characteristics and the Parent Company’s business model for managing them. The Parent
Company initially measures a financial asset at its fair value plus, in the case of a financial asset not
at FVPL, transaction costs. Trade receivables are measured at the transaction price determined under
PFRS 15, Revenue from Contracts with Customers.

In order for a financial asset to be classified and measured at amortized cost or fair value through
OCI, it needs to give rise to cash flows that are solely payment of principal and interest (SPPI) on the
principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an
instrument level.

The Parent Company’s business model for managing financial assets refers to how it manages its
financial assets in order to generate cash flows. The business model determines whether cash flows
will result from collecting contractual cash flows, selling the financial assets, or both.

Purchases or sales of financial assets that require delivery of assets within a time frame established by
regulation or convention in the market place (regular way trades) are recognized on the trade date,
that is, the date that the Parent Company commits to purchase or sell the asset.

Other financial liabilities are initially recognized at fair value, net of directly attributable transaction
costs.

a. Financial Assets at Amortized Cost

The Parent Company measures financial assets at amortized cost if both of the following
conditions are met:
 The financial asset is held within a business model with the objective to hold financial assets
in order to collect contractual cash flows; and
 The contractual terms of the financial asset give rise on specified dates to cash flows that are
SPPI on the principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest rate
(EIR) method and are subject to impairment. Gains or losses are recognized in profit or loss
when the asset is derecognized, modified or impaired.

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

b. Financial Assets and Financial Liabilities at FVPL

Financial assets at FVPL include financial assets held for trading, financial assets designated
upon initial recognition at FVPL, or financial assets mandatorily required to be measured at fair
value. Financial assets are classified as held for trading if they are acquired for the purpose of
selling or repurchasing in the near term. Derivatives are also classified as held for trading unless
they are designated as effective hedging instruments. Financial assets with cash flows that are
not SPPI are classified and measured at FVPL, irrespective of the business model.
Notwithstanding the criteria for debt instruments to be classified at amortized cost or at fair value

*SGVFS163038*
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through OCI, as described above, debt instruments may be designated at FVPL on initial
recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

FVPL are carried in the Parent Company statement of financial position at fair value with net
changes in fair value recognized in profit or loss.

A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is

separated from the host and accounted for as a separate derivative if: the economic characteristics
and risks are not closely related to the host; a separate instrument with the same terms as the
embedded derivative would meet the definition of a derivative; and the hybrid contract is not
measured at FVPL. Embedded derivatives are measured at fair value with changes in fair value
recognized in profit or loss. Reassessment only occurs if there is either a change in the terms of
the contract that significantly modifies the cash flows that would otherwise be required or a
reclassification of a financial asset out of FVPL category.

For financial assets, embedded derivatives are accounted for together with the host contracts and
are classified based on business model and contractual cash flows of the instrument.

The Parent Company’s financial assets and liabilities at FVPL consist of derivative liabilities as
of December 31, 2021 and 2020, respectively.

Derivative Financial Instruments and Hedge Accounting

The Parent Company uses derivative financial instruments such as jet fuel/sing kero and brent
crude swaps and zero cost collars and crack swap contracts to manage its exposure to fuel price
fluctuations and forward contracts for the risk associated with foreign currency (FX). Such
derivative financial instruments are initially recognized at fair value on the date on which a
derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are
carried as financial assets when the fair value is positive and as financial liabilities when the fair
value is negative. Derivatives maturing in 2020 and beyond started to be designated as
accounting hedges beginning September 1, 2019 and adhered to PFRS 9, Financial Instrument:
Recognition and Measurement, Hedge Accounting requirements.

For the purpose of hedge accounting, hedges are classified as:

 Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment;
 Cash flow hedges when hedging the exposure to variability in cash flows that is either
attributable to a particular risk associated asset or liability or a highly probable forecast
transaction or the foreign currency risk in an unrecognized firm commitment; and
 Hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, the Parent Company formally designates and documents
the hedge relationship to which it wishes to apply hedge accounting and the risk management
objective and strategy for undertaking the hedge.

The documentation includes Parent Company’s risk management strategies and objectives
focusing on the hedged risks, identification of the hedging instrument, the hedged item, and the
nature of the risks being hedged and the Parent Company’s assessment on whether the hedging
relationship meets the hedge effectiveness requirements (including the analysis of sources of
hedge ineffectiveness and how the hedge ratio is determined).

*SGVFS163038*
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A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness
requirements:
 There is ‘an economic relationship’ between the hedged item and the hedging instrument.
 The effect of credit risk does not ‘dominate the value changes’ that result from that economic
relationship.
 The hedge ratio of the hedging relationship is the same as that resulting from the quantity of
the hedged item that the Parent Company actually hedges and the quantity of the hedging
instrument that the Parent Company actually uses to hedge that quantity of hedged item.

Hedges that meet all the qualifying criteria for hedge accounting are accounted for, as described
below:

Fair value hedges

The change in the fair value of a hedging instrument is recognized in the statement of
comprehensive income as other expense. The change in the fair value of the hedged item
attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is
also recognized in the statement of comprehensive income as other expense.

For fair value hedges relating to items carried at amortized cost, any adjustment to carrying value
is amortized through profit or loss over the remaining term of the hedge using the EIR method.
The EIR amortization may begin as soon as an adjustment exists and no later than when the
hedged item ceases to be adjusted for changes in its fair value attributable to the risk being
hedged.

If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit
or loss.

When an unrecognized firm commitment is designated as a hedged item, the subsequent

cumulative change in the fair value of the firm commitment attributable to the hedged risk is
recognized as an asset or liability with a corresponding gain or loss recognized in profit or loss.

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognized in OCI in the
cash flow hedge reserve, while any ineffective portion is recognized immediately under ‘Market
valuation gains (losses) on derivative financial instruments’ in the Parent Company statement of
comprehensive income. The cash flow hedge reserve is adjusted to the lower of the cumulative
gain or loss on the hedging instrument and the cumulative change in fair value of the hedged
item.

The amounts accumulated in OCI are accounted depending on the nature of the underlying
hedged transaction. If the hedged transaction subsequently results in the recognition of a non-
financial item, the amount accumulated in equity is removed from the separate component of
equity and included in the initial cost or other carrying amount of the hedged asset or liability.
This is not a reclassification adjustment and will not be recognized in OCI for the period. This
also applies where the hedged forecast transaction of a non-financial asset or non-financial
liability subsequently becomes a firm commitment for which fair value hedge accounting is
applied.

For any other cash flow hedges, the amount accumulated in OCI is reclassified to profit or loss as
a reclassification adjustment in the same period or periods during which the hedged cash flows
affect profit or loss.

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If cash flow hedge accounting is discontinued, the amount that has been accumulated in OCI
must remain in accumulated OCI if the hedged future cash flows are still expected to occur.
Otherwise, the amount will be immediately reclassified to profit or loss as a reclassification
adjustment. After discontinuation, once the hedged cash flow occurs, any amount remaining in
accumulated OCI must be accounted for depending on the nature of the underlying transaction as
described above.

Hedges of a net investment

Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is
accounted for as part of the net investment, are accounted for in a way similar to cash flow
hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge
are recognized as OCI while any gains or losses relating to the ineffective portion are recognized
in the statement of comprehensive income.

The Parent Company applies cash flow hedge accounting to all designated hedges beginning
September 1, 2019.

Derivatives not Designated as Hedging Instruments

Derivative financial instruments previously designated in hedging relationships that have been
subsequently discontinued, either fully or partially, were recognized as financial assets or
liabilities at FVPL in the statement of financial position. Hedge accounting is discontinued under
the following circumstances:
 Risk management objectives were updated or modified;
 Economic relationship between the fuel and FX hedges and the forecasted purchase was
subsequently assessed to be non-existing;
 Effect of credit risk dominates the value changes of the hedging relationship upon performing
subsequent effectiveness testing; and
 Forecasted underlying or hedged item is no longer highly probable to occur

Discontinuation of hedge accounting is applied prospectively upon determination that the

forecasted cash flow is no longer highly probable, even if still expected to occur. Amounts
accumulated in the cash flow hedge reserve remain recognized separately in equity until the
forecasted transaction occurs if the loss is recoverable.

When discontinuation of hedge accounting arises due to hedged future cash flows are no longer
expected to occur, amounts accumulated in the cash flow hedge reserve are immediately
reclassified to profit or loss under ‘Market valuation gains (losses) on derivative financial
instruments’ in the Parent Company statement of comprehensive income. Any subsequent
changes in the fair value of these derivative financial instruments are recognized under ‘Market
valuation gains (losses) on derivative financial instruments’ in the Parent Company statement of
comprehensive income and are presented net.

Derivatives that do not meet the hedge accounting criteria are treated as economic hedges and not
designated in hedging relationships. This default accounting has been applied to derivatives for
which hedge accounting was fully or partially discontinued in 2020.

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Derivative Financial Instruments

Derivative financial instruments, including bifurcated embedded derivatives, are initially
recognized at fair value on the date on which the derivative contract is entered into and are
subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is
positive and as liabilities when the fair value is negative.

The Parent Company’s derivative instruments provide economic hedges under the Parent
Company’s policies but are not designated as accounting hedges. Consequently, any gains or
losses arising from changes in fair value are taken directly to profit or loss for the year.

An embedded derivative is a component of a hybrid (combined) instrument that also includes a

nonderivative host contract with the effect that some of the cash flows of the combined
instrument vary, in a way similar to a stand-alone derivative. The Parent Company assesses
whether embedded derivatives are required to be separated from host contracts when the Parent
Company first becomes a party to the contract. An embedded derivative is separated from the
host contract and accounted for as derivative if all of the following conditions are met:
a) the economic characteristics and risks of the embedded derivative are not closely related to
the economic characteristics and risks of the host contract;
b) a separate instrument with the same terms as the embedded derivative would meet the
definition of a derivative; and
c) the hybrid or combined instrument is not recognized as at FVPL.

Subsequent reassessment is prohibited unless there is a change in the terms of the contract that
significantly modified the cash flows that otherwise would be required under the contract, in
which case reassessment is required. The Parent Company determines whether a modification to
cash flows is significant by considering the extent to which the expected future cash flows
associated with embedded derivative, the host contract or both have changed and whether the
change is significant relative to the previously expected cash flows on the contract.

The Parent Company’s bifurcated embedded derivatives pertain to options arising from its
convertible bonds payable.

c. Other Financial Liabilities

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

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

This accounting policy applies primarily to the Parent Company’s accounts payable and other
accrued liabilities, finance lease obligation, short-term debt, long-term debt and other obligations
that meet the above definition.

Classification of Financial Instruments Between Liability and Equity

A financial instrument is classified as liability if it provides for a contractual obligation to:
 deliver cash or another financial asset to another entity; or
 exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the Parent Company; or
 satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of own equity shares

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If the Parent Company does not have an unconditional right to avoid delivering cash or another
financial asset to settle its contractual obligations, the obligation meets the definition of a financial
liability.

The components of issued financial instruments that contain both liability and equity elements are
accounted for separately, with the equity component being assigned the residual amount after
deducting from the instrument as a whole the amount separately determined as the fair value of the
liability component on the date of issue.

Debt Issue Costs

Debt issue costs are presented as reduction in long-term debt and are amortized over the terms of the
related borrowings using the EIR method.

Offsetting of Financial Instruments

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

Derecognition of Financial Instruments

Financial asset
A financial asset (or, when applicable, a part of a financial asset or part of a group of financial assets)
is derecognized (that is, removed from the Parent Company statement of financial position) when:
 The rights to receive cash flows from the asset have expired;
 The Parent Company 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:
 The Parent Company has transferred substantially all the risks and rewards of the asset; or
 The Parent Company has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.

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

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

Financial liability
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or
expires. When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an

*SGVFS163038*
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exchange or modification is treated as a derecognition of the original liability and the recognition of a
new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

Impairment of Financial Assets

The Parent Company recognizes an allowance for ECLs for all debt instruments not held at FVPL.
ECLs are based on the difference between the contractual cash flows due in accordance with the
contract and all the cash flows that the Parent Company expects to receive, discounted at an
approximation of the original EIR. The expected cash flows will include cash flows from the sale of
collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognized in two stages. For credit exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs are provided for credit losses that result from
default events that are possible within the next 12 months (a 12-month ECL). For those credit
exposures for which there has been a significant increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over the remaining life of the exposure, irrespective
of the timing of the default (a lifetime ECL).

For trade receivables, the Parent Company applies a simplified approach in calculating ECLs.
Therefore, the Parent Company does not track changes in credit risk, but instead, recognizes a loss
allowance based on lifetime ECLs at each reporting date. The Parent Company has established a
provision matrix that is based on its historical credit loss experience, adjusted for forward-looking
factors specific to the debtors and the economic environment.

However, in certain cases, the Parent Company may also consider a financial asset to be in default
when internal or external information indicates that the Parent Company is unlikely to receive the
outstanding contractual amounts in full before taking into account any credit enhancements held by
the Parent Company. A financial asset is written off when there is no reasonable expectation of
recovering the contractual cash flows.

For other debt financial instruments, e.g., cash and cash equivalents (excluding cash on hand) and
refundable deposits ECLs, the Parent Company applies the general approach of which it tracks
changes in credit risk at every reporting date. The probability of default (PD) and loss given defaults
(LGD) are estimated using external and benchmark approaches for listed and non-listed financial
institutions, respectively. For listed financial institutions, the Parent Company uses the ratings from
Standard and Poor’s (S&P), Moody’s and Fitch to determine whether the debt instrument has
significantly increased in credit risk and to estimate ECLs. For non-listed financial institutions, the
Parent Company uses benchmark approach where the Parent Company finds comparable companies
in the same industry having similar characteristics. The Parent Company obtains the credit rating of
comparable companies to determine the PD and determines the average LGD of the selected
comparable companies to be applied as LGD of the non-listed financial institutions.

Expendable Parts, Fuel, Materials and Supplies

Expendable parts, fuel, materials and supplies are stated at lower of cost and net realizable value
(NRV). Cost of flight equipment expendable parts, materials and supplies are stated at acquisition
cost determined on a moving average cost method. Fuel is stated at cost on a weighted average cost
method. NRV represents replacement cost of these expendable parts, fuel, materials and supplies,
considering factors such as age and physical condition of these assets.

Property and Equipment

Property and equipment are carried at cost, less accumulated depreciation and amortization and
accumulated impairment loss, if any. The initial cost of property and equipment comprises its
purchase price, any related capitalizable borrowing costs attributed to progress payments incurred on

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account of aircraft acquisition under construction and other directly attributable costs of bringing the
asset to its working condition and location for its intended use.

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

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

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

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

Category EUL (in years)

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

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

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

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

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

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

The Parent Company has not capitalized any borrowing costs for the years ended December 31, 2021
and 2020 as all borrowing costs from outstanding long-term debt relate to assets that are ready for
intended use.

Investments in Joint Ventures and Associates

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

The Parent Company’s 60% and 40% respective investments in Philippine Academy for Aviation
Training, Inc. (PAAT) and 1Aviation (1AV), are classified as investments in joint ventures. The
Parent Company’s 13% investment in Value Alliance Travel System Pte. Ltd. (formerly Air Block
Box Asia Pacific Pte. Ltd.) and 40% investment in Digital Analytics Ventures, Inc. (DAVI) are
classified as investment in associates. These investments in JVs and associates are accounted for
under the cost method. Under the cost method, the investments in JVs and associates are carried in
the Parent Company statement of financial position at cost, less any allowance for impairment in
value. The Parent Company recognizes income from the investments only to the extent that the
Parent Company receive distributions from accumulated profits of the JVs and associates arising after
the date of acquisition. Distributions received in excess of such profits are regarded as a recovery of
investment and are recognized as a reduction in the cost of the investment.

Impairment of Nonfinancial Assets

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

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

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The Parent Company bases its impairment calculation on detailed budgets and forecast calculations,
which are prepared separately for each of the Parent Company’s CGUs to which the individual assets
are allocated. These budgets and forecast calculations generally cover a period of five (5) years.
A long-term growth rate is calculated and applied to project future cash flows after the fifth year.

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

Aircraft Maintenance and Overhaul Cost

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

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

Asset Retirement Obligation (ARO)

The Parent Company is contractually required under various lease contracts to either restore certain
leased aircraft to its original condition at its own cost or to bear a proportional cost of restoration at
the end of the contract period. The event that gives rise to the obligation is the actual flying hours,
flying cycles or calendar months of the asset as used, as the usage determines the timing and nature of
the overhaul and restoration work required of the amount to be contributed at the end of lease term.

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

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

The Parent Company regularly assesses the provision for ARO and adjusts the related liability. ARO
liability is carried at amortized cost using effective interest method.

Heavy Maintenance Visits (HMV)

The Parent Company is contractually required under various lease contracts to undertake the
maintenance and overhaul of certain leased aircraft throughout the contract period. Major
maintenance events are required to be performed on a regular basis based on historical or industry
experience and manufacturer’s advise. Estimated costs of major maintenance events are accrued and
charged to profit or loss over the estimated period between overhauls as the leased aircraft is utilized.
HMV liability is carried at amortized cost using effective interest method.

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Liability Under Lifestyle Rewards Program

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

There have been no changes in the accounting policy on the deferral and subsequent recognition of
passenger revenue related to the award of Getgo points as effect of the adoption of PFRS 15.

Starting January 1, 2020, the management and ownership of the Getgo points issued in 2020 has been
transferred to DAVI. As such, all revenue and expenses in relation to the Getgo points issued in 2020
will be recognized by DAVI. The Parent Company accounts for such issued and redeemed points as
a payable to and receivable from DAVI, respectively.

Getgo points outstanding as of December 31, 2019, however, are permanently ring-fenced in the
Parent Company’s books. The Parent Company shall continue to account for these points using the
aforementioned policy until redemption or expiration.

Last July 26, 2021, the Parent Company’s Getgo program was replaced by Go Rewards. With this
change, the remaining unredeemed ring-fenced points in the Parent Company’s books were all
converted to Cebu Pacific Travel Fund, a virtual wallet that can be used as a form of payment for
booking new flights and purchasing add-ons (see Note 21).

Capital Stock
Capital stock, both common and preferred, is classified as equity and recorded at par. Proceeds in
excess of par value are recorded as ‘Capital paid in excess of par value’ account in the Parent
Company statement of financial position. Incremental costs directly attributable to the issuance of
new shares are shown in equity as a deduction from ‘Capital paid in excess of par value’.

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

Retained Earnings (Deficit)

Retained earnings (deficit) represent accumulated earnings or losses of the Parent Company, less
dividends declared. Appropriated retained earnings are set aside for purposes of the Parent
Company’s re-fleeting program. When retained earnings account has a debit balance, it is called a
“deficit”, and presented as a deduction from equity.

Dividends on common and preferred shares are recognized as liability and deducted from equity
when approved and declared by the Parent Company’s Board of Directors (BOD), in the case of cash
dividends; or by the Parent Company’s BOD and shareholders, in the case of stock dividends.

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Revenue Recognition
The Parent Company is in the business of providing air transportation services. Revenue from
contracts with passengers and cargo customers, and any related revenue from services incidental to
the transportation of passengers, is recognized when carriage is provided or when the passenger is
lifted in exchange for an amount that reflects the consideration to which the Parent Company expects
to be entitled to.

The following specific recognition criteria must also be met before revenue is recognized:

Sale of air transportation services and cargo

Passenger ticket and cargo waybill sales are initially recorded as unearned passenger revenue under
‘Unearned transportation revenue’ account in the Parent Company statement of financial position
until earned and recognized under ‘Revenue’ account in the Parent Company statement of
comprehensive income when carriage is provided or when the passenger is lifted or flown.

Ancillary revenue
Flight and booking services
Revenue from services incidental to the transportation of passengers such as baggage fees, inflight
sales and rebooking and website administration fees are initially recognized as deferred ancillary
revenue under ‘Unearned transportation revenue’ account in the Parent Company statement of
financial position until the services are rendered.

Other ancillary revenue

Other ancillary revenue such as refund surcharges, service income and cancellation fees are
recognized upon booking.

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

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

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

Foreign Currency Transactions

Transactions in foreign currencies are initially recorded in the Parent Company’s functional currency
using the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the functional currency using the Bankers
Association of the Philippines (BAP) closing rate prevailing as of December 31, 2021 and 2020. All
differences are taken to the profit or loss. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the prevailing closing exchange rate as of the
date of initial transaction.

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

Retirement expense comprises the following:

a. Service cost; and
b. Net interest on retirement liability.

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

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

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

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

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

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

Share-based Payments
The Parent Company has a Long-Term Incentive Plan (LTIP) granting eligible persons any one or a
combination of Restricted Stock Units (RSUs) and Stock Options to purchase a fixed number of
shares of stock at a stated price during a specified period (“equity-settled transactions”).

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The cost of equity-settled transactions is measured by reference to the fair value at the date at which
these are granted. Said cost is recognized in profit or loss, together with a corresponding increase in
‘Share-based payments’ account in the Parent Company statement of financial position, over the
period in which the service conditions are fulfilled, ending on the date on which the eligible persons
become fully entitled to the award (“vesting date”). The fair value of Stock Options is determined
using the Cox-Ross-Rubinstein Binomial Option Pricing Method. The cumulative expense
recognized for the share-based transactions at each reporting date until the vesting date reflects the
extent to which the vesting period has expired and the Parent Company’s best estimate of the number
of equity instruments that will ultimately vest. No expense is recognized for awards that do not
ultimately vest.

Where the terms of a share-based award are modified, at a minimum, an expense is recognized as if
the terms had not been modified. In addition, an expense is recognized for any modification, which
increases the total fair value of the share-based payment agreement, or is otherwise beneficial to the
eligible persons as measured at the date of modification.

Where a share-based award is cancelled, it is treated as if it had vested on the date of cancellation, and
any expense not yet recognized for the award is recognized immediately. However, if a new award is
substituted for the cancelled award, and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if there were a modification of the original
award. The dilutive effect of outstanding options is reflected as additional share dilution in the
computation of earnings per share.

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

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

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

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

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

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

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

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

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

Leases
Right-of-use assets
The Parent Company recognizes right-of-use assets at the commencement date of the lease (i.e., the
date the underlying asset is available for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of right of use assets includes the amount of lease liabilities recognized, initial
direct costs incurred, and lease payments made at or before the commencement date less any lease
incentives received. If the lease transfers ownership of the underlying asset to the Parent Company
by the end of the lease term or if the cost of the right-of-use asset reflects that the Parent Company
will exercise a purchase option, the Parent Company depreciates the right-of-use asset from the
commencement date to the end of the useful life of the underlying asset. Otherwise, the Parent
Company depreciates the right-of-use asset from the commencement date to the earlier of the end of
the useful life of the right-of-use asset or the end of the lease term.

Lease Liabilities
At the commencement date of the lease, the Parent Company recognizes lease liabilities measured at
the present value of lease payments to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease incentives receivable, variable lease
payments that depend on an index or a rate, and amounts expected to be paid under residual value
guarantees. The lease payments also include the exercise price of a purchase option reasonably
certain to be exercised by the Parent Company and payments of penalties for terminating a lease, if
the lease term reflects the Parent Company exercising the option to terminate. The variable lease
payments that do not depend on an index or a rate are recognized as expense in the period on which
the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Parent Company uses the incremental
borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease liabilities is increased to reflect the
accretion of interest and reduced for the lease payments made. In addition, the carrying amount of
lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-
substance fixed lease payments or a change in the assessment to purchase the underlying asset.

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The Parent Company accounted the deferral of lease payments originally due on various dates until
before June 30, 2021 granted by the lessors due to COVID-19 pandemic as a separate lease liability in
the period allocated lease payments are due. The separate lease liability does not accrue interest. The
Parent Company continued to account for the original lease liability using the rights and obligations
of the existing lease.

Short-term leases
The Parent Company applies the short-term lease recognition exemption to its short-term leases (i.e.,
those leases that have a lease term of 12 months or less from the commencement date). Lease
payments on short-term leases are recognized as expense on a straight-line basis over the lease term.

Sale and leaseback

When entering into a sale and leaseback transaction, the Parent Company determines whether the
transfer qualifies as a sale based on the requirements satisfying a performance obligation under
PFRS 15. When the transfer of the asset is a sale, the Parent Company measures the right-of-use
asset arising from the leaseback at the proportion of the previous carrying amount of the asset that
relates to the right-of-use retained by the Parent Company. Gain or loss is recognized only at the
amount that relates to the rights transferred to the buyer-lessor. When the transfer of the asset is not a
sale under PFRS 15 requirements, the Parent Company continues to recognize the asset in its Parent
Company statement of financial position and accounts for the proceeds from the sale and leaseback as
a financial liability in accordance with PFRS 9.

Provisions and Contingencies

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

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

Earnings (Loss) Per Share (EPS)

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

Diluted earnings (loss) per share (EPS) amounts are calculated by dividing the net income (loss)
attributable to common stockholders of the Parent Company by the weighted average number of
common shares outstanding during the year plus the weighted average number of common shares that
would be issued on the conversion of all the dilutive potential common shares into common shares.

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

Events After the Reporting Date

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

5. Significant Accounting Judgments and Estimates

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

Judgments

a. Use of going concern assumption

The underlying assumption in the preparation of the accompanying Parent Company financial
statements is that the Parent Company has the ability to continue as a going concern for at least
the next twelve (12) months from December 31, 2021. The use of the going concern assumption
involves management making significant judgments, at a particular point in time, about the future
outcome of events or conditions that are inherently uncertain. Management takes into account a
whole range of factors which include, but are not limited to, the forecasted level of revenue and
operating cost, profitability and cash flows, and the other potential sources of financing given the
economic uncertainties caused by the COVID-19 pandemic (see Note 1). Management believes
that with the continuing implementation of the comprehensive business transformation program
which will reduce operating cost and ensures the Parent Company’s competitiveness and with the
progress of the steps undertaken to date on the Parent Company’s financing plans, the Parent
Company will be able to generate sufficient cash flows to enable the Parent Company to meet its
obligations when they fall due to address the Parent Company’s liquidity requirements and to
support its operations. Accordingly, the accompanying Parent Company financial statements
have been prepared on a going concern basis of accounting.

b. Determining the lease term of contracts with renewal and termination options – Parent Company
as lessee
The Parent Company determines the lease term as the non-cancellable term of the lease, together
with any periods covered by an option to extend the lease if it is reasonably certain to be
exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain
not to be exercised (see Note 33).

The Parent Company has several lease contracts that include extension and termination options.
The Parent Company applies judgement in evaluating whether it is reasonably certain whether or
not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors
that create an economic incentive for it to exercise either the renewal or termination. After the
commencement date, the Parent Company reassesses the lease term if there is a significant event
or change in circumstances that is within its control and affects its ability to exercise or not to

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exercise the option to renew or to terminate (e.g., construction of significant leasehold

improvements or significant customization to the leased asset).

The Parent Company included the renewal period as part of the lease term for leases of aircraft
with shorter non-cancellable period (i.e., three to five years). The Parent Company typically
exercises its option to renew for these leases because there will be a significant negative effect on
operation if a replacement asset is not readily available. Refer to Note 33 for the disclosure of the
Parent Company’s leases.

c. Determination of sale and leaseback transaction as true sale or financing transaction – Parent
Company as lessee
The Parent Company determines whether the transfer of assets qualifies as a sale by referring to
the requirements for satisfying performance obligations under PFRS 15. The sale and leaseback
transactions are considered as a true sale if there is a transfer of rights and ownership of the
related asset. If the transfer is not a sale under PFRS 15 requirements, the Parent Company
accounts for the sale and leaseback as a financing transaction in accordance with PFRS 9.
The Parent Company assessed that the sales and leaseback transactions in 2021 and 2020 qualify
as true sale.

d. Determination of functional currency

PAS 21, The Effects of Changes in Foreign Exchange Rates, requires management to use its
judgment to determine the Parent Company’s functional currency such that it most faithfully
represents the economic effects of the underlying transactions, events and conditions that are
relevant to the Parent Company. In making this judgment, the Parent Company considers the
following:
 The currency that mainly influences sales prices for financial instruments and services (this
will often be the currency in which sales prices for its financial instruments and services are
denominated and settled);
 The currency in which funds from financing activities are generated; and
 The currency in which receipts from operating activities are usually retained.

Management determined that Philippine Peso is the functional currency of the Parent Company,
after considering the criteria stated in PAS 21.

e. Contingencies
The Parent Company is currently involved in certain legal proceedings. The estimate of the
probable costs for the resolution of these claims has been developed in consultation with internal
counsel handling the defense in these matters and is based upon an analysis of potential results.
The Parent Company currently does not believe that these will have a material adverse effect on
the Parent Company’s financial position and financial performance. It is possible, however, that
future financial performance could be materially affected by changes in the estimates or in the
effectiveness of the strategies relating to these proceedings (see Note 33).

f. Allocation of revenue, costs and expenses for registered and nonregistered activities
Revenue, costs and expenses are classified as exclusive and common. Exclusive revenue, cost
and expenses such as passenger revenue, cargo revenue, baggage revenue, insurance surcharge,
fuel and oil expense, hull/war/risk insurance, maintenance expense, depreciation (for aircraft
under finance lease), lease expense (for aircraft under operating lease) and interest expense based
on the related finance lease obligations are specifically identified per aircraft based on an actual
basis. For revenue, cost and expense accounts that are not identifiable per aircraft, the Parent
Company allocates based on activity factors that closely relate to the earning process of the
revenue.

*SGVFS163038*
- 24 -

g. Classification of joint arrangements and investment in associates

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

The Parent Company’s investment in Value Alliance Travel System Pte. Ltd. (formerly Air Block
Box Asia Pacific Pte. Ltd.) and DAVI are considered as investment in associates and significant
influence is evident on the Parent Company’s representation in the BOD.

h. Determination of jet fuel/sing kero price risk components

The Parent Company has historically entered into fuel derivatives to provide extensive protection
against the unexpected jet fuel prices movement due to various economic and political events
happening across the world. Beginning September 1, 2019, the Parent Company commenced the
application of hedge accounting under PFRS 9 on fuel derivatives maturing in 2020 and beyond
and has classified these as cash flow hedges. Along with the jet fuel price risk hedging, the
Parent Company also adopted risk component hedging strategy given the lack of liquidity in the
jet fuel derivatives with long-term maturities across financial markets. Risk components of the
jet fuel price are identified as the Brent crude oil and cracks. These components are determined
to be separately identifiable and changes in the fair value of the jet fuel attributable to changes in
the Brent crude oil price can be measured reliably.

The existence of a separate market structure for the Brent crude oil and the crack which
represents the refining component corroborates with the management’s assertion that these two
risk components are separately identifiable and corresponding prices can be reliably measured
among others.

Estimates and Assumptions

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

a. Recognition of deferred tax assets

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

As of December 31, 2021 and 2020, the Parent Company has deferred tax assets amounting to
=5,515.7 million and =
P P4,117.3 million, respectively. Unrecognized deferred tax assets as of
December 31, 2021 and 2020 amounted to = P8,266.2 million and =
P4,941.4 million, respectively
(see Note 28).

b. Impairment of property and equipment and right-of-use assets

The Parent Company determines whether property and equipment and right-of-use assets are
impaired. Impairment testing is performed when circumstances indicate that the carrying amount
is impaired. The impairment testing requires an estimation of the recoverable amounts, which is

*SGVFS163038*
- 25 -

the FVLCD or VIU of the CGU whichever is higher, to which the property and equipment and
right-of-use assets belongs.

In determining the recoverable amount of these assets, the management estimates the VIU of the
CGU to which the property and equipment and right-of-use assets belong. Estimating the value-
in-use requires the Parent Company to make an estimate of the expected future cash flows from
the CGU and applying an appropriate discount rate in order to calculate the present value of those
cash flows. In discounting, the Parent Company uses a discount rate based on the weighted
average cost of capital adjusted to reflect the way that the market would assess the specific risks
associated with the cash flow and exclude risks that are not relevant to the cash flow. Other
assumptions used in projecting the future cash flows include passenger load factor, passenger
yield and fuel costs, among others.

As of December 31, 2021 and 2020, the Parent Company has determined that property and
equipment and right-of-use assets are recoverable based on VIU. Property and equipment and
right-of-use assets amounted to =
P44.8 billion and P
=58.9 billion and =
P50.5 billion and
=57.5 billion as of December 31, 2021 and 2020, respectively (see Notes 12 and 33).
P

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

Assumptions used to compute ARO are reviewed and updated annually by the Parent Company.
As of December 31, 2021 and 2020, the cost of restoration is computed based on the Parent
Company’s assessment on expected future aircraft utilization.

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

As of December 31, 2021 and 2020, the Parent Company’s ARO liability (included under ‘
Other noncurrent liabilities’ account in the parent company statement of financial position)
has a carrying value of =
P7,084.7 million and = P6,539.0 million, respectively (see Note 20).
The related provisions included under Repairs and maintenance expense for the years ended
December 31, 2021 and 2020 amounted to = P3,566.1 million and =P3,132.2 million, respectively
(see Notes 20 and 25).

d. Estimation of HMV
The Parent Company is contractually required under various lease contracts to undertake the
maintenance and overhaul of certain leased aircraft throughout the contract period. Major
maintenance events are required to be performed on a regular basis based on historical or industry
experience and manufacturer’s advise. Estimated costs of major maintenance events are accrued
and charged to profit or loss over the estimated period between overhauls as the leased aircraft is
utilized.

*SGVFS163038*
- 26 -

As of December 31, 2021 and 2020, the Parent Company’s HMV (included other ‘Other
noncurrent liabilities’ account in the parent company statement of financial position) has a
carrying value of P=1,082.6 million and P=346.0 million, respectively (see Note 20). The related
repairs and maintenance expense for the years ended December 31, 2021 and 2020 amounted to
=850.0 million and =
P P346.0 million, respectively (see Notes 20 and 25).

e. Fair values of financial instruments

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

The fair values of the Parent Company’s financial instruments are presented in Note 32.

f. Estimation of useful lives of property and equipment

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

As of December 31, 2021 and 2020, the carrying values of the Parent Company’s property and
equipment amounted to = P44,803.1 million and =
P50,536.4 million, respectively (see Note 12).
The Parent Company’s depreciation and amortization expense on property and equipment
amounted to =P4,895.9 million and P
=6,141.5 million for the years ended December 31, 2021 and
2020, respectively (see Note 12).

g. Estimation of allowance for credit losses on receivables

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

The balances of receivables and allowance for credit losses as of December 31, 2021 and
December 31, 2020 are disclosed in Note 9.

*SGVFS163038*
- 27 -

h. Estimation of liability under the Lifestyle Rewards Program

A portion of passenger revenue attributable to the award of lifestyle reward program points,
estimated based on expected utilization on these benefits, is deferred until utilized. The points
expected to be redeemed are measured at fair value which is estimated using the Peso value of the
points. Deferred revenue included as part of ‘Other noncurrent liabilities’ account amounted to
nil and =
P1,001.2 million as of December 31, 2021 and 2020, respectively (see Note 20). The
rewards program started in 2015. Any remaining unredeemed points are recognized as revenue
upon expiration.

i. Lessee – estimating the incremental borrowing rate

The Parent Company cannot readily determine the interest rate implicit in the lease, therefore, it
uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of
interest that the Parent Company would have to pay to borrow over a similar term, and with a
similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset
in a similar economic environment. The IBR therefore reflects what the Parent Company ‘would
have to pay’, which requires estimation when no observable rates are available (such as for
subsidiaries that do not enter into financing transactions) or when they need to be adjusted to
reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s
functional currency). The Parent Company estimates the IBR using observable inputs (such as
market interest rates) when available and is required to make certain entity-specific estimates (see
Note 33).

j. Fair values of aircraft at sale and operating leaseback transaction

The Parent Company determines the fair values of its aircraft by relying on a third party’s
valuation which has a global view of all area of the market which brings essential context of
changes in the market and the opportunities and risks. The judgment includes determination
whether the difference between the fair value of the aircraft and its selling price should be
accounted as immediate gain in the profit or loss or be deferred over the operating lease term.
The Parent Company entered into sale and operating leaseback transactions in 2021 and 2020
(see Notes 12 and 33).

k. Estimation of retirement and other employee benefit obligation and costs

The determination of the obligation and cost of retirement and other employee benefits is
dependent on the selection of certain assumptions used in calculating such amounts. Those
assumptions include, among others, discount rates and salary increase rates (see Note 27).

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

The Parent Company’s retirement liability amounted to =

P323.2 million and =
P427.9 million as of
December 31, 2021 and 2020, respectively (see Note 27).

l. Estimation of fair value for share-based payment transactions

Estimating fair value for share-based payment transactions requires determination of the most
appropriate valuation model, which depends on the terms and conditions of the grant. This
estimate also requires determination of the most appropriate inputs to the valuation model
including the expected life of the share option or appreciation right, volatility and dividend yield
and making assumptions about them. The Parent Company initially measures the cost of equity-
settled transactions with employees using a binomial model to determine the fair value of the
liability incurred. For the measurement of the fair value of equity-settled transactions with
employees at the grant date, the Parent Company uses Cox-Ross-Rubinstein Binomial Option

*SGVFS163038*
- 28 -

Pricing Method taking into consideration the terms and conditions on which the share options
were granted.

m. Estimation of impact of coronavirus pandemic

The impact of coronavirus pandemic to the Parent Company’s business operations relates to any
potential interruptions or disruptions. The Parent Company ensure that the impact of COVID-19
pandemic is appropriately reflected in its parent company financial statements, and currently
assessed the impact on its assets and liabilities as follows:
 The forecast used for impairment testing include the Parent Company’s best estimates of the
potential future impact from coronavirus pandemic. Cash flow projections have been
adjusted to reflect a range of possible outcomes.

 Collectability of accounts with customers continues to be closely monitored. A material

change in the provision for impairment of trade receivables has not been identified.

 There were no onerous contracts or additional provisions that have been recognized resulting
from the direct impact of coronavirus pandemic.

 The Parent Company has also considered the increased uncertainty in determining key
assumptions within the assessment of future taxable income of the Parent Company upon
which recognition of deferred tax assets is assessed, including forecast of revenue and
expenses, among others.

The Parent Company continues to monitor the risks and the ongoing impacts of COVID-19
pandemic on its business.

6. Segment Information

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

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

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

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

*SGVFS163038*
- 29 -

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

2021 2020
Revenue P
=17,602,156,229 P25,332,362,889
=
Net loss (23,831,023,785) (21,363,525,812)
Depreciation and amortization (Notes 12 and 33) 14,253,652,425 16,016,853,231
Interest expense (Notes 18, 19 and 33) 2,816,181,340 2,485,031,300
Interest income (Note 7) 34,511,348 107,166,743
Earnings (losses) before interest and taxes (EBIT) (21,755,151,290) (19,605,143,669)
Pre-tax core net loss (24,536,821,282) (21,983,008,226)
Earnings (losses) before interest, taxes, depreciation,
amortization and rent (EBITDAR) (2,641,962,931) 174,578,638
Capital expenditures (Note 12) 5,494,915,577 1,816,179,426
Market valuation losses from derivative financial
instruments – net (Notes 8 and 19) (1,318,117,077) (2,149,932,480)
Income tax benefit (Note 28) (1,733,982,683) (344,025,663)

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

Pre-tax core net income (loss) is the operating income (loss) after deducting net interest expense and
adding dividend income from joint ventures and associates.

EBIT is the operating income (loss) before interest and taxes.

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

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

The reconciliation of the non-PFRS measures to operating income follows:

2021 2020
Revenue (excluding nontransport revenue
and other income) P
=16,040,916,867 P22,440,783,057
=
Expenses (37,796,068,157) (42,045,926,726)
Operating loss/EBIT (21,755,151,290) (19,605,143,669)
Interest expense – net (2,781,669,992) (2,377,864,557)
Pre-tax core net loss (P
=24,536,821,282) (P
=21,983,008,226)

Operating loss (P
=21,755,151,290) (P
=19,605,143,669)
Depreciation and amortization 14,253,652,425 16,016,853,231
Provision for ARO 3,566,104,161 3,132,239,751
Provision for HMV 849,950,290 345,964,168
Aircraft and engine lease expense 443,481,483 284,665,157
EBITDAR (P
=2,641,962,931) =174,578,638
P

*SGVFS163038*
- 30 -

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

2021 2020
Total segment revenue of reportable operating
segment P
=16,040,916,867 =
P22,440,783,057
Nontransport revenue and other income 1,561,239,362 2,891,579,832
Total revenue P
=17,602,156,229 P
=25,332,362,889

Nontransport revenue and other income include interest income, gain from insurance claims, gain
from re-measurement of investment in joint venture, gain on disposal of property and equipment and
foreign exchange gains.

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

2021 2020
Total segment loss of reportable segment (P
=21,755,151,290) (P
=19,605,143,669)
Add (deduct) unallocated items:
Nontransport revenue and other income 1,561,239,362 2,891,579,832
Nontransport expenses and other charges* (5,371,094,540) (4,993,987,638)
Benefit from income tax 1,733,982,683 344,025,663
Net loss (23,831,023,785) (21,363,525,812)
Other comprehensive gain, net of tax 152,773,179 76,760,769
Total comprehensive loss (P
=23,678,250,606) (P
=21,286,765,043)
* Includes foreign exchange losses, interest expense, loss on sale of aircraft and engine, loss from sale of an investment
in joint venture, market valuation losses from derivative financial instruments and impairment loss

The Parent Company’s major revenue-producing asset is the fleet of aircraft owned by the Parent
Company, which is employed across its route network (see Note 12).

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

7. Cash and Cash Equivalents

This account consists of:

2021 2020
Cash on hand P
=49,327,939 =50,959,425
P
Cash in banks 1,945,798,575 1,124,275,976
Short-term placements 15,440,937,559 1,264,635,059
P
=17,436,064,073 =2,439,870,460
P

Cash in banks earns interest at the respective bank deposit rates. Short-term placements, which
represent money market placements, are made for varying periods depending on the immediate cash
requirements of the Parent Company. Short-term placements denominated in Peso earn an average
annual interest of 0.86% and 0.25% in 2021 and 2020, respectively. Moreover, short-term
placements in US dollar (USD) earn interest on an average annual interest rate of 0.13% and 0.22% in

*SGVFS163038*
- 31 -

2021 and 2020, respectively. In 2021, the Parent Company also has outstanding short-term
placements in Korean won (KRW) with an average annual interest rate of 0.15%.

Interest income earned on cash in banks and short-term placements, presented in the parent company
statements of comprehensive income amounted to = P34.5 million and =
P107.2 million in 2021 and
2020, respectively.

Restricted Cash
As of December 31, 2021 and 2020, the Parent Company has restricted cash amounting to
=1,440.6 million and =
P P1,096.4 million, respectively. Restricted cash represents deposits with certain
banks to securitize standby letters of credit issued in favor of lessors (see Note 33).

8. Derivative Financial Assets and Liabilities

This account consists of net derivative financial liabilities as of December 31, 2021 and 2020. Details
follow:

2021 2020
Derivative financial liabilities at FVPL:
Conversion options arising from
convertible bonds (Note 19) P
=1,730,960,768 =–
P
Derivative financial liabilities at FVOCI:
Designated hedges P
=− =32,214,937
P
Not designated hedges − −
P
=− =32,214,937
P

As of December 31, 2021, the derivative financial liabilities at FVPL consist of conversion options
arising from convertible bonds.

As of December 31, 2020, the derivative financial liabilities at FVOCI consist of zero cost collars.

Fuel Derivatives
Designated hedges
The Parent Company enters into zero cost collars and commodity swaps derivative contracts to
manage its exposure to fuel price fluctuations. The notional quantity is the amount of the derivatives’
underlying asset or liability, reference rate or index and is the basis upon which changes in the value
of derivatives are measured. These swaps and collars can be exercised at various calculation dates
with specified quantities on each calculation date. Hedge accounting under PFRS 9 were applied on
instruments with various maturity dates through 2020 until 2021 starting September 1, 2019.

The Parent Company has designated for hedge accounting derivatives with net liability position
amounting to nil and =
P32.2 million as of December 31, 2021 and 2020, respectively.

*SGVFS163038*
- 32 -

Not designated hedges

On March 16, 2020, the Parent Company discontinued, for the first time, application of hedge
accounting on some of its fuel hedges following the suspension of flights in response to government-
imposed enhanced community quarantine over the entire Luzon due to outbreak of COVID-19.

Following the Philippine Government announcing the easing of community quarantine after
March 31, 2020, the Parent Company’s commercial flights during the next six months were either
suspended or significantly reduced leading to lower forecasted fuel and USD-denominated purchases.
With the newly available information, Management reassessed its hedging portfolio requiring
discontinuation of hedge accounting for certain fuel and FX derivatives designated as cash flow
hedges as corresponding hedged items were no longer highly probable and not expected to occur.
Consequently, the related effective portion of the fair value losses recognized in OCI amounting to
=2,250.1 million were immediately recycled from equity to profit or loss for the year ended
P
December 31, 2020.

As of December 31, 2021 and 2020, the Parent Company has no outstanding fuel derivatives treated
as economic hedges.

Foreign Currency Forwards

Designated hedges
The Parent Company enters into foreign currency forwards to manage its exposures to foreign
currency-denominated transactions given global operations. These forwards have various
maturity dates through 2020 which hedge accounting under PFRS 9 were applied beginning
September 1, 2019.

As of December 31, 2021 and 2020, the Parent Company has no outstanding FX derivatives
designated hedge accounting.

Not designated hedges

On March 16, 2020, the Parent Company likewise discontinued, for the first time, hedge accounting
application on some FX forwards because of reduced forecasted fuel purchase following the
suspension of flights in response to government-imposed enhanced community quarantine over the
entire Luzon due to outbreak of COVID-19 and due to unforeseen drop in oil prices.

Following the Philippine Government announcing the easing of community quarantine after
March 31, 2020, the Parent Company’s commercial flights during the next six months were either
suspended or significantly reduced leading to lower forecasted fuel and USD-denominated purchases.
With the newly available information, Management reassessed its hedging portfolio requiring
discontinuation of hedge accounting for certain fuel and FX derivatives designated as cash flow
hedges as corresponding hedged items were no longer highly probable and not expected to occur.
Consequently, the related effective portion of the fair value losses recognized in OCI amounting to
=124.6 million were immediately recycled from equity to profit or loss for the year ended
P
December 31, 2020.

As of December 31, 2021 and 2020, the Parent Company has no outstanding FX derivatives treated as
economic hedges.

*SGVFS163038*
- 33 -

Embedded Derivatives Arising from Convertible Bonds

On May 10, 2021, the Parent Company issued at face value US$250.0 million convertible bonds
(CBs) to the International Finance Corporation (IFC), IFC Emerging Asia Fund LP and Indigo
Philippines LLC (collectively known as “the CB Holders”) due on May 10, 2027. The CBs bear an
interest rate of 4.5% payable semi-annually in arrears on May 10 and November 10 of each year.

The CBs contain conversion and redemption options which were identified as embedded derivatives
and were separated and accounted for separately on issuance date of the CBs (see Note 19).

As of December 31, 2021, the fair value of the embedded derivatives, which is shown as ‘Derivative
financial liabilities at FVPL’ in the Parent Company’s statement of financial position, amounted to
=1,731.0 million (see Note 19). Net market valuation losses recognized by the Parent Company in
P
the 2021 Parent Company’s statement of comprehensive income amounted to = P1,318.1 million.

Movements in the ‘Market valuation losses on derivative financial instruments - net’ account follows
for the years ended December 31, 2021 and 2020:

2021 2020
Embedded derivatives arising convertible bonds
(Note 19)
Net changes in fair value (P
=1,318,117,077) =−
P
Attributable to accounting hedges:
Reclassification adjustment − (2,305,802,659)
Hedge ineffectiveness − 106,030,481
Attributable to economic hedges:
Net changes in fair value − 49,839,698
(P
=1,318,117,077) (P
=2,149,932,480)

As a result of hedge accounting discontinuation in 2020, portion of the losses deferred in the cash
flow hedge reserve have been reclassified to ‘Market valuation losses on derivative financial
instruments – net’ in the Parent Company’s statements of comprehensive income amounting to
=2,193.7 million and =
P P112.1 million from fuel and FX hedges, respectively.

For the year ended December 31, 2020, the Parent Company recognized net loss in fair value of
derivatives amounting to =P2,149.9 million under ‘Market valuation losses on derivative financial
instruments-net’ (nil in 2021).

Fair Value Changes on Derivatives

The changes in fair value of all derivative financial liabilities at fair value through other
comprehensive income follow:

2021 2020
Balance at January 1:
Derivative assets =−
P P149,592,195
=
Derivative liabilities (32,214,937) (275,904,697)
(32,214,937) (126,312,502)
Net changes in fair value of derivatives:
Designated 52,450,201 (2,312,201,654)
Not-designated − (711,742,642)
52,450,201 (3,023,944,296)
20,235,264 (3,150,256,798)
(Forward)

*SGVFS163038*
- 34 -

2021 2020
Fair value of settled instruments:
Designated (P
=20,235,264) =2,312,201,654
P
Not-designated − 805,840,207
(20,235,264) 3,118,041,861
Balance at December 31:
Current − (32,214,937)
Non-current − −
=−
P (P
=32,214,937)
Attributable to:
Derivative assets P−
= =−
P
Derivative liabilities − (32,214,937)
=−
P (P
=32,214,937)

Refer to Note 19 for the changes in fair value of derivative financial liabilities at fair value through
profit or loss.

9. Receivables

This account consists of:

2021 2020
Trade receivables P
=1,231,163,887 =1,267,571,093
P
Due from related parties (Note 28) 845,770,190 637,272,329
Interest receivable 2,372,900 1,184,030
Others 116,030,841 183,741,604
2,195,337,818 2,089,769,056
Less allowance for ECL 169,954,736 107,197,246
P
=2,025,383,082 =1,982,571,810
P

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

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

Others include receivable from insurance, employees and fuel hedge counterparties.

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

2021 2020
Balance at January 1 P
=107,197,246 P7,153,490
=
Provision for expected credit losses 102,532,835 102,043,756
Recovery (35,000,000) (2,000,000)
Write off (4,775,345) –
Balance at December 31 P
=169,954,736 =107,197,246
P

*SGVFS163038*
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10. Expendable Parts, Fuel, Materials and Supplies

This account consists of:

2021 2020
At cost:
Expendable parts P
=1,438,169,147 =1,491,493,357
P
Fuel 270,946,245 337,883,798
Materials and supplies 38,568,072 43,205,845
P
=1,747,683,464 =1,872,583,000
P

As of December 31, 2021 and 2020, the allowance for inventory write- down amounted to
=90.2 million on expendable parts with cost of =
P P90.2 million.

No expendable parts, fuel, material and supplies are pledged as security for liabilities.

The cost of expendable and consumable parts, and materials and supplies recognized as expense
(included under ‘Repairs and maintenance’ account in the Parent Company’s statements of
comprehensive income) for the years ended December 31, 2021 and 2020 amounted to
=446.4 million and =
P P548.4 million, respectively (see Note 25). The cost of fuel reported as expense
under ‘Flying operations’ account amounted to = P4,836.6 million and =
P5,988.7 million in 2021 and
2020, respectively (see Note 25).

11. Other Current Assets

This account consists of:

2021 2020
Current portion of advances to suppliers P
=2,168,844,771 =1,697,528,091
P
Input VAT 298,712,421 366,070,253
Prepaid rent 59,183,328 29,591,664
Prepaid insurance 56,904,488 41,475,155
Others 353,830,742 353,926,104
P
=2,937,475,750 =2,488,591,267
P

Current portion of advances to suppliers include advances to service maintenance provider, service
maintenance for regular maintenance and restoration costs of the aircraft. Advances for regular
maintenance are recouped from progress billings, which occurs within one year from the date the
advances arose, whereas, advance payment for restoration costs is recouped when the expenses for
restoration of aircraft have been incurred. These advances are unsecured and noninterest-bearing (see
Note 33).

Excess of input over output VAT can be applied against the Parent Company’s VAT payable in future
periods.

Prepaid rent pertains to advance rental on aircraft under lease and on office spaces in airports
(see Note 33).

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

Others include housing allowance and prepayments to other suppliers.

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12. Property and Equipment

The composition and movements in this account follow:

2021
EDP
Passenger Ground Equipment,
Aircraft Support Mainframe and Leasehold Transportation
(Notes 18 and 32) Engines Rotables Equipment Peripherals Improvements Equipment Sub-total
Cost
Balance at January 1, 2021 29,879,013,292 15,082,020,625 6,579,826,541 1,515,231,908 1,260,598,560 1,914,954,604 493,446,329 56,725,091,859
Additions 232,317,870 93,790,267 180,270,422 20,579,976 25,511,619 − − 552,470,154
Reclassification 283,205,860 − − − 10,520,525 67,611,627 − 361,338,012
Disposals/others (958,411,246) (2,636,775,875) (296,667,267) (89,417,547) − − (35,583,912) (4,016,855,847)
Balance at December 31, 2021 29,436,125,776 12,539,035,017 6,463,429,696 1,446,394,337 1,296,630,704 1,982,566,231 457,862,417 53,622,044,178
Accumulated Depreciation and Amortization
Balance at January 1, 2021 15,377,206,647 1,980,777,854 1,836,740,783 941,184,425 1,153,683,016 1,039,228,474 345,533,629 22,674,354,828
Depreciation and amortization 2,303,651,214 1,630,403,684 425,012,713 193,052,131 70,777,542 151,447,173 53,798,925 4,828,143,382
Reclassification − − − − − − − −
Disposals/others (898,400,460) (2,578,728,822) (269,117,992) (67,396,132) − − (33,943,027) (3,847,586,433)
Balance at December 31, 2021 16,782,457,401 1,032,452,716 1,992,635,504 1,066,840,424 1,224,460,558 1,190,675,647 365,389,527 23,654,911,777
Net Book Values = 12,653,668,375
P = 11,506,582,301
P = 4,470,794,192
P = 379,553,913
P = 72,170,146
P = 791,890,584
P = 92,472,890
P = 29,967,132,401
P

2021
Furniture, Maintenance
Fixtures and Office Communication Special and Test Other Construction
Equipment Equipment Tools Equipment Equipment in-Progress Total
Cost
Balance at January 1, 2021 323,177,355 33,899,255 17,953,976 6,529,598 252,254,126 16,304,443,742 73,663,349,911
Additions 7,031,477 − − 2,830,721 4,726,923 4,927,959,428 5,495,018,703
Reclassification (Note 33) − − − − − (361,338,012) −
Disposals/others (21,241) − − − (109,230) (6,163,123,001) (10,180,109,319)
Balance at December 31, 2021 330,187,591 33,899,255 17,953,976 9,360,319 256,871,819 14,707,942,157 68,978,259,295
Accumulated Depreciation and Amortization
Balance at January 1, 2021 251,552,084 29,433,736 16,252,733 6,511,684 148,894,786 − 23,126,999,851
Depreciation and amortization 31,516,875 2,485,660 698,444 436,287 32,595,060 − 4,895,875,708
Reclassification − − − − − − −
Disposals/others (21,241) − − − (75,267) − (3,847,682,941)
Balance at December 31, 2021 283,047,718 31,919,396 16,951,177 6,947,971 181,414,579 − 24,175,192,618
Net Book Values = 47,139,873
P = 1,979,859
P = 1,002,799
P = 2,412,348
P = 75,457,240
P = 14,707,942,157
P = 44,803,066,677
P

*SGVFS163038*
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2020
EDP
Passenger Ground Equipment,
Aircraft Support Mainframe and Leasehold Transportation
(Notes 18 and 32) Engines Rotables Equipment Peripherals Improvements Equipment Sub-total
Cost
Balance at January 1, 2020 =43,183,932,832
P =9,956,975,780
P =5,720,058,737
P =1,378,275,384
P =1,225,906,475
P =1,698,981,717
P =472,414,922
P =63,636,545,847
P
Additions 70,342,926 848,015,201 188,035,019 162,582,780 27,227,846 − 37,914,443 1,334,118,215
Reclassification (8,184,061,239) 7,514,085,558 671,732,785 − 15,318,874 215,972,887 − 233,048,865
Disposals/others (5,191,201,227) (3,237,055,914) − (25,626,256) (7,854,635) − (16,883,036) (8,478,621,068)
Balance at December 31, 2020 29,879,013,292 15,082,020,625 6,579,826,541 1,515,231,908 1,260,598,560 1,914,954,604 493,446,329 56,725,091,859
Accumulated Depreciation and Amortization
Balance at January 1, 2020 13,722,340,913 3,532,877,987 1,518,888,232 762,190,361 1,044,536,460 920,666,352 296,099,239 21,797,599,544
Depreciation and amortization 4,947,039,317 299,213,776 317,852,551 204,117,911 115,988,655 118,562,122 62,153,721 6,064,928,053
Reclassification − − − − − − − −
Disposals/others (3,292,173,583) (1,851,313,909) − (25,123,847) (6,842,099) − (12,719,331) (5,188,172,769)
Balance at December 31, 2020 15,377,206,647 1,980,777,854 1,836,740,783 941,184,425 1,153,683,016 1,039,228,474 345,533,629 22,674,354,828
Net Book Values =14,501,806,645
P =13,101,242,771
P =4,743,085,758
P =574,047,483
P =106,915,544
P =875,726,130
P =147,912,700
P =34,050,737,031
P

2020
Furniture, Maintenance
Fixtures and Office Communication Special and Test Other Construction
Equipment Equipment Tools Equipment Equipment in-Progress Total
Cost
Balance at January 1, 2020 =317,574,333
P =33,899,255
P =17,702,669
P =6,529,598
P =246,736,695
P =17,825,274,707
P =82,084,263,104
P
Additions 5,999,998 − 267,857 − 6,535,270 469,258,086 1,816,179,426
Reclassification (Note 33) − − − − − (706,349,955) (473,301,090)
Disposals/others (396,976) − (16,550) − (1,017,839) (1,283,739,096) (9,763,791,529)
Balance at December 31, 2020 323,177,355 33,899,255 17,953,976 6,529,598 252,254,126 16,304,443,742 73,663,349,911
Accumulated Depreciation and Amortization
Balance at January 1, 2020 213,002,123 25,354,637 14,945,829 6,484,626 117,396,520 − 22,174,783,279
Depreciation and amortization 38,946,937 4,079,099 1,318,090 27,058 32,185,932 − 6,141,485,169
Reclassification − − − − − − −
Disposals/others (396,976) − (11,186) − (687,666) − (5,189,268,597)
Balance at December 31, 2020 251,552,084 29,433,736 16,252,733 6,511,684 148,894,786 − 23,126,999,851
Net Book Values =71,625,271
P =4,465,519
P =1,701,243
P =17,914
P =103,359,340
P =16,304,443,742
P =50,536,350,060
P

*SGVFS163038*
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Passenger Aircraft and Engines Held as Securing Assets Under Finance Lease Agreements
The Parent Company entered into various Export Credit Agency (ECA) and commercial loan
facilities to finance the purchase of its aircraft and engines. As of December 31, 2021 and 2020, the
Parent Company’s passenger aircraft and engines held as securing assets under various commercial
loans are as follows:

2021 2020
Airbus A320 CEO 5 17
ATR 72-600 12 12
Airbus A321 CEO 7 7
Airbus A321 NEO 6 6
Airbus A330 CEO 2 2
32 44

Under the terms of the commercial loan facilities (see Note 18), upon the event of default, the
outstanding amount of loan (including accrued interest) will be payable by the SPEs. Under the terms
of commercial loan facilities from local banks, upon event of default, the outstanding amount of loan
will be payable, including interest accrued by the Parent Company. Failure to pay the obligation will
allow the respective lenders to foreclose the securing assets.

As of December 31, 2021 and 2020, the carrying amounts of the securing assets (included under the
‘Property and equipment’ account) amounted to P
=49.8 billion and =
P64.5 billion, respectively.

Forward Sale Agreement

In September and October 2020, the Parent Company sold eight (8) CFM56 engines as part of a sale
and leaseback transaction with SMBC Aero Engine Lease B.V. The lease portion is an arrangement
of short- and long-term leases between 18 months to eight (8) years, respectively. The sale portion
resulted to a gain of =
P152.9 million.

In November 2020, the Parent Company sold five (5) A320 aircraft as part of a sale and leaseback
transaction with EOS Aviation 6 (Ireland) Limited. The lease portion is an arrangement of leases
ranging between three (3) to four (4) years. The sale portion resulted to a loss of =
P412.9 million.

In December 2021, the Parent Company entered into a sale and leaseback agreement with Avolon
Leasing Ireland 3 Limited, Vmo Aircraft Leasing 32 (Ireland) Limited and Vmo Aicraft Leasing 33
(Ireland) Limited for seven (7) A320 aircraft. The lease portion consists of leases between three (3)
to five (5) years. The sale portion resulted to a gain of =
P1,388.7 million.

Proceeds from sale of property and equipment for the year ended December 31, 2021 and 2020
amounted to =
P10,705.9 million and P=7,336.3 million, respectively.

Gain from insurance claims

On various dates in 2021, the Parent Company received P138.0 million pertaining to insurance
proceeds claimed for several loss events involving three (3) ATRs, one (1) A320 and one (1) A330
which occurred in 2019 and 2018. In September 2020, the Parent Company received = P807.4 million
pertaining to insurance proceeds claimed for damages sustained by an A320 aircraft during a runway
excursion incident at Iloilo International Airport last October 2017. This is recorded as “Gain from
insurance claims” in the Parent Company’s statements of comprehensive income.

*SGVFS163038*
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Operating Fleet
As of December 31, 2021 and 2020, the Parent Company’s operating fleet follows:

2021 2020
Leased aircraft:
Airbus A320 CEO 18 22
Airbus A321 CEO 7 7
Airbus A330 CEO 4 6
Airbus A330 NEO 2 –
Airbus A321 NEO 9 7
Airbus A320 NEO 6 5
ATR 72-600 2 1
Owned aircraft:
ATR 72-600 12 12
ATR 72-500 8 8
Airbus A320 CEO 4 4
Airbus A330 CEO 2 2
74 74

Construction in-progress represents the cost of airframe and engine construction in-progress and
buildings and improvements and other ground property under construction. Construction in-progress
is not depreciated until such time when the relevant assets are completed and available for use. As of
December 31, 2021 and 2020, the Parent Company’s capitalized pre-delivery payments as
construction in-progress amounted to P=14,692.4 million and = P16,279.5 million, respectively
(see Note 33).

As of December 31, 2021 and 2020, the gross amount of fully depreciated property and equipment
which are still in use by the Parent Company amounted to =
P2,972.2 million and =
P2,408.0 million,
respectively.

As of December 31, 2021 and 2020, the Parent Company has six (6) and fifteen (15) aircraft parked
for storage, respectively, at Asia Pacific Aircraft Storage in Alice Springs, Australia as part of its
cost-cutting measures amid the COVID-19 pandemic.

13. Investment in Subsidiaries

This account consists of investments in the following entities:

2021 2020
CEBGO P
=265,109,147 =265,109,147
P
Aplus 549,940,849 549,940,849
P
=815,049,996 =815,049,996
P

Investment in CEBGO
As part of the strategic alliance between the Parent Company and Tiger Airways Holding Limited
(TAH), on February 10, 2014, the Parent Company signed a Sale and Purchase Agreement (SPA) to
acquire 100% of CEBGO, Inc. Under the terms of the SPA, closing of the transaction is subject to
the satisfaction or waiver of each of the conditions contained in the SPA. On March 20, 2014, all the
conditions precedent has been satisfactorily completed. The Parent Company has paid the purchase
price covering the transfer of shares from TAH. In the final agreement dated February 24, 2015, it

*SGVFS163038*
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was reaffirmed that the sale and purchase transaction contemplated under the SPA closed on
March 20, 2014. Consequently, the Parent Company gained control of CEBGO on the same date.
The total consideration for the transaction, at post-closing settlement date, amounted to
=265.1 million. CEBGO is a corporation incorporated in the Philippines.
P

Financial information of CEBGO as of December 31, 2021 and 2020 are as follows:

2021 2020
Total assets P
=4,677,572,998 =P5,614,884,637
Total liabilities 5,281,057,217 5,176,515,091
Net loss (1,056,225,871) (777,646,632)

Investment in A-Plus
On October 26, 2020, the Parent Company signed an SPA with SIA Engineering Company Limited
(SIAEC) for the acquisition of SIAEC’s entire 51% shareholding in A-Plus. The consideration paid
was US$5,607,378 and consists of a one-time payment in cash. The consideration was arrived at
after arm’s length negotiations on a willing-buyer, willing-seller basis and took into account, inter
alia, the net asset value and financial performance of A-Plus. On November 3, 2020, the Parent
Company and SIAEC has signed the Deed of Absolute Sale of Shares for this transaction making A-
Plus a wholly owned subsidiary of the Parent Company. The acquisition is in line with Parent
Company’s overall strategy to more closely align its line maintenance operations and strategic
objectives with its network and service requirements, for significant operational efficiencies and
optimization of resources for an even stronger competitive advantage. A-Plus is a corporation
incorporated in the Philippines.

Financial information of A-Plus as of December 31, 2021 and 2020 are as follows:

2021 2020
Total assets P
=616,078,470 =641,014,941
P
Total liabilities 260,148,998 252,725,651
Net loss (40,328,415) (99,310,413)

Investment in subsidiaries is accounted for under the cost method of accounting. As of

December 31, 2021 and 2020, there was no dividend declaration made by the subsidiaries and no
impairment loss was recognized.

14. Investments in Joint Ventures and Associates

Investments in Joint Ventures

The Parent Company has investments in joint arrangements as follows:

Investment in PAAT
Investment in PAAT pertains to the Parent Company’s 60% investment in shares of the joint venture.
However, the joint venture agreement between the Parent Company and CAE International Holdings
Limited (CAE) states that the Parent Company is entitled to 50% share on the net income/loss of
PAAT.

*SGVFS163038*
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PAAT was created to address the Parent Company’s training requirements and to pursue business
opportunities for training third parties in the commercial fixed wing aviation industry, including other
local and international airline companies. PAAT was formally incorporated in the Philippines on
January 27, 2012 and started commercial operations in December 2012.

Investment in 1Aviation
Investment in 1Aviation refers to the Parent Company’s 40% investment in shares of the joint
venture. The joint venture agreement indicates that the agreed ownership ratio is 40% for the Parent
Company and the remaining 60% shall be collectively owned by PAGSS and an individual.

1Aviation is engaged in the business of providing groundhandling services for all types of aircraft,
whether for the transport of passengers or cargo, international or domestic flights, private.
Commercial, government or military purposes to be performed at the Ninoy Aquino International
Airport and other airports in the Philippines as may be agreed by the co-venturers.

Investment in A-Plus and SIAEP

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

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

Acquisition of Shares held by SIAEC in A-Plus

On October 26, 2020, the Parent Company signed a Sale and Purchase Agreement (SPA) with SIA
Engineering Company Limited (SIAEC) for the acquisition of SIAEC’s entire 51% shareholding in
A-Plus. The consideration paid was US$5,607,378 (P =270,499,915) and consists of a one-time
payment in cash. The consideration was arrived at after arm’s length negotiations on a willing-buyer,
willing-seller basis and took into account, inter alia, the net asset value and financial performance of
A-Plus. The acquisition of A-Plus is in line with the Parent Company’s overall strategy to more
closely align its line maintenance operations and strategic objectives with its network and service
requirements, for significant operational efficiencies and optimization of resources for an even
stronger competitive advantage.

On November 3, 2020, the Parent Company and SIAEC has signed the Deed of Absolute Sale of
Shares for this transaction making A-Plus a wholly owned subsidiary of the Parent Company
(see Note 13).

The fair value of the Parent Company’s 49% interest in A-Plus immediately prior to acquisition is
amounted to =P269.5 million. The Parent Company recognized P =182.5 million gain from re-
measurement of its investment in A-Plus at fair value immediately prior to acquisition. This is
included under ‘Gain from re-measurement of investment in joint venture’ in the 2020 Parent
Company’s statement of comprehensive income.

*SGVFS163038*
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Sale of Shares held by the Parent Company in SIAEP

On October 26, 2020, the Parent Company also entered into an SPA with SIAEC to divest the Parent
Company’s 35% shareholding in SIAEP. This divestment is in line with the Parent Company’s
strategy to streamline its fleet management and rationalize its aircraft base maintenance, repair and
overhaul offerings to optimize its operational efficiency and further strengthen its core competencies.
The consideration received was US$7,740,000 (P =373,377,600) via a one-time cash receipt. The
consideration was arrived at after arm’s length negotiations on a willing-buyer, willing-seller basis
and took into account, inter alia, the net asset value and financial performance of SIAEP. On
November 3, 2020, the Parent Company and SIAEC has signed the Deed of Absolute Sale of Shares
for this transaction, thus, the Parent Company no longer has any equity interest in SIAEP.

Investment in Associates
The Parent Company has investments in associates as follows:

Investment in DAVI
Investment in DAVI refers to the Parent Company’s 40% investment in shares of the joint venture.
DAVI is a data services firm which aims to create a digital rewards program and a robust data
infrastructure and analytics enterprise to empower the conglomerate’s consumer-oriented businesses.

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

In November 2016, the Parent Company acquired shares of stock in ABB amounting to
=43.7 million. ABB is an entity incorporated in Singapore in 2016 to manage the ABB settlement
P
system, which facilitates the settlement of sales proceeds between the issuing and carrying airlines,
and of the transaction fee due to ABB. On April 30, 2021, ABB changed its name to Value Alliance
Travel System Pte. Ltd. (VATS). The Parent Company has 13% shareholding in VATS. The Parent
Company has assessed that it has significant influence over VATS through its representation in the
BOD and participation in the policy-making process of VATS. Accordingly, the investment was
classified as an investment in an associate and is accounted for at cost method in the Parent
Company’s financial statements.

In 2021, the Parent Company assessed that its investment in VATS was impaired. VATS has
incurred operating losses since it started its operations and is currently on a capital deficiency. The
target growth turned significantly lower than actual, and expectation has also been further tempered
due to the impact of the ongoing COVID-19 pandemic. On this basis and following the key
requirements of PAS 36, Impairment of Assets wherein assets can be carried at no more than their
recoverable amount, the Parent Company has recognized impairment provisions of = P43.7 million. As
of December 31, 2021 and 2020, the net carrying amount of the Parent Company’s investment with
VATS amounted to nil and = P43.7 million, respectively.

*SGVFS163038*
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The movements in the carrying values of the Parent Company’s investments in joint ventures and associates follow:

2021
Investment in joint ventures Investment in associates
PAAT 1Aviation Subtotal VATS DAVI Subtotal Total
Cost
Balance at January 1 and December 31, 2021 P
=134,873,645 P
=46,000,000 P
=180,873,645 P
=43,713,922 P=432,000,000 P
=475,713,922 P =656,587,567
Allowance for impairment loss – – – (43,713,922) – (43,713,922) (43,713,922)
Net Book Value P
=134,873,645 P
=46,000,000 P
=180,873,645 P
=– P=432,000,000 P
=432,000,000 P =612,873,645

2020
Investment in joint ventures Investment in associates
A-plus SIAEP PAAT 1Aviation Subtotal ABB DAVI Subtotal Total
Cost
Balances at January 1, 2020 =87,012,572 P
P =486,168,900 P
=134,873,645 =46,000,000
P =754,055,117
P =43,713,922
P P240,000,000
= P283,713,922 =
= P1,037,769,039
Investment during the year − − − − − ‒ 192,000,000 192,000,000 192,000,000
Acquisition of controlling interest (87,012,572) − − − (87,012,572) − − − (87,012,572)
Divestment − (486,168,900) − − (486,168,900) − − − (486,168,900)
Balance at December 31, 2020 =−
P =− P
P =134,873,645 =46,000,000
P =180,873,645
P =43,713,922
P =432,000,000
P =475,713,922 P
P =656,587,567

*SGVFS163038*
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The Parent Company’s equity in the net assets with PAAT, 1Aviation, VATS/ABB and DAVI is
summarized below:

2021 2020
PAAT P
=187,445,396 =218,843,108
P
1Aviation − −
VATS/ABB − 43,713,922
DAVI 147,723,844 283,959,036

Selected financial information of PAAT, 1Aviation, and DAVI as of December 31, 2021 follow:

PAAT 1Aviation DAVI

Total current assets P156,947,495
= P167,298,602
= P964,868,491
=
Noncurrent assets 1,647,289,562 121,643,565 364,137,572
Current liabilities (229,674,092) (646,948,130) (926,354,652)
Noncurrent liabilities (1,199,672,174) (11,333,621) (33,341,798)
Equity (Capital Deficiency) 374,890,791 (369,339,584) 369,309,613
Proportion of the Parent Company’s
ownership 50% 40% 40%
Carrying amount of the investments =187,445,396
P =−
P =147,723,844
P

Cash and cash equivalents =69,815,784

P =32,586,368
P =485,150,563
P
Current financial liabilities
(excluding trade and other
payables and provisions) 172,992,779 582,199,863 62,051
Non-current financial liabilities
(excluding trade and
other payables and provisions) 1,199,672,174 11,333,621 33,341,798

Selected financial information of PAAT, 1Aviation, and DAVI as of December 31, 2020 follow:

PAAT 1Aviation DAVI

Total current assets P105,066,249
= =199,140,441
P P562,826,247
=
Noncurrent assets 1,657,022,957 80,945,674 748,282,492
Current liabilities (135,745,273) (566,852,023) (247,238,375)
Noncurrent liabilities (1,188,657,718) − (353,972,773)
Equity (Capital Deficiency) 437,686,215 (286,765,908) 709,897,591
Proportion of the Parent Company’s
ownership 50% 40% 40%
Carrying amount of the investments =218,843,108
P =−
P =283,959,036
P

Cash and cash equivalents =14,864,751

P =36,480,896
P =141,792,919
P
Current financial liabilities
(excluding trade and other
payables and provisions) 49,925,335 597,156,157 224,060
Non-current financial liabilities
(excluding trade and
other payables and provisions) 1,269,770,524 − 43,751,726

*SGVFS163038*
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Summary of statements of comprehensive income of A-Plus, SIAEP, PAAT, 1Aviation and DAVI for
the year ended December 31 follow:

2021
PAAT 1Aviation DAVI
Revenue P
= 129,751,154 P
= 565,709,774 P
= 199,605,698
Expenses (159,693,379) (694,404,393) (541,345,264)
Other income (charges) (32,844,097) 266,987 1,547,883
Income (loss) before tax (62,786,322) (128,427,632) (340,191,683)
Income tax expense 9,102 − 396,297
Net loss (P
= 62,795,424) (P
= 128,427,632) (P
= 340,587,980)
Parent Company’s share of net loss for the year (P
= 31,397,712) (P
= 51,371,053) (P
= 136,235,192)

Depreciation and amortization 99,539,336 28,963,841 152,179,014

Interest income (35,684,066) − (2,835,229)
Interest expense 2,718 5,218 1,985,056

2020
A-plus SIAEP PAAT 1Aviation DAVI
Revenue =469,921,712
P =659,739,796
P =181,443,236
P P314,870,394
= P150,866,846
=
Expenses (580,274,071) (974,295,023) (175,746,566) (471,721,133) (402,112,270)
Other income (charges) (24,826,668) (19,047,430) (40,981,420) 55,820 3,441,775
Income (loss) before tax (135,179,027) (333,602,657) (35,284,750) (156,794,919) (247,803,649)
Income tax expense (34,579,457) 3,338,957 2,398,939 (80,149,164) 675,300
Net loss (P
=100,599,570) (P
=336,941,614) (P
=37,683,689) (P
=76,645,755) (P
=248,478,949)
Parent Company’s share of net loss
for the year (P
=49,293,789) (P
=117,929,565) (P
=18,841,845) (P
=30,658,302) (P
=99,391,580)

Depreciation and amortization =41,178,748

P =144,891,643
P =97,883,648
P =5,505,953
P =49,795,042
P
Interest income (1,105,439) 7,602,686 (403,489) (2,085) (3,377,205)
Interest expense 4,529,977 120,204 23,987,440 − 3,536,794

The fiscal year-end of A-plus and SIAEP is every March 31 while that of PAAT, 1Aviation, VATS
and DAVI is every December 31.

As of the December 31, 2021 and 2020, the share of the Parent Company in PAAT’s accumulated
income amounted to =
P52.6 million and =
P84.0 million, respectively.

The share of the Parent Company in DAVI’s accumulated losses amounted to P

=284.3 million and
=148.0 million as of December 31, 2021 and 2020, respectively.
P

The share of the Parent Company in the accumulated losses recognized by VATS amounted to
=6.8 million and nil as of December 31, 2021 and 2020, respectively.
P

The share of the Parent Company in 1Aviation’s accumulated losses amounted to =

P46.0 million.

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15. Other Noncurrent Assets

This account consists of:

2021 2020
Refundable deposits P
=1,191,665,074 =626,806,386
P
Receivables – net of current portion 372,256,307 408,574,002
Advances to suppliers – net of current portion − 2,453,580,099
Others 354,981,791 246,892,355
P
=1,918,903,172 =3,735,852,842
P

Refundable deposits mostly refer to the amount provided to lessors and maintenance providers and
other deposits to be applied against payments for future aircraft deliveries.

Noncurrent receivables pertain to training costs paid by the Parent Company for its “study-now, pay-
later” Cadet Pilot Program.

Noncurrent portion of advances to suppliers refers to advances made for the purchase of various
aircraft parts, service maintenance for regular maintenance and restoration costs of the aircraft which
are expected to be consumed beyond one year from the reporting date.

Others include commitment fees provided to aircraft manufacturer of A321 NEO to be capitalized as
part of the cost of A321 NEO upon delivery.

16. Accounts Payable and Other Accrued Liabilities

This account consists of:

2021 2020
Accounts payable P
=3,197,563,055 P=2,793,791,549
Accrued expenses 5,567,330,874 4,875,556,049
Travel fund payable (Note 21) 2,802,831,614 103,168,471
Airport and other related fees payable 2,273,188,419 2,161,307,134
Advances from agents and others 501,063,718 774,380,574
Accrued interest payable 210,336,365 192,228,077
Refunds payable 116,777,006 1,430,028,429
Other payables 72,933,001 44,590,495
P
=14,742,024,052 =
P12,375,050,778

Accrued Expenses
The Parent Company’s accrued expenses include accruals for:

2021 2020
Maintenance P
=3,324,374,341 =2,443,943,302
P
Compensation and benefits 445,897,091 481,491,266
Navigational charges 393,853,610 238,762,948
Repairs and services 383,317,656 440,842,776

(Forward)

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2021 2020
Advertising and promotion P
=319,091,123 =658,960,128
P
Ground handling charges 140,852,867 42,996,264
Rent (Note 33) 140,170,477 76,944,200
Professional fees 89,819,421 141,700,643
Aircraft insurance 72,854,954 89,640,577
Training costs 10,244,958 75,897,257
Reservation costs 6,619,666 56,589,365
Catering supplies 4,251,397 3,493,253
Others 235,983,313 124,294,070
P
=5,567,330,874 =4,875,556,049
P

Others represent accrual of security, utilities and other expenses.

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

Airport and Other Related Fees Payable

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

Advances from Agents and Others

Advances from agents and others represent cash bonds required from major sales and ticket offices or
agents.

Accrued Interest Payable

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

Refunds payable
In light of the significant increase in flight cancellations due to the COVID-19 outbreak and
consequent grounding of the Parent Company’s commercial operations, customers were given options
for their cancelled flights, which included free rebooking, full cash refund, or conversion to a full
travel fund. Refunds payable pertain to cash due to be returned to customers.

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

*SGVFS163038*
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17. Unearned Transportation Revenue

This account consists of:

2021 2020
Unearned transportation revenue P
=3,448,916,513 =2,880,008,533
P
Deferred ancillary revenue 354,961,698 143,634,989
P
=3,803,878,211 =3,023,643,522
P

18. Long-term and Short-term Debt

Long-term Debt

Philippine Peso Loans

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

In 2018, the Parent Company entered into Philippine peso commercial loan facilities to partially finance
the acquisition of four ATR 72-600 aircraft and refinance four Airbus A320 aircraft.

The long-term debt rollforward is presented as follows:

2021 2020
Balances at January 1 P
=20,179,125,092 P=18,249,257,900
Availments − 4,000,000,000
Payments (1,333,333,333) (2,070,132,808)
Balances at December 31 P
=18,845,791,759 P=20,179,125,092

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

2021 2020
Current portion of long-term debt P
=1,333,333,333 P=1,333,333,321
Noncurrent portion of long-term debt 17,512,458,426 18,845,791,771
P
=18,845,791,759 =
P20,179,125,092

The terms of the commercial loan facilities follow:

 Term of seven to ten years starting from the delivery dates of each aircraft.
 Twenty eight to forty equal consecutive principal repayments made on a quarterly basis.
 Interests on loans are variable rates based on Philippine Bloomberg Valuation (PH BVAL).
 Upon default, the outstanding amount of loan plus accrued interest will be payable, and the lenders
will foreclose on secured assets, namely the aircraft.

In 2020, the Parent Company entered into an unsecured, Philippine peso-denominated short-term loan
amounting to =P4.0 billion with Security Bank Corporation due in 2023. The loan was obtained to
support the working capital requirements of the Parent Company. The Parent Company is required to
maintain certain financial ratios until termination of loans. As of December 31, 2021, the Parent
Company obtained a waiver from the bank in relation to debt service coverage ratio requirement.
Accordingly, the related loan is classified as non-current as at December 31, 2021. As of
December 31, 2020, the Parent Company is not in breach of any loan covenants.

*SGVFS163038*
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As of December 31, 2021 and 2020, the total outstanding balance of peso commercial loans
amounted to =
P18,845.8 million and P=20,179.1 million, respectively. Interest expense amounted to
=1,078.3 million and =
P P807.4 million in 2021 and 2020, respectively.

Short-term Debt
On October 29, 2020, the Parent Company entered into a = P4,839.6 million (US$100.0 million)
unsecured promissory note with JG Summit Philippines, Limited (JGSPL), a subsidiary of JGSHI, the
Parent Company’s ultimate parent, bearing interest at the rate of 5% per annum until maturity date on
April 29, 2021.

On February 18, 2021, March 1, 2021 and March 4, 2021, the Parent Company entered into
unsecured promissory notes with JGSPL totaling to = P4,234.1 million (US$87.5 million) bearing
interest at the rate of 5% per annum until maturity date on August 18, 2021. The promissory note has
been amended to extend the maturity date to October 18, 2022 and to set the payment of interest on a
semi-annual basis starting October 18, 2021.

The proceeds from these promissory notes will be used for the Parent Company’s working capital
requirements. Interest expense incurred from these notes amounted to =P287.8 million and
=41.4 million in 2021, and 2020, respectively.
P

The short-term debt rollforward is presented as follows:

2021 2020
Philippine Peso Philippine Peso
US Dollar Equivalent US Dollar Equivalent
Balances at January 1 US$100,000,000 P
=4,802,300,000 US$− =−
P
Availments 87,500,000 4,234,107,500 100,000,000 4,839,600,000
Payments (100,000,000) (4,791,800,000) − −
87,500,000 4,244,607,500 100,000,000 4,839,600,000
Unrealized foreign exchange loss (gain) − 217,805,000 − (37,300,000)
Balances at December 31 US$87,500,000 P
=4,462,412,500 US$100,000,000 =4,802,300,000
P

Syndicated Term Loan

On March 5, 2021, the Parent Company signed on a = P16.0 billion Ten-Year Term Loan Facility
Agreement with the following domestic banks: Development Bank of the Philippines, Land Bank of
the Philippines, Asia United Bank Corporation-Trust and Investments Group, BPI Capital
Corporation, Metropolitan Bank and Trust Company and Union Bank of the Philippines. The
proceeds of the loan will be used by the Parent Company to fund its capital expenditures and other
general corporate purposes. As of December 31, 2021, no drawdown has been made yet on the said
facility.

19. Bonds Payable

On May 10, 2021, the Parent Company issued at face value US$250.0 million convertible bonds
(CBs) to the International Finance Corporation (IFC), IFC Emerging Asia Fund LP and Indigo
Philippines LLC (collectively known as “the CB Holders”) due on May 10, 2027. The bonds bear an
interest rate of 4.5% payable semi-annually in arrears on May 10 and November 10 of each year.

The CBs have a conversion option features which entitles the CB Holders to convert any or all of the
outstanding CBs that they hold for the Parent Company’s common shares at any time within the
conversion period which shall begin 40 days after the issue date of the CB and shall end 20 business
days before the maturity date. The price at which the common shares will be issued upon conversion

*SGVFS163038*
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will initially be at =
P38.00 per share, as translated to U.S. Dollars at the fixed exchange rate of
USD$1.00 = = P48.45 and subject to any adjustments from time to time in accordance with the
adjustment provisions included in the terms and conditions of the CBs. None of the CB Holders have
exercised their conversion option as of December 31, 2021. The CBs also have an optional
redemption features which give the CB Holders the option to require the Parent Company to redeem
the CBs upon the occurrence of any of the early redemption and regulatory events as specified in the
terms of the CBs.

The CBs were assessed to be a hybrid instrument containing a host financial liability component and
embedded derivative components for the equity conversion and redemption options. The embedded
derivatives were separated from the CBs and accounted for as a single compound derivative on the
issuance date of the CBs.

In subsequent periods, the host financial liability component of CBs will be carried at amortized cost
using the EIR method. Interest expense recognized from the CBs, which is included under ‘Interest
expense’ in the Parent Company’s statement of comprehensive income, amounted to = P415.7 million.

The fair value at initial recognition and carrying amount as at December 31, 2021 of the host financial
liability component of the CBs are presented below:

In
In US Dollar Philippine Peso
Issue price of bonds payable US$250,000,000 P=11,955,500,000
Bond issue cost (3,571,242) (173,026,665)
Net proceeds 246,428,758 11,782,473,335
Less: Fair value of embedded derivative liability at initial
recognition (Note 8) (8,632,924) (412,843,691)
Initial carrying amount of bonds payable 237,795,834 11,369,629,644
Unrealized foreign exchange loss – 759,069,399
Bond amortization 1,127,206 56,137,083
Carrying value of bonds payable US$238,923,040 P
=12,184,836,126

The bifurcated embedded derivatives have an initial fair value of P =412.8 million and is presented as
‘Derivative financial liabilities at fair value through profit or loss’ in the 2021 Parent Company’s
statement of financial position. These bifurcated derivatives are subsequently remeasured at fair
value. Any gains or losses arising from changes in fair value are taken directly to profit or loss for
the year.

The changes in the fair value in 2021 of the derivative liabilities at FVPL follows:

In
In US Dollar Philippine Peso
Fair value at initial recognition US$8,632,924 P
=412,843,691
Market valuation losses 25,308,149 1,318,117,077
Carrying value of embedded derivative liability US$33,941,073 P
=1,730,960,768

The fair value of the embedded derivatives was determined by the Parent Company using the Jarrow-
Rudd model.

*SGVFS163038*
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The inputs used for the calculation of fair value as of specific valuation date are as follows:

December 31,
2021
Stock price P
=42.15
Risk free rate 1.29%
Conversion price P
=38.00
Term 5.9 years
Volatility 47.27%

20. Other Noncurrent Liabilities

This account consists of:

2021 2020
Asset retirement obligation (ARO) P
=7,084,719,291 =6,538,951,652
P
Heavy maintenance visits (HMV) 1,082,628,412 345,964,168
Deferred revenue on rewards program − 1,001,153,796
P
=8,167,347,703 =7,886,069,616
P

Asset Retirement Obligation (ARO)

The Parent Company is contractually required under various lease contracts to restore certain leased
aircraft to its original condition at its own cost or to bear a proportionate cost of restoration at the end
of the contract period. These costs are accrued based on estimates made by the Parent Company’s
engineers, which include estimates of future aircraft utilization and certain redelivery costs at the end
of the lease period.

The rollforward analysis of the Parent Company’s ARO follows:

2021 2020
Balance at beginning of year P
=6,538,951,651 =P5,942,401,452
Provision for return cost 3,566,104,161 3,132,239,751
Applications during the year (3,020,336,521) (2,535,689,551)
Balance at end of year P
=7,084,719,291 P=6,538,951,652

In 2021 and 2020, ARO expenses included as part of ‘Repairs and maintenance’ amounted to
=3,566.1 million and =
P P3,132.2 million, respectively (see Note 25).

Heavy Maintenance Visits (HMV)

The Parent Company is contractually required under various lease contracts to undertake the
maintenance and overhaul of certain leased aircraft throughout the contract period. Major
maintenance events are required to be performed on a regular basis based on historical or industry
experience and manufacturer’s advise. Estimated costs of major maintenance events are accrued and
charged to profit or loss over the estimated period between overhauls as the leased aircraft is utilized.

*SGVFS163038*
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The rollforward analysis of the Parent Company’s HMV follow:

2021 2020
Balance at beginning of year P
=345,964,168 =−
P
Provision for HMV 849,950,290 345,964,168
Applications (113,286,046) −
Balance at end of year P
=1,082,628,412 =345,964,168
P

In 2021 and 2020, HMV expenses included as part of ‘Repairs and maintenance’ amounted
=850.0 million and =
P P346.0 million, respectively (see Note 25).

Deferred Revenue on Rewards Program

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

Starting January 1, 2020, the management and ownership of the Getgo points issued in 2020 has been
transferred to DAVI. As such, all revenue and expenses in relation to the Getgo points issued in 2020
will be recognized by DAVI. The Parent Company accounts for such issued and redeemed points as
a payable to and receivable from DAVI, respectively.

Getgo points outstanding as of December 31, 2019, however, are permanently ring-fenced in the
Parent Company’s books. The Parent Company shall continue to account for these points in the
Parent Company’s financial statements.

Last July 26, 2021, the Parent Company’s Getgo program was replaced by Go Rewards. With this
change, the remaining unredeemed ring-fenced points in the Parent Company’s books were all
converted to Cebu Pacific Travel Fund, a virtual wallet that can be used as a form of payment for
booking new flights and purchasing add-ons (see Note 21).

21. Travel Fund Payable

In light of the significant increase in flight cancellations due to the COVID-19 outbreak and
consequent to the grounding of the Parent Company’s commercial operations, customers were given
options for their cancelled flights which included, among others, conversion to a full travel fund
which is a virtual wallet equivalent to the amount paid for an existing booking. A travel fund is valid
for two (2) years and can be used as payment for future bookings.

Last July 26, 2021, the Parent Company transferred the value of its unredeemed ring-fenced Getgo
points amounting to =P1,048.3 million from ‘Deferred revenue on rewards program’ to ‘Travel fund
payable’ (see Note 20).

The current portion of travel fund payable amounted to =P2,802.8 million and =P103.2 million as of
December 31, 2021 and 2020, respectively and is presented under “Accounts payable and other
accrued liabilities” account in the Parent Company’s statements of financial position. The noncurrent
portion of travel fund payable amounted to = P1,850.9 million and =
P3,432.6 million as of
December 31, 2021 and 2020, respectively.

*SGVFS163038*
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22. Equity

The Parent Company’s authorized capital stock as of December 31, 2021 and 2020 consists of the
following (in number of shares):

2021 2020
Common stock – at = P1 par value 1,340,000,000 1,340,000,000
Convertible preferred stock – at =
P1 par value 400,000,000 −
Authorized capital stock 1,740,000,000 1,340,000,000

The details of the Parent Company’s issued and outstanding number of common and preferred shares
and the movement thereon follow:

2021
Common Preferred Total
Subscribed and issued 613,236,550 328,947,368 942,183,918
Conversion of shares 11,739,027 (11,739,027) –
Treasury shares (12,919,850) ‒ (12,919,850)
612,055,727 317,208,341 929,264,068

2020
Common Preferred Total
Subscribed and issued 613,236,550 ‒ 613,236,550
Treasury shares (12,919,850) ‒ (12,919,850)
600,316,700 ‒ 600,316,700

Common Stock
On October 26, 2010, the Parent Company listed with the PSE its common stock, by way of primary
and secondary share offerings, wherein it offered 212,419,700 shares to the public at =P125.00 per
share. Of the total shares sold, 30,661,800 shares are newly issued shares with total proceeds
amounting =P3.8 billion. The Parent Company incurred transaction costs incidental to the IPO
amounting to =P100.4 million, which is charged against ‘Capital paid in excess of par value’ in the
Parent Company’s statements of financial position. The registration statement was approved on
October 11, 2010. After its listing with the PSE, there have been no subsequent offerings of common
stock. The Parent Company has 109 and 101 existing certified shareholders as of December 31, 2021
and 2020, respectively.

Convertible Preferred Stock

On March 3, 2021, the Parent Company announced the start of its stock rights offer (SRO) for sale or
subscription of its cumulative, non-voting, non-participating Convertible Preferred Shares (CPS) with
a par value of =
P1.00 per share at an offer price of =
P38.00 per entitlement right. The CPS is
convertible to common shares at a conversion price of = P38.00 per share. The SRO was made
available to the Parent Company’s eligible shareholders of record as of February 26, 2021 with an
entitlement ratio of one entitlement right for every 1.8250 common shares held as of record date. The
SRO was completed and closed on March 9, 2021 with a total of 328,947,368 shares issued Total
proceeds from the SRO amounted to = P12.5 billion. The Parent Company incurred transaction costs
incidental to the SRO amounting to = P28.2 million, which is charged against ‘Capital paid in excess of
par value’ in the Parent Company’s statements of financial position. The CPS were successfully
listed with the PSE last March 29, 2021. As of December 31, 2021, 11,739,027 CPS have been
converted to common shares with = P1.00 par value at the conversion price of P=38.00 per share.

*SGVFS163038*
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The Parent Company’s total number of preferred stockholders is 12 and nil as of December 31, 2021
and 2020, respectively.

The rollforward of the Parent Company’s capital stock and capital paid in excess of par value follows:

2021
Capital Stock Capital Paid in Excess of Par Value
Common Preferred Total Common Preferred Total
Balances at January 1 P
= 613,236,550 P
=‒ P= 613,236,550 P
= 8,405,568,120 P
=‒ P = 8,405,568,120
Issuance of shares ‒ 328,947,368 328,947,368 ‒ 12,171,052,616 12,171,052,616
Conversion of shares 11,739,027 (11,739,027) ‒ 434,343,999 (434,343,999) ‒
Transaction cost ‒ ‒ ‒ ‒ (32,466,743) (32,466,743)
Balances at December 31 P
= 624,975,577 P
= 317,208,341 P= 942,183,918 P
= 8,839,912,119 P= 11,704,241,874 P= 20,544,153,993

2020
Capital Stock Capital Paid in Excess of Par Value
Common Preferred Total Common Preferred Total
Balances at January 1 and
at December 31 =613,236,550
P =‒ P
P =613,236,550 P
=8,405,568,120 =‒
P =8,405,568,120
P

Treasury Stock
On February 28, 2011, the BOD of the Parent Company approved the creation and implementation of
a share buyback program (SBP) up to =
P2,000.0 million worth of the Parent Company’s common
stock. The SBP shall commence upon approval and shall end upon utilization of the said amount, or
as may be otherwise determined by the BOD. In August 2018, the Parent Company has decided to
resume its SBP.

In 2020 and 2019, the Parent Company recorded additional treasury shares with cost of =
P44.8 million
and P=120.6 million, respectively, from SBP. The Parent Company has 12,919,850 shares held in
treasury with cost of =
P950.9 million as of December 31, 2021 and December 31, 2020, restricting the
Parent Company from declaring an equivalent amount from unappropriated retained earnings as
dividends.

Appropriation of Retained Earnings

On September 7, 2020 and December 4, 2019, the Parent Company’s BOD appropriated P =12.0 billion
and P=26.0 billion, respectively, from its unrestricted retained earnings for purposes of the Parent
Company’s re-fleeting program. Appropriations as of December 31, 2020, and 2019 were reversed in
the following year. The appropriated amount as of December 31, 2020 will be used for the settlement
of aircraft and engine lease commitments in 2021 (see Note 33).

As of December 31, 2021 and 2020, the Parent Company has appropriated retained earnings totaling
nil and =
P12.0 billion, respectively.

Unappropriated Retained Earnings

The income of the JVs that are recognized in the Parent Company’s statements of comprehensive
income are not available for dividend declaration unless these are declared by the JVs (see Note 13).
Likewise, retained earnings are restricted for the payment of dividends to the extent of the cost of
common stock held in treasury amounting to = P950.9 million as of December 31, 2021 and 2020.

The Parent Company did not declare dividends in 2021 and 2020.

After reconciling items which include fair value adjustments on financial instruments, unrealized
foreign exchange loss, recognized deferred tax assets and others, and cost of common stocks held in

*SGVFS163038*
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treasury, the Parent Company has no retained earnings available for dividend declaration as of
December 31, 2021 and 2020.

Amendment of the Articles of Incorporation

On October 7 and November 20, 2020, the BOD and the stockholders of the Parent Company
approved the amendment of Article Seven of the Parent Company’s Articles of Incorporation. This
have also been duly approved by the Securities and Exchange Commission (SEC) last
March 19, 2021. The amendments are as follows:
a. Increase the Parent Company’s authorized capital stock from =
P1.340 billion to P
=1.740 billion;

b. Create a new class of convertible preferred shares and delegate the authority to the BOD of the
Parent Company to determine the features, rights and privileges of these shares;

c. Include a denial of pre-emptive rights for equity-linked instruments to be issued by the Parent
Company, which include, but not limited to, convertible bonds, exchangeable bonds, warrants,
bonds with detachable warrants and convertible preferred shares;

The following matters have also been approved by the stockholders of the Parent Company last
November 20, 2020:

a. The offer for sale or subscription of the convertible preferred shares via a stock rights offering
and delegation of authority to the BOD to determine the terms and conditions of the offering,
including the transaction price, the number of shares to be offered, and to engage the services of
underwriters, advisors, legal counsel, and other agents as may be necessary, proper or desirable to
ensure the success of the offering;

b. The listing of the (a) Convertible Preferred Shares and the (b) underlying common shares of the
Convertible Preferred Shares with the PSE

c. The offer for sale and issuance of convertible bonds, warrants, bonds with detachable warrants or
any other similar security instrument to such number of investors to be determined by the BOD,
and the delegation of authority to the BOD to negotiate and determine the terms and conditions of
the issuance, including the transaction price, the terms and conditions of the issuance, and to
engage the services of arrangers, advisors, legal counsel, and other agents as may be necessary,
proper or desirable for the transaction;

d. The listing of the underlying common shares of the convertible bonds or warrants or bonds plus
warrants with the PSE;

e. The listing of the warrants with the PSE;

f. The waiver of the requirement to conduct a rights or public offer in the event that the holder of
the convertible bonds/warrants/bonds plus warrants and convertible preferred shares will result in
the issuance of at least 10% of the Parent Company’s total issued and outstanding shares pursuant
to Article V Part A of the PSE Revised Listing Rules.

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Capital Management
The primary objective of the Parent Company’s capital management is to ensure that it maintains
healthy capital ratios in order to support its business and maximize shareholder value. The Parent
Company considers its equity of = P10,130.6 million and = P21,166.5 million as of December 31, 2021
and 2020, respectively, presented in the Parent Company’s statements of financial position, as its
capital. The Parent Company manages its capital structure, which composed of paid-up capital and
retained earnings, and makes adjustments to these ratios in light of changes in economic conditions
and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the
Parent Company may adjust the amount of dividend payment to shareholders, return capital structure
or issue capital securities. No changes have been made in the objective, policies and processes as
they have been applied in previous years.

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

23. Share-based Payments

On March 29, 2021, the BOD of the Parent Company approved its Long-Term Incentive Plan (LTIP).
The LTIP involves the grant of any one or a combination of Restricted Stock Units and Stock Options
to eligible persons.

Upon issuance by the SEC of a confirmation of Exempt Transaction on November 26, 2021, the
Philippine Stock Exchange approved the application of the Parent Company to list additional
11,165,846 common shares, consisting of 5,582,923 common shares for Restricted Stock Units and
5,582,923 common shares for Stock Options and with a par value of =P1.00 per share, to cover the
Parent Company’s LTIP last December 2, 2021.

Restricted Stock Units (RSU)

On November 26, 2021, 4,710,000 RSUs were granted to 82 eligible persons with three (3) years
vesting period. These will vest in three (3) tranches, 20%, 30% and 50% at the end of 2021, 2022 and
2023, respectively except for three (3) grantees which will vest in full at the end of 2021. Vesting is
conditional on the eligible person’s employment and achievement of a minimum individual
performance rating within the vesting period. The fair value of each share is = P48.40 which is the
stock price at grant date. The Parent Company does not pay cash as a form of settlement.

On December 31, 2021, 1,094,000 RSUs have vested. The shares were subsequently listed with the
Philippine Stock Exchange on January 21, 2022 (see Note 38).

Stock Options
On November 26, 2021, 5,205,000 stock options were granted to 16 eligible persons with one (1) to
three (3) years vesting period which can be exercised at a strike price of =
P48.575 once vested. These
will vest in three (3) tranches; 20%, 30% and 50% at the end of 2021, 2022 and 2023, respectively
except for two (2) grantees which will vest in full at the end of 2021. Vesting is conditional on the
eligible person’s employment and achievement of a minimum individual performance rating within
the vesting period. These options will expire on December 31, 2027. The Parent Company does not
pay cash as a form of settlement.

On December 31, 2021, 1,265,000 stock options have vested. No options were exercised, forfeited or
expired during the year. Thus, as of December 31, 2021, the 1,265,000 vested stock options remain
to be outstanding and exercisable.

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The fair value of each option at grant date is =

P21.79 which was determined using the Cox-Ross-
Rubinstein Binomial Option Pricing Method. The inputs in the valuation of the stock option are as
follows:

Stock price at grant date =48.40

P
Exercise price 48.575
Expected volatility 47.24%
Option life 6.10 years
Dividend yield 2.93%
Risk-free interest rate 4.53%

The option life is the period between the November 26, 2021 grant date to December 31, 2027 expiry
date. The expected volatility was based on the historical daily stock prices for the past five years.
Daily stock price data used did not include non-trading days. Standard deviation was used to measure
volatility which is a measure of risk associated with the degree of fluctuations in stock price over a
period of time.

In 2021, the cost of RSUs and stock options charged to operations under the “General and
administrative” in the Parent Company’s statements of comprehensive income amounted to
=116.5 million and =
P P58.3 million, respectively. Correspondingly, a credit was made to equity which
is presented under “Share-based payments” in the Parent Company’s statements of financial position
amounting to =P174.8 million.

24. Ancillary Revenue

Ancillary revenue consists of:

2021 2020
Baggage fees P
=977,735,513 =1,702,344,183
P
Rebooking, refunds, cancellation fees, etc. 803,264,668 1,615,683,884
Others 2,241,611,533 2,247,852,637
P
=4,022,611,714 =5,565,880,704
P

Others pertain to revenue from in-flight sales, advanced seat selection fee, reservation booking fees
and others.

25. Operating Expenses

Repairs and Maintenance

Repairs and maintenance expenses relate to the cost of maintaining, repairing and overhauling of all
aircraft and engines, technical handling fees on pre-flight inspections and cost of aircraft spare parts
and other related equipment. The account includes related costs of other contractual obligations
under the aircraft operating lease agreements (see Note 33). These amounted to = P3,566.1 million and
=3,132.2 million in 2021 and 2020, respectively (see Note 20).
P

For the year ended December 31, 2020, the Parent Company charged as an addition to maintenance
expense the effective portion of some FX hedging relationships classified as cash flow hedges
amounting to = P53.2 million (see Note 31). These amounts were previously accumulated in OCI and
have been reclassified to profit or loss in the same period which the payment of maintenance expense
affect profit or loss. There were no similar charges for the year ended December 31, 2021.

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Flying Operations
Flying operations consists of:

2021 2020
Aviation fuel expense (Note 10) P
=4,836,592,084 =5,988,666,797
P
Flight deck 1,049,920,878 1,974,894,891
Aviation insurance 290,928,441 295,466,248
Others 415,174,647 475,385,328
P
=6,592,616,050 =8,734,413,264
P

For the year ended December 31, 2021, the Parent Company charged as a deduction to aviation fuel
expense the effective portion of its cash flow hedges amounting to =P24.5 million. For the year ended
December 31, 2020, the Parent Company charged as an addition to aviation fuel expense the effective
portion of its cash flow hedges amounting to P =572.4 million (see Note 31). These amounts were
previously accumulated in OCI and have been reclassified to profit or loss in the same period which
the purchase of fuel affect profit or loss.

Flight deck expenses consist of salaries of pilots and co-pilots, training costs, meals and allowances,
insurance and other pilot-related expenses.

Aviation insurance pertains to insurance costs incurred directly for aircraft.

Aircraft and Traffic Servicing

Aircraft and traffic servicing consists of:

2021 2020
Airport charges P
=1,160,077,006 =1,512,542,044
P
Ground handling 1,115,086,807 1,243,572,997
Others 339,369,221 484,793,425
P
=2,614,533,034 =3,240,908,466
P

Airport charges are fees which are paid to airport authorities relating to landing and take-off of
aircraft on runways, as well as for the use of airport facilities.

Ground handling refers to expenditures incurred for services rendered at airports, which are paid to
departure stations or ground handling agents.

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

Reservation and Sales

Reservation and sales relate to the cost to sell or distribute airline tickets and other ancillaries
provided to passenger such as costs to maintain the Parent Company’s web-based booking channel,
reservation ticketing office costs and advertising expenses. These amounted to = P862.1 million and
=1,391.3 million in 2021 and 2020, respectively.
P

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26. General and Administrative Expenses

This account consists of:

2021 2020
IT and other professional fees P
=1,327,648,713 =1,248,917,875
P
Staff cost 849,389,818 742,170,623
Security 289,323,086 270,242,698
Utilities 115,488,649 145,070,939
Rent expense (Note 33) 33,453,215 38,856,310
Travel and transportation 11,094,844 15,436,874
Others 318,764,879 690,736,632
P
=2,945,163,204 =3,151,431,951
P

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

For the year ended December 31, 2020, the Parent Company charged as an addition to IT and other
professional fees the effective portion of some FX hedging relationships classified as cash flow
hedges amounting to = P21.3 million (see Note 31). These amounts were previously accumulated in
OCI and have been reclassified to profit or loss in the same period which the payment of IT
subscription fees affect profit or loss. There were no similar charges for the year ended
December 31, 2021.

27. Employee Benefits

The Parent Company has funded, noncontributory, defined benefit pension plans covering
substantially all of their regular employees, noncontributory defined benefit pension plan.

The pension funds are being administered and managed through JG Summit Multi-Employer
Retirement Plan (the “Plan”), with Robinsons Bank Corporation (RBC) as Trustee. The plans
provide for retirement, separation, disability and death benefits to their members. The Parent
Company, however, reserves the right to discontinue, suspend or change the rates and amounts of
their contributions at any time on account of business necessity or adverse economic conditions. The
retirement plan has an Executive Retirement Committee, that is mandated to approve the plan, trust
agreement, investment plan, including any amendments or modifications thereto, and other activities
of the Plan. Certain members of the BOD and Parent Company are represented in the Executive
Retirement Committee. RBC manages the plan based on the mandate as defined in the trust
agreement.

Under the existing regulatory framework, Republic Act (RA) No. 7641 requires a provision for
retirement pay to qualified private sector employees in the absence of any retirement plan in the
entity, provided however that the employee’s retirement benefits under any collective bargaining and
other agreements shall not be less than those provided under the law. The law does not require
minimum funding of the plan.

Employee Benefit Cost

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

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Defined Benefit Plan

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

In 2021 and 2020, the assumptions used to determine retirement benefits of the Parent Company
follow:

2021 2020
Average remaining working life 25.0 years 26.3 years
Discount rate 4.94% 3.67%
Salary rate increase 4.00% 5.70%

As of December 31, 2021 and 2020, the discount rate used in determining the retirement liability is
4.94% and 3.67%, respectively, which is determined by reference to market yields at the reporting
date on Philippine government bonds.

The amounts recognized as retirement liability follow:

2021 2020
Present value of defined benefit obligation P
=892,641,394 =P1,069,153,820
Fair value of plan assets (569,442,569) (641,247,499)
P
=323,198,825 =427,906,321
P

Remeasurement gains (losses) recognized in OCI:

2021 2020
Actuarial gain on benefit obligation P
=257,154,218 =304,313,369
P
Return on plan assets excluding amount included in
net interest cost (76,023,810) 89,867,204
Amount to be recognized in OCI P
=181,130,408 =394,180,573
P

Movements in the fair value of plan asset follow:

2021 2020
Balance at January 1 P
=641,247,499 =710,568,758
P
Interest income included in net interest cost 23,185,741 30,659,119
Benefits paid (18,966,861) (189,847,582)
Return on plan assets excluding amount included
in net interest cost (76,023,810) 89,867,204
Balance at December 31 P
=569,442,569 =641,247,499
P

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The plan assets consist of:

2021 % 2020 %
Cash P
=8,826,360 1.55% =1,154,245
P 0.18%
Investment in debt securities 108,421,865 19.04% 138,701,834 21.63%
Investment in equity securities 30,237,400 5.31% 4,424,608 0.69%
Unit investment trust funds 355,446,052 62.42% 438,228,541 68.34%
Receivables 57,001,201 10.01% 57,006,903 8.89%
Others 9,509,691 1.67% 1,748,852 0.27%
569,442,569 641,264,983
Liabilities – – (17,484) –
P
=569,442,569 100.00% P
=641,247,499 100%

The Parent Company expects to contribute about =

P100.0 million into the retirement fund for the year
ending 2022.

The actual returns on plan assets amounted to =

P52.8 million losses and =
P120.5 million gains in 2021
and 2020, respectively.

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

2021 2020
Balance at January 1 P
=1,069,153,820 =P1,579,343,863
Current service cost 99,951,540 97,631,477
Interest cost 39,237,945 78,651,324
Benefits paid (58,547,693) (257,491,594)
Settlement gain – (124,667,881)
Actuarial loss/gain due to:
Experience adjustments (60,014,408) 102,810,185
Changes in demographic assumptions 28,680,172 (195,529,845)
Changes in financial assumption (225,819,982) (211,593,709)
Balance at December 31 P
=892,641,394 P =1,069,153,820

The defined benefit plan was amended effective April 1 and June 1, 2019. The effect of this change
is reflected as past service cost. The curtailment and settlement resulted from the involuntary
separation of certain employees in 2020.

Out of the P
=257.5 million benefits paid in 2020, =
P237.5 million pertain to payments to retrenched
employees in line with the Parent Company’s right sizing measures undertaken to navigate the current
environment brought about by the COVID-19 pandemic.

Movements in the net defined benefit liability follow:

2021 2020
Balance at January 1 P
=427,906,321 =868,775,105
P
Retirement expense 116,003,744 20,955,801
Recognized in OCI (181,130,408) (394,180,573)
Benefits paid (39,580,832) (67,644,012)
Balance at December 31 P
=323,198,825 =427,906,321
P

The benefits paid during 2021 and 2020 were paid out of the Parent Company’s operating funds.

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

income follow:

2021 2020
Current service cost P
=99,951,540 =97,631,477
P
Net interest cost 16,052,204 47,992,205
Settlement gain – (124,667,881)
Total retirement expense P
=116,003,744 =20,955,801
P

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

2021
PVO
Discount rates +100 basis points (P
=58,828,863)
-100 basis points 66,928,639

Salary increase rates +100 basis points 66,887,814

-100 basis points (59,867,802)

2020
PVO
Discount rates +100 basis points (P
=80,124,658)
-100 basis points 92,373,344

Salary increase rates +100 basis points 89,559,237

-100 basis points (79,389,046)

Each year, an Asset-Liability Matching Study (ALM) is performed with the result being analyzed in
terms of risk-and-return profiles. As of December 31, 2021 and 2020, the Parent Company’s
investment consists of 13% of cash and receivables and 87% of debt and equity instruments, and 9%
of cash and receivables and 91% of debt instruments, respectively. The principal technique of the
Parent Company’s ALM is to ensure the expected return on assets to be sufficient to support the
desired level of funding arising from the defined benefit plans.

Shown below is the maturity profile of the undiscounted benefit payments of the Parent Company as
of December 31, 2021 and 2020:

2021
Normal Other Normal
Plan Year Retirement Retirement Total
Less than one year =35,309,611
P =84,286,524
P P119,596,135
=
One to less than five years 156,423,425 326,680,486 483,103,911
Five to less than 10 years 122,177,258 416,001,922 538,179,180
10 to less than 15 years 124,081,599 390,627,575 514,709,174
15 to less than 20 years 130,950,934 315,238,920 446,189,854
20 years and above 279,286,510 361,750,616 641,037,126

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2020
Normal Other Normal
Plan Year Retirement Retirement Total
Less than one year =41,767,078
P =83,485,018
P P125,252,096
=
One to less than five years 116,948,961 351,294,062 468,243,023
Five to less than 10 years 165,360,138 477,109,372 642,469,510
10 to less than 15 years 134,717,237 488,495,341 623,212,578
15 to less than 20 years 152,437,478 426,294,891 578,732,369
20 years and above 356,161,297 582,242,105 938,403,402

The average duration of the expected benefit payments as of December 31, 2021 and 2020 is
7.0 years and 8.1 years, respectively.

28. Income Taxes

In 2021 and 2020, benefit from income tax consists of deferred tax benefits amounting to
=1,734.0 million and =
P P344.0 million, respectively. In 2021 and 2020, the Parent Company has no
current income tax due to taxable loss position.

Income taxes include corporate income tax. The NIRC of 1997 provides for rules on the imposition
of a 2.00% MCIT on the gross income as of the end of the taxable year beginning on the fourth
taxable year immediately following the taxable year in which the Parent Company commenced its
business operations. Any excess MCIT over the RCIT can be carried forward on an annual basis and
credited against the RCIT for the three immediately succeeding taxable years.

Under Section 11 of R.A. No. 7151 (Parent Company’s Congressional Franchise) known as the “ipso
facto clause”, the Parent Company is allowed to benefit from the tax privileges being enjoyed by
competing airlines. The Parent Company’s major competitor, by virtue of P.D. No. 1590, is enjoying
tax exemptions which are likewise being claimed by the Parent Company, if applicable, including but
not limited to the following:
a. To depreciate its assets to the extent of not more than twice as fast the normal rate of
depreciation; and
b. To carry over as a deduction from taxable income any NOLCO incurred in any year up to five
years following the year of such loss.

In addition, pursuant to Section 4 (bbbb) of R.A. No. 11494 (Bayanihan to Recover as One Act) and
as implemented under Revenue Regulations (RR) No. 25-2020, the NOLCO of a business or
enterprise incurred for taxable years 2020 and 2021 can be carried over as deduction from gross
income for the next five consecutive taxable years immediately following the year of such loss. In
compliance with the disclosure requirements of RR No. 25-2020, below shows the unused NOLCO of
the Parent Company as of December 31, 2021 and 2020:

Year Incurred Amount Applied Expired Balance Expiry Year

2021 P18,403,734,817
= =–
P =–
P P18,403,734,817
= 2026
2020 =21,026,735,635
P =–
P =–
P =21,026,735,635
P 2025

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

2021 2020
Deferred tax assets on:
ARO - liability P
=1,771,179,823 =1,961,685,495
P
NOLCO 1,591,398,278 1,366,616,369
Lease liability, net of ROU asset 990,858,433 214,710,515
Unrealized loss on net derivative liability 432,740,192 1,352,880
Unrealized foreign exchange loss 274,160,144 –
HMV 270,657,103 103,789,250
Retirement liability 113,740,503 113,561,730
Allowance for credit losses 42,488,684 32,159,174
Share-based payment transactions 28,493,982 –
Deferred revenue - Lifestyle rewards program – 300,346,139
5,515,717,142 4,094,221,552
Deferred tax liability on:
Double depreciation 2,564,476,957 2,792,321,088
Unamortized bond issue costs 29,222,395 –
Unrealized foreign exchange gain – 113,865,357
2,593,699,352 2,906,186,445
Item recognized directly in other
comprehensive income (loss)
Deferred tax asset (liabilities):
Reserve for retirement plan (32,940,797) 14,810,166
Reserve for cash flow hedges – 8,311,601
(32,940,797) 23,121,767
Net deferred tax assets P
=2,889,076,993 P=1,211,156,874

Movement in cash flow hedges and accrued retirement cost amounting to =

P56.1 million and
=32.9 million in 2021 and 2020, respectively, is presented under OCI.
P

The Parent Company’s recognized deferred tax assets and deferred tax liabilities are expected to be
reversed more than 12 months after the reporting date.

As of December 31, 2021 and 2020, the Parent Company has not recognized deferred tax assets on
NOLCO of P =33,064.9 million and = P16,471.3 million, respectively. The deferred income tax assets on
NOLCO were not recognized because management believes that the Parent Company may not have
sufficient taxable profits available to allow all or part of these deferred income tax assets to be
utilized in the future and prior to their expiration. Unrecognized deferred tax assets on NOLCO as of
December 31, 2021 and 2020 amounted to = P8,266.2 million and =P4,941.4 million, respectively.

The Parent Company has outstanding registrations with the BOI as a new operator of air transport on
a non-pioneer status under the Omnibus Investments Code of 1987 (Executive Order 226)
(see Note 35).

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

As of December 31, 2021 and 2020, the Parent Company has complied with capital requirements set
by the BOI in order to avail the ITH incentives for aircraft registered activity (see Note 35).

*SGVFS163038*
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The Parent Company has formally requested from the BOI for a 2-year deferral of its ITH incentives
(effectively, for years 2020 and 2021), for 26 registered aircraft currently in operation, thereby
preserving their remaining ITH entitlement period. This has been duly approved by the BOI on
March 10, 2021. This will provide the Parent Company with improved financial resiliency as it
navigates the challenges brought about by the COVID-19 pandemic.

A reconciliation of the Parent Company’s statutory income tax rate to the effective income tax rate
follows:

2021 2020
Statutory income tax rate (25.00%) (30.00%)
Adjustments resulting from:
Nondeductible items 0.08% 0.18%
Nontaxable items (0.03%) (0.39%)
Unrecognized deferred tax 16.23% 22.76%
Change in tax rate 0.77% −
Others 1.17% 5.87%
Effective income tax rate (6.78%) (1.58%)

On February 1, 2021, the Bicameral Conference Committee, under the 18th Congress of the
Philippines, approved the reconciled version of the House Bill No. 4157 and Senate Bill No. 1357
(the “Corporate Recovery and Tax Incentives for Enterprises” or CREATE bill). The CREATE bill
seeks to reform corporate income taxes and incentives in the country by implementing certain
changes to the current tax regulations. These changes include:
 Reduction in the RCIT from 30% to 20% for domestic corporations with net taxable income not
exceeding P=5.0 million and with total assets not exceeding =P100.0 million excluding the value of
land on which the particular business entity’s office, plant and equipment are situated;
 Reduction in the RCIT from 30% to 25% for all other corporations;
 Lowering of MCIT from 2% to 1% of gross income for three (3) years;
 Instead of 10% of taxable income, application of RCIT on regional operating headquarters;
 Standardization of final taxes on foreign corporations to 15%;
 Exemption of foreign sourced dividends received by domestic corporations subject to certain
conditions;
 Additional deduction of one-half (1/2) of the value of labor training expenses subject to certain
conditions;
 Repeal of the 10% improperly accumulated earnings tax (IAET);
 VAT exemption for medicines for certain critical illnesses; and
 VAT-free importation and sale for three (3) years of COVID-19 medicines, personal protective
equipment and materials used for their production.

Under the bill, the above changes will be implemented for periods beginning July 1, 2020.

On February 24, 2021, the final version of the CREATE bill as passed by the Bicameral Conference
Committee was transmitted to the Office of the President for signing or approval into law. On
March 26, 2021, the Office of the President approved the CREATE bill and is now called Republic
Act No. 11534 or CREATE Act. The CREATE Act became effective last April 11, 2021 or 15 days
after complete publication in the Official Gazette or any newspaper of general circulation in the
Philippines.

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For the current year, the impact of the implementation of the CREATE Act on the Parent Company’s
deferred income tax benefit and net deferred tax asset arising from the reduction of corporate income
tax rate from 30% to 25% amounted to = P201.9 million. There is no impact on the current income tax
of the Parent Company since it is still on a taxable loss position.

Entertainment, Amusement and Recreation (EAR) Expenses

Current tax regulations define expenses to be classified as EAR expenses and set a limit for the
amount that is deductible for tax purposes. EAR expenses are limited to 0.50% of net sales for sellers
of goods or properties or 1.00% of net revenue for sellers of services. For sellers of both goods or
properties and services, an apportionment formula is used in determining the ceiling on such
expenses. The Parent Company recognized EAR expenses (allocated under different expense
accounts in the Parent Company’s statements of comprehensive income) amounting to = P1.1 million
and P
=6.4 million in 2021 and 2020, respectively.

29. Loss Per Share

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

2021 2020
Net loss (P
=23,831,023,785) (P
=21,363,525,812)
Less: Cumulative preferred dividends (550,847,493) ‒
Net loss attributable to common shareholders for basic
EPS (24,381,871,278) (21,363,525,812)
Divided by: Weighted average
number of common shares 604,095,978 598,728,537
Basic/diluted loss per share (P
=40.36) (P
=35.68)

In both 2021 and 2020, the Parent Company has no dilutive potential common shares.

30. Related Party Transactions

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

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

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

2021
Amount/ Outstanding
Related Party Volume Balance Terms Conditions

Ultimate Parent
(1) JG Summit Holdings, Inc.
Due to related parties (P
= 32,313,888) (P
= 5,896,052) Non-interest bearing Unsecured
Trade payables (34,716,247) (3,598,474) Non-interest bearing Unsecured

Joint ventures and associates

(2) PAAT, Inc.
Due from related parties
Loans – 95,531,040 2% interest per annum Unsecured, No impairment
Sublease agreement 26,346,473 40,225,307 Payable monthly Unsecured, No impairment
Trade payables (102,913,160) (9,611,986) Non-interest bearing Unsecured

(3) 1Aviation
Due from related parties 55,094,799 536,305,908 Non-interest bearing Unsecured, No impairment
Trade payables (628,288,496) (1,736,145) Non-interest bearing Unsecured
Sublease agreement 18,288,066 – Non-interest bearing Unsecured, No impairment

(4) Air Black Box Asia Pacific Pte, Ltd

Trade payables (2,319,132) (12,902,983) Non-interest bearing Unsecured

(5) Data Analytics Ventures, Inc.

Due to related parties (3,363,491) (3,981,789) Non-interest bearing Unsecured
Trade receivables 24,833,435 6,859,961 Non-interest bearing Unsecured, No impairment
Trade payables (11,545,348) – Non-interest bearing Unsecured

Wholly owned subsidiary

(6) CEBGO, Inc.
Due from related parties 43,609,181 43,573,481 Non-interest bearing Unsecured, No impairment

(7) A-plus
Due from related parties 82,407,860 130,134,454 Non-interest bearing Unsecured, No impairment
Trade payables (432,585,807) (30,210,022) Non-interest bearing Unsecured

Entities under common control

(8) Robinsons Bank Corporation (RBank)
Non-trade receivables 163,345 4,553,740 Non-interest bearing Unsecured, No impairment
Trade receivables 150,730 105,787 Non-interest bearing Unsecured, No impairment
Sub-lease agreement 1,101,507 – Non-interest bearing Unsecured; No impairment
Long-term debt – 2,447,667,500 Interest bearing Unsecured
Cash in bank – 1,441,897,045 Interest bearing Unsecured, No impairment

(9) Universal Robina Corporation (URC)

Trade receivables 1,224,655 761,264 Non-interest bearing Unsecured, No impairment
Trade payables (2,472,897) (354,188) Non-interest bearing Unsecured
Due to related parties (89,220,348) (17,977,448) Non-interest bearing Unsecured

(10) Robinsons Land Corporation (RLC)

Trade receivables 208,329 121,965 Interest bearing Unsecured, No impairment
Trade payables (1,225,879) – Non-interest bearing Unsecured

(11) Robinsons Handyman, Inc

Trade receivables 1,277,431 481,863 Interest bearing Unsecured, No impairment
Trade payables (4,965,425) (362,928) Non-interest bearing Unsecured

(12) Robinsons Appliances

Trade payables (281,851) – Non-interest bearing Unsecured

(13) Robinsons Supermarket Corporation

Trade receivables 38,819,330 1,481,435 Non-interest bearing Unsecured; No impairment

(Forward)

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2021
Amount/ Outstanding
Related Party Volume Balance Terms Conditions
(14) Robinsons Convenience Store
Sublease agreement = 909,684
P = 123,081
P Non-interest bearing Unsecured, No impairment
(15) ASPEN Business Solutions, Inc.
Trade payables (16,780,906) – Non-interest bearing Unsecured

(16) JG Summit Philippines Limited

Short-term debt 4,462,412,500 4,462,412,500 5% interest per annum Unsecured

SPEs
(17) CLCL/DENL (181,289,639) – Non-interest bearing Unsecured
(18) DBL/MLCL (170,646,206) – Non-interest bearing Unsecured
(19) RALL (465,857,891) – Non-interest bearing Unsecured
(20) SLCL (178,467,890) – Non-interest bearing Unsecured
(21) SCALL (2,042,848,721) – Non-interest bearing Unsecured
(22) SDALL (2,912,612,255) – Non-interest bearing Unsecured
(23) TLCL (182,633,429) – Non-interest bearing Unsecured
(24) TOADAC (1,478,546,630) – Non-interest bearing Unsecured

2020
Amount/ Outstanding
Related Party Volume Balance Terms Conditions

Ultimate Parent
(1) JG Summit Holdings, Inc.
Trade payables (P
=80,662,680) (P
=39,524,528) Non-interest bearing Unsecured

Joint ventures and associates

(2) PAAT, Inc.
Due from related parties
Loans – 94,133,516 2% interest per annum Unsecured, No impairment
Sublease agreement 19,704,923 13,878,834 Payable monthly Unsecured, No impairment
Others 127,328 238,575 Non-interest bearing Unsecured, No impairment
Trade receivables 90,858 – Non-interest bearing Unsecured, No impairment
Trade payables (113,947,742) (9,768,957) Non-interest bearing Unsecured

(3) 1Aviation
Due from related parties 263,379,308 481,294,810 Non-interest bearing Unsecured, No impairment
Trade payables (506,727,397) (82,043,286) Non-interest bearing Unsecured
Sublease agreement 1,741,721 – Non-interest bearing Unsecured, No impairment

(4) Air Black Box Asia Pacific Pte, Ltd

Trade payables (8,329,917) (10,973,905) Non-interest bearing Unsecured

(5) Data Analytics Ventures, Inc.

Due to related parties (82,401,075) (12,489,769) Non-interest bearing Unsecured
Trade receivables 11,039,456 2,883,325 Non-interest bearing Unsecured, No impairment

Wholly owned subsidiary

(6) CEBGO, Inc.
Due to related parties 138,892,163 (35,694) Non-interest bearing Unsecured

(7) A-plus
Due from related parties 90,598,127 47,726,594 Non-interest bearing Unsecured, No impairment
Trade payables (604,398,681) (42,701,455) Non-interest bearing Unsecured

Entities under common control

(8) Robinsons Bank Corporation (RBank)
Non-trade receivables 33,161 12,355 Non-interest bearing Unsecured, No impairment
Long-term debt – 2,447,667,500 Interest bearing Secured
Sub-lease agreement 793,566 – Non-interest bearing Unsecured, No impairment
Cash in bank – 191,545,467 Interest bearing Unsecured, No impairment

(9) Universal Robina Corporation (URC)

Trade receivables 11,385,396 304,665 Non-interest bearing Unsecured, No impairment
Trade payables (23,194,824) (624,562) Non-interest bearing Unsecured
Due to related parties (86,655,610) (82,517,470) Non-interest bearing Unsecured

(Forward)

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2020
Amount/ Outstanding
Related Party Volume Balance Terms Conditions
(10) Robinsons Land Corporation (RLC)
Trade receivables =109,472
P =141,621
P Non-interest bearing Unsecured, No impairment
Trade payables (7,121,644) (43,880) Non-interest bearing Unsecured

(11) Robinsons Handyman, Inc

Trade receivables 3,595,899 330,344 Non-interest bearing Unsecured, No impairment
Trade payables (4,972,811) (811,294) Non-interest bearing Unsecured

(12) Summit Publishing Inc. (SPI)

Trade receivables 1,442 2,185 Non-interest bearing Unsecured, No impairment
Trade payables (2,746,872) – Non-interest bearing Unsecured

(13) Robinsons Supermarket Corporation

(RSC)
Trade receivables 1,302,960 1,686,367 Non-interest bearing Unsecured, No impairment
Trade payables (57,453,933) (5,821,118) Non-interest bearing Unsecured

(14) Robinsons Appliances

Trade payables (1,354,235) – Non-interest bearing Unsecured

(15) Robinsons Convenience Store

Sublease agreement 726,074 – Non-interest bearing Unsecured, No impairment

(16) ASPEN Business Solutions, Inc.

Trade receivables 28,403 – Non-interest bearing Unsecured, No impairment
Trade payables (24,974,687) (1,898,639) Non-interest bearing Unsecured

(17) JG Summit Philippines Limited

Short-term debt (4,802,300,000) (4,802,300,000) 5% interest per annum Unsecured

SPEs
(18) CLCL/DENL (202,933,701) – Non-interest bearing Unsecured
(19) DBL/MLCL (191,036,654) – Non-interest bearing Unsecured
(20) PTALL (2,779,781,541) – Non-interest bearing Unsecured
(21) RALL (388,097,518) – Non-interest bearing Unsecured
(22) SLCL (203,636,095) – Non-interest bearing Unsecured
(23) SCALL (615,823,088) – Non-interest bearing Unsecured
(24) SDALL (1,696,425,160) – Non-interest bearing Unsecured
(25) TLCL (181,821,871) – Non-interest bearing Unsecured
(26) TOADAC (1,308,512,047) – Non-interest bearing Unsecured

Parent Company Statements of Comprehensive Income

Sale of Air Ground Ancillary Repairs and
Year Transportation Service handling Revenues Maintenance
Wholly owned subsidiary
A-Plus 2021 P–
= P–
= P–
= P432,585,807
=
2020 – – – 422,999,137

JV in which the Parent

Company is a venturer
PAAT 2021 – – – –
2020 90,858 – 19,704,923 –

1Aviation 2021 – 628,288,496 – –

2020 – 506,727,397 – –

Entities under common control

RBank 2021 1,101,507 – – –
2020 33,161 – – –

URC 2021 1,224,655 – – –

2020 11,385,396 – – –

RLC 2021 208,329 – – –

2020 109,472 – – –

(Forward)

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Parent Company Statements of Comprehensive Income

Sale of Air Ground Ancillary Repairs and
Year Transportation Service handling Revenues Maintenance
RHI 2021 = 1,277,431
P =–
P =–
P =–
P
2020 =3,595,899
P =–
P =–
P =–
P

SPI 2021 – – – –
2020 1,442 – – –

JGPC 2021 – – – –
2020 – – – –

RSC 2021 623,543 – – –

2020 1,302,960 – – –

Aspen 2021 – – – –
2020 28,403 – – –

Total 2021 = 4,435,465

P P
= 628,288,496 =–
P P432,585,807
=
2020 P16,547,591
= =506,727,397
P =19,704,923
P =422,999,137
P

Terms and conditions of transactions with related parties

Outstanding balances at year-end are unsecured, interest-free and settlement occurs in cash. Also,
these transactions are short-term in nature. There have been no guarantees provided or received for
any related party receivables or payables. The Parent Company has not recognized any impairment
losses on amounts due from related parties for the years ended December 31, 2021 and 2020. This
assessment is undertaken each financial year through a review of the financial position of the related
party and the market in which the related party operates. No provision for expected credit losses has
been recognized in 2021 and 2020.

The Parent Company’s significant transactions with related parties follow:

a. The Parent Company entered into a Shared Services Agreement with A-plus. Under the
aforementioned agreement, the Parent Company will render certain administrative services to
A-plus which include payroll processing and certain information technology-related functions.

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

c. The Parent Company maintains deposit accounts and short-term investments with RBank which
is reported as ‘Cash and cash equivalents’ account.

d. The Parent Company also incurs liabilities to URC primarily for the rendering of payroll service
to the Parent Company which are recorded as ‘Due to related parties’ account.

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

The Parent Company also purchases goods from URC for in-flight sales and are recorded as trade
payables, if unpaid, in the parent company statements of financial position. Total amount of
purchases in 2021 and 2020 amounted to = P3.7 million and P=7.9 million, respectively.

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

g. In 2013 and 2012, under the shareholder loan agreement the Parent Company provided a loan to
PAAT to finance the purchase of its Full Flight Simulator, other equipment and other working
capital requirements. Aggregate loans provided by the Parent Company amounted to
=155.4 million (US$3.5 million). The loans are subject to two percent (2%) interest per annum.
P
In 2014, the Company collected =P41.7 million (US$0.9 million) from PAAT as partial payment
of the loan. As of December 31, 2021 and 2020, loan to PAAT amounted to = P91.6 million
(US$2.3 million).

h. In 2015, the Parent Company entered into sublease arrangements with CEBGO for the lease of its
eight (8) ATR 72-500 aircraft. The sublease period for each aircraft is for three (3) years.

i. In 2016, the Parent Company entered into lease arrangements with CEBGO for the lease of its
two (2) ATR 72-600 aircraft. The lease period for each aircraft is for six (6) years.

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

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

l. In 2018, the Parent Company entered into sublease arrangements with CEBGO for the lease of its
four (4) ATR 72-600 aircraft. The sublease period for each aircraft is for six (6) years.

m. In 2019, the Parent Company entered into a sublease arrangement with CEBGO for the lease of
one (1) ATR 72-600 aircraft. The sublease period for the aircraft is for ten (10) years

n. In 2021, the Parent Company entered into a sublease arrangement with CEBGO for the lease of
one (1) ATR 72-600 aircraft. The sublease period for the aircraft is for ten (10) years.

o. On March 21, 2018, the Parent Company entered into a Standard Groundhandling Service
Agreement (SGHA) with 1Aviation to provide groundhandling service to Manila and Davao
stations.

p. Starting January 1, 2020, the management of the Parent Company’s loyalty program has been
transferred to DAVI. As such, all revenue and expenses in relation to the Getgo loyalty points
issued in 2020 will be recognized DAVI. The Parent Company accounts for such issued and
redeemed points as a payable to and receivable from DAVI, respectively.

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

2021 2020
Short-term employee benefits P
=310,340,234 =255,258,119
P
Post-employment benefits 6,688,069 57,542,832
P
=317,028,303 =312,800,951
P

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There are no agreements between the Parent Company and any of its directors and key officers
providing for benefits upon termination of employment, except for such benefits to which they may
be entitled under the Parent Company’s retirement plan.

Approval requirements and limits on the amount and extent of related party transactions
Material related party transactions (MRPT) refers to any related party transactions, either
individually, or in aggregate over a twelve (12)–month period with the same related party, amounting
to ten percent (10%) or higher of the Parent Company’s total assets based on its latest audited
financial statements.

All individual MRPTs shall be approved by at least two-thirds (2/3) vote of the BOD, with at least a
majority of the Independent Directors voting to approve the MRPT. In case that a majority of the
Independent Directors’ vote is not secured, the MRPT may be ratified by the vote of the stockholders
representing at least two thirds (2/3) of the outstanding capital stock.

Aggregate RPT transactions within a 12-month period that meets or breaches the materiality
threshold shall require the same BOD approval mentioned above.

31. Financial Risk Management Objectives and Policies

The Parent Company’s principal financial instruments, other than derivatives, comprise cash and cash
equivalents, derivative financial assets and financial liabilities, receivables, payables and interest-
bearing borrowings. The main purpose of these financial instruments is to finance the Parent
Company’s operations and capital expenditures. The Parent Company has various other financial
assets and liabilities, such as trade receivables and trade payables which arise directly from its
operations. The Parent Company also enters into fuel derivatives and foreign currency forward
contracts to manage its exposure to fuel price and foreign exchange rate fluctuations.

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

Risk Management Structure

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

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

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

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

The Audit Committee also aims to ensure that:

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

Enterprise Risk Management (ERM) Division

The ERM Division ensures that a sound ERM framework is in place to effectively identify, monitor,
assess and manage key business risks. The risk management framework guides the Board in
identifying units/business lines and enterprise level risk exposures, as well as the effectiveness of risk
management strategies.

The ERM framework revolves around the following eight interrelated risk management approaches:
a. Internal Environmental Scanning - it involves the review of the overall prevailing risk profile of
the Business Unit (BU) to determine how risks are viewed and addressed by the management.
This is presented during the strategic planning, annual budgeting and mid-year performance
reviews of the BU.
b. Objective Setting - the Company’s BOD mandates Management to set the overall annual targets
through strategic planning activities, in order to ensure that management has a process in place to
set objectives that are aligned with the Parent Company’s goals.
c. Event Identification - it identifies both internal and external events affecting the Parent
Company’s set targets, distinguishing between risks and opportunities.
d. Risk Assessment - the identified risks are analyzed relative to the probability and severity of
potential loss that serves as basis for determining how the risks will be managed. The risks are
further assessed as to which risks are controllable and uncontrollable, risks that require
management’s action or monitoring, and risks that may materially weaken the Parent Company’s
earnings and capital.
e. Risk Response – the Parent Company’s BOD, through the oversight role of the Internal Control
Group ensures action plan is executed to mitigate risks, either to avoid, self-insure, reduce,
transfer or share risk.
f. Control Activities - policies and procedures are established and approved by the Parent
Company’s BOD and implemented to ensure that the risk responses are effectively carried out
enterprise-wide.
g. Information and Communication - relevant risk management information is identified, captured
and communicated in form and substance that enable all personnel to perform their risk
management roles.

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h. Monitoring - the Internal Control and Internal Audit Groups constantly monitor the management
of risks through audit reviews, compliance checks, revalidation of risk strategies and performance
reviews.

Internal Controls
With the leadership of the Chief Financial Officer (CFO), internal control is embedded in the Parent
Company’s operations thus increasing their accountability and ownership in the execution of the
internal control framework. To accomplish the established goals and objectives, the Parent Company
implement robust and efficient process controls to ensure:
a. Compliance with policies, procedures, laws and regulations;
b. Economic and efficient use of resources;
c. Check and balance and proper segregation of duties;
d. Identification and remediation control weaknesses;
e. Reliability and integrity of information; and
f. Proper safeguarding of company resources and protection of company assets through early
detection and prevention of fraud.

Treasury Risk Management (TRM) Group

The TRM Group is mainly responsible for the monitoring of market risk exposures and effectively
manage these risks. TRM Group is headed by the CFO and is subdivided into two (2) main offices:
Front and Middle Offices, with support from the Comptroller and Treasury Departments for the back
office functions.

The TRM Group follows a risk management program with the primary objectives of reducing
undesirable risk exposures, improving cash flow predictability, protecting margins from excessive
volatility, and aligning with industry peers to prevent being at a competitive disadvantage. Internal
controls and processes are in place to ensure adherence to this risk management program as approved
by the Parent Company’s Executive Committee. Part of the program is to mainly manage these
market risks using derivatives that are solely for the purpose of hedging. Hedging activities are
regularly reviewed and monitored by the Chief Executive Adviser and Chief Strategy Officer to
ensure alignment of hedging strategies and objectives with the Parent Company’s overall purpose.

This risk management program includes the following four key areas:
1. Risk identification involves review of the business and its processes to identify associated market
risks.
2. Risk assessment refers to the quantification of the identified risk exposures and the maximum
probable losses and cash outflows the Parent Company may incur within a certain frequency over a
certain time frame.
3. Risk control represents the activities and programs the Parent Company undertakes in order to
eliminate or minimize these market risk exposures. This mainly involves the determination of
hedge levels and level of core risks the Parent Company is willing to retain given key stakeholders’
risk tolerance.
4. Risk monitoring pertains to the assessment of the risk control activities against established metrics
and tracking of the compliance to limits and thresholds set.

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Risk Assessment Tool

To help the Parent Company in the Risk Assessment Process, the Risk Assessment Tool which is a
database driven web application was developed for departments to help in the assessment, monitoring
and management of risks.

The Risk Assessment Tool documents the following activities:

1. Risk Identification - is the critical step of the risk management process. The objective of risk
identification is the early identification of events that may have negative impact on the Parent
Company’s ability to achieve its goals and objectives.
1.1. Risk Indicator - is a potential event or action that may prevent the continuity/action
1.2. Risk Driver - is an event or action that triggers the risk to materialize
1.3. Value Creation Opportunities - is the positive benefit of addressing or managing the risk
2. Identification of Existing Control Measures - activities, actions or measures already in place to
control, prevent or manage the risk.
3. Risk Rating/Score - is the quantification of the likelihood and impact to the Company if the risk
materialized. The rating has two (2) components:
3.1. Probability - the likelihood of occurrence of risk
3.2. Severity - the magnitude of the consequence of risk
4. Risk Management Strategy - is the structured and coherent approach to managing the identified
risk.
5. Risk Mitigation Action Plan - is the overall approach to reduce the risk impact severity and/or
probability of occurrence.

Results of the Risk Assessment Process is summarized in a Dashboard that highlights risks that
require urgent actions and mitigation plan. The dashboard helps Management to monitor, manage
and decide a risk strategy and needed action plan.

Risk management support groups

The Parent Company’s BOD created the following departments within the Parent Company to
support the risk management activities of the Parent Company and the other business units:
a. Corporate Security and Safety Board (CSSB) - Under the supervision of ERM Division, the
CSSB administers enterprise-wide policies affecting physical security of assets exposed to
various forms of risks.
b. Corporate Supplier Accreditation Team (CORPSAT) - Under the supervision of ERM Division,
the CORPSAT administers enterprise-wide procurement policies to ensure availability of supplies
and services of high quality and standards to all business units.
c. Finance Division - The Finance Division is responsible for the oversight of strategic planning,
budgeting and performance review processes of the business units as well as for administration of
the insurance program of the Parent Company.

Risk Management Policies

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

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

With respect to credit risk arising from the other financial assets of the Parent Company, which
comprise cash in banks and cash equivalents and financial assets at FVPL, the Parent Company’s
exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the
carrying amount of these instruments.

Maximum exposure to credit risk without taking account of any credit enhancement
The table below shows the gross maximum exposure to credit risk of the Parent Company as of
December 31, 2021 and 2020, without considering the effects of collaterals and other credit risk
mitigation techniques.

2021 2020
Cash and cash equivalents* P
=17,386,736,134 =2,388,911,035
P
Restricted cash 1,440,604,130 1,096,422,478
Receivables
Trade receivables 1,231,163,887 1,267,571,093
Due from related parties 845,770,190 637,272,329
Interest receivable 2,372,900 1,184,030
Others** 116,030,841 183,741,604
Refundable deposits*** 1,191,665,074 116,734,897
P
=22,214,343,156 =5,691,837,466
P
* Excluding cash on hand
** Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the Parent Company’s statements of financial position

Risk concentrations of the maximum exposure to credit risk

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

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The Parent Company’s credit risk exposures, before taking into account any collateral held or other
credit enhancements are categorized by geographic location as follows:
2021
Asia
(excluding
Philippines Philippines) Europe Others Total
Cash and cash equivalents* = 4,691,459,209 P
P = 12,671,445,349 =–
P =
P23,831,576 =
P17,386,736,134
Restricted cash 1,440,604,130 – – – 1,440,604,130
Receivables
Trade receivables 718,068,553 423,544,595 47,041,346 42,509,393 1,231,163,887
Due from related parties 845,770,190 – – – 845,770,190
Interest receivable 2,372,900 – – – 2,372,900
Others** 92,024,180 208,184 21,496,384 2,302,093 116,030,841
Refundable deposits*** – 1,191,665,074 – – 1,191,665,074
= 7,790,299,162 P
P = 14,286,863,202 = 68,537,730
P =
P68,643,062 P= 22,214,343,156
* Excluding cash on hand
** Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the Parent Company’s statements of financial position

2020
Asia
(excluding
Philippines Philippines) Europe Others Total
Cash and cash equivalents* =2,078,667,237
P =285,766,056
P =‒
P =24,477,742
P =2,388,911,035
P
Restricted cash ‒ 1,096,422,478 ‒ ‒ 1,096,422,478
Receivables
Trade receivables 737,224,604 363,434,508 73,182,168 93,729,813 1,267,571,093
Due from related parties 637,272,329 ‒ ‒ ‒ 637,272,329
Interest receivable 1,184,030 ‒ ‒ ‒ 1,184,030
Others** 176,852,944 6,887,700 960 ‒ 183,741,604
Refundable deposits*** ‒ 116,734,897 ‒ ‒ 116,734,897
=3,631,201,144
P =1,869,245,639
P =73,183,128 P
P =118,207,555 =5,691,837,466
P
* Excluding cash on hand
** Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the Parent Company’s statements of financial position

The Parent Company has no concentration of risk with regard to various industry sectors. The major
industries relevant to the Parent Company are the transportation sector and financial intermediaries.

Credit quality per class of financial assets

The Parent Company maintains internal credit rating system relating to its revenue distribution
channel credit risk management. Credit limits have been set based on the assessment of rating
identified. Letters of credit and other forms of credit insurance such as cash bonds are considered in
the calculation of expected credit losses.

Other financial assets include cash and cash equivalents and refundable deposits. The Parent
Company implements external credit rating system which uses available public information and
international credit ratings. The management does not expect default from its counterparty banks
given their high credit standing.

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The tables below show the credit quality by class of financial assets based on internal credit rating of
the Parent Company (gross of allowance for impairment losses) as of December 31, 2021 and 2020.

2021
Neither Past Due Nor Specifically Impaired Past Due
High Standard Substandard or Individually
Grade Grade Grade Impaired Total
Cash and cash equivalents* = 17,386,736,134
P =–
P =–
P =–
P P
= 17,386,736,134
Restricted cash 1,440,604,130 – – – 1,440,604,130
Receivables
Trade receivables 1,061,209,151 169,954,736 1,231,163,887
Due from related parties 845,770,190 – – – 845,770,190
Interest receivable 2,372,900 – – – 2,372,900
Others** 116,030,841 – – – 116,030,841
Refundable deposits*** 1,191,665,074 – – – 1,191,665,074
= 22,044,388,420
P =–
P =–
P = 169,954,736
P P
= 22,214,343,156
* Excluding cash on hand
** Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the Parent Company’s statements of financial position.

2020
Neither Past Due Nor Specifically Impaired Past Due
High Standard Substandard or Individually
Grade Grade Grade Impaired Total
Cash and cash equivalents* =2,388,911,035
P =‒
P =‒
P =‒
P =2,388,911,035
P
Restricted cash 1,096,422,478 ‒ ‒ ‒ 1,096,422,478
Receivables
Trade receivables 1,160,373,847 ‒ ‒ 107,197,246 1,267,571,093
Due from related parties 637,272,329 ‒ ‒ ‒ 637,272,329
Interest receivable =1,184,030
P =‒
P =‒
P =‒
P =1,184,030
P
Others** 183,741,604 ‒ ‒ ‒ 183,741,604
Refundable deposits*** 116,734,897 ‒ ‒ ‒ 116,734,897
=5,584,640,220
P =‒
P =‒
P =107,197,246
P =5,691,837,466
P
* Excluding cash on hand
** Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the Parent Company’s statements of financial position.

High grade cash and cash equivalents are short-term placements and working cash fund placed,
invested, or deposited in foreign and local banks belonging to the top ten banks in terms of resources
and profitability.
High grade accounts are accounts considered to be of high value. The counterparties have a very
remote likelihood of default and have consistently exhibited good paying habits.
Standard grade accounts are active accounts with propensity of deteriorating to mid-range age
buckets. These accounts are typically not impaired as the counterparties generally respond to credit
actions and update their payments accordingly.
Substandard grade accounts are accounts which have probability of impairment based on historical
trend. These accounts show propensity to default in payment despite regular follow-up actions and
extended payment terms.
The following tables show the aging analysis of the Parent Company’s receivables:
2021
Neither Past Past Due But Not Impaired Past
Due Nor Over Due and
Impaired 1-30 days 31-60 days 61-90 days 91-180 days 180 days Impaired Total
Trade receivables = 1,061,209,151
P =‒
P =‒
P =‒
P =‒
P =‒
P =
P169,954,736 P= 1,231,163,887
Due from related parties 845,770,190 ‒ ‒ ‒ ‒ ‒ ‒ 845,770,190
Interest receivable 2,372,900 ‒ ‒ ‒ ‒ ‒ ‒ 2,372,900
Others* 116,030,841 ‒ ‒ ‒ ‒ ‒ ‒ 116,030,841
= 2,025,383,082
P =‒
P =‒
P =‒
P =‒
P =‒
P =
P169,954,736 P= 2,195,337,818
*Include nontrade receivables from insurance, employees and counterparties

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2020
Neither Past Past Due But Not Impaired Past
Due Nor Over Due and
Impaired 1-30 days 31-60 days 61-90 days 91-180 days 180 days Impaired Total
Trade receivables =1,160,373,847
P =‒
P =‒
P =‒
P =‒
P =‒
P =107,197,246 =
P P1,267,571,093
Due from related parties 637,272,329 ‒ ‒ ‒ ‒ ‒ ‒ 637,272,329
Interest receivable 1,184,030 ‒ ‒ ‒ ‒ ‒ ‒ 1,184,030
Others* 183,741,604 ‒ ‒ ‒ ‒ ‒ ‒ 183,741,604
=1,982,571,810
P =‒
P =‒
P =‒
P =‒
P =‒
P =107,197,246 P
P =2,089,769,056
*Include nontrade receivables from insurance, employees and counterparties

Past due and impaired receivables amounted to = P170.0 million and =P107.2 million as of
December 31, 2021 and 2020, respectively. Past due but not impaired receivables are secured by
cash bonds from major sales and ticket offices recorded under ‘Accounts payable and other accrued
liabilities’ account in the Parent Company’s statements of financial position. For the past due and
impaired receivables, specific allowance for impairment losses amounted to = P170.0 million and
=107.2 million as of December 31, 2021 and 2020, respectively
P

Collateral or credit enhancements

As collateral against trade receivables from sales ticket offices or agents, the Parent Company
requires cash bonds from major sales ticket offices or agents ranging from = P50,000 to =
P2.1 million
depending on the Parent Company’s assessment of sales ticket offices and agents’ credit standing and
volume of transactions. As of December 31, 2021 and 2020, outstanding cash bonds (included under
‘Accounts payable and other accrued liabilities’ account in the parent company statements of
financial position) amounted to P=89.0 million and P=191.5 million, respectively (see Note 16). There
are no collaterals for impaired receivables.

Impairment assessment
An impairment analysis is performed at each reporting date using a provision matrix to measure
ECLs. The provision rates are based on days past due for groupings of various customer segments
with similar loss patterns (that is, revenue distribution channel). The calculation reflects the
probability-weighted outcome, the time value of money and reasonable and supportable information
that is available at the reporting date about past events, current conditions and forecasts of future
economic conditions. Generally, trade receivables are written-off if past due for more than one year
and are not subject to enforcement activity.

For other debt financial instruments such as cash and cash equivalents (excluding cash on hand) and
refundable deposits ECLs, the Parent Company applies the general approach of which it track
changes in credit risk at every reporting date. The probability of default (PD) and loss given defaults
(LGD) are estimated using external and benchmark approaches for listed and non-listed financial
institutions, respectively. For listed financial institutions, the Parent Company uses the ratings from
Standard and Poor’s (S&P), Moody’s and Fitch to determine whether the debt instrument has
significantly increased in credit risk and to estimate ECLs. For non-listed financial institutions, the
Parent Company uses benchmark approach where the Parent Company finds comparable companies
in the same industry having similar characteristics. The Parent Company obtains the credit rating of
comparable companies to determine the PD and determines the average LGD of the selected
comparable companies to be applied as LGD of the non-listed financial institutions.

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

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

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

(a) historical losses/write-offs;

(b) losses which are likely to occur but have not yet occurred; and
(c) the expected receipts and recoveries once impaired.

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

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

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

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

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The tables below summarize the maturity profile of financial instruments based on remaining
contractual undiscounted cash flows as of December 31, 2021 and 2020:
2021
Less than one >1 to 3 >3 to 12 >1 to 5
month to 1 month months months years >5 years Total
Financial Assets
Loans and receivables
Cash and cash equivalents = 17,436,064,073
P =–
P =–
P =–
P =–
P P
= 17,436,064,073
Restricted cash 1,440,604,130 – – – – 1,440,604,130
Receivables:
Trade receivables 1,231,163,887 – – – – 1,231,163,887
Due from related
parties* 845,770,190 – – – – 845,770,190
Interest receivable 2,372,900 – – – – 2,372,900
Others ** 116,030,841 – – – – 116,030,841
Refundable deposits – – – – 1,191,665,074 1,191,665,074
= 21,072,006,021
P =–
P =–
P =–
P P
= 1,191,665,074 P
= 22,263,671,095

Financial Liabilities
Lease liability**** = 966,274,937
P P
= 1,605,891,030 = 5,921,629,540
P =
P31,309,874,075 P
= 25,000,085,726 P
= 64,803,755,308
Long-term debt***** 164,832,705 341,904,207 1,496,808,629 17,046,528,084 1,984,553,140 21,034,626,765
Short-term debt***** – – 4,685,533,125 – – 4,685,533,125
Bonds payable***** – – 573,738,750 2,294,955,000 13,036,619,375 15,905,313,125
Derivative financial liabilities at
FVPL 1,730,960,768 – – – – 1,730,960,768
Accounts payable and
other accrued liabilities*** 10,446,409,930 477,805,265 74,305,360 – – 10,998,520,555
Due to related parties* 27,855,289 – – – – 27,855,289
= 13,336,333,629
P P
= 2,425,600,502 P
= 12,752,015,404 P
= 50,651,357,159 P
= 40,021,258,241 P
= 119,186,564935
* Receivable and payable on demand
** Include nontrade receivables from insurance, employees and counterparties
*** Excluding government-related payables
**** Consist of undiscounted minimum lease payments
*****Including future undiscounted interest payments

2020
Less than one >1 to 3 >3 to 12 >1 to 5
month months months years >5 years Total
Financial Assets
Loans and receivables
Cash and cash equivalents =2,439,870,460
P =−
P =−
P =−
P =−
P P2,439,870,460
=
Restricted cash − 1,096,422,478 1,096,422,478
Receivables:
Trade receivables 1,267,571,093 − − − − 1,267,571,093
Due from related
parties* 637,272,329 − − − − 637,272,329
Interest receivable 1,184,030 − − − − 1,184,030
Others ** 183,741,604 − − − − 183,741,604
Refundable deposits − − − − 116,734,897 116,734,897
=4,529,639,516
P =1,096,422,478
P =−
P =−
P =116,734,897
P =5,742,796,891
P

Financial Liabilities
Lease liability**** P771,463,869
= =2,153,066,391
P P9,045,866,770
= P25,366,243,283
= =21,986,963,167
P P59,323,603,480
=
Long-term debt***** 230,866,815 425,525,441 1,715,001,863 15,185,662,700 5,005,404,781 22,562,461,600
Short-term debt***** – – 4,923,691,472 − − 4,923,691,472
Accounts payable and
other accrued liabilities*** 9,372,454,759 858,024,197 − − − 10,230,478,956
Due to related parties* 95,042,933 − − − − 95,042,933
Financial liabilities at OCI − − 32,214,937 − − 32,214,937
=10,469,828,376
P =3,436,616,029
P =15,716,775,042
P =40,551,905,983
P =26.992,367,948
P =97,167,493,378
P
* Receivable and payable on demand
** Include nontrade receivables from insurance, employees and counterparties
*** Excluding government-related payables
**** Consist of undiscounted minimum lease payments
*****Including future undiscounted interest payments

Refer to Note 1 on the measures taken by the Parent Company to address liquidity gap as at
December 31, 2021 and 2020.

Market risk
Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result
from changes in the price of a financial instrument. The value of a financial instrument may change

*SGVFS163038*
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as a result of changes in foreign currency exchange rates, interest rates, commodity prices or other
market changes. The Parent Company’s market risk originates from its holding of foreign exchange
instruments, interest-bearing instruments and derivatives.
Foreign currency risk
Foreign currency risk arises on financial instruments that are denominated in a foreign currency other
than the functional currency in which they are measured. It is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange rates.
The Parent Company has transactional currency exposures. Such exposures arise from sales and
purchases in currencies other than the Parent Company’s functional currency. During the years ended
December 31, 2021 and 2020, approximately 27.2% and 23.0% respectively, of the Parent
Company’s total sales are denominated in currencies other than the functional currency.
Furthermore, the Parent Company’s capital expenditures are substantially denominated in USD. As
of December 31, 2021 and 2020, 36.9% and 16.7%, respectively, of the Parent Company’s financial
liabilities were denominated in USD, respectively.
The Parent Company has foreign currency hedging arrangements as of December 31, 2021 and 2020.
The tables below summarize the Parent Company’s exposure to foreign currency risk. Included in the
tables are the Parent Company’s financial assets and liabilities at carrying amounts, categorized by
currency.
2021
Hong Kong Singaporean Other
US Dollar Dollar Dollar Currencies* Total
Financial Assets
Loans and receivables
Cash and cash equivalents = 12,067,766,215
P = 388,371,602
P = 54,576,300
P = 850,168,643
P P
= 13,360,882,760
Restricted cash 1,440,604,130 – – – 1,440,604,130
Receivables 493,497,503 186,186,047 7,143,565 197,450,177 884,277,292
Refundable deposits** 1,191,665,074 – – – 1,191,665,074
= 15,193,532,922
P = 574,557,649
P = 61,719,865
P P
= 1,047,618,820 P
= 16,877,429,256

Financial Liabilities
Bonds payable = 12,592,883,981
P P–
= P–
= P–
= P
= 12,592,883,981
Short-term debt 4,462,412,500 – – – 4,462,412,500
Accounts payable & other
accrued liabilities*** 955,954,020 16,247,237 2,067,953 195,531,703 1,169,800,913
P18,011,250,501
= = 16,247,237
P = 2,067,953
P = 195,531,703 P
P = 18,225,097,394
* Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese Yen, Australian dollar and Euro
** Included under ‘Other noncurrent assets’ account in the Parent Company’s statement of financial position
***Excluding government-related payables

2020
Hong Kong Singaporean Other
US Dollar Dollar Dollar Currencies* Total
Financial Assets
Loans and receivables
Cash and cash equivalents =901,888,404
P =15,310,054
P =19,479,202
P =777,402,070
P =1,714,079,730
P
Receivables 551,119,289 27,552,957 2,935,896 54,273,342 635,881,484
Refundable deposits** 116,734,897 ‒ ‒ ‒ 116,734,897
=1,569,742,590
P =42,863,011
P =22,415,098
P =831,675,412
P P
=2,466,696,111

Financial Liabilities
Financial Liabilities at FVPL =32,214,937
P =‒
P =‒
P =‒
P =32,214,937
P
Short-term debt 4,802,300,000 ‒ ‒ ‒ 4,802,300,000
Accounts payable & other
accrued liabilities*** 763,058,751 19,439,788 7,373,615 293,075,474 1,082,947,628
P5,597,573,688
= =19,439,788
P =7,373,615
P =293,075,474
P =5,917,462,565
P
* Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese Yen, Australian dollar and Euro
** Included under ‘Other noncurrent assets’ account in the Parent Company’s statement of financial position
***Excluding government-related payables

*SGVFS163038*
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The exchange rates used to restate the Parent Company’s foreign currency-denominated assets and
liabilities as of December 31, 2021 and 2020 follow:

2021 2020
US dollar P
=50.999 to US$1.00 P48.023 to US$1.00
=
Singapore dollar P
=37.555 to SGD1.00 =36.120 to SGD1.00
P
Hong Kong dollar P
=6.5101 to HKD1.00 =6.1935 to HKD1.00
P
Japanese yen P
=0.4413 to JPY1.00 =0.4629 to JPY1.00
P

The following table sets forth the impact of the range of reasonably possible changes in the
USD - Peso exchange value on the Parent Company’s pre-tax income for the years ended
December 31, 2021 and 2020 (in thousands).
2021 2020
Changes in foreign exchange value P
=2 (P
= 2) P2
= (P
=2)
Change in pre-tax income P
=110,501 (P
= 110,501) (P
=167,746) =167,746
P

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

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

Commodity price risk

The Parent Company enters into commodity derivatives to manage its price risks on fuel purchases.
Commodity hedging allows stability in prices, thus offsetting the risk of volatile market fluctuations.
Depending on the economic hedge cover, the price changes on the commodity derivative positions
are offset by higher or lower purchase costs on fuel. A change in price by US$10.00 per barrel of
jet fuel affects the Parent Company’s fuel costs in pre-tax income by =
P632.8 million and
=733.1 million for the years ended December 31, 2021 and 2020, respectively, assuming
P
no change in volume of fuel is consumed.

Commodity derivative contracts maturing three (3) months from reporting date are designated for
hedge accounting. Derivative financial instruments which are part of hedging relationships do not
expose the Parent Company to market risk since changes in the fair value of the derivatives are offset
by the changes in the fair value of the hedged items.

These hedging activities are in accordance with the risk management strategy and objectives outlined
in the TRM policies and guidelines which have been approved by the Executive Committee on
September 1, 2019.

There is an economic relationship between the hedged items and hedging instruments as the terms of
the foreign exchange forward contracts and commodity swaps and zero cost collars match the terms
of the expected highly probable forecast transactions. The Parent Company has established a hedge
ratio of 1:1 for the hedging relationships as the underlying risk of the foreign currency forward
contracts and commodity derivatives are identical to the hedged risk components. To test the hedge
effectiveness, the Parent Company uses the hypothetical derivative method and compares the changes
in the fair value of hedging instruments against the changes in the fair value of hedged items
attributable to the hedged risks.

Hedge ineffectiveness arises from the use of off-market derivatives when hedge accounting is first
applied on September 1, 2019. The hedge ineffectiveness arising from the differences on the
counterparty and own credit risk incorporated in the hedging instrument and zero credit risk on the

*SGVFS163038*
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hedged item are deemed insignificant given that all counterparties are given investment grade ratings
by the major credit rating agencies.

The tables below summarize the maturity profile of outstanding derivative contracts as of
December 31, 2020 (nil in 2021):
December 31, 2020
More than 15
1 to 3 months 4 to 6 months 7 to 12 months 13 to 15 months months Total
Foreign exchange forward contracts:
Notional amount (in US$) $− $− $− $− $− $−
Average forward rate − − − − − −
Commodity derivatives:
Notional amount (in barrels) 30,000 30,000 60,000 − − 120,000
Notional amount (in US$) $1,864,450 $1,864,450 $3,729,000 − − $7,457,900
Average hedged rate 62.15 62.15 62.15 − − 62.15

The impact of the hedge accounting on the Parent Company’s statements of financial position as of
December 31, 2021 and 2020 follows:

December 31, 2021

Change in fair value used in

measuring ineffectiveness Cash flow
for the period hedge reserve
Commodity derivatives (P
=406,498) (P
=406,498)

December 31, 2020

Change in fair value used in

measuring ineffectiveness Cash flow
for the period hedge reserve
Commodity derivatives (P
=134,142,765) (P
=28,112,284)

Rollforward of each component of equity and the analysis of the other comprehensive income (loss)
follows:

2021 2020
Balances at January 1 (P
=53,950,788) (P
=130,711,557)
Effective portion of cash flow hedges:
FX hedges − 494,706,088
Fuel hedges 3,177,320 2,173,570,932
Amounts reclassified to profit or loss under the
following accounts:
Aviation fuel expense (Note 25) 24,528,015 (572,449,929)
Repairs and Maintenance (Note 25) − (53,223,984)
General and administrative expenses −
(Note 26) (21,322,779)
Market valuation losses (Note 8) − (2,305,802,659)
Actuarial gain on retirement liability 181,130,408 394,180,573
Tax effect (56,062,564) (32,897,473)
Balances at December 31 P
=98,822,391 (P
=53,950,788)

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Interest rate risk

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

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The following tables show information about the Parent Company’s commercial loans that are exposed to interest rate risk and are presented by maturity
profile (see Note 18).
2021
<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years Total Fair Value
Commercial loans from banks = 1,333,333,333
P = 2,501,773,388
P = 5,403,111,290
P = 4,374,354,865
P = 3,303,561,565
P = 1,929,657,317
P P
= 18,845,791,758 P
= 18,996,307,204

2020
<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years Total Fair Value
Commercial loans from banks =1,333,333,333
P =1,333,333,333
P =2,501,773,388
P =5,403,111,290
P =4,374,354,865
P =5,233,218,883
P =20,179,125,092
P =22,156,344,184
P

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The following table sets forth the impact of the range of reasonably possible changes in interest rates
on the Parent Company’s pre-tax income for the years ended December 31, 2021 and 2020.

2021 2020
Changes in interest rates 1.50% (1.50%) 1.50% (1.50%)
Changes in pre-tax income (P
= 1,278,400,992) = 1,278,400,992
P (P
=1,392,220,900) =1,392,220,900
P

Fair value interest rate risk

Fair value interest rate risk is the risk that the value/future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Parent Company’s exposure to interest rate
risk relates primarily to the Parent Company’s financial liabilities 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 Parent Company’s income before tax and the relative impact
on the Parent Company’s net assets as of December 31, 2021 and 2020:

Change in Basis Effect on profit

Points before tax
2021 +200% (P
=48,358,442)
-200% 49,595,495
2020 +200% (P
=111,906,346)
-200% 116,266,818

32. Fair Value Measurement

The carrying amounts approximate fair values for the Parent Company’s financial assets and
liabilities due to its short-term maturities except for the following financial asset and other financial
liabilities as of December 31, 2021 and 2020:

2021 2020
Carrying Value Fair Value Carrying Value Fair Value
Financial Assets
Loans and receivables
Refundable deposits*
(Note 15) P
=1,191,665,074 P
=1,190,442,968 =626,806,386
P =624,569,407
P

Financial Liabilities
Other financial liability
Long-term debt* (Note 18) P
=18,845,791,759 18,996,307,204 P
=20,179,125,092 =22,156,344,184
P
* Includes current portion.

The methods and assumptions used by the Parent Company in estimating the fair value of financial
asset and other financial liabilities are:

Refundable deposits
The fair values are determined based on the present value of estimated future cash flows using
prevailing market rates. The Parent Company used average discount rates of 3% to 2% in 2021 and
2020, respectively.

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Long-term debt
The fair value of finance lease obligation and long-term debt is determined using the discounted cash
flow methodology, with reference to the Parent Company’s current incremental lending rates for
similar types of loans. The discount rates used ranged from 1% to 6% as of December 31, 2021 and
2020.

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

2021
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at
fair value:
Derivative financial liabilities at fair
value through profit or loss
(Note 8) =–
P =1,730,960,768
P =–
P =1,730,960,768
P
Assets and liabilities for which fair
values are disclosed:
Refundable deposits – 1,190,442,968 ‒ 1,190,442,968
Long-term debt – 18,996,307,204 – 18,996,307,204

2020
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at
fair value:
Financial liabilities at FVOCI
(Note 8) =–
P =32,214,937)
(P =–
P =32,214,937)
(P
Assets and liabilities for which fair
values are disclosed:
Refundable deposits =−
P =−
P =624,569,407
P =624,569,407
P
Long-term debt − 22,156,344,184 − 22,156,344,184

There were no transfers within any hierarchy level of fair value measurements for the years ended
December 31, 2021 and 2020, respectively.

33. Commitments and Contingencies

Leases
The Parent Company has aircraft and non-aircraft leases. Leases of aircraft generally have lease
terms between 1.25 and 8 years, while leases of non-aircraft items generally have lease terms between
3 and 18 years. The Parent Company’s obligations under its leases are secured by the lessor’s title to
the leased assets.

The Parent Company also has certain non-aircraft leases with lease terms of 12 months or less. The
Parent Company applies the ‘short-term lease’ recognition exemptions for these leases.

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The movement in right-of-use asset follows:

2021 2020
Balance at January 1 P
=78,112,676,802 =79,125,224,251
P
Additions 19,890,601,724 8,946,485,457
Reclassification (Note 12) – 473,301,090
Deferred gain on sale and leaseback (572,447,298) (124,837,991)
Retirement (18,623,329,061) (10,307,496,005)
78,807,502,167 78,112,676,802
Balance at January 1 20,655,551,489 15,590,367,780
Amortization expense 9,357,776,717 9,875,368,062
Retirement (10,110,467,240) (4,810,184,353)
19,902,860,966 20,655,551,489
P
=58,904,641,201 =57,457,125,313
P

The movement in lease liability follows:

2021 2020
Balance at January 1 P
=50,871,720,363 =55,648,344,512
P
Additions 19,889,022,821 8,946,485,457
Accretion of interest 1,393,961,056 1,636,252,032
Realized foreign exchange loss (gain) 1,092,398,812 (1,558,531,650)
Payment (13,986,021,079) (13,800,829,988)
Balance at December 31 59,261,081,973 50,871,720,363
Less: Current portion (7,519,083,563) (9,719,834,689)
Noncurrent portion P
=51,741,998,410 =41,151,885,674
P

The maturity analysis of lease liabilities is disclosed in Note 33.

The following are the amounts recognized in the Parent Company’s statements of comprehensive
income:

2021 2020
Amortization expense on right-of-use asset P
=9,357,776,717 P=9,875,368,062
Interest expense on lease liability 1,393,961,056 1,636,252,032
Rent expense on short term leases 756,457,620 683,106,251
P
=11,508,195,393 =
P12,194,726,345

The Parent Company had total cash outflows for leases of P =13,986.0 million and =
P13,800.8 million in
2021 and 2020, respectively. The Parent Company also had non-cash additions to right-of-use asset
and lease liability of =
P19,887.4 million and P
=8,946.5 million as of December 31, 2021 and 2020,
respectively.

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Details of the Parent Company’s lease commitments follows:

Aircraft Lease Commitments

A320 CEO aircraft

The following table summarizes the specific lease agreements on the Parent Company’s Airbus A320
aircraft:

Date of Lease Agreement Lessors No. of Units Lease Expiry

March 2008 Aircraft MSN 3762 LLC 1 January 2022
March 2008 Wells Fargo Trust Company, N.A. 1 October 2023
July 2018 JPA No. 117 Co. Ltd 1 September 2021
July 2018 JPA No. 118 Co. Ltd 1 December 2021
August 2018 JPA No. 119 Co. Ltd 1 June 2022
November 2020 EOS Aviation 6 (Ireland) Limited 3 April 2023 – March 2024
November 2020 EOS Aviation 9 (Ireland) Limited 2 April 2023 – July 2023
December 2021 Avolon Leasing Ireland 3 Limited 5 August 2025 – September 2027
December 2021 Vmo Aircraft Leasing 32 and 33 2 July 2025 – October 2026
(Ireland) Limited

From 2007 to 2008, the Parent Company entered into operating lease agreements with Celestial
Aviation Trading 17/19/23 Limited for five (5) Airbus A320 which were delivered on various dates
from 2007 to 2011. The lease agreements were later on amended to effect the novation of lease rights
from the original lessors to current lessors: Inishcrean Leasing Limited for (1) Airbus A320, GY
Aviation Lease 0905 Co. Limited for two (2) Airbus A320, APTREE Aviation Trading 2 Co. Limited
for one (1) Airbus A320, and Wells Fargo Trust Company, N.A. for one (1) Airbus A320.

In 2015 to 2016, the Parent Company extended the lease agreement with Inishcrean for three (3)
years and with GY Aviation Lease 0905 Co. Limited for two (2) years.

In 2017, the Parent Company entered into lease agreements with ILL for two (2) Airbus A320 and
with JPA No. 78/79/80/81 Co., Ltd for four (4) Airbus A320 (see Note 12).

In 2018, the Parent Company separately extended the lease agreements with APTREE Aviation
Trading 2 Co. Ltd for two (2) years, with Wells Fargo Trust Company, N.A for four (4) years, and
with GY Aviation Lease 0905 Co. Limited for another two (2) years on one aircraft and three (3)
years on the other.

In July and August 2018, the Parent Company entered into lease agreements with JPA No.
117/118/119 Co., Ltd for three (3) Airbus A320.

In May and August 2019, the lease agreements of the two aircraft under GY Aviation Lease 0905 Co.
Limited were amended to effect the novation of lease rights to their current lessors, Aircraft MSN 3762
LLC and Lunar Aircraft Trading Company Limited.

In November 2020, the Parent Company entered into a sale and leaseback agreement with EOS
Aviation 6 (Ireland) Limited for five (5) Airbus A320. The lease portion consists of leases for three
(3) to four (4) years.

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In June 2021, the lease agreements of the two (2) aircrafts under EOS Aviation 6 (Ireland) Limited
were novated to the current lessors, EOS Aviation 9 (Ireland) Limited.

In December 2021, the Parent Company entered into a sale and leaseback agreement with Avolon
Leasing Ireland 3 Limited, Vmo Aircraft Leasing 32 (Ireland) Limited and Vmo Aircraft Leasing 33
(Ireland) Limited for seven (7) Airbus A320. The lease portion consists of leases between three (3) to
five (5) years.

A320NEO aircraft
On July 26, 2018, the Parent Company entered into 8-year lease agreements with Avolon Aerospace
Leasing Limited for five (5) Airbus A320NEO for delivery on various dates within 2019.

The first four (4) Airbus A320NEO aircraft were delivered in June, July, September and October
2019 under Avolon Leasing Ireland 1 Limited as lessor. In November 2019, two (2) out of the four
A320NEO aircraft were amended to effect the novation of lease rights to their current lessor, Orix
Aviation Systems Limited.

In January 2020, the fifth Airbus A320NEO aircraft was delivered with Avolon Leasing Ireland 1
Limited as lessor. In August 2020, the fifth A320NEO aircraft was amended to effect the novation of
lease rights to its current lessor, Avolon Aerospace AOE 184 Limited.

In November 2021, the sixth Airbus A320NEO aircraft was delivered with SMBC Aviation Capital
Limited as lessor.

In December 2021, three (3) A320NEO aircraft were amended to effect the novation of lease rights to
current lessor, SMBC Aviation Capital Limited.

A321NEO aircraft
In November 2020, the Parent Company entered into a 10-year lease agreement with Connolly
Aviation Capital 5 Limited for one (1) A321NEO aircraft which was delivered on
November 17, 2020.

In March 2021, the Parent Company entered into a 10-year lease agreement with JSA Cayman
Leasing, Ltd. for one (1) A321NEO aircraft which was delivered on March 31, 2021.

In May 2021, the Parent Company entered into a 10-year lease agreement with SMBC Aviation
Capital Limited for one (1) A321NEO aircraft which was delivered on May 17, 2021.

ATR 72-600 aircraft

On May 10, 2019, the Parent Company entered into a 10-year lease agreement with an early
termination option on the 8th year with AVAP AIRCRAFT TRADING III PTE. LTD. for one (1)
ATR 72-600. The aircraft was delivered in May 2019.

In December 2021, the Parent Company entered into a 10-year lease agreement with MSO 1628
Leasing Designated Activity Company for one (1) ATR-600 delivered on December 15, 2021.

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A330CEO aircraft
The following table summarizes the specific lease agreements on the Parent Company’s Airbus
A330CEO aircraft:

Date of Lease Agreement Lessors No. of Units Lease Term

February 2012 CIT Aerospace International 1
February 2012 Avolon Aerospace AOE 165 Limited 1
July 2013 A330 MSN 1552 Limited and A330 2 12 years with pre-termination
MSN 1602 Limited option

In February 2012, the Parent Company entered into operating lease agreements with Wells Fargo
Bank Northwest, N.A. for the lease of four (4) Airbus A330. The lease agreements were later on
amended to effect the novation of lease rights from the original lessor to their current lessors: Wells
Fargo Trust Company, N.A. (not in its individual capacity but solely as Owner Trustee), CIT
Aerospace International, and Avolon Aerospace AOE 165 Limited.

In July 2013, the Parent Company entered into aircraft operating lease agreements with Intrepid
Aviation Management Ireland Limited for the lease of two (2) Airbus A330. The lease agreements
have been amended to effect the novation of lease rights by the original lessor to current lessors,
A330 MSN 1552 Limited and A330 MSN 1602 Limited.

The first two (2) Airbus A330 aircraft were delivered in June 2013 and September 2013. Three (3)
Airbus A330 aircraft were delivered in February 2014, May 2014, and September 2014 and one (1)
Airbus A330 aircraft was delivered in March 2015. As of December 31, 2021, the Parent Company
has four (4) Airbus A330 aircraft under operating lease (see Note 12).

A320NEO aircraft
In November and December 2021, the Parent Company entered into 12-year leases with Avolon
Leasing Ireland 3 Limited for two (2) A330NEO aircraft delivered in the same months.

Engine Lease Commitments

The following table summarizes the specific lease agreements on the Parent Company’s engines:

Date of Lease Agreement Lessors No. of Units Lease Term

May 2019 RRPF Engine Leasing Limited 3 6 years with pre-termination
option
September 2020 SMBC Aero Engine Lease B.V. 7 18 months – 8 years

In May 2019, the Parent Company entered into operating lease agreements with RRPF Engine
Leasing Limited for the lease of three (3) Trent 700 engines.

In September and October 2020, the Parent Company entered into operating lease agreements as part
of a sale and leaseback transaction with SMBC Aero Engine Lease B.V for eight (8) CFM56 engines.
The leases have short- and long-term lease arrangements between 18 months to eight (8) years,
respectively.

In December 2021, one (1) CFM56 engine was amended to effect the novation of lease rights to
current lessor, SUNRISE NON-US PO 1 LTD.

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Lease expenses relating to aircraft leases (included in ‘Aircraft and engine lease’ account in the
Parent Company’s statements of comprehensive income) amounted to = P443.5 million and
=284.7 million in 2021 and 2020, respectively.
P

In 2021 and 2020, the Parent Company has restricted cash deposited with certain banks to secure
standby letters of credit issued in favor of lessors (see Note 7).

Future minimum lease payments under the above-indicated operating aircraft and engine leases
follow:

2021 2020
Philippine Peso Philippine Peso
US Dollar Equivalent US Dollar Equivalent
Within one year US$116,348,826 P
=5,933,673,803 US$133,699,675 =6,420,659,489
P
After one year but not more than
five years 353,191,108 18,012,393,317 184,604,128 8,865,244,056
Over five years 237,732,932 12,124,141,820 54,027,209 2,594,548,640
US$707,272,866 P
=36,070,208,940 US$372,331,012 =17,880,452,185
P

Non-Aircraft Lease Commitments

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

Future minimum lease payments under these non-cancellable leases follow:

2021 2020
Within one year P
=217,233,256 =224,965,425
P
After one year but not more than five years 920,545,458 948,093,648
Over five years 4,596,404,352 4,644,065,119
P
=5,734,183,066 =5,817,124,192
P

Lease expenses relating to both cancellable and noncancellable non-aircraft leases (allocated under
different expense accounts in the Parent Company’s statements of comprehensive income) amounted
to =
P313.0 million and =
P398.4 million in 2021 and 2020, respectively.

Service Maintenance Commitments

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

On June 22, 2012, the Parent Company has entered into service contract with Rolls-Royce Total Care
Services Limited (Rolls-Royce) for service support for the engines of the Airbus A330 aircraft.
Rolls-Royce will provide long-term Total Care service support for the Trent 700 engines on up to
eight (8) Airbus A330 aircraft. Contract term shall be from delivery of the first A330 until the
redelivery of the last Airbus A330.

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

Aircraft and Spare Engine Purchase Commitments

In August 2011, the Parent Company entered in a commitment with Airbus S.A.S. to purchase firm
orders of 32 new Airbus A321NEO aircraft and ten additional option orders. These aircraft are
scheduled to be delivered from 2019 to 2023.

On June 28, 2012, the Parent Company has entered into an agreement with United Technologies
International Corporation Pratt & Whitney Division to purchase new PurePower® PW1100G-JM
engines for its 32 firm and ten (10) optional A321NEO aircraft. The agreement also includes an
engine maintenance services program for a period of ten (10) years from the date of entry into service
of each engine.

On October 20, 2015, the Parent Company entered into a Sale and Purchase Contract with Avions
Transport Regional G.I.E. to purchase 16 firm ATR 72-600 aircraft and up to ten (10) additional
option orders. These aircraft are scheduled for delivery from 2016 to 2022. Two (2) ATR 72-600
were delivered in 2016, six (6) in 2017, and four (4) in 2018, totaling to 12 ATR 72-600 aircraft
delivered as of December 31, 2018.

On June 6, 2017, the Parent Company placed an order with Airbus S.A.S to purchase seven (7) new
Airbus A321 CEO aircraft, all of which were delivered in 2018.

On June 14, 2018, the Parent Company has entered into an Aircraft Conversion Services Agreement
with IPR Conversions (Switzerland) Limited to convert two (2) ATR 72-500 aircraft from passenger
to freighter for delivery in 2019.

On July 26, 2018, the Parent Company entered into operating lease agreements with Avolon
Aerospace Leasing Limited for five (5) Airbus A320NEO aircraft for delivery on various dates within
2019.

On October 31, 2019, the Parent Company placed an order with Airbus S.A.S to purchase sixteen
(16) Airbus A330 NEO aircraft. Consequently, on November 29, 2019, the Parent Company entered
into agreements with Rolls-Royce PLC for the purchase of spare Trent 7000 engines and for the
provision of Total Care life services and other services required in connection with the 16 A330NEO
aircraft.

On December 19, 2019, the Parent Company placed an additional order with Airbus S.A.S for 15
A320NEO family aircraft which includes up to ten (10) A321XLR.

As of December 31, 2021, the Parent Company is set to take delivery of 14 A330 NEO aircraft, 12
A321 NEO aircraft, 15 A320 NEO aircraft, ten (10) A321XLR aircraft and two (2) ATR 72-600
aircraft until 2027.

The above-indicated commitments relate to the Parent Company’s re-fleeting and expansion
programs. These agreements remained in effect as of December 31, 2021.

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Capital Expenditure Commitments

The Parent Company’s capital expenditure commitments relate principally to the acquisition of
aircraft fleet, aggregating to =
P183,849.0 million and =
P154,139.7 million as of December 31, 2021 and
2020, respectively.

2021 2020
Philippine Peso Philippine Peso
US Dollar Equivalent US Dollar Equivalent
Within one year US$644,167,004 = 32,851,873,013
P US$659,224,287 =31,657,927,948
P
After one year but not more than
five years 2,960,785,854 150,997,117,770 2,550,481,846 122,481,789,707
US$3,604,952,858 =
P183,848,990,783 US$3,209,706,133 =154,139,717,655
P

The Parent Company is actively engaged in planning and executing various measures to mitigate the
impact of COVID-19 pandemic on its business operations, including negotiations with key suppliers
on its capital expenditure commitments and related cash flows disclosed above.

Contingencies
The Parent Company has pending suits, claims and contingencies which are either pending decisions
by the courts or being contested or under evaluation, the outcome of which are not presently
determinable. The information required by PAS 37, Provisions, Contingent Liabilities and
Contingent Assets, is not disclosed until final settlement, on the ground that it might prejudice the
Parent Company’s position (see Note 16).

34. Supplemental Disclosures to the Parent Company Statements of Cash Flows

The changes in liabilities arising from financing activities in 2021 and 2020 are as follows:
January 1, Foreign exchange December 31,
2021 Cash Flows movement Others* 2021
Short-term debt = 4,802,300,000
P (P
=557,692,500) = 217,805,000
P =−
P =
P4,462,412,500
Current portion of long-term debt 1,333,333,321 (1,333,333,333) ‒ 1,333,333,345 1,333,333,333
Long-term debt – net of current portion 18,845,791,771 ‒ ‒ (1,333,333,345) 17,512,458,426
Bonds payable ‒ 11,782,473,335 759,069,399 (356,706,608) 12,184,836,126
Lease liability 50,871,720,363 (13,986,021,079) 1,092,398,812 21,282,983,877 59,261,081,973
Total liabilities from
financing activities = 75,853,145,455 (P
P =4,094,573,577) = 2,069,273,211 P
P = 20,926,277,269 = P94,754,122,358
*Others consist of reclassification of loans and borrowings from noncurrent to current, additional lease liability, accretion of interest, bifurcation of embedded
derivative from convertible bonds and amortization of bond issue costs

January 1, Foreign exchange December 31,

2020 Cash Flows movement Others* 2020
Short-term debt =−
P =4,839,600,000
P (P
=37,300,000) =−
P =4,802,300,000
P
Current portion of long-term debt 2,612,028,929 (2,070,132,808) ‒ 791,437,200 1,333,333,321
Long-term debt – net of current portion 15,637,228,971 4,000,000,000 ‒ (791,437,200) 18,845,791,771
Lease liability 55,648,344,512 (13,800,829,988) (1,558,531,650) 10,582,737,489 50,871,720,363
Total liabilities from
financing activities =73,897,602,412
P (P
=7,031,362,796) (P
=1,595,831,650) =10,582,737,489
P =75,853,145,455
P
*Others consist of reclassification of loans and borrowings from noncurrent to current, additional lease liability and accretion of interest

There are no principal noncash operating, investing and financing activities in 2021 and 2020.

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35. Registration with the BOI

As of December 31, 2021, the Parent Company is registered with the BOI as an operator of air
transport on a non-pioneer status for five (5) Airbus 320 CEO, 19 Airbus A320 NEO, seven (7)
Airbus A321 CEO, 21 Airbus A321 NEO, two (2) Airbus A330 and 15 Airbus A330 NEO aircraft.

Moreover, the Parent Company has formally requested from the BOI for a 2-year deferment of its
ITH incentives (effectively, for years 2020 and 2021), for 26-registered aircraft currently in operation,
thereby preserving their remaining ITH entitlement period. This has been duly approved by the BOI
on March 10, 2021. This will provide the Parent Company with improved financial resiliency as it
navigates the challenges brought about by the COVID-19 pandemic.

Based on the terms of the registration and subject to certain requirements, the Parent Company is
entitled to the following fiscal and non-fiscal incentives (see Notes 1, 12 and 28):

a. An ITH for a period of two to six years.

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

positions for five years from date of registration.

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

Importation of capital equipment, spare parts and accessories at zero (0) duty under E.O. No. 22,
No. 57, or No. 85, and related Implementing Rules and Regulations, as applicable.

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

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

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

f. Simplification of customs procedures for the importation of equipment, spare parts, raw materials
and suppliers.

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g. Importation of consigned equipment for a period of ten years from date of registration subject to
posting of re-export bond.

As of December 31, 2021 and 2020, the Parent Company has complied with capital requirements set
by the BOI in order to avail the ITH incentives for aircraft of registered activity.

36. Approval of the Parent Company’s Financial Statements

The Parent Company’s financial statements were approved and authorized for issue by the BOD on
March 30, 2022.

37. Standards Issued But Not Yet Effective

Pronouncements issued but not yet effective are listed below. The Parent Company intends to adopt
the following pronouncements when they become effective. The adoption of these pronouncements
is not expected to have a significant impact on the Parent Company’s financial statements unless
otherwise indicated.

Effective beginning on or after January 1, 2022

 Amendments to PFRS 3, Reference to the Conceptual Framework

The amendments are intended to replace a reference to the Framework for the Preparation and
Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual
Framework for Financial Reporting issued in March 2018 without significantly changing its
requirements. The amendments added an exception to the recognition principle of PFRS 3,
Business Combinations to avoid the issue of potential ‘day 2’gains or losses arising for liabilities
and contingent liabilities that would be within the scope of PAS 37, Provisions, Contingent
Liabilities and Contingent Assets or Philippine-IFRIC 21, Levies, if incurred separately.

At the same time, the amendments add a new paragraph to PFRS 3 to clarify that contingent
assets do not qualify for recognition at the acquisition date.

The amendments are effective for annual reporting periods beginning on or after January 1, 2022
and apply prospectively. The Parent Company is still assessing the impact of the amends to the
Parent Company’s financial statements.

 Amendments to PAS 16, Plant and Equipment: Proceeds before Intended Use

The amendments prohibit entities deducting from the cost of an item of property, plant and
equipment, any proceeds from selling items produced while bringing that asset to the location and
condition necessary for it to be capable of operating in the manner intended by management.
Instead, an entity recognizes the proceeds from selling such items, and the costs of producing
those items, in profit or loss.

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The amendment is effective for annual reporting periods beginning on or after January 1, 2022
and must be applied retrospectively to items of property, plant and equipment made available for
use on or after the beginning of the earliest period presented when the entity first applies the
amendment.

The amendments are not expected to have a material impact on the Parent Company.

 Amendments to PAS 37, Onerous Contracts – Costs of Fulfilling a Contract

The amendments specify which costs an entity needs to include when assessing whether a
contract is onerous or loss-making. The amendments apply a “directly related cost approach”.
The costs that relate directly to a contract to provide goods or services include both incremental
costs and an allocation of costs directly related to contract activities. General and administrative
costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to
the counterparty under the contract.

The amendments are effective for annual reporting periods beginning on or after January 1, 2022.
The Parent Company will apply these amendments to contracts for which it has not yet fulfilled
all its obligations at the beginning of the annual reporting period in which it first applies the
amendments.

The amendments are not expected to have a material impact on the Parent Company.

 Annual Improvements to PFRSs 2018-2020 Cycle

 Amendments to PFRS 1, First-time Adoption of Philippines Financial Reporting Standards,

Subsidiary as a first-time adopter

The amendment permits a subsidiary that elects to apply paragraph D16(a) of PFRS 1 to
measure cumulative translation differences using the amounts reported by the parent, based
on the parent’s date of transition to PFRS. This amendment is also applied to an associate or
joint venture that elects to apply paragraph D16(a) of PFRS 1.

The amendment is effective for annual reporting periods beginning on or after

January 1, 2022 with earlier adoption permitted. The amendments are not expected to have a
material impact on the Parent Company.

 Amendments to PFRS 9, Financial Instruments, Fees in the ’10 per cent’ test for
derecognition of financial liabilities

The amendment clarifies the fees that an entity includes when assessing whether the terms of
a new or modified financial liability are substantially different from the terms of the original
financial liability. These fees include only those paid or received between the borrower and
the lender, including fees paid or received by either the borrower or lender on the other’s
behalf. An entity applies the amendment to financial liabilities that are modified or
exchanged on or after the beginning of the annual reporting period in which the entity first
applies the amendment.

The amendment is effective for annual reporting periods beginning on or after

January 1, 2022 with earlier adoption permitted. The Parent Company will apply the
amendments to financial liabilities that are modified or exchanged on or after the beginning

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of the annual reporting period in which the entity first applies the amendment. The
amendments are not expected to have a material impact on the Parent Company.

 Amendments to PAS 41, Agriculture, Taxation in fair value measurements

The amendment removes the requirement in paragraph 22 of PAS 41 that entities exclude
cash flows for taxation when measuring the fair value of assets within the scope of
PAS 41.

An entity applies the amendment prospectively to fair value measurements on or after the
beginning of the first annual reporting period beginning on or after January 1, 2022 with
earlier adoption permitted. The amendments are not expected to have a material impact on
the Parent Company.

Effective beginning on or after January 1, 2023

 Amendments to PAS 12, Deferred Tax related to Assets and Liabilities arising from a Single
Transaction

The amendments narrow the scope of the initial recognition exception under PAS 12, so that it no
longer applies to transactions that give rise to equal taxable and deductible temporary differences.

The amendments also clarify that where payments that settle a liability are deductible for tax
purposes, it is a matter of judgement (having considered the applicable tax law) whether
such deductions are attributable for tax purposes to the liability recognized in the financial
statements (and interest expense) or to the related asset component (and interest expense).

An entity applies the amendments to transactions that occur on or after the beginning of the
earliest comparative period presented for annual reporting periods on or after January 1, 2023.

The Parent Company is still assessing the impact of the amends to the Parent Company’s
financial statements.

 Amendments to PAS 8, Definition of Accounting Estimates

The amendments introduce a new definition of accounting estimates and clarify the distinction
between changes in accounting estimates and changes in accounting policies and
the correction of errors. Also, the amendments clarify that the effects on an accounting estimate
of a change in an input or a change in a measurement technique are changes in accounting
estimates if they do not result from the correction of prior period errors.

An entity applies the amendments to changes in accounting policies and changes in accounting
estimates that occur on or after January 1, 2023 with earlier adoption permitted. The amendments
are not expected to have a material impact on the Parent Company.

 Amendments to PAS 1 and PFRS Practice Statement 2, Disclosure of Accounting Policies

The amendments provide guidance and examples to help entities apply materiality judgements to
accounting policy disclosures. The amendments aim to help entities provide accounting policy
disclosures that are more useful by:

 Replacing the requirement for entities to disclose their ‘significant’ accounting policies with a
requirement to disclose their ‘material’ accounting policies, and
 Adding guidance on how entities apply the concept of materiality in making decisions about
accounting policy disclosures

*SGVFS163038*
- 101 -

The amendments to the Practice Statement provide non-mandatory guidance. Meanwhile, the
amendments to PAS 1 are effective for annual periods beginning on or after January 1, 2023.
Early application is permitted as long as this fact is disclosed. The Parent Company is still
assessing the impact of the amends to the Parent Company’s financial statements.

Effective beginning on or after January 1, 2024

 Amendments to PAS 1, Classification of Liabilities as Current or Non-current

The amendments clarify paragraphs 69 to 76 of PAS 1, Presentation of Financial Statements, to

specify the requirements for classifying liabilities as current or non-current. The amendments
clarify:
 What is meant by a right to defer settlement
 That a right to defer must exist at the end of the reporting period
 That classification is unaffected by the likelihood that an entity will exercise its deferral right
 That only if an embedded derivative in a convertible liability is itself an equity instrument
would the terms of a liability not impact its classification

The amendments are effective for annual reporting periods beginning on or after January 1, 2024
and must be applied retrospectively. The Parent Company is currently assessing the impact the
amendments will have on current practice and whether existing loan agreements may require
renegotiation.

Effective beginning on or after January 1, 2025

 PFRS 17, Insurance Contracts
PFRS 17 is a comprehensive new accounting standard for insurance contracts covering
recognition and measurement, presentation and disclosure. Once effective, PFRS 17 will replace
PFRS 4, Insurance Contracts. This new standard on insurance contracts applies to all types of
insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of
entities that issue them, as well as to certain guarantees and financial instruments with
discretionary participation features. A few scope exceptions will apply.

The overall objective of PFRS 17 is to provide an accounting model for insurance contracts that
is more useful and consistent for insurers. In contrast to the requirements in PFRS 4, which are
largely based on grandfathering previous local accounting policies, PFRS 17 provides a
comprehensive model for insurance contracts, covering all relevant accounting aspects. The core
of PFRS 17 is the general model, supplemented by:
 A specific adaptation for contracts with direct participation features (the variable fee
approach)
 A simplified approach (the premium allocation approach) mainly for short-duration contracts

PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, with
comparative figures required. Early application is permitted. The amendments are not expected
to have a material impact on the Parent Company.

Deferred Effectivity
 Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of
control of a subsidiary that is sold or contributed to an associate or joint venture. The
amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint
venture involves a business as defined in PFRS 3, Business Combinations. Any gain or loss

*SGVFS163038*
- 102 -

resulting from the sale or contribution of assets that does not constitute a business, however, is
recognized only to the extent of unrelated investors’ interests in the associate or joint venture.

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

38. Events After the Reporting Period

Listing of Vested RSUs

On January 20, 2022, the Parent Company advised the Philippine stock exchange that 1,094,000
common shares have been availed under Restricted Stock Units of its Long-Term Incentive Plan.
These shares were listed on January 21, 2022. The RSUs vested on December 31, 2021
(see Note 23).

Continuing COVID-19 Outbreak

On April 28, 2021, the Philippine Government extended the MECQ until May 14, 2021. On
May 13, 2021, the Office of the President announced that Metro Manila and 4 adjacent provinces will
shift to general community quarantine (GCQ) with heightened restrictions until May 31, 2021 and
then eventually extended until June 15, 2021. On June 29, 2021, the President of the Philippines
approved the recommendation of the Inter-Agency Task Force on emerging Infectious Diseases
(IATF) to extend the general community quarantine in “NCR Plus” until July 15, 2021 and
subsequently extended until July 31, 2021. NCR stayed under GCQ until August 5, 2021. Beginning
August 6, 2021, the classification of the NCR was escalated to Enhanced Community Quarantine
until August 20, 2021. The IATF decided to ease the strict lockdown in NCR beginning
August 21, 2021 lowering the status in both areas to a modified enhanced community quarantine
(MECQ) until September 7, 2021. The risk level classification of NCR as MECQ was maintained
until September 15, 2021.

IATF imposed new classification framework which focuses on the imposition of granular lockdown
measures. Community quarantines were reduced to either ECQ or GCQ with the latter having an
Alert Level System (Alert level 1 to 4) with each Alert Level limiting restrictions to identified risk
activities. The pilot area for this policy shall be the NCR which started from September 16, 2021
until September 30, 2021 wherein NCR was placed under the GCQ Alert Level 4 which was
subsequently extended until October 15, 2021. IATF placed NCR under Alert Level 3 starting
October 16, 2021 until November 4, 2021. IATF placed NCR under Alert Level 2 starting
November 5, 2021 until January 2, 2022. Furthermore, Alert Level classification of NCR was
escalated to Alert Level 3 starting January 3, 2022 until January 15, 2022 and subsequently extended
until January 31, 2022. Subsequently, NCR was placed to Alert Level 2 starting February 1, 2022
until February 28, 2022. On February 27, 2022, IATF placed NCR under Alert level 1 starting
March 1, 2022. These measures have caused disruptions to the businesses and economic activities,
and its impact on businesses continue to evolve.

Likewise, government authorities in other countries where the Parent Company operates certain
flights, continued to adopt measures, including lockdowns, to control the continuing spread of the
virus and mitigate the impact of the outbreak.

*SGVFS163038*
- 103 -

The scale and duration of these developments remain uncertain as at the report date. The COVID-19
pandemic could have a material impact on the Parent Company’s financial results for the rest of 2022
and even periods thereafter. Considering the evolving nature of the pandemic, the Parent Company
will continue to monitor the situation.

*SGVFS163038*
SyCip Gorres Velayo & Co. Tel: (632) 8891 0307
6760 Ayala Avenue Fax: (632) 8819 0872
1226 Makati City ey.com/ph
Philippines

INDEPENDENT AUDITOR’S REPORT

ON SUPPLEMENTARY SCHEDULES

The Board of Directors and the Stockholders

Cebu Air, Inc.
Level 4, Unit 4030-4031, Robinsons Galleria Cebu
General Maxilom Avenue cor. Sergio Osmeña Boulevard, Cebu City, Cebu

We have audited, in accordance with Philippine Standards on Auditing, the parent company financial
statements of Cebu Air, Inc. (the Parent Company) as at December 31, 2021 and 2020 and for the years
then ended and have issued our report thereon dated March 30, 2022. Our audits were made for the
purpose of forming an opinion on the basic parent company financial statements taken as a whole. The
schedules listed in the Index to Parent Company Financial Statements and Supplementary Schedules are
the responsibility of the Parent Company’s management. These schedules are presented for purposes of
complying with the Revised Securities Regulation Code Rule 68, and are not part of the basic parent
company financial statements. These schedules have been subjected to the auditing procedures applied in
the audit of the basic parent company financial statements and, in our opinion, fairly state, in all material
respects, the financial information required to be set forth therein in relation to the basic parent company
financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Wenda Lynn M. Loyola

Partner
CPA Certificate No. 109952
Tax Identification No. 242-019-387
BOA/PRC Reg. No. 0001, August 25, 2021, valid until April 15, 2024
SEC Partner Accreditation No. 109952-SEC (Group A)
Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions
SEC Firm Accreditation No. 0001-SEC (Group A)
Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions
BIR Accreditation No. 08-001998-117-2022, January 20, 2022, valid until January 19, 2025
PTR No. 8854316, January 3, 2022, Makati City

March 30, 2022

*SGVFS163038*
A member firm of Ernst & Young Global Limited
SyCip Gorres Velayo & Co. Tel: (632) 8891 0307
6760 Ayala Avenue Fax: (632) 8819 0872
1226 Makati City ey.com/ph
Philippines

INDEPENDENT AUDITOR’S REPORT

COMPONENTS OF FINANCIAL SOUNDNESS INDICATORS

The Board of Directors and the Stockholders

Cebu Air, Inc.
Level 4, Unit 4030-4031, Robinsons Galleria Cebu
General Maxilom Avenue cor. Sergio Osmeña Boulevard, Cebu City, Cebu

We have audited in accordance with Philippine Standards on Auditing, the parent company financial
statements of Cebu Air, Inc. ( the Parent Company ) as at December 31, 2021 and 2020 and for the years
then ended December 31, 2021, and have issued our report thereon dated March 30, 2022. Our audits
were made for the purpose of forming an opinion on the basic parent company financial statements taken
as a whole. The Supplementary Schedule on Financial Soundness Indicators, including their definitions,
formulas, calculation, and their appropriateness or usefulness to the intended users, are the responsibility
of the Parent Company’s management. These financial soundness indicators are not measures of
operating performance defined by Philippine Financial Reporting Standards (PFRSs) and may not be
comparable to similarly titled measures presented by other companies. This schedule is presented for the
purpose of complying with the Revised Securities Regulation Code Rule 68 issued by the Securities and
Exchange Commission, and is not a required part of the basic parent company financial statements
prepared in accordance with PFRS. The components of these financial soundness indicators have been
traced to the Parent Company’s financial statements as at December 31, 2021 and 2020 and for the years
then ended December 31, 2021 and no material exceptions were noted.

Wenda Lynn M. Loyola

Partner
CPA Certificate No. 109952
Tax Identification No. 242-019-387
BOA/PRC Reg. No. 0001, August 25, 2021, valid until April 15, 2024
SEC Partner Accreditation No. 109952-SEC (Group A)
Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions
SEC Firm Accreditation No. 0001-SEC (Group A)
Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions
BIR Accreditation No. 08-001998-117-2022, January 20, 2022, valid until January 19, 2025
PTR No. 8854316, January 3, 2022, Makati City

March 30, 2022

*SGVFS163038*
A member firm of Ernst & Young Global Limited
CEBU AIR, INC.
INDEX TO PARENT COMPANY FINANCIAL STATEMENTS AND
SUPPLEMENTARY SCHEDULES

PARENT COMPANY FINANCIAL STATEMENTS

Statement of Management’s Responsibility for Financial Statements

Report of Independent Auditors

Parent Company Statements of Financial Position as of December 31, 2021 and 2020

Parent Company Statements of Comprehensive Income for the Years Ended

December 31, 2021 and 2020

Parent Company Statements of Changes in Equity for the Years Ended December 31, 2021 and 2020

Parent Company Statements of Cash flows for the Years Ended December 31, 2021 and 2020

SUPPLEMENTARY SCHEDULES

Report of Independent Auditors on Supplementary Schedules

I. Supplementary schedules required by Annex 68-E

A. Financial Assets (Current Marketable Equity and Debt Securities and Other Short-Term Cash
Investments)
B. Amounts Receivable from Directors, Officers, Employees,
Related Parties and Principal Stockholders (Other than Related Parties)
C. Noncurrent Marketable Equity Securities, Other Long-Term
Investments in Stocks and Other Investments*
D. Indebtedness of Unconsolidated Subsidiaries and Affiliates*
E. Property, Plant and Equipment
F. Accumulated Depreciation
G. Intangible Assets and Other Assets
H. Finance Lease Obligation
I. Indebtedness to Affiliates and Related Parties
J. Guarantees of Securities of Other Issuers*
K. Capital Stock
*These schedules, which are required by SRC Rule 68, have been omitted because they are either not required, not
applicable or the information required to be presented is included/shown in the related parent company financial
statements or in the notes thereto.
-2-

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

III. Reconciliation of Retained Earnings Available for Dividend Declaration

IV. Map of the relationships of the companies within the group

V. Schedule of Financial Ratios

VI. Schedule for Listed Companies with a Recent Offering of Securities to the Public
(Annex 68-I)
CEBU AIR, INC.
SCHEDULE A - FINANCIAL ASSETS
(CURRENT MARKETABLE EQUITYAND DEBT SECURITIES AND OTHER SHORT-TERM CASH INVESTMENTS)
DECEMBER 31, 2021

Amount Shown in Value Based on

Name of Issuing Entity and the Balance Sheet/ Market Quotations Income Received and
Description of Each Issue Notes at Balance Sheet Date Accrued

Various / USD Short-term cash investments =12,202,855,932

P =12,202,855,932
P P–
=
Various / PHP Short-term cash investments 2,776,921,627 2,776,921,627 –
Various / KRW Short-term cash investments 461,160,000 461,160,000 –
=15,440,937,559
P =15,440,937,559
P =–
P

Derivative financial liabilities (conversion

option) =1,730,960,768
P =1,730,960,768
P =–
P

See Notes 7 and 8 of the Parent Company Financial Statements.

CEBU AIR, INC.
SCHEDULE B
AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES AND PRINCIPAL STOCKHOLDERS
(OTHER THAN RELATED PARTIES)
DECEMBER 31, 2021

Balance Balance at End of Period

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

Various employees =28,101,883

P =41,729,883
P =33,725,230
P =–
P =36,106,536
P =–
P =36,106,536
P
CEBU AIR, INC.
SCHEDULE F – PROPERTY AND EQUIPMENT
DECEMBER 31, 2021

Balance Balance
at Beginning Additions Disposals and at End
Classification of Period at Cost Reclassification Others of Period

Passenger Aircraft P29,879,013,292

= =232,317,870
P =283,205,860
P (P
=958,411,246) =29,436,125,776
P
Engines 15,082,020,625 93,790,267 ‒ (2,636,775,875) 12,539,035,017
Rotables 6,579,826,541 180,270,422 ‒ (296,667,267) 6,463,429,696
EDP Equipment, Mainframe and
Peripherals 1,260,598,560 25,511,619 10,520,525 ‒ 1,296,630,704
Ground Support Equipment 1,515,231,908 20,579,976 ‒ (89,417,547) 1,446,394,337
Leasehold Improvements 1,914,954,604 ‒ 67,611,627 ‒ 1,982,566,231
Transportation Equipment 493,446,329 ‒ ‒ (35,583,912) 457,862,417
Furniture, Fixtures and Office
Equipment 323,177,355 7,031,477 ‒ (21,241) 330,187,591
Special Tools 17,953,976 ‒ ‒ ‒ 17,953,976
Communication Equipment 33,899,255 ‒ ‒ ‒ 33,899,255
Maintenance and Test Equipment 6,529,598 2,830,721 ‒ ‒ 9,360,319
Other Equipment 252,254,126 4,726,923 ‒ (109,230) 256,871,819
Construction In-progress 16,304,443,742 4,927,959,428 (361,338,012) (6,163,123,001) 14,707,942,157
=73,663,349,911
P =5,495,018,703
P =‒
P (P
=10,180,109,319) =68,978,259,295
P
See Note 12 of the Parent Company Financial Statements.
CEBU AIR, INC.
SCHEDULE G - ACCUMULATED DEPRECIATION
DECEMBER 31, 2021

Balance Depreciation Balance

at Beginning and Disposals and at End
Description of Period Amortization Reclassification Others of Period

Passenger Aircraft =15,377,206,647

P P2,303,651,214
= ‒ (P
=898,400,460) =16,782,457,401
P
Engines 1,980,777,854 1,630,403,684 ‒ (2,578,728,822) 1,032,452,716
Rotables 1,836,740,783 425,012,713 ‒ (269,117,992) 1,992,635,504
EDP Equipment, Mainframe and
Peripherals 1,153,683,016 70,777,542 ‒ ‒ 1,224,460,558
Ground Support Equipment 941,184,425 193,052,131 ‒ (67,396,132) 1,066,840,424
Leasehold Improvements 1,039,228,474 151,447,173 ‒ ‒ 1,190,675,647
Transportation Equipment 345,533,629 53,798,925 ‒ (33,943,027) 365,389,527
Furniture, Fixtures and Office
Equipment 251,552,084 31,516,875 ‒ (21,241) 283,047,718
Special Tools 16,252,733 698,444 ‒ ‒ 16,951,177
Communication Equipment 29,433,736 2,485,660 ‒ ‒ 31,919,396
Maintenance and Test Equipment 6,511,684 436,287 ‒ ‒ 6,947,971
Other Equipment 148,894,786 32,595,060 ‒ (75,267) 181,414,579
=23,126,999,851
P =4,895,875,708
P ‒ (P
=3,847,682,941) =24,175,192,618
P
See Note 12 of the Parent Company Financial Statements.
CEBU AIR, INC.
SCHEDULE H - LONG-TERM DEBT
DECEMBER 31, 2021

Amount Shown
Amount Shown
under Caption
under Caption "
"Current Portion of
Finance Lease
Finance Lease
Obligation" and
Title of Issue and Obligation" and
“Long-term Debt”
Type of Obligation Interest Rates Maturity Dates “Long-term Debt” in
in Related Balance
Related Balance
Sheet
Sheet

2.00% to 5.00% Various dates

Commercial loans from banks (PH BVAL) Through 2028 =1,333,333,333
P =17,512,458,426
P

Amount Shown
Title of Issue and under Caption
"Bonds Payable" in
Type of Obligation Interest Rates Maturity Dates Related Balance
Sheet

4.5% May 10, 2027 =12,184,836,126

P
Convertible bonds

See Notes 18 and 19 of the Parent Company Financial Statements.

CEBU AIR, INC.
SCHEDULE K
CAPITAL STOCK
DECEMBER 31, 2021

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

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

Common Stock 1,340,000,000 612,055,727 11,165,846 407,412,031 1,545,131 203,098,565

Preferred Stock 400,000,000 317,208,341 − 245,181,064 – 72,027,277

See Notes 22 and 23 of the Parent Company Financial Statements.

CEBU AIR, INC.
SUPPLEMENTARY SCHEDULE OF RETAINED EARNINGS
AVAILABLE FOR DIVIDEND DECLARATION
FOR THE YEAR ENDED DECEMBER 31, 2021

The table below presents the retained earnings available for dividend declaration as of
December 31, 2021:

Unappropriated Retained Earnings, beginning =1,152,497,073

P
Adjustments:
Fair value adjustment arising from fuel hedging gains 687,719,120
Unrealized foreign exchange gains (2,252,410,823)
Gain on remeasurement (182,458,444)
Recognized deferred tax assets (4,094,221,554)
Treasury stock (950,881,502) (6,792,253,203)
Unappropriated Retained Earnings, as adjusted to available for
dividend distribution, beginning (5,639,756,130)

Add (deduct): Net income actually earned/realized during the year:

Net loss during the period closed to Retained Earnings (23,831,023,785)
Recognized deferred tax asset (1,421,495,590)
Market valuation losses on derivative financial instruments 1,318,117,077
Impairment loss 43,713,922
Unrealized foreign exchange gains (15,604,018) (23,906,292,394)
(29,546,048,524)
Less:
Reversal of appropriations 12,000,000,000
Total Retained Earnings available for dividend declaration
as of December 31, 2021 (P
=17,546,048,524)
CEBU AIR, INC.
SCHEDULE OF FINANCIAL RATIOS
FOR THE YEARS ENDED DECEMBER 31, 2021 and 2020

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

Formula

2021 2020
Liquidity Ratios
Current assets 76% 31%
Current Ratio Current liabilities

Current assets – Inventories and other

Quick Ratio current assets 62% 18%
Current liabilities

Capital Structure Ratios

Asset to Equity Ratio (x) Total assets 13.38 5.87
Total equity

Interest Coverage Ratio (x) Total revenues – Operating expenses (7.73) (7.89)
Interest Expense

Profitability Ratios
Total revenues – Operating expenses +
Depreciation and amortization + Provision
for asset retirement obligation + Aircraft
EBITDAR Margin and engine lease expense (16%) 1%
Total Revenue

EBIT Margin Total revenues – Operating expenses (136%) (87%)

Total revenues

Total revenues – Operating expenses +

Interest Income – Interest expense + (-)
Pre-tax core net income Equity in net income (loss) of joint
margin ventures and associates (153%) (98%)
Total revenue

Return on asset Net income (loss) (18%) (15%)

Average total assets

Return on equity Net income (loss) (152%) (67%)

Average total equity
CEBU AIR, INC.
MAP OF THE RELATIONSHIPS OF THE COMPANIES
WITHIN THE GROUP
FOR THE YEAR ENDED DECEMBER 31, 2021
JG SUMMIT HO LDING S,
INC. & SUBSIDIARIES

JG SUMMIT HO LDING S,
INC. (Parent)

100%

JG Summit JG Summit
Universal Robina Robinsons Land CP Air Holdings, JG Summit JG Digital Equity Unicon Insurance
JG Summit Petrochemical O lefins Merbau Altus Property
Corporation & Corporation & Inc. & Philippines, Ltd. & Ventures, Inc. & Brokers
(Cayman), Ltd. Corporation & Corporation & Corporation Ventures, Inc.
Subsidiaries Subsidiaries Subsidiaries Subsidiaries Subsidiaries Corporation
S ubsidiary Subsidiary
55.25% 60.97% 100% 100% 100% 100% 100% 100% 100% 84% 64.70%

Batangas Agro-
JG Summit Capital Industrial JG Summit
Data Analytics
Services Corp & Development Infrastructure
Ventures, Inc.
Subsidiaries Corporation & Holdings Corp
Subsidiaries
100% 100% 100% 45.20%

Oriental Luzon International DHL Summit

CP Air Holdings, Inc. G oTyme Bank Manila Electric
Petroleum and Premiere Airport Dev. Solutions,Inc.
(Parent) Corporation Company
Minerals Corp. Corp. (LIPAD) (DSSI)
100% 24.19% 29.56% 19.40% 33% 50%

Special Purpose Entities

- SCALL - DBL
- TOADAC - MLCL
- SDALL - CLCL Cebu Air, Inc.
- CL - DENL
- SLCL - TLCL 66.60%
- RALL

Value
Philippine 1Aviation
Alliance
Data Analytics Academy for G roundhandling
Travel
Ventures, Inc. Aviation Services
System Pte.
Training, Inc. Corporation
Ltd
40% 60% 40% 13%
CEBU AIR, INC.
SCHEDULE FOR LISTED COMPANIES WITH A RECENT OFFERING OF
SECURITIES TO THE PUBLIC
FOR THE YEAR ENDED DECEMBER 31, 2021

The information below is in connection with the Stock Rights Offering (SRO) covering 328,947,368
Convertible Preferred Shares of Cebu Air, Inc. listed at the PSE on March 29, 2021.

Note: Amounts are in millions

1. Gross and net proceeds as discussed in the final prospectus

Gross proceeds P12,500.00

=
Net proceeds =12,430.57
P

2. Actual gross and net proceeds

Gross proceeds P12,500.00

=
Net proceeds =12,438.27
P

3. Each expenditure item where the proceeds were used

Offer-Related Expenses
PSE listing fees P28.00
=
Legal and audit fees 20.23
SEC confirmation of exempt transaction 12.60
Other expenses 0.90 61.73

Use of net proceeds

JGSPL advance repayment 4,791.80
Operating lease payment 3,912.98
Principal debt repayment 3,349.48
General corporate purposes (passenger refunds) 384.01 12,438.27
Total P12,500.00
=

4. Balance of the proceeds as of end of reporting period : =

P0.00

Unutilized portion of the proceeds was used for principal debt repayment. As of
December 31, 2021, the proceeds of the SRO have been fully deployed.