C O V E R S H E E T
for
UNAUDITED FINANCIAL STATEMENTS
SEC Registration Number
1 5 4 6 7 5
C O M P A N Y N A M E
C E B U A I R , I N C . A N D S U B S I D I A R I E S
PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province )
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
1 7 - Q S E C N / A
C O M P A N Y I N F O R M A T I O N
Company’s Email Address Company’s Telephone Number Mobile Number
N/A (632) 8802-7000 N/A
No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)
105 5/12 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
Andrew L. Huang Andrew.Huang@cebupacificair.com (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.
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the quarterly period ended September 30, 2021 2. SEC Identification No. 154675
3. BIR Tax Identification No. 000-948-229-00000 Cebu Air, Inc.
4. Exact name of issuer as specified in its charter Cebu City, Philippines
5. Province, country or other jurisdiction of incorporation or organization 6. Industry Classification Code: (SEC Use Only) Level 4, Unit 4030-4031, Robinsons Galleria Cebu, General Maxilom Avenue
cor. Sergio Osmeña Boulevard, Cebu City, Cebu 6000
7. Address of issuer's principal office Postal Code
(632) 8802-7000
8. Issuer's telephone number, including area code Not applicable
9. Former name, former address and former fiscal year, if changed since last report
10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA
Number of Shares of
Stock Outstanding and Amount
Title of Each Class of Debt Outstanding
Common Stock, P1.00 Par Value 610,946,827 shares Convertible Preferred Stock, P1.00 Par Value 318,317,241 shares 11. Are any or all of the securities listed on the Philippine Stock Exchange?
Yes [x] No [ ]
12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines, during the preceding twelve (12) months (or for such shorter period the registrant was required to file such reports) Yes [x] No [ ]
(b) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
PART I–FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited consolidated financial statements are filed as part of this Form 17-Q.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cebu Air, Inc. (the Parent Company) is an airline that operates under the trade name “Cebu Pacific Air”
and is the leading low-cost carrier in the Philippines. It pioneered the “low fare, great value” strategy in the local aviation industry by providing scheduled air travel services targeted to passengers who are willing to forego extras for fares that are typically lower than those offered by traditional full-service airlines while offering reliable services and providing passengers with a fun travel experience.
The Parent Company was incorporated on August 26, 1988 and was granted a 40-year legislative franchise to operate international and domestic air transport services in 1991. It commenced its scheduled passenger operations in 1996 with its first domestic flight from Manila to Cebu. In 1997, it was granted the status as an official Philippine carrier to operate international services by the Office of the President of the Philippines pursuant to Executive Order (E.O.) No. 219. International operations began in 2001 with flights from Manila to Hong Kong.
In 2005, the Parent Company adopted the low-cost carrier (LCC) business model. The core element of the LCC strategy is to offer affordable air services to passengers. This is achieved by having: high- load, high-frequency flights; high aircraft utilization; a young and simple fleet composition; and low distribution costs.
The Parent Company’s common stock was listed with the Philippine Stock Exchange (PSE) on October 26, 2010, the Group’s initial public offering (IPO).
The Parent Company has eleven special purpose entities (SPE) that it controls, namely: Summit C Aircraft Leasing Limited (SCALL), Tikgi Aviation One 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 CAI Limited, 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.
On March 20, 2014, the Parent Company acquired 100% ownership of Tiger Airways Philippines (TAP), including 40% stake in Roar Aviation II Pte. Ltd. (Roar II), a wholly owned subsidiary of Tiger Airways Holdings Limited (TAH). On April 27, 2015, with the approval of the Securities and Exchange Commission (SEC), TAP was rebranded and now operates as CEBGO, Inc.
On November 3, 2020, the Parent Company signed a Deed of Absolute Sale of Shares with SIA Engineering Company Limited (SIAEC) for the acquisition of SIAEC’s entire 51% shareholding in Aviation Partnership (Philippines) Corporation (A-plus) in addition to its existing 49% interest, making A-plus a wholly owned subsidiary of the Parent Company.
The Parent Company, its eleven SPEs, CEBGO, Inc. and A-plus (collectively known as “the Group”) are consolidated for financial reporting purposes.
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 Mr. Jefferson G. Cheng. The subsequent sale has resulted to a joint venture between the aforementioned parties.
In June and August 2019, Boracay Leasing Limited (BLL) and Surigao Leasing Limited (SLL) were dissolved due to full payment of loans and transfer of ownership of related aircraft to the Parent Company and CAI Limited. Panatag One Aircraft Leasing Limited (POALL) was also subsequently dissolved in December 2019 due to the sale of the related three (3) A320CEO aircraft to Allegiant Travel Company.
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 COVID-19 outbreak which started in January 2020 prompted the Group to suspend its flights to and from China, Hong Kong, Macau and South Korea in varying periods between February and April 2020. As the virus continue to spread, by March 19, 2020, all of the Group’s commercial operations have been grounded due to a government-declared community quarantine. The Group has since resumed some of its regular services but is still below its pre-pandemic level of operations. Prior to the suspension of all its regular flights due to the COVID-19 outbreak, the Group operated 78 domestic routes and 25 international routes with a total of 2,717 scheduled weekly flights.
As of September 30, 2021, the Group operates a route network serving 51 domestic routes and 13 international routes with a total of 623 scheduled weekly flights, as it gradually recommenced operations starting June 3, 2020 on a General Community Quarantine (GCQ) to GCQ city basis in terms of scheduled services. The Group will continue to expand its operations as more local and foreign governments welcome flights into their cities. It operates from seven hubs, including the Ninoy Aquino International Airport (NAIA) Terminal 3 and Terminal 4 both located in Pasay City, Metro Manila;
Mactan-Cebu International Airport located in Lapu-Lapu City, part of Metropolitan Cebu; Diosdado Macapagal International Airport (DMIA) located in Clark, Pampanga; Davao International Airport located in Davao City, Davao del Sur; Ilo-ilo International Airport located in Ilo-ilo City, regional center of the western Visayas region; and Kalibo International Airport in Kalibo, Aklan and Laguindingan Airport in Misamis Oriental.
As of September 30, 2021, the Group operates a fleet of 73 aircraft which comprises of twenty-three (23) Airbus A320 CEO, seven (7) Airbus A321 CEO, five (5) Airbus A320 NEO, nine (9) Airbus A321 NEO, eight (8) Airbus A330 CEO, eight (8) ATR 72-500, and thirteen (13) ATR 72-600 aircraft. It operates its Airbus aircraft on both domestic and international routes and operates the ATR 72-500 and ATR 72-600 aircraft on domestic routes, including destinations with runway limitations. The average aircraft age of the Group’s fleet is approximately 5.97 years as of September 30, 2021.
The Group has three principal distribution channels: the internet; direct sales through booking sales offices and government/corporate client accounts; and third-party sales outlets. Aside from passenger service, it also provides airport-to-airport cargo services on its domestic and international routes. The Group has also set another first for the local airline industry as it launched the operation of its dedicated freighter aircraft last September 2019. In addition, the Group offers ancillary services such as cancellation and rebooking options, in-flight merchandising, baggage and travel-related products and services.
On May 16, 2016, the Group and other market champions in Asia Pacific, announced the formation of the world’s first, pan-regional low cost carrier alliance, the Value Alliance. The Group, together with
Jeju Air (Korea), Nok Air (Thailand) and Scoot (Singapore) will deliver greater value, connectivity and choice for travel throughout Southeast Asia and North Asia, as the airlines bring their extensive networks together.
Results of Operations
Nine Months Ended September 30, 2021 Versus September 30, 2020 Revenues
The Group recorded revenues amounting to P=9.150 billion for the nine months ended September 30, 2021, 52.7% lower than the P=19.342 billion revenues earned in the same period last year. The overall decline in revenues was brought about by the impact of the COVID-19 outbreak which started with cancellation of flights to China, Hong Kong, Macau and South Korea in varying periods in early 2020 due to the imposition of travel restrictions. With the rapid escalation of the situation surrounding COVID-19, the Philippine government implemented a community quarantine which then prompted the Group to suspend all its scheduled flights beginning March 19, 2020. While some sporadic arrangements for sweeper flights to assist with stranded tourists did occur, for the most part, the Group’s operations were virtually nil until April 2020 when some cargo flights within the Philippines and eventually to countries like Japan, Thailand, China, Hong Kong recommenced. Commercial passenger operations restarted last June 3, 2020 for domestic flights, but in a limited capacity. Subsequently, the Group gradually resumed more regular services including international flights. Currently though, it is still far behind its normal activity level due to ongoing flight restrictions and weak demand for travel.
The drop in revenues is accounted for as follows:
Passenger Revenues
Passenger revenues dropped by P=8.543 billion or 71.9% to P=3.343 billion for the nine months ended September 30, 2021 from P=11.887 billion generated in the nine months ended September 30, 2020.
This was largely due to the 59.6% decline in passenger volume from 4.7 million to 1.9 million in line with lesser number of flights by 40.3% coupled with a 23.2 ppts decrease in seat load factor from 79.0%
to 55.8%. Lower average fares by 30.4% to P=1,764 for the nine months ended September 30, 2021 from P
=2,537 for the same period last year also contributed to lower revenues.
Cargo Revenues
Cargo revenues grew by P=710.804 million or 20.0% to P=4.264 billion for the nine months ended September 30, 2021 from P=3.553 billion for the nine months ended September 30, 2020 mostly due to higher yield from chartered cargo services and slight increase in kilograms carried by about 7.7%.
Ancillary Revenues
Ancillary revenues decreased by P=2.359 billion or 60.5% to P=1.543 billion for the nine months ended September 30, 2021 from P=3.902 billion recorded in the same period last year mainly attributable to lesser passenger volume and flight activity during the period.
Expenses
The Group incurred operating expenses of P=27.989 billion for the nine months ended September 30, 2021, lesser by 15.3% compared to the P=33.064 billion operating expenses incurred for the nine months ended September 30, 2020. This was primarily brought about by the Group’s reduced operations due to the COVID-19 global pandemic since a material portion of its expenses are based on flights and flight hours. The strengthening of the Philippine peso against the U.S. Dollar as referenced by the appreciation of the Philippine peso to an average of P48.87 per U.S. Dollar for the nine months ended September 30, 2021 from an average of P=50.06 per U.S. Dollar during the same period last year based
on the Philippine Bloomberg Valuation (PH BVAL) weighted average rates also contributed to the drop in operating expenses.
Flying Operations
Flying operations expenses declined by P=3.661 billion or 44.8% to P=4.512 billion for the nine months ended September 30, 2021 from P=8.173 billion incurred in the same period last year. This was largely accounted for by lesser fuel consumption by 42.0% in line with the lower flight activity during the period, partially offset by the increase in average published fuel MOPS price to U.S. $70.60 per barrel for the nine months ended September 30, 2021 from U.S. $43.96 per barrel for the nine months ended September 30, 2020. The strengthening of the Philippine Peso against the U.S. Dollar to an average of P
=48.87 per U.S. Dollar for the nine months ended September 30, 2021 from an average of P=50.06 per U.S. Dollar last year based on PH BVAL weighted average rates also contributed to the decrease in fuel costs.
Aircraft and Traffic Servicing
Aircraft and traffic servicing expenses decreased by P=902.736 million or 33.4% to P=1.803 billion for the nine months ended September 30, 2021 from P=2.705 billion posted in the same period last year still relative to the overall reduction in number of flights due to the COVID-19 outbreak. The appreciation of the Philippine Peso against the U.S. Dollar to an average of P=48.87 per U.S. Dollar for the nine months ended September 30, 2021 from an average of P=50.06 per U.S. Dollar last year based on PH BVAL weighted average rates also contributed to lower charges for international operations.
Depreciation and Amortization
Depreciation and amortization expenses reduced by P=1.132 billion or 9.3% to P=11.046 billion for the nine months ended September 30, 2021 from P=12.177 billion for the nine months ended September 30, 2020. The decrease is mostly brought about by the return of five (5) A320 aircraft to its lessors offset by the delivery of three (3) A321 NEO aircraft throughout the latter part of 2020 and in 2021.
Repairs and Maintenance
Repairs and maintenance expenses went up by 28.9% to P=7.052 billion for the nine months ended September 30, 2021 from P=5.473 billion incurred during the same period last year. This was mostly due to the set up of a provision for heavy maintenance visits for aircraft under operating lease amounting to P633.122 million in 2021 coupled with a higher provision for asset retirement obligation with the delivery of three (3) leased A321 NEO aircraft and sale and leaseback of one (1) engine in the latter part of 2020 and 2021. This was offset by the effect of the strengthening of the Philippine Peso against the U.S. Dollar to an average of P=48.87 per U.S. Dollar for the nine months ended September 30, 2021 from an average of P=50.06 per U.S. Dollar last year based on PH BVAL weighted average rates.
Aircraft and Engine Lease
Aircraft and engine lease expenses was higher by P=21.580 million or 8.3% to P=280.155 million for the nine months ended September 30, 2021 from P=258.575 million charged for the nine months ended September 30, 2020. Increase was due to the higher lease charge of two (2) A330 aircraft due for return in the last quarter of 2021 partially offset by the return of an A330 engine to its lessor in 2020 and the effect of the appreciation of the Philippine peso against the U.S. Dollar during the current period.
Reservation and Sales
Reservation and sales expenses dropped by P=503.662 million or 41.5% to P=709.918 million for the nine months ended September 30, 2021 from P=1.214 billion for the nine months ended September 30, 2020.
This is largely attributable to lower commission expenses consequent to the overall decrease in sales transactions due to the COVID-19 outbreak and lesser advertising costs in line with the Group’s cost saving measures.
General and Administrative
General and administrative expenses declined by P=78.101 million or 3.6% to P=2.118 billion for the nine months ended September 30, 2021 from P=2.196 billion incurred for the same period last year generally driven by the overall reduction in operations. This was offset by information technology (IT)-related expenses incurred by the Group for its digitalization projects to automate and streamline its front-end and back-end processes and other costs incurred in relation to its fund-raising initiatives.
Passenger Service
Passenger service expenses decreased by P=398.492 million or 46.0% to P=467.817 million for the nine months ended September 30, 2021 from P=866.309 million recorded for the nine months ended September 30, 2020primarily accounted for by reduced cabin crew costs and lower passenger food and supplies in line with reduced headcount and lesser number of flights.
Operating Income (Loss)
As a result of the foregoing, the Group sustained an operating loss of P=18.839 billion for the nine months ended September 30, 2021, 37.3% higher than the P=13.722 billion operating loss incurred for the same period last year.
Other Income (Expenses) Interest Income
Interest income decreased by P=125.935 million or 81.8% to P=27.969 million for the nine months ended September 30, 2021 from P=153.904 million earned in the same period last year largely due to the lesser cash balance particularly in the early months of 2021 and lower average interest rates on short term placements.
Hedging Gains (Losses)
The Group did not incur any hedging gain or loss for the nine months ended September 30, 2021 due to the application of hedge accounting to its derivative contracts. For the nine months ended September 30, 2020, the Group incurred a hedging loss of P=2.166 billion due to the discontinuation of hedge accounting application on non-effective hedges in 2020.
Foreign Exchange Gains (Losses)
Net foreign exchange losses of P=1.829 billion for the nine months ended September 30, 2021 primarily resulted from the weakening of the Philippine Peso against the US Dollar to P=51.00 per US Dollar for the nine months ended September 30, 2021 from P=48.02 per US Dollar for the year ended December 31, 2020. The Group’s major exposure to foreign exchange rate fluctuations is in respect to U.S. Dollar- denominated long-term debt, short-term notes payable and convertible bonds payable.
Equity in Net Income (Loss) of Joint Ventures and Associates
The Group had equity in net loss of joint ventures and associates of P=125.778 million for the nine months ended September 30, 2021, P=142.791 million lower than the P=268.569 million equity in net loss of joint venture and associates incurred in the same period last year. A-plus and SIA Engineering (Philippines) Corporation (SIAEP) ceased to be joint ventures of the Group in November 2020, thus, reducing the Group’s equity in net loss in its joint ventures.
Financing and other charges (interest expense on loans, promissory notes and bonds payable)
Financing and other charges increased by P=146.067 million or 10.9% to P=1.485 billion for the nine months ended September 30, 2021 from P=1.339 billion for the same period last yeardue to the accrual of interest on convertible bonds issued last May 2021 and promissory notes availed in the latter part of 2020 and 2021. This was offset by the sale and leaseback of (5) A320 aircraft in the latter part of 2020 and the effect of appreciation of the Philippine Peso against the U.S. Dollar to an average of P=48.87 per
U.S. Dollar for the nine months ended September 30, 2021 from an average of P=50.06 per U.S. Dollar for the same period last year based on PH BVAL weighted average rates.
Financing costs – PFRS 16 leases
Accretion expense on leases decreased by P=11.411 million or 3.1% to P=358.378 million for the nine months ended September 30, 2021 from P=369.789 million for the same period last year due to the reduced balance of lease liability of existing aircraft as scheduled payments are made throughout the lease term. This was partially offset by the accretion for three (3) additional A321 NEO aircraft and one (1) engine sold and leased back throughout 2020 and 2021.
Gain from Insurance Claims
In 2021, the Group received P=124.112 million pertaining to insurance proceeds claimed for damages sustained by various aircraft from several incidents and loss events in 2019 and 2018.
In September 2020, the Group received P=807.410 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.
Loss on sale of engine
In September 2020, the Group sold and leased back seven (7) engines which resulted to a loss of P
=7.301 million.
Loss before Income Tax
As a result of the foregoing, the Group incurred a loss before income tax of P=22.485 billion for the nine months ended September 30, 2021, 44.3% or P=6.908 billion higher than the P=15.577 billion loss before income tax posted for the nine months ended September 30, 2020.
Benefit from Income Tax
Benefit from income tax for the nine months ended September 30, 2021 amounted to P492.5 million mainly resulting from the increase in future deductible amounts such as those from unrealized foreign exchange losses and additional provision for heavy maintenance visits recognized during the period.
Net Income (Loss)
Net loss for the nine months ended September 30, 2021 amounted to P=21.993 billion, 49.8% higher than the P=14.686 billion net loss incurred for the nine months ended September 30, 2020.
As of September 30, 2021, except as otherwise disclosed in the financial statements and to the best of the Group’s knowledge and belief, there are no material off-balance sheet transactions, arrangements, obligations (including contingent obligations) and other relationships of the Group with unconsolidated entities or other persons created during the reporting period that would have a significant impact on the Group’s operations and/or financial condition.
Financial Position
September 30, 2021 versus December 31, 2020
As of September 30, 2021, consolidated assets decreased to P=128.402 billion from P=128.459 billion as of December 31, 2020 mainly due to asset depreciation recognized during the period offset by increase in cash from the receipt of proceeds from the issuance of convertible preferred shares and convertible bonds. Equity decreased to P=13.207 billion from P=22.691 billion last year due to net losses incurred offset by the aforementioned issuance of preferred shares. Book value per common share amounted to P
=1.26 as of September 30, 2021 from P=37.80 as of December 31, 2020.
The Group’s cash requirements have been mainly sourced through cash flow from operations which was significantly reduced due to the current COVID-19 situation. As of September 30, 2021, net cash used in operating activities amounted to P=8.166 billion. Net cash used in investing activities amounted to P=595.871 million which mostly pertain to payments in connection with the acquisition of aircraft and other assets. Net cash from financing activities amounted to P15.231 billion which largely comprised of proceeds from issuance of convertible preferred shares and convertible bonds amounting to P12.500 billion and P11.956 billion, respectively and from promissory note availments amounting to P4.234 billion, net of repayments of long term debt, notes payable and lease liability for a total of P13.261 billion.
As of September 30, 2021, except as otherwise disclosed in the financial statements and to the best of the Group’s knowledge and belief, there are no events that will trigger direct or contingent financial obligation that is material to the Group, including any default or acceleration of an obligation.
Financial Ratios
The following are the major financial ratios that the Group monitors in measuring and analyzing its financial performance:
Liquidity and Capital Structure Ratios
September 30, 2021 December 31, 2020
Current Ratio 0.61:1 0.36:1
Quick Ratio 0.49:1 0.23:1
Asset-to-Equity Ratio 9.72:1 5.66:1
Interest Coverage Ratio (10.22):1 (9.43):1
Profitability Ratios
September 30, 2021 September 30, 2020
Return on Asset (17.1%) (10.1%)
Return on Equity (122.5%) (39.3%)
Return on Sales (240.4%) (75.9%)
Material Changes in the 2021 Financial Statements (Increase/Decrease of 5% or more versus 2020)
Material changes in the Statements of Consolidated Comprehensive Income were explained in detail in the management’s discussion and analysis or plan of operations stated above.
Consolidated Statements of Financial Position – September 30, 2021 versus December 31, 2020 161.3% increase in Cash and Cash Equivalents
Due to receipt of proceeds from issuance of convertible preferred shares and convertible bonds as well as promissory note availments
48.8% increase in Restricted Cash
Due to additional deposits with certain banks to securitize standby letters of credit issued in favor of lessors and higher Philippine Peso to US Dollar exchange rate as of September 30, 2021
9.4% decrease in Receivables
Due to collection of receivables during the period 100.0% increase in Derivative Financial Assets
Due to recognition of other comprehensive gain resulting from higher mark-to-market valuation of fuel derivative contracts
8.8% decrease in Expendable Parts, Fuel, Materials and Supplies Due to decreased volume of fuel and parts kept in stock
24.2% decrease in Other Current Assets Due to decrease in advances to suppliers 6.0% decrease in Property and Equipment
Due to depreciation offset by additions during the period 8.7% decrease in Right of Use Asset
Due to depreciation offset by the delivery of two (2) A321 NEOs during the period 23.0% decrease in Investment in Joint Ventures and Associates
Due to share in net loss of joint ventures and associates during the period 32.4% increase in Deferred Tax Assets-net
Due mainly due to increase in future deductible amounts such as those from unrealized foreign exchange losses and additional provision for heavy maintenance visits posted during the period 2.8% increase in Other Noncurrent Assets
Due to security deposits paid for aircraft lease agreements 9.2% decrease in Accounts Payable and other accrued liabilities Due to payments of refunds to passengers
27.4% decrease in Due to Related Parties Due to payments of advances from affiliates
0.8% decrease in Unearned Transportation Revenue
Due to lower forward bookings as of September 30, 2021 compared to December 31, 2020 100.0% increase in Income Tax Payable
Due to minimum current income tax due for A-plus during the period 7.1% decrease in Short-Term Debt
Due to payment of unsecured promissory notes (PN) with JG Summit Philippines, Limited, a subsidiary of JG Summit Holdings, Inc., the Parent Company’s ultimate parent, offset by additional PN availments during the period
4.1% decrease in Long-Term Debt (including Current Portion)
Due to repayment of outstanding long-term debt in accordance with the repayment schedule
5.5% decrease in Lease Liability (including Current Portion)
Due to payments made offset by additional lease liability set up for two (2) A321 NEO delivered during the period
100.0% increase in Bonds Payable
Due to receipt of proceeds from the issuance of convertible bonds net of unamortized bond issue costs 44.8% increase in Travel Fund Payable
Due to mainly to conversion of ring-fenced Getgo loyalty points to Cebu Pacific Travel Fund last July 2021. Increase was also due to customers availing of the option to convert the amount paid for their cancelled bookings to a travel fund. These are still primarily driven by flight cancellations caused by COVID-19-related travel restrictions.
1.5% increase in Retirement Liability
Due to accrual made during the period net of benefits paid 1.9% increases in Other Noncurrent Liabilities
Due to additional provision for ARO and heavy maintenance visits, net of applications. Increase was largely mitigated by the transfer of ring-fenced Getgo loyalty points to Cebu Pacific Travel Fund last July 2021
53.6% increase in Capital stock
Due to issuance of 328,947,368 convertible preferred shares at P=1 par value, some of which have been converted to common shares during the period
144.5% increase in Capital paid in excess of par value
Due to issuance of 328,947,368 convertible preferred shares at an offer price of P=38, net of transaction costs
55.4% decrease in Other Comprehensive Losses
Due to the recognition of other comprehensive gain for derivative instruments designated as cash flow hedges relative to higher mark-to-market valuation of fuel derivative contracts
149.7% decrease in Retained Earnings Due to net loss incurred during the period
As of September 30, 2021, there are no significant element of income that did not arise from the Group’s continuing operations.
The Group generally records higher revenues in January, March, April, May and December as festivals and school holidays in the Philippines increase the Group’s seat load factors in these periods.
Accordingly, the Group’s revenues are relatively lower in July to September due to decreased travel during these months. The disruption in the Group’s operations due to the repercussions brought about by the COVID-19 crisis had a negative impact on its financial condition and results of operations during the period as discussed in the previous sections.
KEY PERFORMANCE INDICATORS
The Group sets certain performance measures to gauge its operating performance periodically and to assess its overall state of corporate health. Listed below are major performance measures, which the Group has identified as reliable performance indicators. Analyses are employed by comparisons and measurements based on the financial data as of September 30, 2021 and December 31, 2020 and for the nine months ended September 30, 2021 and 2020:
Key Financial Indicators 2021 2020
Total Revenue P=9.150 billion P=19.342 billion
Pre-tax Core Net Income (Loss) (P=20.781 billion) (P=15.546 billion)
EBITDAR Margin (48.7%) 4.3%
Cost per Available Seat Kilometer (ASK) (PHP) 8.86 5.28
Cost per ASK (U.S. cents) 18.13 10.54
Seat Load Factor 55.8% 79.0%
The manner by which the Group calculates the above key performance indicators for both 2021 and 2020 is as follows:
Total Revenue The sum of revenue obtained from the sale of air transportation services for passengers and cargo and ancillary revenue.
Pre-tax Core Net Income Operating income after deducting net interest
expense and adding equity in net income/loss of joint venture and associates.
EBITDAR Margin Operating income after adding depreciation and amortization, provision for ARO and heavy maintenance visits and aircraft and engine lease expenses divided by total revenue.
Cost per ASK Operating expenses, including depreciation and amortization expenses and the costs of operating leases, but excluding fuel hedging effects, foreign exchange effects, net financing charges and taxation, divided by ASK.
Seat Load Factor Total number of passengers divided by the total number of actual seats on actual flights flown.
As of September 30, 2021, the Group anticipates that the COVID-19 global pandemic would have a material impact on its liquidity. However, the Group is confident on its ability to raise cash for liquidity needs even if there were unprecedented losses incurred as a result of an expected slow recovery from this crisis. The Group remains in a strong balance sheet and equity position at the end of the period. The Group believes that it remains a resilient airline despite the adverse impact of the COVID-19 outbreak.
The Group is actively engaged in planning and executing various measures to mitigate the impact of the COVID-19 global pandemic on its business operations. These include negotiations with key suppliers on capital expenditure commitments and related cash flows, as well as with other suppliers and stakeholders as they impact the Group’s cash flows.
As of September 30, 2021, the Group also anticipates that the COVID-19 crisis would have a material impact on its net sales, revenues, income from operations and future performance. Given the volatile nature of this situation and the uncertainty as to when operating and demand conditions will improve, it will be premature to provide any guidance with respect to expected impact in succeeding periods.
November 9, 2021
CEBU AIR, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF SEPTEMBER 30, 2021
(With Comparative Audited Figures as of December 31, 2020)
September 30, 2021 (Unaudited)
December 31, 2020 (Audited) ASSETS
Current Assets
Cash and cash equivalents (Note 7) P=11,298,994,336 P=4,324,047,495
Restricted cash (Note 7) 1,631,433,603 1,096,422,485
Receivables (Note 9) 2,024,372,210 2,233,632,383
Current portion of derivative financial assets (Note 8) 12,567,854 –
Expendable parts, fuel, materials and supplies (Note 10) 1,737,683,376 1,906,063,822
Other current assets (Note 11) 1,953,542,430 2,578,517,403
Total Current Assets 18,658,593,809 12,138,683,588
Noncurrent Assets
Property and equipment (Notes 12 and 31) 85,803,391,219 91,320,235,967
Right-of-use asset (Note 31) 16,130,916,674 17,669,768,620
Investments in joint ventures and associates (Note 13) 420,738,187 546,516,067
Goodwill (Note 14) 721,648,970 721,648,970
Deferred tax assets - net 1,948,024,387 1,471,670,325
Other noncurrent assets (Note 15) 4,718,612,709 4,590,058,039
Total Noncurrent Assets 109,743,332,146 116,319,897,988
TOTAL ASSETS P=128,401,925,955 P=128,458,581,576
LIABILITIES AND EQUITY Current Liabilities
Short-term debt (Notes 18 and 32) P=4,462,500,000 P=4,802,300,000
Current portion of long-term debt (Notes 18 and 32) 5,318,286,332 4,840,069,458 Accounts payable and other accrued liabilities (Note 16) 12,302,516,690 13,550,548,321
Unearned transportation revenue (Note 17) 3,643,066,629 3,671,467,764
Current lease liability (Notes 31 and 32) 4,788,792,027 6,799,231,370
Current portion of derivative financial liabilities (Note 8) – 32,214,937
Due to related parties (Note 28) 69,014,259 95,007,239
Income tax payable 790,827 –
Total Current Liabilities 30,584,966,764 33,790,839,089
Noncurrent Liabilities
Long-term debt - net of current portion (Notes 18 and 32) 45,743,668,214 48,399,864,978 Lease liability - net of current portion (Notes 31 and 32) 12,556,347,388 11,554,419,630
Bonds payable (Notes 19 and 32) 12,590,362,872 –
Travel fund payable - net of current portion (Note 21) 4,968,950,354 3,432,763,770
Retirement liability (Note 26) 598,911,952 590,088,177
Other noncurrent liabilities (Note 20) 8,152,136,633 7,999,729,317
Total Noncurrent Liabilities 84,610,377,413 71,976,865,872
Total Liabilities 115,195,344,177 105,767,704,961
Equity
Capital stock (Note 22) 942,183,918 613,236,550
Capital paid in excess of par value (Note 22) 20,548,423,255 8,405,568,120
Treasury stock (Note 22) (950,881,502) (950,881,502)
Other comprehensive losses (Note 29) (29,594,538) (66,291,759)
Retained earnings (Deficit) (Note 22) (7,303,549,355) 14,689,245,206
Total Equity 13,206,581,778 22,690,876,615
TOTAL LIABILITIES AND EQUITY P=128,401,925,955 P=128,458,581,576
See accompanying Notes to Unaudited Consolidated Financial Statements
CEBU AIR, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
Quarters Ended Nine Months Ended
2021 2020 2021 2020
REVENUES
Sale of air transportation services
Passenger P=1,312,513,895 P=379,187,591 P=3,343,020,545 P=11,886,502,913
Cargo 1,448,802,522 1,331,789,309 4,263,656,140 3,552,851,759
Ancillary revenues (Note 23) 484,103,513 296,279,868 1,542,943,408 3,902,323,484
3,245,419,930 2,007,256,768 9,149,620,093 19,341,678,156 EXPENSES
Depreciation and amortization (Notes 5, 12 and 31) 3,547,316,443 4,011,114,235 11,045,676,130 12,177,342,744 Repairs and maintenance (Notes 10, 20 and 24) 2,492,962,659 1,988,530,569 7,052,236,848 5,473,077,329 Flying operations (Note 10 and 24) 1,621,779,488 1,123,913,146 4,512,104,652 8,172,974,351
General and administrative (Note 25) 650,066,951 660,060,500 2,118,362,073 2,196,462,736
Aircraft and traffic servicing (Note 24) 564,308,930 427,336,111 1,802,638,160 2,705,374,641
Reservation and sales (Note 24) 205,937,382 241,488,236 709,918,008 1,213,579,971
Passenger service 150,674,723 242,392,650 467,816,879 866,309,343
Aircraft and engine lease (Notes 6 and 31) 166,829,086 50,895,058 280,154,858 258,574,937
9,399,875,662 8,745,730,505 27,988,907,608 33,063,696,052 OPERATING INCOME (LOSS) (6,154,455,732) (6,738,473,737) (18,839,287,515) (13,722,017,896) OTHER INCOME (EXPENSE)
Interest income (Notes 6 and 7) 12,604,833 9,300,216 27,968,980 153,904,252
Gain from insurance claims (Note 12) 6,344,911 807,409,620 124,112,133 807,409,620
Hedging losses (Note 8) – (199,618,119) – (2,165,712,808)
Equity in net loss of joint venture & associates (Notes 6 and 13) (34,761,589) (63,087,711) (125,777,880) (268,569,351) Foreign exchange gains (losses) (1,773,282,046) 963,027,734 (1,828,667,936) 1,333,961,539
Loss on sale of property, plant & equipment (Note 12) – (7,301,165) – (7,301,165)
Financing costs and other charges:
Financing and others (Notes 6, 18 and 19) (549,206,763) (396,309,706) (1,485,224,113) (1,339,157,301) PFRS 16 leases (Notes 6, 31 and 32) (117,842,896) (116,406,641) (358,377,839) (369,788,594) (2,456,143,550) 997,014,228 (3,645,966,655) (1,855,253,808) INCOME (LOSS) BEFORE INCOME TAX (8,610,599,282) (5,741,459,509) (22,485,254,170) (15,577,271,704) PROVISION FOR (BENEFIT FROM) INCOME TAX (410,456,960) (197,291,468) (492,459,609) (891,575,792) NET INCOME (LOSS) (8,200,142,322) (5,544,168,041) (21,992,794,561) (14,685,695,912) OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX (2,396,784) 185,654,084 36,697,221 (355,882,006)
TOTAL COMPREHENSIVE INCOME (LOSS) (P=8,202,539,106) (P=5,358,513,957) (P=21,956,097,340) (P=15,041,577,918) Earnings (Loss) Per Share (Note 27)
Basic (P=37.17) (P=24.55)
Diluted (P=17.75) (P=24.55)
See accompanying Notes to Unaudited Consolidated Financial Statements
CEBU AIR, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(With Comparative Unaudited Figures as of September 30, 2020)
For the Nine Months Ended September 30, 2021
Capital Stock (Note 22)
Capital Paid in Excess of Par Value (Note 22)
Treasury Stock (Note 22)
Other Comprehensive Income (Losses) Retained Earnings (Deficit)
Total Equity Remeasurement
Loss on Retirement Liability (Note 26)
Cash flow hedge reserve
(Note 8) Total
Appropriated (Note 22)
Unappropriated
(Note 22) Total
Balance at January 1, 2021 P=613,236,550 P=8,405,568,120 (P=950,881,502) (P=46,898,025) (P=19,393,734) (P=66,291,759) P=12,000,000,000 P=2,689,245,206 P=14,689,245,206 P=22,690,876,615
Net income (loss) – – – – – – – (21,992,794,561) (21,992,794,561) (21,992,794,561)
Other comprehensive income (loss) – – – 4,481,771 32,215,450 36,697,221 – – – 36,697,221
Total comprehensive income (loss) – – – 4,481,771 32,215,450 36,697,221 – (21,992,794,561) (21,992,794,561) (21,956,097,340)
Reversal of appropriations – – – – – – (12,000,000,000) 12,000,000,000 – –
Issuance of preferred shares 328,947,368 12,171,052,616 – – – – – – – 12,499,999,984
Transaction costs – (28,197,481) – – – – – – – (28,197,481)
Balance at September 30, 2021 P=942,183,918 P= 20,548,423,255 (P=950,881,502) (P=42,416,254) P=12,821,716 (P=29,594,538) P=– (P=7,303,549,355) (P=7,303,549,355) P=13,206,581,778
For the Nine Months Ended September 30, 2020
Capital Stock (Note 22)
Capital Paid in Excess of Par Value (Note 22)
Treasury Stock (Note 22)
Other Comprehensive Income (Losses) Retained Earnings (Deficit)
Total Equity Remeasurement
Loss on Retirement Liability (Note 26)
Cash flow hedge reserve
(Note 8) Total
Appropriated (Note 22)
Unappropriated
(Note 22) Total
Balance at January 1, 2020 P=613,236,550 P=8,405,568,120 (P=906,120,839) (P=317,167,250) P=179,771,897 (P=137,395,353) P=26,000,000,000 P=10,925,687,182 P=36,925,687,182 P=44,900,975,660
Net loss – – – – – – – (14,685,695,912) (14,685,695,912) (14,685,695,912)
Other comprehensive loss – – – – (355,882,006) (355,882,006) – – – (355,882,006)
Total comprehensive loss – – – – (355,882,006) (355,882,006) – (14,685,695,912) (14,685,695,912) (15,041,577,918)
Reversal of appropriations – – – – – – (26,000,000,000) 26,000,000,000 – –
Appropriation of retained earnings (Note 21) – – – – – – 12,000,000,000 (12,000,000,000) – –
Treasury stock – – (44,760,662) – – – – – – (44,760,662)
Balance at September 30, 2020 P=613,236,550 P=8,405,568,120 (P=950,881,501) (P=317,167,250) (P=176,110,109) (P=493,277,359) P=12,000,000,000 P=10,239,991,270 P=22,239,991,270 P=29,814,637,080 See accompanying Notes to Unaudited Consolidated Financial Statements
CEBU AIR, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before income tax (P=22,485,254,170) (P=15,577,271,704)
Adjustments for:
Depreciation and amortization (Notes 12 and 31) 11,045,676,130 12,177,342,744 Provision for asset retirement obligation (Note 20) 2,425,715,325 2,114,211,813 Interest and accretion expense (Notes 18 and 31) 1,843,601,952 1,708,945,895
Provision for heavy maintenance (Note 20) 633,122,272 –
Equity in net loss of joint ventures and associates (Note 13) 125,777,880 268,569,351
Provision for expected credit losses (Note 9) 18,415,082 –
(Gain) Loss on sale of other property and equipment (Note 12) (11,586,827) 7,301,165
Net changes in fair value of derivatives (Note 8) – 2,165,712,808
Interest income (Note 7) (27,968,980) (153,904,252)
Redeemed and expired portion of deferred revenue on rewards program (Note 20) (13,740,128) (175,158,620) Unrealized foreign exchange losses (gains) – net 1,870,516,116 (1,208,105,905) Operating income (loss) before working capital changes (4,575,725,348) 1,327,643,295
Decrease (increase) in:
Receivables 215,178,926 697,656,441
Restricted cash (535,011,118) (1,012,478,610)
Expendable parts, fuel, materials and supplies 168,380,445 (60,056,239)
Other current assets 624,974,973 295,612,024
Derivative financial assets (liabilities) 5,885,100 (2,775,168,201) Increase (decrease) in:
Accounts payable and other accrued liabilities (1,037,189,217) 1,701,134,169
Unearned transportation revenue (28,401,135) (7,374,551,711)
Retirement liability 17,616,413 (41,597,719)
Amounts of due to related parties (25,992,980) 49,788,518
Other noncurrent liabilities (1,870,464,446) (2,198,286,428)
Cash generated used in operations (7,040,748,387) (9,390,304,461)
Interest paid (1,152,448,776) (1,303,034,420)
Interest received 27,042,215 177,793,913
Income tax paid – (197,879,264)
Net cash provided used in operating activities (8,166,154,948) (10,713,424,232)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (490,934,098) (3,418,447,305)
Proceeds from sale of property and equipment 23,617,296 2,128,232,587
(Increase) Decrease in other noncurrent assets (128,554,668) 451,364,531
Net cash provided used in investing activities (595,871,470) (838,850,187)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from availment of :
Long-term debt (Note 18) – 2,228,688,822
Short-term debt (Note 18) 4,234,107,500 4,400,000,000
Payments of:
Long-term debt (Note 18) (3,531,389,954) (5,373,202,709)
Short-term debt (Note 18) (4,791,800,000) –
Payments for lease liability (Note 31) (4,938,351,979) (4,054,672,487)
Issuance of convertible preferred shares (Note 22) 12,499,999,984 –
Transaction costs (Note 22) (28,197,481) –
Issuance of convertible bonds (Note 19) 11,955,500,000 –
Bonds issue costs (Note 19) (169,273,171) –
Purchase of treasury stock (Note 22) – (44,760,662)
Net cash provided by (used in) financing activities 15,230,594,899 (2,843,947,036) EFFECTS OF EXCHANGE RATE CHANGES IN CASH & CASH EQUIVALENTS 506,378,360 (196,141,941) NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 6,974,946,841 (14,592,363,396) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,324,047,495 18,195,375,713 CASH AND CASH EQUIVALENTS AT END OF PERIOD (Note 7) P=11,298,994,336 P=3,603,012,317 See accompanying Notes to Unaudited Consolidated Financial Statements
CEBU AIR, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Cebu Air, Inc. (the Parent Company) was incorporated and organized in the Philippines on
August 26, 1988 to carry on, by means of aircraft of every kind and description, the general business of a private carrier or charter engaged in the transportation of passengers, mail, merchandise and freight, and to acquire, purchase, lease, construct, own, maintain, operate and dispose of airplanes and other aircraft of every kind and description, and also to own, purchase, construct, lease, operate and dispose of hangars, transportation depots, aircraft service stations and agencies, and other objects and service of a similar nature which may be necessary, convenient or useful as an auxiliary to aircraft transportation. 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 Group’s operations are significantly affected by severe weather, natural disaster and seasonal factors. Severe weather and natural disasters can require the Group to suspend flight operations resulting to decrease in revenue. On the other hand, the demand for the Group’s services increase 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 any equity interest but have entered into finance lease arrangements for the funding of various aircraft deliveries (see Notes 12, 18 and 31).
On March 20, 2014, the Parent Company acquired 100% ownership of Tiger Airways Philippines (TAP), including a 40% stake in Roar Aviation II Pte. Ltd. (Roar II), a wholly owned subsidiary of Tiger Airways Holdings Limited (TAH). On April 27, 2015, with the approval of the Securities and Exchange Commission (SEC), TAP was rebranded and now operates as CEBGO, Inc.
On November 3, 2020, the Parent Company signed a Deed of Absolute Sale of Shares with SIA Engineering Company Limited (SIAEC) for the acquisition of SIAEC’s entire 51% shareholding in Aviation Partnership (Philippines) Corporation (A-plus) in addition to its existing 49% interest, making A-plus a wholly owned subsidiary of the Parent Company.
The Parent Company, the eleven (11) SPEs, CEBGO, Inc. and A-plus (collectively known as “the Group”) are consolidated for financial reporting purposes (Note 2).
On March 1, 2018, the Parent Company incorporated 1Aviation Groundhandling Services Corporation (1Aviation), a wholly-owned subsidiary prior to its sale of 60% equity ownership in
1Aviation to Philippine Airport Ground Support Solutions, Inc. (PAGSS) and an individual on July 1, 2018. As of December 31, 2020, the remaining 40% equity stake owned by the Parent Company in 1Aviation is accounted for as a joint venture with equity method accounting treatment (see Note 13).
In June and August 2019, Boracay Leasing Limited (BLL) and Surigao Leasing Limited (SLL) were dissolved due to full payment of loans and transfer of ownership of related aircraft to the Parent Company and CL. Panatag One Aircraft Leasing Limited (POALL) was also subsequently dissolved in December 2019 due to the sale of the related three (3) A320CEO aircraft to a subsidiary of
Allegiant Travel Company.
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 66.12%-owned by CP Air Holdings, Inc. (CPAHI).
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. On March 31, 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.
Prior to the grant of the ITH and in accordance with the Parent Company’s franchise, which extends up to year 2031:
a. The Parent Company is subject to franchise tax of five percent (5%) of the gross revenue derived from air transportation operations. For revenue earned from activities other than air
transportation, the Parent Company is subject to corporate income tax and to real property tax.
b. In the event that any competing individual, partnership or corporation received and enjoyed tax privileges and other favorable terms which tended to place the Parent Company at any
disadvantage, then such privileges shall have been deemed by the fact itself of the Parent Company’s tax privileges and shall operate equally in favor of the Parent Company.
The Reformed-Value Added Tax (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;
