As filed with the Securities and Exchange Commission on April 18, 2018
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 001-32696
COPA HOLDINGS, S.A.
(Exact name of Registrant as Specified in Its Charter)
Not Applicable
(Translation of Registrant’s Name Into English)
Republic of Panama
(Jurisdiction of Incorporation or Organization)
Avenida Principal y Avenida de la Rotonda, Costa del Este
Complejo Business Park, Torre Norte
Parque Lefevre, Panama City
Panama
(Address of Principal Executive Offices)
Raul Pascual
Complejo Business Park, Torre Norte
Parque Lefevre, Panama City, Panama
+507 304 2774 (Telephone)
+507 304 2535 (Facsimile)
(Registrant’s Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act
Title of Each Class:
Class A Common Stock, without par value
Name of Each Exchange On Which Registered
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the
period covered by the annual report: At December 31, 2017, there were outstanding 42,123,766 shares of common stock, without par
value, of which 31,185,641 were Class A shares and 10,938,125 were Class B shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. ☒ Yes ☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and non-accelerated filer” in Rule 12b-2 of Exchange Act. (Check one):
Large Accelerated Filer ☒
Non-accelerated Filer ☐
Accelerated Filer
☐
Emerging Growth Company ☐
Indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in
this filing:
U.S. GAAP ☐
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☒
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item
the registrant has elected to follow:
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). ☐ Yes ☒ No
Table of Contents
Introduction
Market Data
Presentation of Financial and Statistical Data
Special Note About Forward-Looking Statements
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on the Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, senior management and employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other than Equity Securities
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures Disclosure controls and procedures
Item 16. Reserved
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
i
ii
ii
ii
iii
1
1
1
1
19
36
37
50
58
60
61
62
73
74
75
75
75
75
79
82
82
82
Introduction
In this annual report on Form 20-F, unless the context otherwise requires, references to “Copa Airlines” are to Compañía
Panameña de Aviación, S.A., the unconsolidated operating entity, “Copa Colombia” refers to AeroRepública, S.A., “Wingo” refers to
the low-cost business model offered by AeroRepública, and references to “Copa,” ”Copa Holdings,” “we,” “us” or the “Company” are
to Copa Holdings, S.A. and its consolidated subsidiaries. References to “Class A shares” refer to Class A shares of Copa Holdings, S.A.
This annual report contains terms relating to operating performance that are commonly used within the airline industry and
are defined as follows:
•
•
•
•
•
•
•
•
•
•
•
•
“Aircraft utilization” represents the average number of block hours operated per day per aircraft for the total
aircraft fleet.
“Available seat miles” or “ASMs” represents the aircraft seating capacity multiplied by the number of miles the
seats are flown.
“Average stage length” represents the average number of miles flown per flight segment.
“Block hours” refers to the elapsed time between an aircraft leaving an airport gate and arriving at an airport
gate.
“Load factor” represents the percentage of aircraft seating capacity that is actually utilized (calculated by
dividing revenue passenger miles by available seat miles).
“Operating expense per available seat mile” represents operating expenses divided by available seat miles.
“Operating revenue per available seat mile” represents operating revenues divided by available seat miles.
“Passenger revenue per available seat mile” represents passenger revenues divided by available seat miles.
“Revenue passenger miles” represents the number of miles flown by revenue passengers.
“Revenue passenger kilometers” represents the number of kilometers flown by revenue passengers.
“Revenue passengers” represents the total number of paying passengers (including all passengers redeeming
frequent flyer miles and other travel awards) flown on all flight segments (with each connecting segment being
considered a separate flight segment).
“Yield” represent the average amount one passenger pays to fly one mile.
Market Data
This annual report contains certain statistical data regarding our airline routes and our competitive position and market share
in, and the market size of, the Latin American airline industry. This information has been derived from a variety of sources, including
the International Air Transport Association, the U.S. Federal Aviation Administration, the International Monetary Fund and other third-
party sources, governmental agencies or industry or general publications. Information for which no source is cited has been prepared by
us on the basis of our knowledge of Latin American airline markets and other information available to us. The methodology and
terminology used by different sources are not always consistent, and data from different sources are not readily comparable. In addition,
sources other than us use methodologies that are not identical to ours and may produce results that differ from our own estimates.
Although we have not independently verified the information concerning our competitive position, market share, market size, market
growth or other similar data provided by third-party sources or by industry or general publications, we believe these sources and
publications are generally accurate and reliable.
Presentation of Financial and Statistical Data
Included in this annual report are our audited consolidated statement of financial position as of December 31, 2017 and 2016,
and the related audited consolidated statements of profit or loss, comprehensive income or loss, changes in equity and cash flows for the
years ended December 31, 2017, 2016 and 2015.
ii
The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards or “IFRS,” as issued by the International Accounting Standards Board, or “IASB.”
Unless otherwise indicated, all references in the annual report to “$” or “dollars” refer to U.S. dollars.
Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown
as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
Special Note About Forward-Looking Statements
This annual report includes forward-looking statements, principally under the captions “Risk Factors,” “Business Overview”
and “Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current beliefs,
expectations and projections about future events and financial trends affecting our business. Many important factors, in addition to those
discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-
looking statements, including, among other things:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
general economic, political and business conditions in Panama and Latin America and particularly in the
geographic markets we serve;
our management’s expectations and estimates concerning our future financial performance and financing plans
and programs;
our level of debt and other fixed obligations;
demand for passenger and cargo air service in the markets in which we operate;
competition;
our capital expenditure plans;
changes in the regulatory environment in which we operate;
changes in labor costs, maintenance costs, fuel costs and insurance premiums;
changes in market prices, customer demand and preferences and competitive conditions;
cyclical and seasonal fluctuations in our operating results;
defects or mechanical problems with our aircraft;
our ability to successfully implement our growth strategy;
our ability to obtain financing on commercially reasonable terms; and
the risk factors discussed under “Risk Factors” beginning on page 4.
The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are
intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed
future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth
opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they
were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after the date of this annual
report because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward-
looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance.
Considering these limitations, you should not place undue reliance on forward-looking statements contained in this annual
report.
iii
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
PART I
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. Selected Financial Data
The following table presents summary consolidated financial and operating data for each of the periods indicated. Our
consolidated financial statements are prepared in accordance with IFRS, as issued by the IASB and are stated in U.S. dollars. You
should read this information in conjunction with our consolidated financial statements included in this annual report and the information
under “Item 5. Operating and Financial Review and Prospects” appearing elsewhere in this annual report.
The summary consolidated financial information as of December 31, 2017, and for the years ended December 31, 2017,
2016 and 2015 have been derived from our audited consolidated financial statements included elsewhere in this annual report. The
summary consolidated financial information has been modified using the updated chart of accounts, resulting in the reclassification of
certain lines from our consolidated statements of profit or loss for these periods compared to amounts previously reported. The
summary consolidated financial information for the years ended December 31, 2014 and 2013 have been derived from our audited
consolidated financial statements for those years (not included herein) after giving similar reclassification adjustments for such years.
Year Ended December 31, (in thousands of dollars, except share and per share data
and operating data)
2015
2017
2016
2014
2013
STATEMENT OF PROFIT OR LOSS DATA
Operating revenue:
Passenger revenue
Cargo and mail revenue
Other operating revenue
Total operating revenues
Operating expenses:
Fuel
Wages, salaries, benefits and other employees expenses
Passenger servicing
Airport facilities and handling charges
Sales and distribution
Maintenance, materials and repairs
Depreciation and amortization
Flight operations
Aircraft rentals and other rentals
Cargo and courier expenses
Other operating and administrative expenses
Total operating expenses
Operating profit
2,462,419
2,155,167
2,185,465
2,638,392
2,535,422
55,290
9,847
53,989
12,696
56,738
11,507
60,715
12,218
60,872
17,715
2,527,556
2,221,852
2,253,710
2,711,325
2,614,009
572,746
415,147
99,447
171,040
200,413
124,709
164,345
101,647
134,539
7,375
96,087
528,996
370,190
86,329
159,771
193,984
121,781
159,278
88,188
603,760
373,631
84,327
148,078
188,961
111,178
134,888
86,461
822,130
376,193
90,457
141,594
193,038
100,307
115,147
85,183
785,010
344,233
81,761
130,893
198,931
93,451
137,412
78,540
138,885
142,177
129,431
106,792
6,099
92,215
6,471
7,601
6,525
105,484
118,746
130,192
2,087,495
1,945,716
1,985,416
2,179,827
2,093,740
440,061
276,136
268,294
531,498
520,269
Non-operating income (expense):
Finance cost
Finance income
Gain (loss) on foreign currency fluctuations
(35,223)
(37,024)
(33,155)
(29,529)
(30,180)
17,939
(5,218)
13,000
13,043
25,947
18,066
12,636
(440,097)
(6,448)
(22,929)
Net change in fair value of derivatives
2,801
111,642
(11,572)
(117,950)
Other non-operating income (expense)
(2,337)
(3,982)
(1,632)
2,671
5,241
3,533
Total non-operating income (expense), net
(22,038)
96,679
(460,509)
(133,190)
(31,699)
Profit (loss) before taxes
Income tax expenses
Net profit (loss)
418,023
372,815
(192,215)
398,308
488,570
(48,000)
(38,271)
(32,759)
(36,639)
(61,099)
370,023
334,544
(224,974)
361,669
427,471
1
STATEMENT OF FINANCIAL POSITION
DATA
Total cash, cash equivalents and short-term
investments
Accounts receivable, net
Total current assets
943,900
118,085
814,689
116,100
1,198,488
1,069,391
Purchase deposits for flight equipment
413,633
250,165
684,948
105,777
907,585
243,070
766,603
122,150
1,131,689
135,056
1,011,449
1,401,153
321,175
327,545
Total property and equipment
2,825,904
2,623,682
2,650,653
2,505,336
2,348,514
Total assets
Long-term debt
Total equity
Capital stock
CASH FLOW DATA
4,252,931
3,846,113
3,715,476
4,079,612
3,952,764
876,119
961,414
1,055,183
928,964
913,507
2,111,495
1,842,271
1,587,422
2,075,108
1,901,906
101,449
93,440
85,845
81,811
77,123
Net cash from operating activities
727,332
594,590
Net cash (used in) from investing activities
(578,159)
(179,909)
316,863
32,384
384,892
21,147
830,265
(565,720)
Net cash used in financing activities
(204,756)
(248,625)
(357,466)
(316,420)
(201,268)
OTHER FINANCIAL DATA
Underlying net income(1)
Adjusted EBITDA(2)
Aircraft rentals
Operating margin(3)
367,222
599,652
116,449
201,359
556,117
120,841
226,002
(50,119)
122,217
486,181
524,918
112,082
436,157
643,526
90,233
17.4%
12.4%
11.9%
19.6%
19.9%
Weighted average shares used in computing net
income per share (basic)
42,418,773
42,358,091
43,861,084
44,381,265
44,388,098
Weighted average shares used in computing net
income per share (diluted)
42,418,773
42,363,171
43,868,864
44,393,054
44,403,098
Earnings (Loss) per share (basic)
Earnings (Loss) per share (diluted)
Dividends per share paid
8.72
8.72
2.52
7.90
7.90
2.04
(5.13)
(5.13)
3.36
8.15
8.15
3.84
9.63
9.63
1.46
Total number of shares at end of period
42,123,766
42,050,481
41,955,227
43,988,423
44,098,620
OPERATING DATA
Revenue passengers carried(4)
Revenue passenger miles(5)
Available seat miles(6)
Load factor(7)
Total block hours(8)
Average daily aircraft utilization(9)
Average passenger fare
Yield(10)
Passenger revenue per ASM(11)
Operating revenue per ASM(12)
14,201
19,914
23,936
12,870
17,690
22,004
11,876
16,309
21,675
11,681
15,913
20,757
11,345
14,533
18,950
83.2%
80.4%
75.2%
76.7%
76.7%
419,610
388,058
388,355
376,903
348,882
11.5
173.4
12.37
10.29
10.56
10.6
167.5
12.18
9.79
10.10
10.8
184.0
13.40
10.08
10.40
11.0
225.9
16.58
12.71
13.06
11.1
223.5
17.45
13.38
13.79
Operating expenses per ASM (CASM)(13)
8.72
8.84
9.16
10.50
11.05
Departures
Average daily departures
Average number of aircraft
Airports served at period end
On-Time Performance(14)
Stage Length(15)
126,963
123,098
122,588
121,310
119,177
347.8
100.4
75
337.3
99.9
73
335.9
98.3
73
332.4
93.8
69
326.5
86.4
66
86.8%
88.4%
90.6%
90.5%
87.7%
1,282
1,213
1,236
1,213
1,140
2
(1) Underlying net income represents net income (loss) minus the sum of fuel hedge mark-to-market gain/(loss), and devaluation and
translation losses in Venezuela and Argentina. Underlying net income is presented because the Company uses this measure to
determine annual dividends. However, underlying net income should not be considered in isolation, as a substitute for net income
(loss) prepared in accordance with IFRS as issued by the IASB or as a measure of our profitability. The following table presents a
reconciliation of our net income (loss) to underlying net income for the specified periods.
2017
2016
2015
2014
2013
Net income (loss)
Fuel hedge mark to market gain/(loss)
Venezuela devaluation
Argentina devaluation
Underlying net income
370,023
(2,801)
—
—
367,222
334,544
(111,642)
(21,543)
—
201,359
(224,974) 361,669 427,471
117,850
6,562
—
(5,241)
13,927
—
486,181 436,157
11,572
432,503
6,901
226,002
(2) Adjusted EBITDA represents net income (loss) plus the sum of interest expense, income taxes, depreciation, amortization and
impairment minus interest income. Adjusted EBITDA is presented as supplemental information because we believe it is a useful
indicator of our operating performance and is useful in comparing our operating performance with other companies in the airline
industry. However, adjusted EBITDA should not be considered in isolation, as a substitute for net income (loss) prepared in
accordance with IFRS as issued by the IASB or as a measure of our profitability. In addition, our calculation of adjusted EBITDA
may not be comparable to other companies’ similarly titled measures. The following table presents a reconciliation of our net
income (loss) to adjusted EBITDA for the specified periods. Aircraft rentals represent a significant operating expense of our
business. Because we leased several of our aircraft during the periods presented, we believe that when assessing our adjusted
EBITDA you should also consider the impact of our aircraft rentals.
Net income (loss)
Interest expense
Income taxes
2017
2016
2015
2014
2013
370,023
334,544
(224,974)
361,669
427,471
35,223
48,000
37,024
38,271
33,155
32,759
29,529
36,639
30,180
61,099
Depreciation, amortization and impairment
164,345
159,278
134,888
115,147
137,412
Interest income
Adjusted EBITDA
(17,939)
(13,000)
(25,947)
(18,066)
(12,636)
599,652
556,117
(50,119)
524,918
643,526
(3) Operating margin represents operating income as a percentage of operating revenues.
(4) Total number of paying passengers (including all passengers redeeming frequent flyer miles and other travel awards) flown on all
flight segments, expressed in thousands.
(5) Number of miles flown by revenue passengers, expressed in millions.
(6) Aircraft seating capacity multiplied by the number of miles the seats are flown, expressed in millions.
(7) Percentage of aircraft seating capacity that is actually utilized. Load factors are calculated by dividing revenue passenger miles by
available seat miles.
(8) The number of hours from the time an airplane moves off the departure gate for a revenue flight until it is parked at the gate of the
arrival airport.
(9) Average number of block hours operated per day per aircraft for the total aircraft fleet.
(10) Average amount (in cents) one passenger pays to fly one mile.
(11) Passenger revenues (in cents) divided by the number of available seat miles.
(12) Total operating revenues (in cents) divided by the number of available seat miles.
(13) Total operating expenses (in cents) divided by the number of available seat miles.
(14) Percentage of flights that arrive at the destination gate within fourteen minutes of scheduled arrival.
(15) The average number of miles flown per flight.
3
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Relating to Our Company
Failure to successfully implement our growth strategy may adversely affect our results of operations and harm the market
value of our Class A shares.
Through a growth-oriented plan, we intend to continue to expand our service to new markets and to increase the frequency of
flights to the markets we currently serve. Achieving these goals allows our business to benefit from cost efficiencies resulting from
economies of scale. We expect to have substantial cash needs as we expand, including cash required to fund aircraft acquisitions or
aircraft deposits as we add to our fleet. If we do not have sufficient cash to fund such projects, we may not be able to successfully
expand our route system and our future revenue and earnings growth would be limited.
When we commence a new route, load factors tend to be lower than those on our established routes and our advertising and
other promotional costs tend to be higher, which could result in initial losses that could have a negative impact on our results of
operations as well as require a substantial amount of cash to fund. We also periodically run special promotional fare campaigns,
particularly in connection with the opening of new routes. Promotional fares can have the effect of increasing load factors while
reducing our yield on such routes during the period that they are in effect. The number of markets we serve and flight frequencies
depend on our ability to identify the appropriate geographic markets upon which to focus and to gain suitable airport access and route
approval in these markets. There can be no assurance that the new markets we enter will yield passenger traffic that is sufficient to make
our operations in those new markets profitable. Any condition that would prevent or delay our access to key airports or routes, including
limitations on the ability to process more passengers, the imposition of flight capacity restrictions, the inability to secure additional
route rights under bilateral agreements or the inability to maintain our existing slots and flight banks and obtain additional slots, could
constrain the expansion of our operations.
The expansion of our business will also require additional skilled personnel, equipment and facilities. The inability to hire,
train and/or retain pilots and other personnel or secure the required equipment and facilities efficiently, cost-effectively, and on a timely
basis, could adversely affect our ability to execute our plans. It also could strain our existing management resources and operational,
financial and management information systems to the point where they may no longer be adequate to support our operations, requiring
us to make significant expenditures in these areas. In light of these factors, we cannot ensure that we will be able to successfully
establish new markets or expand our existing markets, and our failure to do so could have an impact on our business and results of
operations, as well as the value of our Class A shares.
Our performance is heavily dependent on economic and political conditions in the countries in which we do business.
Passenger demand is heavily cyclical and highly dependent on global, regional and country-specific economic growth,
economic expectations and foreign exchange rate variations. In the past, we have been negatively impacted by poor economic
performance in certain emerging market countries in which we operate, as well as by weaker Latin American currencies. Any of the
following developments (or a continuation or worsening of any of the following currently in existence) in the countries in which we
operate could adversely affect our business, financial condition, liquidity and results of operations:
•
•
•
changes in economic or other governmental policies, including exchange controls;
changes in regulatory, legal or administrative practices; or
other political or economic developments over which we have no control.
Additionally, a significant portion of our revenues is derived from discretionary and leisure travel, which are especially
sensitive to economic downturns and political conditions. An adverse economic and/or political environment, whether global, regional
or in a specific country, could result in a reduction in passenger traffic, and leisure travel in particular, as well as a reduction in our
cargo business, and could also impact our ability to raise fares, which in turn would materially and negatively affect our financial
condition and results of operations.
4
The cost of refinancing our debt and obtaining additional financing for new aircraft has increased and may continue to
increase, which may negatively impact our business.
We currently finance our aircraft through bank loans, sale-leasebacks and operating leases under terms attractive to us. In the
past, we have been able to obtain lease or debt financing on satisfactory terms to us with a significant portion of the financing for our
Boeing aircraft purchases from commercial financial institutions utilizing guarantees provided by the Export-Import Bank of the United
States. As of December 31, 2017, we had $372.0 million of outstanding indebtedness with financial institutions under financing
arrangements guaranteed by the Export-Import Bank.
In recent years the Company has diversified its financing sources and obtained access to very competitive financing terms.
Since 2014 our aircraft deliveries have been financed through a mix of sale-leasebacks and Japanese Operating Leases with Call
Options (“JOLCO”).
Nevertheless, we cannot ensure that we will be able to continue to raise financing from past sources, or from other sources,
on terms comparable to our existing financing or at all. If the cost of such financing increases or we are unable to obtain such financing,
we may be forced to incur higher than anticipated financing costs, which could have an adverse impact on the execution of our growth
strategy and business.
We have historically operated using a hub-and-spoke model and are vulnerable to competitors offering direct flights between
destinations we serve.
The general structure of our flight operations follows what is known in the airline industry as a “hub-and-spoke” model. This
model aggregates passengers by operating flights from a number of “spoke” origins to a central hub through which they are transported
to their final destinations. In recent years, many traditional hub-and-spoke operators have faced significant and increasing competitive
pressure from low-cost, point-to-point carriers on routes with sufficient demand to sustain point-to-point service. A point-to-point
structure enables airlines to focus on the most profitable, high-demand routes and to offer greater convenience and, in many instances,
lower fares. As demand for air travel in Latin America increases, some of our competitors have initiated non-stop service between
destinations that we currently serve through our hub in Panama. Additionally, new aircraft models, such as, Boeing 737 MAX and
Airbus 320-NEO, allow nonstop flights in certain city pairs that could not be served with prior generation aircraft and may bypass our
hub. Non-stop service, which bypasses our hub in Panama, is more convenient and possibly less expensive than our connecting service
and could significantly decrease demand for our service to those destinations. In December 2016, we launched a low-cost business
model, Wingo, to diversify our offerings and to better compete with other low-cost carriers, or “LCCs,” in the market. However, our
traditional hub and spoke model remains our primary operational model and we believe that competition from point-to-point carriers
will be directed towards the largest markets that we serve and is likely to continue at this level or intensify in the future. As a result, the
effect of competition on us could be significant and could have a material adverse effect on our business, financial condition and results
of operations.
We may not realize benefits from Wingo, our low-cost business model.
Wingo, our low-cost business model, which is part of Copa Colombia, utilizes four of our 737-700s, each configured with
142 seats in a single class cabin. Wingo operates point-to-point flights within Colombia and to other international destinations in the
region.
We have limited experience operating a low-cost business model and we may not be able to accurately predict its impact on
our main line services. In particular, if demand for Wingo flights is not substantial, if our pricing strategy does not adequately align with
our cost structure, if Wingo does not meet customer expectations or if demand for Wingo flights cannibalizes some of our main line
flights, Wingo’s operations may have a negative impact on our reputation or our operating results.
Wingo operates administratively and functionally under Copa Colombia, with an independent structure for its planning,
marketing, distribution systems and customer service.
Our business is subject to extensive regulation which may restrict our growth or our operations or increase our costs.
Our business, financial condition and results of operations could be adversely affected if we or certain aviation authorities in
the countries to which we fly fail to maintain the required foreign and domestic governmental authorizations necessary for our
operations. In order to maintain the necessary authorizations issued by the Panamanian Civil Aviation Authority (the Autoridad de
5
Aeronáutica Civil, or the “AAC”), the Colombian Civil Aviation Administration (the Unidad Administrativa Especial de Aeronáutica
Civil, or the “UAEAC”), and other corresponding foreign authorities, we must continue to comply with applicable statutes, rules and
regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future. In addition, Panama
is a member state of the International Civil Aviation Organization, or “ICAO,” a United Nations specialized agency. ICAO coordinates
with its member states and various industry groups to establish and maintain international civil aviation standards and recommended
practices and policies, which are then used by ICAO member states to ensure that their local civil aviation operations and regulations
conform to global standards. We cannot predict or control any actions that the AAC, the UAEAC, ICAO or other foreign aviation
regulators may take in the future, which could include restricting our operations or imposing new and costly regulations or policies.
Also, our fares are subject to review by the AAC, the UAEAC, and the regulators of certain other countries to which we fly, any of
which may in the future impose restrictions on our fares.
We are also subject to international bilateral air transport agreements that provide for the exchange of air traffic rights
between each of Panama and Colombia, and various other countries, and we must obtain permission from the applicable foreign
governments to provide service to foreign destinations. There can be no assurance that existing bilateral agreements between the
countries in which our airline operating companies are based and foreign governments will continue, or that we will be able to obtain
more route rights under those agreements to accommodate our future expansion plans. Any modification, suspension or revocation of
one or more bilateral agreements could have a material adverse effect on our business, financial condition and results of operations. The
suspension of our permits to operate to certain airports or destinations, the cancellation of any of our provisional routes, the inability for
us to obtain favorable take-off and landing authorizations at certain high-density airports or the imposition of other sanctions could also
have a negative impact on our business. We cannot be certain that a change in a foreign government’s administration of current laws
and regulations or the adoption of new laws and regulations will not have a material adverse effect on our business, financial condition
and results of operations.
We plan to continue to increase the scale of our operations and revenues by expanding our presence on new and existing
routes. Our ability to successfully implement this strategy will depend upon many factors, several of which are outside our control or
subject to change. These factors include the permanence of a suitable political, economic and regulatory environment in the Latin
American countries in which we operate or intend to operate and our ability to identify strategic local partners.
The most active government regulator among the countries to which we fly is the U.S. Federal Aviation Administration, or
“FAA.” The FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that
require significant expenditures. FAA requirements cover, among other things, security measures, collision avoidance systems, airborne
wind shear avoidance systems, noise abatement and other environmental issues, and increased inspections and maintenance procedures
to be conducted on older aircraft. Additional new regulations continue to be regularly implemented by the U.S. Transportation Security
Administration, or “TSA,” as well. As we continue to expand our presence on routes to and from the United States, we expect to
continue incurring expenses to comply with the FAA’s and TSA’s regulations, and any increase in the cost of compliance could have an
adverse effect on our financial condition and results of operations.
The growth of our operations to the United States and the benefits of our code-sharing arrangements with United Continental
Holdings, Inc. (“UAL”) are dependent on Panama’s continued favorable safety assessment.
The FAA periodically audits the aviation regulatory authorities of other countries. As a result of its investigation, each
country is given an International Aviation Safety Assessment, or “IASA,” rating. Since April 2004, IASA has rated Panama as a
Category 1, which means that Panama complies with the safety requirements set forth by ICAO. A 2015 ICAO study found significant
safety deficiencies in Panama, but the country’s category has not been downgraded. We cannot guarantee that the government of
Panama and the AAC in particular, will continue to meet international safety standards, and we have no direct control over their
compliance with IASA guidelines. If Panama’s IASA rating were to be downgraded in the future, it could prohibit us from increasing
service to the United States and UAL affecting our code-share arrangement with United Airlines.
We are highly dependent on our hub at Panama City’s Tocumen International Airport.
Our business is heavily dependent on our operations at our hub at Panama City’s Tocumen International Airport.
Substantially all of our Copa flights either depart from or arrive at our hub. Our operations and growth strategy is therefore highly
dependent on its facilities and infrastructure, including the success of its multi-phase expansion projects, certain of which have been
completed and others, such as Terminal 2, that are underway and have experienced important delays. One of the contractors responsible
for the construction of Terminal 2, Norberto Odebrecht Construction, was subject to penalties in 2017 for its past practices related to
project approvals. Their involvement in the construction of Terminal 2 may further delay completion of the expansion based on delays
6
related to government approvals of individual projects or if they lack sufficient liquidity to complete their portion of the Tocumen
International Airport. Terminal 2 is currently scheduled for completion toward the end of 2018. Due to the magnitude of the
construction required for this new Terminal 2 currently under construction, we may experience logistical issues and/or be subject to
further increases in passenger taxes and airport charges related to the financing of the construction.
In addition, the hub-and-spoke structure of our operations is particularly dependent on the on-time arrival of tightly
coordinated groupings of flights (or banks) to ensure that passengers can make timely connections to continuing flights. Like other
airlines, we are subject to delays caused by factors beyond our control, including air traffic congestion at airports, adverse weather
conditions and increased security measures. On September 18, 2017, our operations were affected by a power outage at Tocumen
International Airport, which caused significant delays and cancellation of flights. Delays inconvenience passengers, reduce aircraft
utilization and increase costs, all of which in turn negatively affect our profitability. In addition, at its current utilization level, Tocumen
International Airport has limited fuel storage capacity. In the event there is a disruption in the transport of fuel to the airport, we may be
forced to suspend flights until the fuel tanks can be refueled. A significant interruption or disruption in service or fuel at Tocumen
International Airport could have a serious impact on our business, financial condition and operating results.
Tocumen International Airport is operated by a corporation that is owned and controlled by the government of the Republic
of Panama. We depend on our good working relationship with the quasi-governmental corporation that operates the airport to ensure
that we have adequate access to aircraft parking positions, landing rights and gate assignments for our aircraft to accommodate our
current operations and future plans for expansion. The corporation that operates Tocumen International Airport does not enter into any
formal, written leases or other agreements with airlines to govern rights to use the airport’s jet ways or aircraft parking spaces.
Therefore, we would not have contractual recourse if the airport authority assigned new capacity to competing airlines, reassigned our
resources to other aircraft operators, raised fees or discontinued investments in the airport’s maintenance and expansion. Any of these
events could result in significant new competition for our routes or could otherwise have a material adverse effect on our current
operations or capacity for future growth.
We are exposed to increases in airport charges, taxes and various other fees and cannot be assured access to adequate facilities
and landing rights necessary to achieve our expansion plans.
We must pay fees to airport operators for the use of their facilities. Any substantial increase in airport charges, including at
Tocumen International Airport, could have a material adverse impact on our results of operations. Passenger taxes and airport charges
have increased in recent years, sometimes substantially. Certain important airports that we use may be privatized in the near future,
which is likely to result in significant cost increases to the airlines that use these airports. We cannot ensure that the airports used by us
will not impose, or further increase, passenger taxes and airport charges in the future, and any such increases could have an adverse
effect on our financial condition and results of operations.
Certain airports that we serve (or that we plan to serve in the future) are subject to capacity constraints and impose various
restrictions, including slot restrictions during certain periods of the day, limits on aircraft noise levels, limits on the number of average
daily departures and curfews on runway use. We cannot be certain that we will be able to obtain a sufficient number of slots, gates and
other facilities at airports to expand our services in line with our growth strategy. It is also possible that airports not currently subject to
capacity constraints may become so in the future. In addition, an airline must use its slots on a regular and timely basis or risk having
those slots re-allocated to others. Where slots or other airport resources are not available or their availability is restricted in some way,
we may have to amend our schedules, change routes or reduce aircraft utilization. Any of these alternatives could have an adverse
financial impact on us. In addition, we cannot ensure that airports at which there are no such restrictions may not implement restrictions
in the future or that, where such restrictions exist, they may not become more onerous. Such restrictions may limit our ability to
continue to provide or to increase services at such airports.
We have significant fixed financing costs and expect to incur additional fixed costs as we expand our fleet.
The airline business is characterized by high leverage. We have significant fixed expenditures in connection with our
operating leases and facility rental costs, and substantially all of our property and equipment is pledged to secure indebtedness. For the
year ended December 31, 2017, our finance cost and aircraft and other rental expense under operating leases totaled $169.8 million. At
December 31, 2017, approximately 36.1% of our total indebtedness bore interest at fixed rates and the remainder was determined with
reference to LIBOR. Most of our aircraft lease obligations bear interest at fixed rates. Accordingly, our financing and rent expense will
not decrease significantly if market interest rates decline, but our financing costs could materially increase as LIBOR rates increase.
7
As of December 31, 2017, the Company had two purchase contracts with Boeing: the first contract entails two firm orders of
Boeing 737 Next Generation aircraft, to be delivered in the first half of 2018, and the second contract entails 71 firm orders of Boeing
737 MAX aircraft, which will be delivered between 2018 and 2025. The firm orders have an approximate value of $9.5 billion based on
aircraft list prices, including estimated amounts for contractual price escalation and pre-delivery deposits. We will require substantial
capital from external sources to meet our future financial commitments. In addition, the acquisition and financing of these aircraft will
likely result in a substantial increase in our leverage and fixed financing costs. A high degree of leverage and fixed payment obligations
could:
•
•
•
limit our ability in the future to obtain additional financing for working capital or other important needs;
impair our liquidity by diverting substantial cash from our operating needs to service fixed financing obligations;
or
limit our ability to plan for or react to changes in our business, in the airline industry or in general economic
conditions.
Any one of these factors could have a material adverse effect on our business, financial condition and results of operations.
Our existing debt financing agreements and our aircraft operating leases contain restrictive covenants that impose significant
operating and financial restrictions on us.
Our aircraft financing loans, operating leases and the instruments governing our other indebtedness contain a number of
significant covenants and restrictions that limit our and our subsidiaries’ ability to:
•
•
•
•
create material liens on our assets;
take certain actions that may impair creditors’ rights to our aircraft;
sell assets or engage in certain mergers or consolidations; and
engage in other specified significant transactions.
In addition, several of our aircraft financing agreements require us to maintain compliance with specified financial ratios and
other financial and operating tests. For example, our access to certain borrowings under our aircraft financing arrangements is
conditioned upon our maintenance of minimum debt service coverage and capitalization ratios. See “Item 5. Operating and Financial
Review and Prospects—Liquidity and Capital Resources.” Complying with these covenants may cause us to take actions that could
make it more difficult to execute our business strategy successfully, and we may face competition from companies not subject to such
restrictions. Moreover, our failure to comply with these covenants could result in an event of default or refusal by our creditors to
extend certain of our loans.
If we fail to successfully take delivery of or reliably operate new aircraft, in particular our new Boeing 737 MAX aircraft, our
business could be harmed.
We fly and rely on Boeing and Embraer aircraft. As of December 31, 2017 we operated a fleet of 80 Boeing aircraft and 20
Embraer 190 aircraft. In 2018, we expect to take delivery of two additional Boeing 737-800s and five of our first Boeing 737 MAX
aircraft. In the future we expect to continue to incorporate new aircraft into our fleet. The decision to incorporate new aircraft is based
on a variety of factors, including the implementation of our growth strategy. Acquisition of new aircraft involves a variety of risks
relating to their ability to be successfully placed into service including:
•
•
•
manufacturer’s delays in meeting the agreed upon aircraft delivery schedule;
difficulties in obtaining financing on acceptable terms to complete our purchase of all of the aircraft we have
committed to purchase; and
the inability of new aircraft and their components to comply with agreed upon specifications and performance
standards.
In addition, we cannot predict the reliability of our fleet as the aircraft matures. In particular, we cannot predict the reliability
of the Boeing 737 MAX aircraft, which first entered commercial service in May 2017. Any technical issues with our aircraft would
increase our maintenance expenses.
8
If we were to determine that our aircraft, rotable parts or inventory were impaired, it would have a significant adverse effect on
our operating results.
If there is objective evidence that an impairment loss on long-lived assets carried at amortized cost has been incurred, the
amount of the impairment loss is measured as the difference between the asset’s carrying amount and the higher of its fair value less
cost to sell and its value in use, defined as the present value of estimated future cash flows (excluding future expected credit losses that
have not been incurred) discounted at the asset’s risk adjusted interest rate. The carrying amount of the asset is reduced and the loss is
recorded in the consolidated statement of profit or loss. In addition to the fact that the value of our fleet declines as it ages, any potential
excess capacity in the airline industry, airline bankruptcies and other factors beyond our control may further contribute to the decline of
the fair market value of our aircraft and related rotable parts and inventory. If such impairment does occur, we would be required under
IFRS to write down these assets through a charge to earnings. A significant charge to earnings would adversely affect our financial
condition and operating results. In addition, the interest rates on and the availability of certain of our aircraft financing loans are tied to
the value of the aircraft securing the loans. If those values were to decrease substantially, our interest rates may rise or the lenders under
those loans may cease extending credit to us, either of which could have an adverse impact on our financial condition and results of
operations.
We rely on information and other aviation technology systems to operate our businesses and any failure or disruption of these
systems may have an impact on our business.
We rely upon information technology systems to operate our business and increase our efficiency. We are highly reliant on
certain systems for flight operations, maintenance, reservations, check-in, revenue management, accounting and cargo distribution.
Other systems are designed to decrease distribution costs through internet reservations and to maximize cargo distributions, crew
utilization and flight operations. These systems may not deliver their anticipated benefits.
In the ordinary course of business, we may upgrade or replace our systems or otherwise modify and refine our existing
systems to address changing business requirements. In particular, aircraft rely on advanced technology and, as this technology is
updated, old aircraft models may become obsolete. Our operations and competitive position could be adversely affected if we are
unable to upgrade or replace our systems in a timely and effective manner once they become outdated, and any inability to upgrade or
replace our systems could negatively impact our financial results.
Further, Wingo, our low-cost business model, uses a reservation system that differs from the system we have traditionally
used for our operations. Any transition to new systems may result in a loss of data or service interruption that could harm our business.
Information systems could also suffer disruptions due to events beyond our control, including natural disasters, power failures, terrorist
attacks, cyber-attacks, data theft, equipment or software failures, computer viruses or telecommunications failures. We cannot ensure
that our security measures or disaster recovery plans are adequate to prevent failures or disruptions. Substantial or repeated website,
reservations systems or telecommunication system failures or disruptions, including failures or disruptions related to our integration of
technology systems, could reduce the attractiveness of our Company versus our competitors, materially impair our ability to market our
services and operate flights, result in the unauthorized release of confidential or otherwise protected information, and result in increased
costs, lost revenue, or the loss or compromise of important data.
Our reputation and business may be harmed and we may be subject to legal claims if there is a loss, unlawful disclosure or
misappropriation of, or unsanctioned access to, our customers’, employees’, business partners’ or our own information, or any
other breaches of our information security.
We make extensive use of online services and centralized data processing, including through third-party service providers.
The secure maintenance and transmission of customer and employee information is a critical element of our operations. Our
information technology and other systems, or those of service providers or business partners that maintain and transmit customer
information, may be compromised by a malicious third-party penetration of our network security, or of a third-party service provider or
business partner, or impacted by deliberate or inadvertent actions or inactions by our employees, or those of a third-party service
provider or business partner. As a result, personal information may be lost, disclosed, accessed or taken without consent.
We transmit confidential credit card information by way of secure private retail networks and rely on encryption and
authentication technology licensed from third parties to provide the security and authentication necessary to effect secure transmission
and storage of confidential information, such as customer credit card information. The Company has made significant efforts to secure
its computer network. If our security or computer network were compromised in any way, it could have a material adverse effect on the
reputation, business, operating results and financial condition of the Company, and could result in a loss of customers. Additionally, any
material failure by the Company to achieve or maintain compliance with the Payment Card Industry security requirements or rectify a
security issue may result in fines and the imposition of restrictions on the Company’s ability to accept credit cards as a form of
payment.
9
As a result of these types of risks, we regularly review and update procedures and processes to prevent and protect against
unauthorized access to our systems and information and inadvertent misuse of data. However, we cannot be certain that we will not be
the target of attacks on our networks and intrusions into our data, particularly given recent advances in technical capabilities, and
increased financial and political motivations to carry out cyber-attacks on physical systems, gain unauthorized access to information,
and make information unavailable for use through, for example, ransomware or denial-of-service attacks, and otherwise exploit new and
existing vulnerabilities in our infrastructure. The risk of a data security incident or disruption, particularly through cyber-attack or cyber
intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and
sophistication of attempted attacks and intrusions from around the world have increased. Furthermore, in response to these threats there
has been heightened legislative and regulatory focus on attacks on critical infrastructures, including those in the transportation sector,
and on data security in Panama, the United States and other parts of the world, including requirements for varying levels of data subject
notification in the event of a data security incident.
Any such loss, disclosure or misappropriation of, or access to, customers’, employees’ or business partners’ information or
other breach of our information security could result in legal claims or legal proceedings, including regulatory investigations and
actions, may have a negative impact on our reputation and may materially adversely affect our business, operating results and financial
condition. Furthermore, the loss, disclosure or misappropriation of our business information may materially adversely affect our
business, operating results and financial condition.
Our liquidity could be adversely impacted in the event one or more of our credit card processors were to impose material
reserve requirements for payments due to us from credit card transactions.
We currently have agreements with organizations that process credit card transactions arising from purchases of air travel
tickets by our customers. Credit card processors have financial risk associated with tickets purchased for travel that can occur several
weeks after the purchase. Our credit card processing agreements provide for reserves to be deposited with the processor in certain
circumstances. We do not currently have reserves posted for our credit card processors. If circumstances were to occur requiring us to
deposit reserves, the negative impact on our liquidity could be significant, which could materially adversely affect our business.
Our quarterly results could fluctuate substantially, and the trading price of our Class A shares may be affected by such
variations.
The airline industry is by nature cyclical and seasonal, and our operating results may vary from quarter to quarter. In general,
demand for air travel is higher in the third and fourth quarters, particularly in international markets, because of the increase in vacation
travel during these periods relative to the remainder of the year. We tend to experience the highest levels of traffic and revenue in July
and August, with a smaller peak in traffic in December and January. We generally experience our lowest levels of passenger traffic in
April and May. Given our high proportion of fixed costs, seasonality can affect our profitability from quarter to quarter. Demand for air
travel is also affected by factors such as economic conditions, war or the threat of war, fare levels and weather conditions.
Due to the factors described above and others described in this annual report, quarter-to-quarter comparisons of our operating
results may not be good indicators of our future performance. In addition, it is possible that in any quarter our operating results could be
below the expectations of investors and any published reports or analyses regarding our Company. In that event, the price of our
Class A shares could decline, perhaps substantially.
Our reputation and financial results could be harmed in the event of an accident or incident involving our aircraft.
An accident or incident involving one of our aircraft could involve significant claims by injured passengers and others, as
well as significant costs related to the repair or replacement of a damaged aircraft and its temporary or permanent loss from service. We
are required by our creditors and the lessors of our aircraft under our operating lease agreements to carry liability insurance, but the
amount of such liability insurance coverage may not be adequate and we may be forced to bear substantial losses in the event of an
accident. Our insurance premiums may also increase, or we may lose our eligibility for insurance, due to an accident or incident
affecting one of our aircraft. Substantial claims resulting from an accident in excess of our related insurance coverage or increased
premiums would harm our business and financial results.
10
Moreover, any aircraft accident or incident, even if fully insured, could cause the public to perceive us as less safe or reliable
than other airlines, which could harm our business and results of operations. The Copa brand name and our corporate reputation are
important and valuable assets. Adverse publicity (whether or not justified) could tarnish our reputation and reduce the value of our
brand. Adverse perceptions of the types of aircraft that we operate arising from safety concerns or other problems, whether real or
perceived, or in the event of an accident involving those types of aircraft, could significantly harm our business as the public may avoid
flying on our aircraft.
Fluctuations in foreign exchange rates could negatively affect our net income.
In 2017, approximately 59.8% of our expenses and 43.7% of our revenues were denominated in U.S. dollars, respectively
(2016: 67.2% and 46.8%, respectively). A significant part of our revenue is denominated in foreign currencies, including the Brazilian
real, Colombian peso and Argentinian peso, which represented 16.5%, 11.4% and 7.8%, respectively (2016: 10.1%, 11.8% and 6.8%
respectively). If any of these currencies decline in value against the U.S. dollar, our revenues, expressed in U.S. dollars, and our
operating margin would be adversely affected. We may not be able to adjust our fares denominated in other currencies to offset any
increases in U.S. dollar-denominated expenses, increases in interest expense or exchange losses on fixed obligations or indebtedness
denominated in foreign currency.
We are also exposed to exchange rate losses, as well as gains, due to the fluctuation in the value of local currencies the U.S.
dollar during the period of time between the times we are paid in local currencies and the time we are able to repatriate the revenues in
U.S. dollars. Typically this process takes between one and two weeks in most countries to which we fly, excluding Venezuela [note
28.2 – Market risk—on our Financial Statements].
Our maintenance costs will increase as our fleet ages.
The average age of our fleet was approximately 8.0 years as of December 31, 2017. Historically, we have incurred low levels
of maintenance expenses relative to the size of our fleet because most of the parts on our aircraft are covered under multi-year
warranties. As our fleet ages and these warranties expire and the mileage on each aircraft increases, our maintenance costs will increase,
both on an absolute basis and as a percentage of our operating expenses.
If we enter into a prolonged dispute with any of our employees, many of whom are represented by unions, or if we are required
to substantially increase the salaries or benefits of our employees, it may have an adverse impact on our operations and financial
condition.
Approximately 62.9% of our 9,045 employees are unionized. There are currently five unions covering our employees based
in Panama: the pilots’ union; the flight attendants’ union; the mechanics’ union; the passenger service agents’ union; and an industry
union, which represents ground personnel, messengers, drivers, passenger service agents, counter agents and other non-executive
administrative staff. Copa entered into collective bargaining agreements with the pilot’s union in July 2017, the industry union in
December 2017, the mechanics’ union during the late first quarter 2018 and the flight attendants’ union during the early third quarter of
2018. Collective bargaining agreements in Panama typically have four-year terms. In addition to unions in Panama, there are four
unions covering employees in Colombia; in Brazil, all airline industry employees in the country are covered by the industry union
agreements; employees in Uruguay are covered by an industry union, and airport employees in Argentina are affiliated to an industry
union (UPADEP).
A strike, work interruption or stoppage or any prolonged dispute with our employees who are represented by any of these
unions could have an adverse impact on our operations. These risks are typically exacerbated during periods of renegotiation with the
unions, which typically occurs every two to four years depending on the jurisdiction and the union. For example, on November 23,
2017, our ground staff held a one-day work stoppage at the end of the negotiation process between Copa and the Sindicato Nacional de
Trabajadores de la Industria de la Aviación Civil union or “SIELAS.” Our operations were not interrupted during such work stoppage.
Any renegotiated collective bargaining agreement could feature significant wage increases and a consequent increase in our operating
expenses. Any failure to reach an agreement during negotiations with unions may require us to enter into arbitration proceedings, use
financial and management resources, and potentially agree to terms that are less favorable to us than our existing agreements.
Employees who are not currently members of unions may also form new unions that may seek further wage increases or benefits.
Our business is labor-intensive. We expect salaries, wages, benefits and other employee expenses to increase on a gross
basis, and these costs could increase as a percentage of our overall costs. If we are unable to hire, train and retain qualified pilots and
other employees at a reasonable cost, our business could be harmed and we may be unable to complete our expansion plans.
11
Our revenues depend on our relationship with travel agents and tour operators and we must manage the costs, rights and
functionality of these third-party distribution channels effectively.
In 2017, approximately 67.3% of our revenues were derived from tickets sold through third-party distribution channels,
including those provided by conventional travel agents, online travel agents, or “OTAs,” or tour operators. We cannot assure that we
will be able to maintain favorable relationships with these ticket sellers. Our revenues could be adversely impacted if travel agents or
tour operators elect to favor other airlines or to disfavor us. Our relationship with travel agents and tour operators may be affected by:
•
•
•
the size of commissions offered by other airlines;
changes in our arrangements with other distributors of airline tickets; and
the introduction and growth of new methods of selling tickets.
These third-party distribution channels, along with global distribution systems, or “GDSs,” that travel agents, “OTAs” and
tour operators use to obtain airline travel information and issue airline tickets, are more expensive than those we operate ourselves, such
as our website. Certain of these distribution channels also effectively restrict the manner in which we distribute our products generally.
To remain competitive, we will need to successfully manage our distribution costs and rights, increase our distribution flexibility and
improve the functionality of third-party distribution channels, while maintaining an industry-competitive cost structure. These initiatives
may affect our relationships with our third-party distribution channels. Any inability to manage our third-party distribution costs, rights
and functionality at a competitive level or any material diminishment or disruption in the distribution of our tickets could have a
material adverse effect on our business, results of operations and financial condition.
We rely on third parties to provide our customers and us with services that are integral to our business.
We have several agreements with third-party contractors to provide certain services primarily outside of Panama.
Maintenance services include aircraft heavy checks, engine maintenance, overhaul, component repairs and line maintenance activities.
In addition to call center services, third-party contractors also provide us with “below the wing” aircraft services. At airports other than
Tocumen International Airport, most of our aircraft services are performed by third-party contractors. Substantially all of our
agreements with third-party contractors are subject to termination on short notice. The loss or expiration of these agreements or our
inability to renew these agreements or to negotiate new agreements with other providers at comparable rates could negatively impact
our business and results of operations. Further, our reliance on third parties to provide reliable equipment or essential services on our
behalf could lead us to have less control over the costs, efficiency, timeliness and quality of our service. A contractor’s negligence could
compromise our aircraft or endanger passengers and crew. This could also have a material adverse effect on our business. We expect to
be dependent on such agreements for the foreseeable future and if we enter any new market, we will need to have similar agreements in
place.
We depend on a limited number of suppliers.
We are subject to the risks of having a limited number of suppliers for our aircraft and engines. One of the elements of our
business strategy is to save costs by operating a simplified fleet. Copa currently operates the Boeing 737-700/800 Next Generation
aircraft powered by CFM 56-7B engines from CFM International and the Embraer 190, powered by CF 34-10 engines from General
Electric. We currently intend to continue to rely exclusively on these aircraft. However, starting in August 2018 we will begin receiving
the 737 MAX, which is an advanced version of the existing 737-Next Generation. This aircraft will be equipped with a Leap 1B engine,
also manufactured by CFM International. If any of Boeing, Embraer, CFM International or General Electric are unable to perform their
contractual obligations, or if we are unable to acquire or lease new aircraft or engines from aircraft or engine manufacturers or lessors
on acceptable terms, we would have to find another supplier for a similar type of aircraft or engine.
If we have to lease or purchase aircraft from another supplier, we could lose the benefits we derive from our current fleet
composition. We cannot ensure that any replacement aircraft would have the same operating advantages as the Boeing 737-700/800
Next Generation or Embraer 190 aircraft that would be replaced or that Copa could lease or purchase engines that would be as reliable
and efficient as the CFM 56-7B and GE CF34-10. We may also incur substantial transition costs, including costs associated with
acquiring spare parts for different aircraft models, retraining our employees, replacing our manuals and adapting our facilities. Our
operations could also be harmed by the failure or inability of Boeing, Embraer, CFM International or General Electric to provide
sufficient parts or related support services on a timely basis.
12
Our business would be impacted if a design defect or mechanical problem with any of the types of aircraft or components
that we operate were discovered that would ground any of our aircraft while the defect or problem was being addressed, assuming it
could be corrected at all. The use of our aircraft could be suspended or restricted by regulatory authorities in the event of any actual or
perceived mechanical or design issues. Our business would also be negatively impacted if the public began to avoid flying with us due
to an adverse perception of the types of aircraft that we operate stemming from safety concerns or other problems, whether real or
perceived, or in the event of an accident involving those types of aircraft or components.
We also depend on a limited number of suppliers with respect to supplies obtained locally, such as our fuel. These local
suppliers may not be able to maintain the pace of our growth and our requirements may exceed their capabilities, which may adversely
affect our ability to execute our day-to-day operations and our growth strategy.
Our business financial condition and results of operations could be materially affected by the loss of key personnel.
Our success depends to a significant extent on the ability of our senior management team and key personnel to operate and
manage our business effectively. Most of our employment agreements with key personnel do not contain any non-competition
provisions applicable upon termination. Competition for highly qualified personnel is intense. If we lose any executive officer, senior
manager or other key employee and are not able to obtain an adequate replacement, or if we are unable to attract and retain new
qualified personnel, our business, financial condition and results of operations could be materially adversely affected.
Risks Relating to the Airline Industry
The airline industry is highly competitive.
We face intense competition throughout our route network. Overall airline industry profit margins are low and industry
earnings are volatile. Airlines compete in the areas of pricing, scheduling (frequency and flight times), on-time performance, frequent
flyer programs and other services. Some of our competitors have larger customer bases and greater brand recognition in the markets we
serve outside Panama, and some of our competitors have significantly greater financial and marketing resources than we have. Airlines
based in other countries may also receive subsidies, tax incentives or other state aid from their respective governments, which are not
provided by the Panamanian government. Changes in our interactions with our passengers or our product offerings could negatively
impact our business. For example, prior to 2015, we had participated in UAL’s loyalty program, MileagePlus, but in July 2015, we
launched our own ConnectMiles frequent flyer program. Although, ConnectMiles is allowing us to build a more direct relationship with
our customers, it may not be as successful as UAL’s MileagePlus program in building, and maintaining, brand loyalty. In addition, the
commencement of, or increase in, service on the routes we serve by existing or new carriers could negatively impact our operating
results. Likewise, competitors’ service on routes that we are targeting for expansion may make those expansion plans less attractive.
We compete with a number of other airlines that currently serve some of the routes on which we operate, including Avianca,
American Airlines, Delta Air Lines, Aeromexico, and LATAM Group among others. Strategic alliances, bankruptcy restructurings and
industry consolidations characterize the airline industry and tend to intensify competition. Several air carriers have merged and/or
reorganized in recent years, including certain of our competitors, such as LAN-TAM, Avianca-Taca, American-US Airways and Delta-
Northwest, and have benefited from lower operating costs and fare discounting in order to maintain cash flows and to enhance
continued customer loyalty.
Traditional hub-and-spoke carriers in the United States and Europe continue to face substantial and increasing competitive
pressure from LCCs offering discounted fares. The LCCs’ operations are typically characterized by point-to-point route networks
focusing on the highest demand city pairs, high aircraft utilization, single class service and fewer in-flight amenities. As evidenced by
Grupo Viva, which is growing in domestic and international markets in Latin America; Spirit, which serves Latin America, including
Panama, from Fort Lauderdale; Volaris that operates within Central America region, Mexico and the United States; JetBlue, which flies
from Orlando to Latin America; Azul, which flies from Brazil to several South American countries and a number of other LCCs that
operate within the Latin American region. The LCC business model appears to be gaining acceptance in the Latin American aviation
industry. As a result, we may face new and substantial competition from LCCs in the future, which could result in significant and
lasting downward pressure on the fares we charge for flights on our routes. In December 2016, Copa’s subsidiary in Colombia,
AeroRepública, launched Wingo, a low-cost business model to serve domestic destinations and some point-to-point international leisure
markets, to improve Copa’s position within Colombia, and better compete with low unbundled prices from LCCs. Although we intend
to compete vigorously and maintain our strong competitive position in the industry, Avianca and LAN Colombia (LATAM) represent a
significant portion of the domestic market in Colombia and have access to greater resources as a result of their recent combinations.
Therefore, Copa faces stronger competition now than in recent years, and its prior results may not be indicative of its future
performance.
13
We must constantly react to changes in prices and services offered by our competitors to remain competitive. The airline
industry is highly susceptible to price discounting, particularly because airlines incur very low marginal costs for providing service to
passengers occupying otherwise unsold seats. Carriers use discount fares to stimulate traffic during periods of lower demand to generate
cash flow and to increase market share. Any lower fares offered by one airline are often matched by competing airlines, which often
results in lower industry yields with little or no increase in traffic levels. Price competition among airlines in the future could lead to
lower fares or passenger traffic on some or all of our routes, which could negatively impact our profitability. We cannot be certain that
any of our competitors will not undercut our fares in the future or increase capacity on routes in an effort to increase their respective
market share. Although we intend to compete vigorously and to assert our rights against any predatory conduct, such activity by other
airlines could reduce the level of fares or passenger traffic on our routes to the point where profitable levels of operations cannot be
maintained. Due to our smaller size and financial resources compared to several of our competitors, we may be less able to withstand
aggressive marketing tactics or fare wars engaged in by our competitors should such events occur.
Significant changes or extended periods of high fuel costs or fuel supply disruptions could materially affect our operating
results.
Fuel costs constitute a significant portion of our total operating expenses, representing approximately 27.4% of operating
expenses in 2017, 27.2% in 2016 and 30.4% in 2015. Jet fuel costs have been subject to wide fluctuations as a result of increases in
demand, sudden disruptions in and other concerns about global supply, as well as market speculation. Fuel prices reached record levels
during the middle of 2008, decreased substantially in 2009, and have fluctuated up and down since 2009. Both the cost and availability
of fuel are subject to many economic, political, weather, environmental and other factors and events occurring throughout the world that
we can neither control nor accurately predict, including international political and economic circumstances such as the political
instability in major oil-exporting countries in Latin America, Africa and Asia. Any future fuel supply shortage (for example, as a result
of production curtailments by the Organization of the Petroleum Exporting Countries, or “OPEC,” a disruption of oil imports, supply
disruptions resulting from severe weather or natural disasters, the continued unrest in the Middle East or otherwise could result in
higher fuel prices or further reductions in scheduled airline services). We cannot ensure that we would be able to offset any increases in
the price of fuel by increasing our fares.
We may experience difficulty recruiting, training and retaining pilots and other employees.
The airline industry is a labor-intensive business. We employ a large number of flight attendants, maintenance technicians
and other operating and administrative personnel. The airline industry has, from time to time, experienced a shortage of qualified
personnel. Recently, we have experienced significant turnover due to shifting economic environments worldwide that have led
competitors to offer incentives to attract skilled pilots. As is common with most of our competitors, considerable turnover of employees
may occur and may not always be predictable. When we experience higher turnover, our training costs may be higher due to the
significant amount of time required to train each new employee and, in particular, each new pilot. If our pilots terminate their contracts
earlier than anticipated, we may be unable to successfully recoup the costs spent to train those pilots. We cannot be certain that we will
be able to recruit, train and retain the qualified employees that we need to continue our current operations to replace departing
employees. A failure to hire, train and retain qualified employees at a reasonable cost could materially adversely affect our business,
financial condition and results of operations.
Under Panamanian law, there is a limit on the maximum number of non-Panamanian employees that we may employ. Our
need for qualified pilots has at times exceeded the domestic supply and as such, we have had to hire a substantial number of
non-Panamanian national pilots. However, we cannot ensure that we will continue to attract Panamanian and foreign pilots. The
inability to attract and retain pilots may adversely affect our growth strategy by limiting our ability to add new routes or increase the
frequency of existing routes.
Because the airline industry is characterized by high fixed costs and relatively elastic revenues, airlines cannot quickly reduce
their costs to respond to shortfalls in expected revenue.
The airline industry is characterized by low gross profit margins, high fixed costs and revenues that generally exhibit
substantially greater elasticity than costs. The operating costs of each flight do not vary significantly with the number of passengers
flown and, therefore, a relatively small change in the number of passengers, fare pricing or traffic mix could have a significant effect on
operating and financial results. These fixed costs cannot be adjusted quickly to respond to changes in revenues, and a shortfall from
expected revenue levels could have a material adverse effect on our net income.
14
Our business may be adversely affected by downturns in the airline industry caused by terrorist attacks, political unrest, war or
outbreak of disease, which may alter travel behavior or increase costs.
Demand for air transportation may be adversely affected by terrorist attacks, war or political and social instability, an
outbreak of a disease or similar public health threat, natural disasters, cyber security threats and other events. Any of these events could
cause governmental authorities to impose travel restrictions or otherwise cause a reduction in travel demand or changes in travel
behavior in the markets in which we operate. Any of these events in our markets could have a material impact on our business, financial
condition and results of operations. Furthermore, these types of situations could have a prolonged effect on air transportation demand
and on certain cost items, such as security and insurance costs.
The terrorist attacks in the United States on September 11, 2001, for example, had a severe and lasting adverse impact on the
airline industry, in particular, a decrease in airline traffic in the United States and, to a lesser extent, in Latin America. Our revenues
depend on the number of passengers traveling on our flights. Therefore, any future terrorist attacks or threat of attacks, whether or not
involving commercial aircraft, any increase in hostilities relating to reprisals against terrorist organizations, including an escalation of
military involvement in the Middle East, or otherwise, and any related economic impact could result in decreased passenger traffic and
materially and negatively affect our business, financial condition and results of operations.
Increases in insurance costs and/or significant reductions in coverage would harm our business, financial condition and
results of operations.
Following the 2001 terrorist attacks, premiums for insurance against aircraft damage and liability to third parties increased
substantially, and insurers could reduce their coverage or increase their premiums even further in the event of additional terrorist
attacks, hijackings, airline crashes or other events adversely affecting the airline industry abroad or in Latin America. In the future,
certain aviation insurance could become unaffordable, unavailable, or available only for reduced amounts of coverage that are
insufficient to comply with the levels of insurance coverage required by aircraft lenders and lessors or applicable government
regulations. While governments in other countries have agreed to indemnify airlines for liabilities that they might incur from terrorist
attacks or provide low-cost insurance for terrorism risks, the Panamanian government has not indicated an intention to provide similar
benefits to us. Increases in the cost of insurance may result in higher fares, which could result in a decreased demand and materially and
negatively affect our business, financial condition and results of operations.
Failure to comply with applicable environmental regulations could adversely affect our business.
Our operations are covered by various local, national and international environmental regulations. These regulations cover,
among other things, emissions to the atmosphere, disposal of solid waste and aqueous effluents, aircraft noise and other activities that
result from the operation of aircraft. Future operations and financial results may vary as a result of such regulations. Compliance with
these regulations and new or existing regulations that may be applicable to us in the future could increase our cost base and adversely
affect our operations and financial results.
Risks Relating to Panama and our Region
We are highly dependent on conditions in Panama and, to a lesser extent, in Colombia.
A substantial portion of our assets is located in the Republic of Panama and a significant proportion of our passengers’ trips
either originates or ends in Panama. Furthermore, substantially all of Copa’s flights operate through our hub at Tocumen International
Airport. As a result, we depend on economic and political conditions prevailing from time to time in Panama. Panama’s economic
conditions in turn highly depend on the continued profitability and economic impact of the Panama Canal. Control of the Panama Canal
and many other assets were transferred from the United States to Panama in 1999 after nearly a century of U.S. control. Political events
in Panama may significantly affect our operations.
Copa Colombia’s results of operations are highly sensitive to macroeconomic and political conditions prevailing in
Colombia. Although the state of affairs in Colombia has been steadily improving since 2002, the Colombian economy’s growth slowed
during 2015. Any political unrest and instability in Colombia could adversely affect Copa Colombia’s financial condition and results of
operations.
According to International Monetary Fund estimates, during 2018 the Panamanian and Colombian economies are expected to
grow by 6.1% and 3.8%, respectively, as measured by their GDP at constant prices. However, if either economy experiences a sustained
recession, or significant political disruptions, our business, financial condition or results of operations could be materially and
negatively affected.
15
Any increase in the taxes we or our shareholders pay in Panama or the other countries where we do business could adversely
affect our financial performance and results of operations.
We cannot ensure that our current tax rates will not increase. Our income tax expenses were $48.0 million, $38.3 million and
$32.8 million in the years ended December 31, 2017, 2016 and 2015, respectively, which represented an effective income tax rate of
11.5%, 10.2% and -17.0%, respectively. We are subject to local tax regulations in each of the jurisdictions where we operate, the great
majority of which are related to the taxation of income. In some of the countries to which we fly, we do are not subject to pay income
taxes, either because those countries do not have income tax or because of treaties or other arrangements those countries have with
Panama. In the remaining countries, we pay income tax at rates ranging from 22% to 34% of income.
Different countries calculate income in different ways, but they are typically derived from sales in the applicable country
multiplied by our net margin or by a presumed net margin set by the relevant tax legislation. The determination of our taxable income in
certain countries is based on a combination of revenues sourced to each particular country and the allocation of expenses of our
operations to that particular country. The methodology for multinational transportation company sourcing of revenues and expenses is
not always specifically prescribed in the relevant tax regulations, and therefore is subject to interpretation by both us and the respective
taxing authorities. Additionally, in some countries, the applicability of certain regulations governing non-income taxes and the
determination of our filing status are also subject to interpretation. We cannot estimate the amount, if any, of potential tax liabilities that
might result if the allocations, interpretations and filing positions used by us in our tax returns were challenged by the taxing authorities
of one or more countries. If taxes were to increase, our financial performance and results of operations could be materially and
adversely affected. Due to the competitive revenue environment, many increases in fees and taxes have been absorbed by the airline
industry rather than being passed on to the passenger. If we were to pass any of these increases in fees and taxes onto passengers, we
may no longer compete effectively as those increases may result in reduced customer demand for air travel with us and we may no
longer compete effectively, thereby reducing our revenues. If we were to absorb any increases in fees and taxes, the additional costs
could have a material adverse effect on our results of operations.
The Panamanian tax code for the airline industry states that tax is based on net income earned for traffic with an origin or
final destination in the Republic of Panama. The applicable tax rate is currently 25%. Dividends from our Panamanian subsidiaries,
including Copa, are separately subject to a 10% percent withholding tax on the portion attributable to Panamanian-sourced income and
a 5% withholding tax on the portion attributable to foreign-sourced income. Additionally, a 7% value added tax is levied on tickets
issued in Panama for travel commencing in Panama and going abroad, irrespective of where such tickets were ordered. If such taxes
were to increase, our financial performance and results of operations could be materially and adversely affected.
Political unrest and instability in Latin American countries in which we operate may adversely affect our business and the
market price of our Class A shares.
While geographic diversity helps reduce our exposure to risks in any one country, we operate primarily within Latin America
and are thus subject to a full range of risks associated with our operations in these regions. These risks may include unstable political or
economic conditions, lack of well-established or reliable legal systems, exchange controls and other limits on our ability to repatriate
earnings and changeable legal and regulatory requirements. In Venezuela and Argentina, for example, we and other airlines and foreign
companies may only repatriate cash through specific governmental programs, which may effectively preclude us from repatriating cash
for periods of time. In addition, Venezuela has experienced difficult political conditions and declines in the rate of economic growth in
recent periods as well as governmental actions that have adversely impacted businesses that operate there. For the year ended
December 31, 2017, sales in local currency in Venezuela and Argentina represented 0.1% and 9.4% of our total sales, respectively.
Inflation, any decline in GDP or other future economic, social and political developments in Latin America may adversely affect our
financial condition or results of operations.
Although conditions throughout Latin America vary from country to country, our customers’ reactions to developments in
Latin America generally may result in a reduction in passenger traffic, which could materially and negatively affect our financial
condition, results of operations and the market price of our Class A shares.
16
Risks Relating to Our Class A Shares
The value of our Class A shares may be adversely affected by ownership restrictions on our capital stock and the power of our
Board of Directors to take remedial actions to preserve our operating license and international route rights by requiring sales
of certain outstanding shares or issuing new stock.
Pursuant to the Panamanian Aviation Act, as amended and interpreted to date, and certain of the bilateral treaties affording
us the right to fly to other countries, we are required to be “substantially owned” and “effectively controlled” by Panamanian nationals.
Our failure to comply with such requirements could result in the loss of our Panamanian operating license and/or our right to fly to
certain important countries. Our Articles of Incorporation (Pacto Social) give special powers to our independent directors to take certain
significant actions to attempt to ensure that the amount of shares held in us by non-Panamanian nationals does not reach a level that
could jeopardize our compliance with Panamanian and bilateral ownership and control requirements. If our independent directors
determine it is reasonably likely that we will be in violation of these ownership and control requirements and our Class B shares
represent less than 10% of our total outstanding capital stock (excluding newly issued shares sold with the approval of our independent
directors committee), our independent directors will have the power to issue additional Class B shares or Class C shares with special
voting rights solely to Panamanian nationals. See “10B. Memorandum and Articles of Association—Description of Capital Stock.”
If any of these remedial actions are taken, the trading price of the Class A shares may be materially and adversely affected.
An issuance of Class C shares could have the effect of discouraging certain changes of control of Copa Holdings or may reduce any
voting power that the Class A shares enjoy prior to the Class C share issuance. There can be no assurance that we would be able to
complete an issuance of Class B shares to Panamanian nationals. We cannot be certain that restrictions on ownership by
non-Panamanian nationals will not impede the development of an active public trading market for the Class A shares, adversely affect
the market price of the Class A shares or materially limit our ability to raise capital in markets outside of Panama in the future.
Our controlling shareholder has the ability to direct our business and affairs, and its interests could conflict with those of other
shareholders.
All of our Class B shares, representing approximately 26.0% of the economic interest in Copa Holdings and 100% of the
voting power of our capital stock, are owned by Corporación de Inversiones Aéreas, S.A., or “CIASA,” a Panamanian entity. CIASA is
in turn controlled by a group of Panamanian investors. In order to comply with the Panamanian Aviation Act, as amended and
interpreted to date, we have amended our organizational documents to modify our share capital so that CIASA will continue to exercise
voting control of Copa Holdings. CIASA will not be able to transfer its voting control unless control of our Company will remain with
Panamanian nationals. CIASA will maintain voting control of the Company so long as CIASA continues to own a majority of our
Class B shares and the Class B shares continue to represent more than 10% of our total share capital (excluding newly issued shares
sold with the approval of our independent directors committee). Even if CIASA ceases to own the majority of the voting power of our
capital stock, CIASA may continue to control our Board of Directors indirectly through its control of our Nominating and Corporate
Governance Committee. As the controlling shareholder, CIASA may direct us to take actions that could be contrary to other
shareholders’ interests and under certain circumstances CIASA will be able to prevent other shareholders, including you, from blocking
these actions. Also, CIASA may prevent change of control transactions that might otherwise provide an opportunity to dispose of or
realize a premium on investments in our Class A shares.
The Class A shares will only be permitted to vote in very limited circumstances and may never have full voting rights.
The holders of Class A shares have no right to vote at our shareholders’ meetings except with respect to corporate
transformations of Copa Holdings, mergers, consolidations or spin-offs of Copa Holdings, changes of corporate purpose, voluntary
delisting of the Class A shares from the NYSE, the approval of nominations of our independent directors and amendments to the
foregoing provisions that adversely affect the rights and privileges of any Class A shares. The holders of Class B shares have the power
to elect the Board of Directors and to determine the outcome of all other matters to be decided by a vote of shareholders. Class A shares
will not have full voting rights unless the Class B shares represent less than 10% of our total capital stock (excluding newly issued
shares sold with the approval of our independent directors committee). See “Item 10B. Memorandum and Articles of
Association—Description of Capital Stock.” We cannot assure that the Class A shares will ever carry full voting rights.
Substantial future sales of our Class A shares by CIASA could cause the price of the Class A shares to decrease.
CIASA owns all of our Class B shares, and those Class B shares will be converted into Class A shares if they are sold to
non-Panamanian investors. In connection with our initial public offering in December 2005, Continental and CIASA reduced their
ownership of our total capital stock from 49.0% to approximately 27.3% and from 51.0% to approximately 25.1%, respectively. In a
17
follow-on offering in June 2006, Continental further reduced its ownership of our total capital stock from 27.3% to 10.0%. In May
2008, we and CIASA released Continental from its standstill obligations and they sold down their remaining shares in the public
market. CIASA holds registration rights with respect to a significant portion of its shares pursuant to a registration rights agreement
entered into in connection with our initial public offering. In March 2010, CIASA converted a portion of its Class B shares into
1.6 million non-voting Class A shares and sold such Class A shares in an SEC-registered public offering. In the event CIASA seeks to
reduce its ownership below 10% of our total share capital, our independent directors may decide to issue special voting shares solely to
Panamanian nationals to maintain the ownership requirements mandated by the Panamanian Aviation Act. As a result, the market price
of our Class A shares could drop significantly if CIASA further reduces its investment in us, other significant holders of our shares sell
a significant number of shares or if the market perceives that CIASA or other significant holders intend to sell their shares. As of
December 31, 2017 CIASA owned 26.0% of Copa Holdings’ total capital stock mainly as a result of share repurchase programs
executed in 2014 and 2015.
Holders of our common stock are not entitled to preemptive rights, and as a result shareholders may experience substantial
dilution upon future issuances of stock by us.
Under Panamanian corporate law and our organizational documents, holders of our Class A shares are not entitled to any
preemptive rights with respect to future issuances of capital stock by us. Therefore, unlike companies organized under the laws of many
other Latin American jurisdictions, we are free to issue new shares of stock to other parties without first offering them to our existing
Class A shareholders. In the future we may sell Class A or other shares to persons other than our existing shareholders at a lower price
than the shares already sold, and as a result shareholders may experience substantial dilution of their interest in us.
Shareholders may not be able to sell our Class A shares at the price or at the time desired because an active or liquid market
for the Class A shares may not continue.
Our Class A shares are listed on the NYSE. During the three months ended December 31, 2017, the average daily trading
volume for our Class A shares as reported by the NYSE was approximately 249,224 shares. Active, liquid trading markets generally
result in lower price volatility and more efficient execution of buy and sell orders for our investors. The liquidity of a securities market
is often affected by the volume of shares publicly held by unrelated parties. We cannot predict whether an active liquid public trading
market for our Class A shares will be sustained.
Our operations in Cuba may adversely affect the market price of our Class A shares
We currently operate seven daily departures to and from Cuba which provide passenger, cargo and mail transportation
service. For the year ended December 31, 2017, our transported passengers to and from Cuba represented approximately 4.3% of our
total passengers. Our operating revenues from Cuban operations during the year ended December 31, 2017 represented approximately
1.7% of our total consolidated operating revenues for such year. Our assets located in Cuba are not significant.
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) administers and enforces economic and trade
sanctions based on U.S. foreign policy against Cuba and certain other targeted foreign countries, and groups opposed to the Cuban
regime may seek to exert pressure on companies doing business in Cuba. Although Cuba has been removed from the U.S. Department
of State’s list of state sponsors of terrorism, uncertainty remains over OFAC’s enforcement of sanctions against Cuba and the impact
the sanctions program will have on our operations, particularly if such activities grow in the future. Certain U.S. states have enacted or
may enact legislation regarding investments by state-owned investors, such as public employee pension funds and state university
endowments, in companies that have business activities with Cuba. As a result, such state-owned institutional investors may be subject
to restrictions with respect to investments in companies such as ours, which could adversely affect the market for our shares.
Our Board of Directors may, in its discretion, amend or repeal our dividend policy. Shareholders may not receive the level of
dividends provided for in the dividend policy or any dividends at all.
In February 2016, the Board of Directors approved a change to the dividend policy to limit aggregate annual dividends to an
amount equal to 40% of the previous year’s annual consolidated underlying net income, to be distributed in equal quarterly installments
subject to board approval. Our Board of Directors may, in its sole discretion and for any reason, amend or repeal any aspect of this
dividend policy. Our Board of Directors may decrease the level of dividends provided for in this dividend policy or entirely discontinue
the payment of dividends. Future dividends with respect to shares of our common stock, if any, will depend on, among other things, our
results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable
law and other factors that our Board of Directors may deem relevant. See “Item 8A. Consolidated Statements and Other Financial
Information—Dividend Policy.”
18
To the extent we pay dividends to our shareholders, we will have less capital available to meet our future liquidity needs.
Our Board of Directors has reserved the right to amend the dividend policy or pay dividends in excess of the level
circumscribed in the dividend policy. The aviation industry has cyclical characteristics, and many international airlines are currently
experiencing difficulties meeting their liquidity needs. Also, our business strategy contemplates growth over the next several years, and
we expect such growth will require a great deal of liquidity. To the extent that we pay dividends in accordance with, or in excess of, our
dividend policy, the money that we distribute to shareholders will not be available to us to fund future growth and meet our other
liquidity needs.
Our Articles of Incorporation impose ownership and control restrictions on our Company that ensure that Panamanian
nationals will continue to control us and these restrictions operate to prevent any change of control or some transfers of
ownership in order to comply with the Aviation Act and other bilateral restrictions.
Under Law No. 21 of January 29, 2003, as amended and interpreted to date, or the “Aviation Act,” which regulates the
aviation industry in the Republic of Panama, Panamanian nationals must exercise “effective control” over the operations of the airline
and must maintain “substantial ownership.” Under certain of the bilateral agreements between Panama and other countries pursuant to
which we have the right to fly to those other countries and over their territories, we must also continue to have substantial Panamanian
ownership and effective control by Panamanian nationals to retain these rights. On November 25, 2005, the Executive Branch of the
Government of Panama promulgated a decree stating that the “substantial ownership” and “effective control” requirements of the
Aviation Act are met if a Panamanian citizen or a Panamanian company is the record holder of shares representing 51% or more of the
voting power of the Company. Although the decree has the force of law for so long as it remains in effect, it does not supersede the
Aviation Act, and it could be modified or superseded at any time by a future Executive Branch decree. Additionally, the decree has no
binding effect on regulatory authorities of other countries whose bilateral agreements impose Panamanian ownership and control
limitations on us. These phrases are not defined in the Aviation Act itself or in the bilateral agreements to which Panama is a party, and
it is unclear how a Panamanian court or, in the case of the bilateral agreements, foreign regulatory authorities, would interpret them.
The share ownership requirements and transfer restrictions contained in our Articles of Incorporation, as well as the dual-
class structure of our voting capital stock, are designed to ensure compliance with these ownership and control restrictions. See “Item
10B. Memorandum and Articles of Association—Description of Capital Stock.” At the present time, CIASA is the record owner of
100% of our Class B voting shares, representing approximately 26.0% of our total share capital and all of the voting power of our
capital stock. These provisions of our Articles of Incorporation may prevent change of control transactions that might otherwise provide
an opportunity to realize a premium on investments in our Class A shares. They also ensure that Panamanians will continue to control
all the decisions of our Company for the foreseeable future.
The protections afforded to minority shareholders in Panama are different from and more limited than those in the United
States and may be more difficult to enforce.
Under Panamanian law, the protections afforded to minority shareholders are different from, and much more limited than,
those in the United States and some other Latin American countries. For example, the legal framework with respect to shareholder
disputes is less developed under Panamanian law than under U.S. law and there are different procedural requirements for bringing
shareholder lawsuits, including shareholder derivative suits. As a result, it may be more difficult for our minority shareholders to
enforce their rights against us or our directors or controlling shareholder than it would be for shareholders of a U.S. company. In
addition, Panamanian law does not afford minority shareholders as many protections for investors through corporate governance
mechanisms as in the United States and provides no mandatory tender offer or similar protective mechanisms for minority shareholders
in the event of a change in control. While our Articles of Incorporation provide limited rights to holders of our Class A shares to sell
their shares at the same price as CIASA in the event that a sale of Class B shares by CIASA results in the purchaser having the right to
elect a majority of our board, there are other change of control transactions in which holders of our Class A shares would not have the
right to participate, including the sale of interests by a party that had previously acquired Class B shares from CIASA, the sale of
interests by another party in conjunction with a sale by CIASA, the sale by CIASA of control to more than one party, or the sale of
controlling interests in CIASA itself.
Item 4. Information on the Company
A. History and Development of the Company
General
19
Copa was established in 1947 by a group of Panamanian investors and Pan American World Airways, which provided
technical and economic assistance as well as capital. Initially, Copa served three domestic destinations in Panama with a fleet of three
Douglas C-47 aircraft. In the 1960s, Copa began its international service with three weekly flights to cities in Costa Rica, Jamaica and
Colombia using a small fleet of Avro 748s and Electra 188s. In 1971, Pan American World Airways sold its stake in Copa to a group of
Panamanian investors who retained control of the airline until 1986. During the 1980s, Copa suspended its domestic service to focus on
international flights.
In 1986, CIASA purchased 99% of Copa, which was controlled by the group of Panamanian shareholders who currently
control CIASA. From 1992 until 1998, Copa was a part of a commercial alliance with Grupo TACA’s network of Central American
airline carriers. In 1997, together with Grupo TACA, Copa entered into a strategic alliance with American Airlines. After a year our
alliance with American Airlines was terminated by mutual consent.
On May 6, 1998, Copa Holdings, S.A., the holding company for Copa and related companies was incorporated as a sociedad
anónima under the laws of Panama to facilitate the sale by CIASA of a 49% stake in Copa Holdings to Continental. In connection with
Continental’s investment, we entered into an extensive alliance agreement with Continental providing for code-sharing, joint marketing,
technical exchanges and other cooperative initiatives between the airlines. At the time of our initial public offering in December 2005,
Continental reduced its ownership of our total capital stock from 49% to approximately 27.3%. In a follow-on offering in June 2006,
Continental further reduced its ownership of our total capital stock from 27.3% to 10.0%. In May 2008, Continental sold its remaining
shares in the public market. In March 2010, CIASA sold 4.2% of its interest and as of December 31, 2017 held 26.0% of our total
capital stock.
Since 1998, we have grown and modernized our fleet while improving customer service and reliability. Copa has expanded
its operational fleet from 13 aircraft to 100 aircraft at December 31, 2017. In 1999, we received our first Boeing 737-700s, in 2003 we
received our first Boeing 737-800, and in 2005 we received our first Embraer 190. In the first quarter of 2005, we completed our fleet
renovation program and discontinued the use of our last Boeing 737-200.Since 2005, we have expanded from 24 destinations in 18
countries to 75 destinations in 31 countries. We plan to continue our expansion, which includes increasing our fleet, over the next
several years. In 2018, we expect to take delivery of five of our first Boeing 737 MAX aircraft.
On April 22, 2005, we acquired an initial 85.6% equity ownership interest in AeroRepública, which was one of the largest
domestic carriers in Colombia in terms of passengers carried. Through subsequent acquisitions, we increased our total ownership
interest in AeroRepública to 99.9% by the end of that year. We believe that Copa Airlines’ operational coordination with Copa
Colombia creates additional passenger traffic in our existing route network by providing Colombian passengers more convenient access
to the international destinations served through our Panama hub.
In July 2015, we elected to cease co-branding the MileagePlus frequent flyer program in Latin America and launched our
own frequent flyer program, ConnectMiles. We have reached a scale where establishing our own direct relationship with our customers
is warranted. Copa and UAL will remain strong loyalty partners through our participation in Star Alliance.
In December 2016, we launched a low-cost business model, Wingo, to diversify our offerings and to better compete with
other low- cost carriers in the markets. Wingo serves domestic flights in Colombia and some international cities to and from Colombia.
Our registered office is located at Avenida Principal y Avenida de la Rotonda, Urbanización Costa del Este, Complejo
Business Park, Torre Norte, Parque Lefevre, Panama City, Panama and our telephone number is +507 304-2774. The website of Copa
Airlines is www.copaair.com. Information contained on, or accessible through, this website is not incorporated by reference herein and
shall not be considered part of this annual report. Our agent for service of process in the United States is Puglisi & Associates, 850
Library Avenue, Suite 204, Newark, Delaware 19715, and its telephone number is +(302) 738-6680.
Capital Expenditures
During 2017, our capital expenditures were $272.4 million, which consisted primarily of the acquisition of property and
equipment. During 2016, our capital expenditures were $106.7 million, which consisted primarily of the acquisition of property and
equipment. During 2015, our capital expenditures were $3.7 million, which consisted primarily of expenditures related to our purchase
of four Boeing 737-800 aircraft, offset by reimbursement of advance payments on aircraft purchase contracts.
20
B. Business Overview
We are a leading Latin American provider of airline passenger and cargo service through our two principal operating
subsidiaries, Copa Airlines and Copa Colombia. Copa Airlines operates from its strategically-located position in the Republic of
Panama, and Copa Colombia flies from Colombia to Copa Airlines Hub of the Americas in Panama, and operates a low-cost business
model within Colombia and various cities in the region. We currently operate a fleet of 106 aircraft, 80 Boeing 737-Next Generation
aircraft and 20 Embraer 190 aircraft to meet our growing capacity requirements. As of December 31, 2017 the Company had two
purchase contracts with Boeing: the first contract entails two firm orders of Boeing 737 Next Generation aircraft, to be delivered in the
first half of 2018, and the second contract entails 71 firm orders of Boeing 737 MAX aircraft, which will be delivered between 2018
and 2025.
Copa currently offers approximately 347 daily scheduled flights among 75 destinations in 31 countries in North, Central and
South America and the Caribbean from its Panama City hub. Copa provides passengers with access to flights to more than 200 other
destinations through code-share arrangements with UAL and other airlines pursuant to which each airline places its name and flight
designation code on the other’s flights. Through its Panama City hub, Copa is able to consolidate passenger traffic from multiple points
to serve each destination effectively.
Copa began its strategic alliance with Continental in 1998. Since then, Copa, Continental and Continental’s successor,
United Airlines, or “UAL” or “United,” have conducted joint marketing and code-sharing arrangements. On October, 2010, Continental
merged with United Airlines. The combined carrier took the United Airlines name but uses the former Continental’s livery and logo. All
of the service and alliance agreements we had in place with Continental have been transferred to the combined UAL entity. We believe
that Copa’s co-branding and joint marketing activities, which continue with UAL, have enhanced its brand in Latin America, and that
the relationship with UAL has afforded it cost-related benefits, such as improved purchasing power in negotiations with aircraft vendors
and insurers. We have reached a mutually beneficial arrangement with UAL and extended the term, and continue with, an updated
alliance agreement from May 2016 forward. Due to the long-standing alliance relationship with Continental, and in order to ensure
Copa remained fully aligned with Continental on a number of important joint initiatives, Copa officially joined Star Alliance on
June 21, 2012, which Continental had joined at the end of 2009.
Since January 2001, we have grown significantly and have established a track record of consistent profitability, with the one
exception of 2015. Although in 2015 and 2016 our revenues and margins decreased as compared to 2014, our total operating revenues
increased from $0.3 billion in 2001 to $2.5 billion in 2017 while our operating margins also increased from 8.6% to 17.4% over the
same period.
Our Strengths
We believe our primary business strengths that have allowed us to compete successfully in the airline industry include the
following:
•
•
•
Our “Hub of the Americas” airport is strategically located. We believe that Copa’s base of operations at the
geographically central location of Tocumen International Airport in Panama City, Panama provides convenient
connections to our principal markets in North, Central and South America and the Caribbean, enabling us to
consolidate traffic to serve several destinations that do not generate enough demand to justify point-to-point
service. Flights from Panama operate with few service disruptions due to weather, contributing to high
completion factors and on-time performance. Tocumen International Airport’s sea-level altitude allows our
aircraft to operate without the performance restrictions they would be subject to a higher altitude airports. We
believe that Copa’s hub in Panama allows us to benefit from Panama City’s status as a center for financial
services, shipping and commerce and from Panama’s stable, dollar-based economy, free-trade zone and growing
tourism.
We focus on keeping our operating costs low. In recent years, our low operating costs and efficiency have
contributed significantly to our profitability. Our operating CASM, excluding costs for fuel was $6.91 in 2013,
$6.54 in 2014, $6.37 in 2015, $6.44 in 2016 and $6.33 in 2017. We believe that our cost per available seat mile
reflects our modern fleet, efficient operations and the competitive cost of labor in Panama.
We operate a modern fleet. Our fleet consists of modern Boeing 737-Next Generation and Embraer 190 aircraft
equipped with winglets and other modern cost-saving and safety features. Over the next several years, we intend
to enhance our modern fleet through the addition of two Boeing 737-Next Generation aircraft which will be
delivered in the first half of 2018 and 71 Boeing 737 MAX aircraft to be delivered between 2018 and 2025. We
believe that our modern fleet contributes to our on-time performance and high completion factor (percentage of
scheduled flights not cancelled).
21
•
•
We believe Copa has a strong brand and a reputation for quality service. We believe that the Copa brand is
associated with value to passengers, providing world-class service and competitive pricing. For the year ended
December 31, 2017, Copa’s statistic for on-time performance, according to DOT standard methodology of
arrivals within 14 minutes of scheduled arrival time, was 86.8% and its completion factor was 99.5%. We
believe our focus on customer service has helped to build passenger loyalty. In addition, the excellent response
to our new loyalty program, ConnectMiles, demonstrates the strong affinity Copa customers have for the brand.
During 2017 we were recognized by OAG as the fourth most on-time airline in the world, and by Flight Stats,
for the fifth consecutive year as the most on-time airline in Latin America.
Our management fosters a culture of teamwork and continuous improvement. Our management team has been
successful at creating a culture based on teamwork and focused on continuous improvement. Each of our
employees has individual objectives based on corporate goals that serve as a basis for measuring performance.
When corporate operational and financial targets are met, employees are eligible to receive bonuses according to
our profit sharing program. See “Item 6D. Employees.” We also recognize outstanding performance of
individual employees through company-wide recognition, one-time awards, special events and, in the case of our
senior management, grants of restricted stock and stock options. Our goal-oriented culture and incentive
programs have contributed to a motivated work force that is focused on satisfying customers, achieving
efficiencies and growing profitability.
Our Strategy
Our goal is to continue to grow profitably and enhance our position as a leader in Latin American aviation by providing a
combination of superior customer service, convenient schedules and competitive fares, while maintaining competitive costs. The key
elements of our business strategy include the following:
•
•
•
Expand our network by increasing frequencies and adding new destinations. We believe that demand for air
travel in Latin America is likely to expand in the next decade, and we intend to use our increasing fleet capacity
to meet this growing demand. We intend to focus on expanding our operations by increasing flight frequencies
on our most profitable routes and initiating service to new destinations. Copa’s Panama City hub allows us to
consolidate traffic and provide non-stop or one-stop connecting service to over 2,000 city pairs, and we intend to
focus on providing new or increased service to destinations that we believe best enhance the overall connectivity
and profitability of our network.
Continue to focus on keeping our costs low. We seek to reduce our cost per available seat mile without
sacrificing services valued by our customers as we execute our growth plans. Our goal is to maintain a modern
fleet and to make effective use of our resources through efficient aircraft utilization and employee productivity.
We intend to reduce our distribution costs by increasing direct sales as well as improving efficiency through
technology and automated processes.
Emphasize superior service and value to our customers. We intend to continue to focus on satisfying our
customers and earning their loyalty by providing a combination of superior service and competitive fares. We
believe that continuing our operational success in keeping flights on time, reducing mishandled luggage and
offering convenient schedules to attractive destinations will be essential to achieving this goal. We intend to
continue to incentivize our employees to improve or maintain operating and service metrics relating to our
customers’ satisfaction by continuing our profit sharing plan and employee recognition programs. We will
continue to reward our customer loyalty with, ConnectMiles awards, upgrades and access to our Copa Club
lounges.
Industry
In Latin America, the scheduled passenger service market consists of three principal groups of travelers: strictly leisure,
business and travelers visiting friends and family. Leisure passengers and passengers visiting friends and family typically place a higher
emphasis on lower fares, whereas business passengers typically place a higher emphasis on flight frequency, on-time performance,
breadth of network and service enhancements, including loyalty programs and airport lounges.
22
According to data from the International Air Transport Association, or “IATA,” Latin America comprised approximately
7.2% of international worldwide passengers flown in 2016 or million passengers.
The Central American aviation market is dominated by international traffic. According to data from IATA, international
revenue passenger kilometers, or “RPKs,” are concentrated between North America and Central America. This segment represented
78% of international RPKs flown to and from Central America in 2016, compared to 16.4% RPKs flown between Central America and
South America and 5.9% for RPKs flown between Central American countries. Total RPKs flown on international flights to and from
Central America increased 6.1%, and load factors on international flights to and from Central America were 80% on average.
The chart below details passenger traffic between regions in 2016:
Passenger Kms Flown
2016 IATA Traffic Results
Available Seat Kms
Passenger Load Factor
(Millions)
Change (%)
(Millions)
Change (%)
Load Factor
Change (%)
North America - Central America / Caribbean
North America - South America
Within South America
Central America/Caribbean - South America
Within Central America
144,853
97,822
40,671
30,459
10,971
4.4
(0.5)
8.0
4.3
45.3
175,212
116,775
50,829
37,622
15,206
3.3
(3.3)
7.4
(0.5)
32.7
83%
84%
80%
81%
72%
0.9 p.p.
2.3 p.p.
0.5 p.p.
3.8 p.p.
6.3 p.p.
Panama serves as a hub for connecting passenger traffic between major markets in North, South, and Central America and
the Caribbean. Accordingly, passenger traffic to and from Panama is significantly influenced by economic growth in surrounding
regions. Major passenger traffic markets in North, South and Central America experienced growth in their GDP in 2017. Preliminary
figures indicate that real GDP increased by 5.8% in Panama and by 2.7% in Colombia, according to data of the World Economic and
Financial Survey conducted by the International Monetary Fund or “IMF.”
Argentina
Brazil
Chile
Colombia
Mexico
Panama
USA
GDP (in US$ billions)
2017
Current Prices
(US$)
620
2,081
263
307
1,142
59
19,362
2017
Real GDP
(% Growth)
2.46
0.75
1.38
1.70
2.15
5.30
2.18
GDP per Capita
2017
Current Prices
(US$)
14,062
10,020
14,315
6,238
9,249
14,409
59,495
Source: International Monetary Fund, World Economic Outlook Database, October 2017
Panama has benefited from a stable economy with moderate inflation and steady GDP growth. According to IMF estimates,
from 2011 to 2017, Panama’s real GDP grew at an average annual rate of 7.2%, while inflation averaged 2.9% per year The IMF
currently estimates Panama’s population to be approximately 4.1 million in 2017, with the majority of the population concentrated in
Panama City, where our hub at Tocumen International Airport is located. We believe the combination of a stable, service-oriented
economy and steady population growth has helped drive our domestic origin and destination passenger traffic.
23
Domestic travel within Panama primarily consists of individuals visiting families as well as domestic and foreign tourists
visiting the countryside. Most of this travel is done via ground transportation, and its main flow is to and from Panama City, where most
of the economic activity and population is concentrated. Demand for domestic air travel is growing and relates primarily to leisure
travel from foreign and local tourists. Since January 2015, Copa has operated three daily flights to the second-largest city in Panama,
David in Chiriqui. The remaining market is served primarily by one local airline, Air Panama, which operates a fleet primarily
consisting of turbo prop aircraft generally with less than 50 seats. This airline offers limited international service and operates in the
domestic terminal of Panama City, which is located 30 minutes by car from Tocumen International Airport.
Colombia is the third largest country in Latin America in terms of population, with a population of approximately
49.3 million in 2017 according to the IMF, and has a land area of approximately 440,000 square miles. Colombia’s GDP is estimated to
be $307.5 billion for 2017, and per capita income was approximately $6.2 thousand (current prices) according to the IMF. Colombia’s
geography is marked by the Andean mountains and an inadequate road and rail infrastructure, making air travel a convenient and
attractive transportation alternative. Colombia shares a border with Panama, and for historic, cultural and business reasons it represents
a significant market for many Panamanian businesses.
Route Network and Schedules
As of December 31, 2017, Copa provided regularly-scheduled flights to 75 cities in North, Central and South America and
the Caribbean. The majority of Copa flights operate through our hub in Panama City which allows us to transport passengers and cargo
among a large number of destinations with service that is more frequent than if each route were served directly.
We believe our hub-and-spoke model is the most efficient way for us to operate our business since most of the
origination/destination city pairs we serve do not generate sufficient traffic to justify point-to-point service. Also, since we serve many
countries, it would be very difficult to obtain the bilateral route rights necessary to operate a competitive network-wide point-to-point
system.
Copa schedules its hub flights using a “connecting bank” structure, where flights arrive at the hub at approximately the same
time and depart a short time later. In June 2011, we increased our banks of flights from four to six a day. This allowed us to increase
efficiency in the use of hub infrastructure in addition to providing more time of day choices to passengers.
As a part of our strategic relationship with UAL, Copa provides flights through code-sharing arrangements to over 200 other
destinations. In addition to code-shares provided with our Star Alliance partners, Copa also has code-sharing arrangements in place with
several other carriers, including Air France, KLM, Iberia, Emirates, Gol, Tame and Aeromexico.
In addition to increasing the frequencies to destinations we already serve, Copa’s business strategy is also focused on adding
new destinations across Latin America, the Caribbean and North America in order to increase the attractiveness of our Hub of the
Americas at Tocumen International Airport for intra-American traffic. We currently plan to introduce new destinations and to increase
frequencies to many of the destinations that Copa currently serves. Our Embraer 190 aircraft, together with the Boeing 737-Next
Generation aircraft, allow us to improve our service by increasing frequencies and service to new destinations with the right-sized
aircraft.
In December 2016, we launched a low-cost business model, Wingo, to diversify our offerings and to better compete with
other low-cost carriers in the markets. Wingo serves domestic flights in Colombia and some international cities to and from Colombia.
Our plans to introduce new destinations and increase frequencies depend on the allocation of route rights, a process over
which we do not have direct influence. Route rights are allocated through negotiations between the government of Panama and
Colombia, and the governments of countries to which we intend to increase flights. If we are unable to obtain route rights, we will
exercise the flexibility within our route network to re-allocate capacity as appropriate.
Revenue by Region
The following table shows our revenue generated in each of our major operating regions.
24
Region
North America (1)
South America
Central America (2)
Caribbean (3)
2017
Year Ended December 31,
2014
2015
2016
2013
24.1%
28.8%
24.8%
20.5%
18.0%
48.6%
42.2%
45.7%
55.1%
63.6%
22.1%
23.1%
23.3%
19.7%
13.7%
5.2%
5.9%
6.2%
4.7%
4.7%
Includes USA, Canada, Mexico
Includes Panama
(1)
(2)
(3) Cuba, Dominican Republic, Haiti, Jamaica, Puerto Rico, Aruba, Curaçao, St. Maarten, Bahamas, and Trinidad and Tobago
Airline Operations
Passenger Operations
Passenger revenue accounted for approximately $2,462.4 million in 2017, $2,155.2 million in 2016, and $2,185.5 million in
2015, representing 97.4%, 97.0%, and 97.0%, respectively, of Copa’s total revenues. Leisure traffic, which makes up close to half of
Copa’s total traffic, tends to coincide with holidays, school vacations and cultural events and peaks in July and August, and again in
December and January. Despite these seasonal variations, Copa’s overall traffic pattern is relatively stable due to the constant influx of
business travelers. Approximately half of Copa’s passengers regard Panama City as their destination or origination point, and most of
the remaining passengers pass through Panama City in transit to other points on our route network.
Cargo Operations
In addition to our passenger service, we make efficient use of extra capacity in the belly of our aircraft by carrying cargo.
Our cargo operations consist principally of freight service. Copa’s cargo business generated revenues of approximately $55.3 million in
2017, $54.0 million in 2016, and $56.7 million in 2015, representing 2.2%, 2.4%, and 2.5% respectively, of Copa’s operating revenues.
We primarily move our cargo in the belly of our aircraft; however, we also wet-lease and charter freighter capacity when necessary to
meet our cargo customers’ needs.
Pricing and Revenue Management
Copa has designed its fare structure to balance its load factors and yields in a way that it believes will maximize profits on its
flights. Copa also maintains revenue management policies and procedures that are intended to maximize total revenues, while
remaining generally competitive with those of our major competitors. Copa uses Revenue Manager (RMS), the revenue management
software designed by Sabre.
Copa charges higher fares for tickets sold on higher-demand routes, tickets purchased on short notice and other itineraries
suggesting a passenger would be willing to pay a premium. This represents strong value to Copa’s business customers, who need more
flexibility with their flight plans. The number of seats Copa offers at each fare level in each market results from a continual process of
analysis and forecasting. Past booking history, seasonality, the effects of competition and current booking trends are used to forecast
demand. Current fares and knowledge of upcoming events at destinations that will affect traffic volumes are included in Copa’s
forecasting model to arrive at optimal seat allocations for its fares on specific routes. Copa uses a combination of approaches, taking
into account yields, flight load factors and effects on load factors of continuing traffic, depending on the characteristics of the markets
served, to arrive at a strategy for achieving the best possible revenue per available seat mile, balancing the average fare charged against
the corresponding effect on our load factors.
Relationship with UAL
It is common practice in the commercial aviation industry for airlines to develop marketing and commercial alliances with
other carriers in order to offer a more complete and seamless travel experience to passengers. These alliances typically yield certain
conveniences such as code-sharing, frequent flyer reciprocity, and, where permitted, coordinated scheduling of flights as well as
additional joint marketing activities.
In May 1998, Copa Airlines and Continental entered into a comprehensive alliance agreement package, encompassing a
broad array of activities such as Copa’s participation in Continental’s frequent flyer programs and VIP lounges; as well as agreements
in other areas, such as trademarks. These agreements were initially signed for a period of ten years. In November 2005, Copa and
Continental amended and restated these agreements and extended their term through the year 2016. In 2010, United Airlines merged
with Continental Airlines, keeping the name United Airlines. In May 2016 Copa and United Airlines amended and restated these
agreements and extended their term through the year 2021.
25
Copa Holdings is also a party to a supplemental agreement with CIASA and Continental entered into in connection with
Continental’s May 1998 offering of our shares. The supplemental agreement terminates the shareholders’ agreement between the
Company, CIASA and Continental that existed prior to Continental’s exit and further amends the amended and restated registration
rights agreement between the parties. Pursuant to the supplemental agreement, Continental received the right to appoint a member of its
senior management to our Board of Directors during the term of our alliance agreement with Continental.
On October 1, 2010, Continental merged with United Airlines and became a wholly-owned subsidiary of UAL. All the
benefits from our previous alliance with Continental were recognized by UAL. Our alliance relationship with Continental enjoyed a
grant of antitrust immunity from the U.S. Department of Transportation, or “DOT.” The DOT issued a “route transfer order” document
after Continental merged with UAL, whereby the existing antitrust immunity grant between Continental and Copa Airlines is now in
effect between UAL and Copa Airlines.
As a result of our alliance, we have benefited from Continental’s and now UAL’s expertise and experience over the years.
For example, prior to July 2015 when we launched our own frequent flyer program, ConnectMiles, we adopted Continental’s OnePass
(now UAL’s MileagePlus) frequent flyer program and rolled out a co-branded joint product in most of Latin America, which enabled
Copa to develop brand loyalty among travelers. The co-branding of the OnePass (now MileagePlus) loyalty program helped Copa to
leverage the brand recognition that Continental already enjoyed across Latin America and has enabled Copa to compete more
effectively against regional competitors such as Avianca and the Oneworld alliance represented by American Airlines and LATAM
Airlines. We also share UAL’s Sceptre inventory management software, which allows Copa to pool spare parts with UAL and to rely
on UAL to provide engineering support for maintenance projects. We have also been able to take advantage of UAL’s purchasing
power and negotiate more competitive rates for spare parts and third-party maintenance work. In addition to the Sceptre system, we
have adopted several important information technology systems, such as the SHARES computer reservation system in an effort to
maintain commonality with UAL.
In 2007, Copa joined the SkyTeam global alliance as an Associate Member, in part due to the support and sponsorship of
Continental. Continental left the SkyTeam global alliance and joined Star Alliance effective the fourth quarter of 2009. Due to the long-
standing alliance relationship with Continental, and in order to ensure Copa remained fully aligned with Continental on a number of
important joint initiatives, Copa also exited the SkyTeam global alliance during the fourth quarter of 2009 and officially joined Star
Alliance on June 21, 2012.
Alliance Agreement. Under our current alliance agreement with UAL, both entities agree to continue their code-sharing
relationship with extensions as they feel appropriate and to work to maintain our antitrust immunity with the DOT. In order to support
the code-sharing relationship, the alliance agreement also contains provisions mandating a continued frequent flyer relationship between
the airlines, setting minimum levels of quality of service for the airlines and encouraging cooperation in marketing and other operational
initiatives. Other than by expiration as described above, the agreement is also terminable by either airline in cases of, among other
things, uncured material breaches of the alliance agreement by the other airline, bankruptcy of the other airline, termination of the
services agreement for breach by the other airline, termination of the frequent flyer participation agreement without entering into a
successor agreement with the other airline, certain competitive activities, certain changes of control of either of the parties and certain
significant operational service failures by the other airline.
Frequent Flyer Participation Agreement. In July 2015, we elected to cease co-branding the MileagePlus frequent flyer
program in Latin America and launched our own frequent flyer program, ConnectMiles. We have reached a scale where establishing
our own direct relationship with our customers is warranted. Copa and UAL will remain strong loyalty partners through our
participation in Star Alliance.
Trademark License Agreement. Under our trademark license agreement with UAL, we have the right to use a logo
incorporating a design that is similar to the design of the new UAL logo. We also have the right to use UAL’s trade dress, aircraft livery
and certain other UAL marks under the agreement that allow us to more closely align our overall product with our strategic alliance
partner. The trademark license agreement is coterminous with the alliance agreement and can also be terminated for breach. In most
cases, we have a period of five years after termination to cease to use the marks on our aircraft, with less time provided for signage and
other uses of the marks or in cases where the agreement is terminated for a breach by us.
26
Sales, Marketing and Distribution
Sales and Distribution. Approximately 66.1% of sales during 2017 were completed through travel agents, including OTAs
and other airlines while approximately 33.9% were direct sales via our city ticket offices, or “CTOs,” call centers, airport counters or
website. Travel agents receive base commissions, not including back-end incentive payments, ranging from 0% to 6.7% depending on
the country. The weighted average rate for these commissions during 2017 was 1.9%. In recent years, base commissions have decreased
significantly in most markets as more efficient back-end incentive programs have been implemented to reward selected travel agencies
that exceed their sales targets.
Travel agents obtain airline travel information and issue airline tickets through global distribution systems, or “GDSs,” that
enable them to make reservations on flights from a large number of airlines. GDSs are also used by travel agents to make hotel and car
rental reservations. Copa participates actively in all major international GDSs, including SABRE, Amadeus, Galileo and Worldspan. In
return for access to these systems, Copa pays transaction fees that are generally based on the number of reservations booked through
each system.
Copa has a sales and marketing network consisting of 68 domestic and international ticket offices, including city ticket
offices located in Panama and Colombia, in addition to the airports where we operate.
The call center that operates Copa’s reservations and sales services handles calls from Panama as well as most other
countries to which Copa flies. Such centralization has resulted in a significant increase in telephone sales, as it efficiently allows for
improvements in service levels such as 24-hour-a-day, 7-days-a-week service, in three different languages.
Advertising and Promotional Activities. Our advertising and promotional activities include the use of television, print, radio
and billboards, as well as targeted public relation events in the cities where we fly. In recent years, we have increased our use of digital
marketing, including social media via Facebook, Instagram and Twitter to enhance our brand image and engage customers in a new
way. We believe that the corporate traveler is an important part of our business, and we particularly promote our service to these
customers by conveying the reliability, convenience and consistency of our service and offering value-added services such as
convention and conference travel arrangements. We also promote package deals for the destinations where we fly through combined
efforts with selected hotels and travel agencies.
Competition
We face considerable competition throughout our route network. Overall airline industry profit margins are relatively low
and industry earnings are volatile. Airlines compete in the areas of pricing, scheduling (frequency and flight times), on-time
performance, frequent flyer programs and other services. Strategic alliances, bankruptcy restructurings and industry consolidations
characterize the airline industry and tend to intensify competition.
Copa competes with a number of other airlines that currently serve the routes on which we operate, including Avianca,
American Airlines, Delta Airlines, Aeromexico, and LATAM, among others. In order to remain competitive, we must constantly react
to changes in prices and services offered by our competitors.
Since 2008, the airline industry has experienced increased consolidation and changes in international alliances, both of which
have altered and will continue to alter the competitive landscape in the industry by resulting in the formation of airlines and alliances
with increased financial resources, more extensive global networks and altered cost structures.
The airline industry is highly susceptible to price discounting, particularly because airlines incur very low marginal costs for
providing service to passengers occupying otherwise unsold seats. Carriers use discount fares to stimulate traffic during periods of
lower demand to generate cash flow and to increase market share. Any lower fares offered by one airline are often matched by
competing airlines, which frequently results in lower industry yields with little or no increase in traffic levels. Price competition among
airlines could lead to lower fares or passenger traffic on some or all of our routes, which could negatively impact our profitability.
Airlines based in other countries may also receive subsidies, tax incentives or other state aid from their respective
governments, which are not provided by the Panamanian government. The commencement of, or increase in, service on the routes we
serve by existing or new carriers could negatively impact our operating results. Likewise, competitors’ service on routes that we are
targeting for expansion may make those expansion plans less attractive. We must constantly react to changes in prices and services
offered by our competitors to remain competitive.
27
Traditional hub-and-spoke carriers in the United States and Europe have in recent years faced substantial and increasing
competitive pressure from low-cost carriers offering discounted fares. The low-cost carriers’ operations are typically characterized by
point-to-point route networks focusing on the highest demand city pairs, high aircraft utilization, single class service and fewer in-flight
amenities. As evidenced by the operations of competitors in Brazil and other South American countries and several new low-cost
carriers which have launched service, the “low-cost carrier” business model appears to be gaining acceptance in the Latin American
aviation industry, and we may face new and substantial competition from low-cost carriers in the future.
With respect to our cargo operations, we will continue to face competition from all of the major airfreight companies, most
notably DHL, which has a cargo hub operation at Tocumen International Airport.
Aircraft
As of December 31, 2017, Copa operated a fleet consisting of 100 aircraft, including 14 Boeing 737-700 Next Generation
aircraft, 66 Boeing 737-800 Next Generation aircraft and 20 Embraer 190 aircraft. As of December 31, 2017, Copa had firm orders,
including purchase and lease commitments, for two additional Boeing 737 Next Generation aircraft to be delivered in the first half of
2018, and 71 Boeing 737 MAX aircraft to be delivered between 2018 and 2025. The 737 MAX aircraft first entered commercial service
in May 2017.
The current composition of the Copa fleet as of December 31, 2017 is fully described below:
Boeing 737-700
Boeing 737-800
Embraer 190
Total
Average Term of Lease
Number of Aircraft
Owned
Total
12
14
39
66
19
20
70
100
Leased
2
27
1
30
Remaining
(Years)
Average Age
(Years)
3.3
3.5
0.2
3.4
15.6
5.6
10.6
8.0
Seating
Capacity
124/142
154/160
94/100
—
The table below describes the expected size of our fleet at the end of each year set forth below, assuming delivery of all
aircraft for which we currently have firm orders but not taking into account any aircraft for which we have purchase rights and options:
Aircraft Type
737-700(1)
737-800(2)
737-MAX(3)
Embraer 190
Total Fleet
2018
14
68
5
19
106
2019
14
64
13
19
110
2020
16
61
22
19
118
2021
14
57
34
19
124
2022
14
52
46
19
131
(1) Assumes the return of leased aircraft upon expiration of lease contracts.
(2) We have the flexibility to choose between the different members of the 737-Next Generation family of aircraft for most of the
737-800 aircraft deliveries.
(3) We have the flexibility to choose between the different members of the 737 MAX family.
The Boeing 737 aircraft currently in our fleet are fuel-efficient and suit our operations well for the following reasons:
•
•
•
They have simplified maintenance procedures.
They require just one type of standardized training for our crews.
They have one of the lowest operating costs in their class.
28
Our focus on profitable operations means that we periodically review our fleet composition. As a result, our fleet
composition changes over time when we conclude that adding other types of aircraft will help us achieve this goal. The introduction of
any new type of aircraft to our fleet is only done if, after careful consideration, we determine that such a step will improve our
profitability. In line with this philosophy, after conducting a careful cost-benefit analysis, we added the Embraer 190 aircraft because its
combination of smaller size and highly efficient operating characteristics made it the ideal aircraft to serve new mid-sized markets and
to increase frequency to existing destinations. The Embraer 190 incorporates advanced design features, such as integrated avionics,
fly-by-wire flight controls, and CF34-10 engines made by General Electric. The Embraer 190 has a range of approximately 2,000
nautical miles, enabling it to fly to a wide range of destinations from short-haul to certain medium-haul destinations. We have
configured Copa’s Embraer aircraft with a business class section similar to the business class section we have on our Boeing 737-Next
Generation aircraft. Following our growth strategy, we have placed an order of 71 Boeing 737 MAX aircraft. The 737 MAX will
provide additional benefits to the current fleet such as fuel efficiency, longer range and additional capacity compared to the current
Copa seat configuration.
Through several special purpose vehicles, we currently have beneficial ownership of 70 of our aircraft, including 19 Embraer
190s. In addition, we lease two of our Boeing 737-700s, 27 of our Boeing 737-800s, and one of our Embraer 190s under long-term
operating lease agreements that have an average remaining term of 3.4 years. Since 2012, we have financed certain aircraft by entering
into sale-leaseback transactions. In 2013, we sold four Boeing 737-800 aircraft delivered in 2013 to MC Aviation Partners, or “MCAP,”
the aircraft leasing arm of Mitsubishi Corporation, and in 2014 an additional four Boeing 737-800 aircraft delivered in 2014 to SMBC
Aviation Capital or “SMBC.” We have entered into leasing arrangements on market terms with the purchasers for all eight aircraft.
Leasing some of our aircraft provides us with flexibility to change our fleet composition if we consider it to be in our best interests to do
so. We make monthly rental payments, some of which are based on floating rates, but we are not required to make termination
payments at the end of the lease. Currently, we do not have purchase options under any of our operating lease agreements. Under our
operating lease agreements, we are required in some cases to keep maintenance reserve accounts and in other cases to make
supplemental rent payments at the end of the lease that are calculated with reference to the aircraft’s maintenance schedule. In either
case, we must return the aircraft in the agreed-upon condition at the end of the lease term. Title to the aircraft remains with the lessor.
We are responsible for the maintenance, servicing, insurance, repair and overhaul of the aircraft during the term of the lease.
To better serve the growing number of business travelers, we offer a business class (Clase Ejecutiva) configuration in our
fleet. Our business class service features upgraded meal service, special check-in desks, bonus mileage for full-fare business class
passengers and access to VIP lounges. In each of our Boeing 737-700 aircraft, we offer 12 business class luxury seats with 38-inch
pitch. Our Boeing 737-800 aircraft currently have two different configurations, one with 16 business class seats with 38-inch pitch; and
a second, with 49-inch pitch seats, which is currently being used in 36 of our 737-800s. In order to accommodate these luxury seats, a
row from economy class was removed, decreasing the total number of seats in those aircraft from 160 to 154. On our Embraer 190s, we
offer two different configurations, one with 12 business class seats in a four abreast configuration with 40-inch pitch, and one with 10
business class seats in a three abreast configuration with 38-inch pitch.
Also, within the Copa Holdings fleet, there are four 737-700s dedicated to the operations of Wingo. These aircraft are
equipped with 142 economy class seats.
Each of our Boeing 737-Next Generation aircraft is powered by two CFM International Model CFM 56-7B engines. Each of
our Embraer 190 aircraft is powered by two CF34-10 engines made by General Electric. We currently have 16 spare engines for service
replacements and for periodic rotation through our fleet. In 2018, we will receive our first Boeing 737 MAX aircraft which is powered
by two CMF International LEAP engines.
Maintenance
The maintenance performed on our aircraft can be divided into two general categories: line and heavy maintenance. Line
maintenance consists of routine, scheduled maintenance checks on our aircraft, including pre-flight, service visits, “A-checks” and any
diagnostics and routine repairs. Copa’s line maintenance is performed by Copa’s own technicians at our main base in Panama and/or at
the out stations by Copa Airlines and/or Copa Colombia employees or third-party contractors. Heavy maintenance consists of more
complex inspections and overhauls, including “C-checks,” and servicing of the aircraft that cannot be accomplished during an overnight
visit. Maintenance checks are performed intermittently as determined by the aircraft manufacturer through Copa Airlines AAC
approved maintenance program. These checks are based on the number of hours, departures or calendar months flown. Historically we
had contracted with certified outside maintenance providers, such as COOPESA. In October of 2010, Copa decided to begin performing
a portion of the heavy maintenance work in-house. The hiring, training, facility and tooling setup, as well as enhancing certain support
shops, were completed during a ten-month period. Ultimately, Copa acquired the required certifications by the local authorities to
perform the first in-house C-Check in August 2011, followed by its second C-check in October of the same year. Today we are
performing a continuous line of C-Checks in-house for the entire year, and on January 20, 2017 we held the ground-breaking of our new
maintenance facility which allows us to perform up to three complete continuous lines of C-checks, as required. We estimate the
completion date for the new facility to be July 2018. In 2017, 19 heavy maintenance checks were successfully performed in-house.
When possible, Copa attempts to schedule heavy maintenance during its lower-demand seasons in order to maximize productive use of
its aircraft.
29
Copa has exclusive long-term contracts with GE Engines whereby they perform maintenance on all of our CFM-56 and
CF-34 engines.
In October of 2014 Copa Airlines established its own maintenance technician training academy. Through this program, we
recruit and train technicians through on-the-job training and formal classes. These future technicians stay in the program for four years
total. After the first two years, each trainee will receive their airframe license and become a mechanic. After the next two years, each
trainee will receive their power plant license and will be released as a mechanic into our work force. Presently, we have 60 students in
the program.
Copa Airlines and Copa Colombia employ, system-wide, around 500 maintenance professionals, who perform maintenance
in accordance with maintenance programs that are established by the manufacturers and approved and certified by international aviation
authorities. Every mechanic is trained in factory procedures and goes through our own rigorous in-house training program. Every
mechanic is licensed by the AAC and approximately 34 of our mechanics are also licensed by the FAA. Our safety and maintenance
procedures are reviewed and periodically audited by the AAC (Panama), UAEAC (Colombia), the FAA (United States), IATA (IOSA)
and, to a lesser extent, every foreign country to which we fly. Copa Airlines’ maintenance facility at Tocumen International Airport has
been certified by the FAA as an approved repair station, and once a year the FAA inspects this facility to validate and renew the
certification. Copa’s aircraft are initially covered by warranties that have a term of four years, resulting in lower maintenance expenses
during the period of coverage. All of Copa Airlines’ and Copa Colombia’s mechanics are trained to perform line maintenance on each
of the Boeing 737-Next Generation, Boeing 737 MAX and Embraer 190 aircraft.
All of Copa Colombia’s maintenance and safety procedures are certified by the Aeronáutica Civil of Colombia and BVQi,
the institute that issues International Organization for Standardization, or “ISO,” quality certificates. All of Copa Colombia’s
maintenance personnel are licensed by the Aeronáutica Civil of Colombia. In December 2017, Copa Colombia received its IATA
Operational Safety Audit, or “IOSA,” compliance certification, which will remain valid until December 2019.
Safety
We place a high priority on providing safe and reliable air service. We are focused on continuously improving our safety
performance by implementing internationally recognized best practices such as Safety Management System, or “SMS,” Flight Data
Analysis (FDA), internal and external operational safety audits, and associated programs.
Our SMS provides operational leaders with reactive, proactive, and predictive data analyses that are delivered on a frequent
and recurring basis. This program also uses a three-tiered meeting structure to ensure the safety risk of all identified hazards are
assessed and corrective actions (if required) are implemented. At the lowest meeting level, the Operational Leaders review the risk
assessments, assign actions, and monitor progress. At the middle meeting level, the Chief Operations Officer meets with the Operational
Leaders to ensure all cross-divisional issues are properly addressed and funded. At the highest meeting level, the Chief Executive
Officer monitors the performance of the SMS program and ensures the safety risk is being properly managed.
The SMS is supported by safety investigations and a comprehensive audit program. Investigations are initiated either by
operational events or analyses of relevant trend information, such as via our Flight Data Analysis program. These investigations are
conducted by properly qualified and trained internal safety professionals. Our audit program consists of three major components. The
first serves as the aircraft maintenance quality assurance program and is supported by six dedicated maintenance professionals. The
second team consists of an internal team dedicated to conducting standardized audits of airport, flight operations, and associated
functions. The third component of our audit program is a biennial audit of all operational components by the internationally recognized
standard IOSA (IATA Operational Safety Audit). We are happy to report that in 2017 Copa Airlines and Copa Colombia successfully
completed IOSA audits by external providers.
Airport Facilities
We believe that our hub at Panama City’s Tocumen International Airport (PTY) is an excellent base of operations for the
following reasons:
•
Panama’s consistently temperate climate is ideal for airport operations. For example, in recent years Tocumen
was closed and unavailable for flight operations for a total of fewer than two hours per year on average.
30
•
•
•
Tocumen is the only airport in Central America with two operational runways. Also, unlike some other regional
airports, consistent modernization and growth of our hub has kept pace with our needs. In 2012, Tocumen
Airport completed Phase II of an expansion project of the existing terminal. In 2013, Tocumen was awarded the
bid for the construction of a new south terminal, with an additional 20 gates, eight remote positions and a second
customs area. Currently, this second terminal is under construction and scheduled for completion toward the end
of 2018.
Panama’s central and sea level location provides a very efficient base to operate our narrow body fleet,
efficiently serving short and long-haul destinations in Central, North and South America, as well as the
Caribbean.
Travelers can generally make connections seamlessly through Tocumen because of its manageable size and
Panama’s policies accommodating in-transit passengers.
Tocumen International Airport is operated by an independent corporate entity established by the government, where
stakeholders have a say in the operation and development of the airport. The law that created this entity also provided for a significant
portion of revenues generated at Tocumen to be used for airport expansion and improvements. We do not have any formal, written
agreements with the airport management to govern access fees, landing rights or allocation of terminal gates. We rely upon our good
working relationship with the airport’s management and the Panamanian government to ensure that we have access to the airport
resources we need at prices that are reasonable.
We worked closely with the airport’s management and consulted with the IATA infrastructure group to provide plans and
guidance for Phase I of an airport expansion that provided eight new gate positions with jet bridges, six new remote parking positions,
expanded retail areas and improved baggage-handling facilities. The government authorized $70 million to cover the costs of this
expansion. Work on Phase I was completed in the third quarter of 2006. Phase II of the expansion added 12 additional jet bridge gates
and was completed in the fourth quarter of 2012. Construction on the south terminal started in 2013 and is expected to be completed
toward the end of 2018.
We provide most of our own ground services and handling of passengers and cargo at Tocumen International Airport. In
addition, we provide services to several of the principal foreign airlines that operate at Tocumen. At most of the foreign airports where
we operate, foreign airport services companies provide all of our support services other than sales, counter services and some minor
maintenance.
We lease a variety of facilities at Tocumen, including our maintenance hangar and our operations facilities in the airport
terminal. We generally cooperate with the airport authority to modify the lease terms as necessary to account for capital improvements
and expansion plans. Currently, our Gold and higher PreferMember passengers have access to a Copa Club at the Tocumen
International Airport in Panama. The capacity of the lounge is approximately 300 passengers and boasts a spacious footprint of more
than 13,000 square feet, offering more space, improved facilities and additional value to our passengers.
Our Gold and higher PreferMember passengers also have access to four other Copa Clubs in the region, which are
strategically located in San José, Guatemala City, Santo Domingo, Medellin and Bogota. The Copa Club in San José is located at the
Juan Santa Maria International Airport and has a capacity of up to 135 passengers with an area of almost 6,400 square feet. The Copa
Club in Guatemala City is located at the Aurora International Airport and has a capacity of 55 passengers with an area of almost 2,400
square feet. In Santo Domingo, the lounge is located at the Las Americas International Airport with a capacity in excess of 65
passengers and an area of almost 3,000 square feet. Additionally, the Copa Club in Medellin, located at Jose Maria Cordova
International Airport, has an area close to 2,800 square feet and a capacity of more than 65 passengers. Lastly, our Copa Club in Bogota
is located at the Dorado International Airport. It seats 107 passengers and has an area close to 3,500 square feet.
Fuel
Fuel costs are extremely volatile, as they are subject to many global economic, geopolitical, weather, environmental and
other factors that we can neither control nor accurately predict. Due to its inherent volatility, aircraft fuel has historically been our most
unpredictable unit cost. In the past, rapid increases in prices have come from increased demand for oil coupled with limited refinery
capacity and instability in oil-exporting countries. Recently, prices have decreased due to the strong U.S. dollar, declining demand and
rising crude oil inventories.
31
Average price per gallon of jet fuel into plane (excluding hedge) (in
U.S. dollars)
Gallons consumed (in millions)
Available seat miles (in millions)
Gallons per ASM (in hundredths)
2017
Aircraft Fuel Data
2016
2015
$ 1.85
307.0
23,936
1.28
$ 1.53
284.3
22,004
1.29
$ 1.83
277.1
21,675
1.28
In 2017 the average price of West Texas Intermediate or “WTI” crude oil, a benchmark widely used for crude oil prices that
is measured in barrels and quoted in U.S. dollars, increased by 17.9% from $43.1 per barrel to $50.9 per barrel. In 2017, we hedged
approximately 5% of our fuel needs and for 2018 we have not hedged any part of our fuel needs. Although we have not added hedge
positions since August of 2015, we continue to evaluate various hedging strategies and may enter into additional hedging agreements in
the future, as any substantial and prolonged increase in the price of jet fuel will likely materially and negatively affect our business,
financial condition and results of operation. In the past, we have managed to offset some of the increases in fuel prices with higher load
factors, fuel surcharges and fare increases. In addition, our relatively young, winglet-equipped fleet also helps us mitigate the impact of
higher fuel prices.
Tocumen International Airport has limited fuel storage capacity. In the event there is a disruption in the transport of fuel to
the airport, we may be forced to suspend flights until the fuel tanks can be refueled.
Insurance
We maintain passenger liability insurance in an amount consistent with industry practice, and we insure our aircraft again
losses and damages on an “all risks” basis. We have obtained all insurance coverage required by the terms of our leases. We believe our
insurance coverage is consistent with airline industry standards and appropriate to protect us from material losses in light of the
activities we conduct. No assurance can be given, however, that the amount of insurance we carry will be sufficient to protect us from
material losses. We have negotiated low premiums on our Copa Airlines insurance policies by leveraging the purchasing power of our
alliance partner, UAL.
Environmental
Our operations are covered by various local, national, and international environmental regulations. These regulations cover,
among other things, gas emissions into the atmosphere, disposal of solid waste and aqueous effluents, aircraft noise, and other activities
that result from the operation of aircraft and our aircraft comply with all environmental standards applicable to their operations as
described in this annual report. Currently, we maintain an Environmental Management and Adequacy Program, or “PAMA,” in all our
facilities, including our maintenance hangar and support facilities at the Tocumen International Airport, Administrative Offices at Costa
del Este and Instruction Center at Clayton. This program was approved by the Panamanian National Environmental Authority, or
“MiAmbiente,” in 2013, and includes actions like a recycling program, better use of natural resources, and final disposition of domestic
water, among many others. Currently, the Copa Tocumen Airport PAMAs final report has been rendered to MiAmbiente, and we are
waiting for formal resolution, which may allow us to monitoring and report our environmental follow-up assessments in an annual basis
instead of each semester. Copa Airlines is an active signatory company of the Global Compact of the United Nations and its local
chapter of the Global Compact Network Panama, and have, thus, published our Communication on Progress, or “COP,” since October
2001. This Global Compact agreement requires us to implement measures like maintaining a young fleet, incorporating new navigation
technologies such as RNAV to reduce fuel consumption, installing winglets and scimitars in our planes to reduce fuel consumption, and
recycling, among many others. From January to December 2017 we collected a total of 289.85 tons of recycling materials in Panama’s
Copa facilities, which represents a total of approximately $33,912.45 in savings resulting from not sending this waste to the landfill.
During the same period, our recycling programs also included the reconversion of burned oil from vehicles and contaminated fuel
drained from aircraft, for which we outsourced the collection of 8,550 gallons of hydrocarbons for use as alternative fuel for other
industries. We also outsourced the collection of 459,850 gallons of oily water from aircraft cleaning and painting operations; the
subsequent treatment of that water made it possible to recover 367,880 gallons of water which were then returned to nature. We have
incinerated a total of 61,600 kilograms of chemical disposals from Aircraft Maintenance operations which reduced our green gases
emissions levels.
32
Regulation
Panama
Authorizations and Certificates. Panamanian law requires airlines providing commercial services in Panama to hold an
Operation Certificate and an Air Transportation License/Certificate issued by the AAC. The Air Transportation Certificate specifies the
routes, equipment used, capacity, and frequency of flights. This certificate must be updated every time Copa acquires new aircraft, or
when routes and frequencies to a particular destination are modified.
Panamanian law also requires that the aircraft operated by Copa Airlines be registered with the Panamanian National
Aviation Registrar kept by the AAC, and that the AAC certifies the airworthiness of each aircraft in the fleet.
The Panamanian government does not have an equity interest in our Company. Bilateral agreements signed by the
Panamanian government have protected our operational position and route network, allowing us to have a significant hub in Panama to
transport traffic within and between the Americas and the Caribbean. All international fares are filed and, depending on the bilateral
agreement, are technically subject to the approval of the Panamanian government. Historically, we have been able to modify ticket
prices on a daily basis to respond to market conditions. Copa Airlines’ status as a private carrier means that it is not required under
Panamanian law to serve any particular route and is free to withdraw service from any of the routes it currently serves, subject to
bilateral agreements. We are also free to determine the frequency of service we offer across our route network without any minimum
frequencies imposed by the Panamanian authorities.
Ownership Requirements. The most significant restriction on our Company imposed by the Panamanian Aviation Act, as
amended and interpreted to date, is that Panamanian nationals must exercise “effective control” over the operations of the airline and
must maintain “substantial ownership.” These phrases are not defined in the Aviation Act itself and it is unclear how a Panamanian
court would interpret them. The share ownership requirements and transfer restrictions contained in our Articles of Incorporation, as
well as the structure of our capital stock described under the caption “Description of Capital Stock,” are designed to ensure compliance
with these ownership and control restrictions created by the Aviation Act. While we believe that our ownership structure complies with
the ownership and control restrictions of the Aviation Act as interpreted by a recent decree by the Executive Branch, we cannot assure
you that a Panamanian court would share our interpretation of the Aviation Act or the decree or that any such interpretations would
remain valid for the entire time you hold our Class A shares.
Although the Panamanian government does not currently have the authority to dictate the terms of our service, the
government is responsible for negotiating the bilateral agreements with other nations that allow us to fly to other countries. Several of
these agreements require Copa to remain “effectively controlled” and “substantially owned” by Panamanian nationals in order for us to
use the rights conferred by the agreements. Such requirements are analogous to the Panamanian Aviation Act described above that
requires Panamanian control of our business.
Antitrust Regulations. In 1996, the Republic of Panama enacted antitrust legislation, which regulates industry concentration
and vertical anticompetitive practices and prohibits horizontal collusion. The Consumer Protection and Free Trade Authority is in
charge of enforcement and may impose fines only after a competent court renders an adverse judgment. The law also provides for direct
action by any affected market participant or consumer, independently or through class actions. The law does not provide for the
granting of antitrust immunity, as is the case in the United States. In February 2006, the antitrust legislation was amended to increase
the maximum fines that may be assessed for violations to $1,000,000 for violations and $250,000 for minor infractions of antitrust law.
In October 2007, the antitrust legislation was amended again to include new regulations.
Colombia
Even though the Colombian aviation market continues to be regulated by the Colombian Civil Aviation Administration,
Unidad Especial Administrativa de Aeronáutica Civil, or “Aeronáutica Civil,” the government policies have become more liberal in
recent years.
Colombia has expanded its open-skies agreements with several countries in the last years. In addition to Aruba and the
Andean Pact nations of Bolivia, Ecuador and Peru, open-skies agreements have been negotiated with Costa Rica, El Salvador, Panama,
and Dominican Republic. In the framework of liberalization between Colombia and Panama, any airline has the right to operate
unlimited frequencies between any city pair of the two countries. As a result, Copa offers scheduled services between eight main cities
in Colombia and Panama. In November 2010, Colombia signed an open-skies agreement with the United States, which took effect in
January 2013. With respect to domestic aviation, airlines must present feasibility studies to secure specific route rights, and no airline
may serve the city pairs with the most traffic unless that airline has at least five aircraft with valid airworthiness certificates. While
Aeronáutica Civil has historically regulated the competition on domestic routes, in December 2012 it revoked a restriction requiring a
maximum number of competing airlines on each domestic route.
33
In October 2011, Aeronáutica Civil announced its decision to liberalize air fares in Colombia starting April 1, 2012,
including the elimination of fuel surcharges. However, airlines are required to charge an administrative fee (tarifa administrativa) for
each ticket sold on domestic routes within Colombia through an airline’s direct channels. Passengers in Colombia are also entitled by
law to compensation in the event of delays in excess of four hours, over-bookings and cancellations. Currently, the San Andrés, Bogotá,
Pereira, Cali, Cartagena, Medellin, Bucaramanga, Cucuta, and Santa Marta airports, among others, are under private management
arrangements. The government’s decision to privatize airport administration in order to finance the necessary expansion projects and
increase the efficiency of operations has increased airports fees and facility rentals at those airports.
Authorization and Certificates. Colombian law requires airlines providing commercial services in Colombia to hold an
operation certificate issued by the Aeronáutica Civil which is automatically renewed every five years. Copa Colombia’s operation
certificate was automatically renewed in 2013.
Safety Assessment. On December 9, 2010, Colombia was re-certified as a Category 1 country under the FAA’s IASA
program.
Ownership Requirements. Colombian regulations establish that an airline satisfies the ownership requirements of Colombia
if it is registered under the Colombian Laws and Regulations.
Antitrust Regulations. In 2009, an antitrust law was issued by the Republic of Colombia; however, commercial aviation
activities remain under the authority of the Aeronáutica Civil.
Airport Facilities. The airports of the major cities in Colombia have been granted to concessionaries, who impose charges on
the airlines for the rendering of airport services. The ability to contest these charges is limited, but contractual negotiations with the
concessionaries are possible.
United States
Operations to the United States by non-U.S. airlines, such as Copa Airlines, are subject to Title 49 of the U.S. Code, under
which the DOT, the FAA and the TSA exercise regulatory authority. The U.S. Department of Justice also has jurisdiction over airline
competition matters under federal antitrust laws.
Authorizations and Licenses. The DOT has jurisdiction over international aviation with respect to air transportation to and
from the United States, including regulation of related route authorities, the granting of which are subject to review by the President of
the United States. The DOT exercises its jurisdiction with respect to unfair practices and methods of competition by airlines and related
consumer protection matters as to all airlines operating to and from the United States. Copa Airlines is authorized by the DOT to engage
in scheduled and charter air transportation services, including the transportation of persons, property (cargo) and mail, or combinations
thereof, between points in Panama and points in the United States and beyond (via intermediate points in other countries). Copa Airlines
holds the necessary authorizations from the DOT in the form of a foreign air carrier permit, an exemption authority and statements of
authorization to conduct our current operations to and from the United States. The exemption authority was granted by the DOT in
February 1998 and was due to expire in February 2000. However, the authority remains in effect by operation of law under the terms of
the Administrative Procedure Act pending final DOT action on the application we filed to renew the authority on January 3, 2000.
There can be no assurance that the DOT will grant the application. Our foreign air carrier permit has no expiration date.
Copa Airlines’ operations in the United States are also subject to regulation by the FAA with respect to aviation safety
matters, including aircraft maintenance and operations, equipment, aircraft noise, ground facilities, dispatch, communications,
personnel, training, weather observation, air traffic control and other matters affecting air safety. The FAA requires each foreign air
carrier serving the United States to obtain operational specifications pursuant to 14 CFR Part 129 of its regulations and to meet
operational criteria associated with operating specified equipment on approved international routes. We believe that we are in
compliance in all material respects with all requirements necessary to maintain in good standing our operations specifications issued by
the FAA. The FAA can amend, suspend, revoke or terminate those specifications, or can temporarily suspend or permanently revoke
our authority if we fail to comply with the regulations, and can assess civil penalties for such failure. A modification, suspension or
revocation of any of our DOT authorizations or FAA operating specifications could have a material adverse effect on our business. The
FAA also conducts safety audits and has the power to impose fines and other sanctions for violations of airline safety regulations. We
have not incurred any material fines related to operations. The FAA also conducts safety International Aviation Safety Assessment, or
“IASA,” as to Panama’s compliance with ICAO safety standards. Panama is currently considered a Category 1 country that complies
with ICAO international safety standards. As a Category 1 country, no limitations are placed upon our operating rights to the Unites
States. If the FAA should determine that Panama does not meet the ICAO safety standards, the FAA and DOT would restrict our rights
to expand operations to the United States.
34
Security. On November 19, 2001, the U.S. Congress passed, and the President signed into law, the Aviation and
Transportation Security Act or the “Aviation Security Act.” This law federalized substantially all aspects of civil aviation security and
created the TSA, an agency of the Department of Homeland Security, to which the security responsibilities previously held by the FAA
were transitioned. The Aviation Security Act requires, among other things, the implementation of certain security measures by airlines
and airports, such as the requirement that all passengers, their bags and all cargo be screened for explosives and other security-related
contraband. Funding for airline and airport security required under the Aviation Security Act is provided in part by a $2.50 per segment
passenger security fees for flights departing from the United States, subject to a $10 per roundtrip cap; however, airlines are responsible
for costs incurred to meet security requirements beyond those provided by the TSA. The United States government is considering
increases to this fee as the TSA’s costs exceed the revenue it receives from these fees. Implementation of the requirements of the
Aviation Security Act has resulted in increased costs for airlines and their passengers. Since the events of September 11, 2001, the U.S.
Congress has mandated and the TSA has implemented numerous security procedures and requirements that have imposed and will
continue to impose burdens on airlines, passengers and shippers.
Passenger Facility Charges. Most major U.S. airports impose passenger facility charges. The ability of airlines to contest
increases in these charges is restricted by federal legislation, DOT regulations and judicial decisions. With certain exceptions, air
carriers pass these charges on to passengers. However, our ability to pass through passenger facility charges to our customers is subject
to various factors, including market conditions and competitive factors. Passenger facility charges are capped at $4.50 per flight
segment with a maximum of two PFCs charged on a one-way trip or four PFCs on a round trip, for a maximum of $9 or $18 total,
respectively.
Airport Access. Two U.S. airports at which we operate, O’Hare International Airport in Chicago (O’Hare) and John F.
Kennedy International Airport in New York, or “JFK,” were formerly designated by the FAA as “high density” traffic airports subject
to arrival and departure slot restrictions during certain periods of the day. From time to time, the FAA has also issued temporary orders
imposing slot restrictions at certain airports. Although slot restrictions at JFK were formally eliminated as of January 1, 2007, on
January 15, 2008, the FAA issued an order limiting the number of scheduled flight operations at JFK during peak hours to address the
over-scheduling, congestion and delays at JFK. The FAA is currently contemplating the implementation of a long-term congestion
management rule at LaGuardia Airport, JFK and Newark Liberty International Airport, which would replace the order currently in
effect at JFK. We cannot predict the outcome of this potential rule change on our costs or ability to operate at JFK.
On July 8, 2008, the DOT also issued a revised Airport Rates and Charges policy that allows airports to establish non-weight
based fees during peak hours and to apportion certain expenses from “reliever” airports to the charges for larger airports in an effort to
limit congestion.
Noise Restrictions. Under the Airport Noise and Capacity Act of 1990 and related FAA regulations, aircraft that fly to the
United States must comply with certain Stage 3 noise restrictions, which are currently the most stringent FAA operating noise
requirements. All of our Copa aircraft meet the Stage 3 requirement.
Other Regulation. U.S. laws and regulations have been proposed from time to time that could significantly increase the cost
of airline operations by imposing additional requirements or restrictions on airlines. There can be no assurance that laws and regulations
currently enacted or enacted in the future will not adversely affect our ability to maintain our current level of operating results.
Other Jurisdictions
We are also subject to regulation by the aviation regulatory bodies that set standards and enforce national aviation legislation
in each of the jurisdictions to which we fly. These regulators may have the power to set fares, enforce environmental and safety
standards, levy fines, restrict operations within their respective jurisdictions or any other powers associated with aviation regulation. We
cannot predict how these various regulatory bodies will perform in the future, and the evolving standards enforced by any of them could
have a material adverse effect on our operations.
C. Organizational Structure
The following is an organizational chart showing Copa Holdings and its principal subsidiaries.
35
* Includes ownership by us held through wholly-owned holding companies organized in the British Virgin Islands.
Copa Airlines is our principal airline operating subsidiary that operates out of our hub in Panama and provides passenger
service in North, South and Central America and the Caribbean. Copa Airlines Colombia is our operating subsidiary that provides air
travel from Colombia to Copa Airlines Hub of the Americas in Panama, and operates a low-cost business model within Colombia and
various cities in the region. Oval Financial Leasing, Ltd. controls the special purpose vehicles that have a beneficial interest in the
majority of our fleet.
D. Property, plants and equipment
Headquarters
Our headquarters are located six miles away from Tocumen International Airport. We have leased six floors consisting of
approximately 119,700 square feet of the building from Desarollo Inmobiliario del Este, S.A., an entity controlled by the same group of
investors that controls CIASA, under a ten-year lease that began in January 2015 at a rate of $0.2 million per month.
Other Property
At Tocumen International Airport, we lease a maintenance hangar, operations offices in the terminal, counter space, parking
spaces and other operational properties from the entity that manages the airport. We pay approximately $165,720 per month for this
leased property. Around Panama City, we also lease various office spaces, parking spaces and other properties from a variety of lessors,
for which we pay approximately $90,302 per month in the aggregate.
In each of our destination cities, we also lease space at the airport for check-in, reservations and airport ticket office sales,
and we lease space for CTOs in 49 of those cities.
Copa Colombia leases most of its airport offices and CTOs. Owned properties only include one CTO and a warehouse close
to the Bogota airport.
See also our discussion of “Aircraft” and “Airport Facilities” above.
Item 4A. Unresolved Staff Comments
None.
36
Item 5. Operating and Financial Review and Prospects
A. Operating Results
You should read the following discussion in conjunction with our consolidated financial statements and the related notes and
the other financial information included elsewhere in this annual report.
We are a leading Latin American provider of airline passenger and cargo service through our two principal operating
subsidiaries, Copa Airlines and Copa Colombia. Copa Airlines operates from its strategically located position in the Republic of
Panama, and Copa Colombia provides air travel from Colombia to Copa Airlines Hub of the Americas in Panama and operates a
low-cost business model within Colombia and various cities in the region.
Copa currently offers approximately 347 daily scheduled flights among 75 destinations in 31 countries in North, Central and
South America and the Caribbean from its Panama City hub. Copa provides passengers with access to flights to more than 146 other
destinations through code-share arrangements with our Star Alliance partners and other carriers including Air France, KLM, Iberia,
Emirates, Gol, Tame and Aeromexico. Through its Panama City hub, Copa Airlines is able to consolidate passenger traffic from
multiple points to serve each destination effectively.
Copa Airlines and Copa Colombia operate a modern fleet of 80 Boeing 737-Next Generation aircraft and 20 Embraer 190
aircraft. To meet growing capacity requirements we have firm orders, including purchase and lease commitments. As of December 31,
2017 the Company has two purchase contracts with Boeing: the first contract entails two firm orders of Boeing 737 Next Generation
aircraft, to be delivered in the first half of 2018, the second contract entails 71 firm orders of Boeing 737 MAX, which will be delivered
between 2018 and 2025.
We began our strategic alliance with Continental, now UAL, in 1998. Since then, we have conducted joint marketing and
code-sharing arrangements. We believe that Copa’s co-branding and joint marketing activities with UAL have enhanced our brand in
Latin America, and that the relationship with UAL has afforded cost-related benefits, such as improved purchasing power in
negotiations with aircraft vendors and insurers. In May 2016, after mutually beneficial negotiations, we signed an updated alliance
agreement with UAL that will continue to support the company’s performance and strategic development.
Factors Affecting Our Results of Operations
Fuel
In 2017 the average price of WTI crude oil, a benchmark widely used for crude oil prices that is measured in barrels and
quoted in U.S. dollars, increased by 17.9% from $43.1 per barrel to $50.9 per barrel. For the year 2017, we maintained hedge positions
representing 5% of our requirements through the use of jet fuel swap and zero cost collars. For 2018, although we have not hedged any
part of our anticipated fuel needs, we continue to evaluate various hedging strategies and may enter into additional hedging agreements
in the future, as any substantial and prolonged increase in the price of jet fuel will likely materially and negatively affect our business,
financial condition and results of operation. In the past, we have managed to offset some of the increases in fuel prices with higher load
factors, fuel surcharges and fare increases. In addition, our relatively young, winglet-equipped fleet also helps us mitigate the impact of
higher fuel prices.
Regional Economic Environment
Our historical financial results have been, and we expect them to continue to be, materially affected by the general level of
economic activity and growth of per capita disposable income in North, South and Central America and the Caribbean, which have a
material impact on discretionary and leisure travel (drivers of our passenger revenue) and the volume of trade between countries in the
region (the principal driver of our cargo revenue). As an example, during 2016 passenger revenue totaled $2.1 billion in 2016, a 1.5%
decrease over passenger revenue of $2.2 billion in 2015, mainly driven by a yield decrease of 9.2 percentage points to 12.06 cents in
2016 compared to 2015. This decrease was due to weaker Latin American currencies, especially during the first half of the year. In
2017 our passenger yield increased by 1.5% to 12.37 cents compared to 2016.
In Colombia, real GDP growth in Colombia at constant prices was approximately 1.7% in 2017, which represented a slower
growth rate than in 2016 primarily because of lower oil prices. Average inflation of consumer prices in Colombia rose approximately
4.1% in 2017, according to the IMF.
37
In previous years our yields in Venezuela were negatively impacted by exchange controls, along with high inflation and
political uncertainty, which led us to restrict ticket sales for passengers paying in Venezuelan bolivars. Today, sales in Venezuela are
very limited (0.1% of our total sales) and operational feasibility of Venezuela flights is closely monitored in order to deliver optimal
profitability and avoid accumulations of Venezuelan strong bolivars. According to data from the IMF, Venezuela’s GDP contracted by
4.5% in 2017. Exact data regarding inflation rates in Venezuela varies significantly, depending on the source.
On April 5, 2018, the government of Venezuela announced that it was temporarily suspending economic, financial and
commercial relations with Panama, including certain companies and Panamanian citizens, for a period of 90 days. This announcement
includes the operations of Copa Airlines in Venezuela. Copa Airlines has cancelled all of its flights between Panama and Venezuela for
the next 90 days, effective immediately. For the year ended December 31, 2017, revenue from Copa Airlines’ flights to Venezuela,
including connecting traffic, represented about 5% of consolidated revenues and direct flights between Panama and Venezuela,
excluding connections, represented about 2% of total available seat miles (ASMs). While it is too early to predict the ultimate impact of
these restrictions, Copa Holdings does not expect any such cancellations to have other effects on Copa Holdings’ consolidated
operations.
According to data from The Preliminary Overview of the Economies of Latin America and the Caribbean, an annual United
Nations publication prepared by the Economic Development Division, the economy of Latin America (including the Caribbean)
increased by 1.6% in 2017 and is estimated to increase by 2.1% in 2018. In recent years, the Panamanian economy has outpaced the
economic growth of the United States and of Latin America as a whole. Preliminary figures for 2017 indicate that the Panamanian
economy grew by 5.8% (versus 5.2% in 2016), while headline inflation (as indicated by the consumer price index) rose by 1.5% in
2017. Additionally, the Colombian economy has experienced relatively stable growth. The Colombian gross domestic product grew by
2.7% in 2017 and an estimated 3.8% in 2018, while headline inflation (as indicated by the consumer price index) rose by 4.1% in 2017.
Revenues
We derive our revenues primarily from passenger transportation, which represented 97.4% of our revenues for the year
ended December 31, 2017. In addition, 2.2% of our total revenues are derived from cargo and 0.4% from other revenues.
We recognize passenger revenue when transportation is provided. Passenger revenues reflect the capacity of our aircraft on
the routes we fly, load factor and yield. Our capacity is measured in terms of available seat miles, or “ASMs,” which represents the
number of seats available on our aircraft multiplied by the number of miles the seats are flown. Our usage is measured in terms of
RPMs, which is the number of revenue passengers multiplied by the miles these passengers fly. Load factor, or the percentage of our
capacity that is actually used by paying customers, is calculated by dividing RPMs by ASMs. Yield is the average amount that one
passenger pays to fly one mile. We use a combination of approaches, taking into account yields, flight load factors and effects on load
factors of connecting traffic, depending on the characteristics of the markets served, to arrive at a strategy for achieving the best
possible revenue per available seat mile, balancing the average fare charged against the corresponding effect on our load factors.
We recognize cargo revenue when transportation is provided. Historically our other revenue consists primarily of
commissions earned on tickets sold for flights on other airlines, special charges, charter flights, and services provided to other airlines.
Overall demand for our passenger and cargo services is highly dependent on the regional economic environment in which we
operate, including the GDP of the countries we serve and the disposable income of the residents of those countries. Approximately 40%
of our passengers travel at least in part for business reasons, and the growth of intraregional trade greatly affects that portion of our
business. The remaining 60% of our passengers are tourists or travelers visiting friends and family.
The following table sets forth our capacity, load factor and yields for the periods indicated.
Capacity (in available seat miles, in millions)
Load factor
Yield (in cents)
Seasonality
2017
2016
2015
2014
2013
23,936
22,004
21,675
20,757
18,950
83.2%
12.37
80.4%
12.18
75.2%
13.40
76.7%
16.58
76.7%
17.45
Generally, our revenues from and the profitability of our flights peak during the northern hemisphere’s summer season in
July and August and again during the December and January holiday season. Given our high proportion of fixed costs, this seasonality
is likely to cause our results of operations to vary from quarter to quarter.,
Operating Expenses
The main components of our operating expenses are aircraft fuel, wages, salaries, benefits and other employees’ expenses,
sales and distribution and airport facilities and handling charges. A common measure of per unit costs in the airline industry is cost per
available seat mile, or “CASM,” which is generally defined as operating expenses divided by ASMs.
38
Fuel. The price we pay for aircraft fuel varies significantly from country to country primarily due to local taxes. While we
purchase aircraft fuel at most of the airports to which we fly, we attempt to negotiate fueling contracts with companies that have a
multinational presence in order to benefit from volume purchases. During 2017, as a result of the location of its hub, Copa purchased
56% of its aircraft fuel in Panama. Copa has 21 suppliers of aircraft fuel across its network. In some cases, we tanker fuel in order to
minimize our cost, by fueling in airports where fuel prices are lowest. Our aircraft fuel expenses are variable and fluctuate based on
global oil prices.
Average price per gallon of jet fuel into plane (excluding hedge) (in
U.S. dollars)
Gallons consumed (in millions)
Available seat miles (in millions)
Gallons per ASM (in hundredths)
2017
Aircraft Fuel Data
2016
2015
$ 1.85
307.0
23,936
1.28
$ 1.53
284.3
22,004
1.29
$ 1.83
277.1
21,675
1.28
Wages, salaries and other employees’ expenses. Salary and benefit expenses have historically increased at the rate of
inflation and by the growth in the number of our employees. In some cases, we have adjusted the salaries of our employees to
correspond to changes in the cost of living in the countries where these employees work. We do not increase salaries based on seniority.
Passenger servicing. Our passenger servicing expenses consist of expenses for liability insurance, baggage handling,
catering, and in-flight entertainment. These expenses are generally directly related to the number of passengers we carry or the number
of flights we operate. Passenger servicing expenses provide us with a directional measurement of cost variances.
Airport facilities and handling charges. Our airport facility and handling charges consist of take-off, landing and aircraft
parking charges, baggage handling, and airport security charges. These charges are mainly driven by the number of flights we operate.
Sales and distribution. Our sales and distribution expenses are driven mainly by passenger revenues, indirect channel
penetration performance, agreed commission rates, as opposed to ASM growth and from payments to global distribution systems
“GDS”, such as Amadeus and Sabre. Our commission expenses consist primarily of payments for ticket sales made by travel agents and
commissions paid to credit card companies. Travel agents receive base commissions, not including back-end incentive programs,
ranging from 0% to 6.7% depending on the country. During the last few years we have reduced our commission expense per available
seat mile as a result of an industry-wide trend of paying lower commissions to travel agencies and by increasing the proportion of our
sales made through direct channels. We expect this trend to continue as more of our customers become accustomed to purchasing
through call centers and through the internet. While increasing direct sales may increase the commissions we pay to credit card
companies, we expect that the savings from the corresponding reduction in travel agency commissions will more than offset this
increase. In recent years, base commissions paid to travel agents have decreased significantly. At the same time, we have encouraged
travel agencies to move from standard base commissions to incentive compensation based on sales volume and fare types. In addition,
the GDS or reservation systems tend to raise their rates periodically, but we expect that if we are successful in encouraging our
customers to purchase tickets through our direct sales channels, these costs will decrease as a percentage of our operating costs. A
portion of our reservations and sales expenses is also comprised of our licensing payments for the SHARES reservation and check-in
management software we use, which is not expected to change significantly from period to period.
Maintenance, materials and repairs. Our maintenance, materials and repairs expenses consist of aircraft repair expenses and
charges related to the line maintenance of our aircraft, including maintenance materials, and aircraft return costs. As the age of our fleet
increases and our warranties expire, our maintenance expenses will increase. We conduct line maintenance internally and outsource
most heavy maintenance to independent third-party contractors. In 2015, we restructure the original contract negotiated with GE Engine
Services in 2003 for the repair and maintenance of our CFM-56 engines which power our Boeing 737 Next Generation fleet. Our engine
maintenance costs are also aided by the sea-level elevation of our hub and the use of winglets which allow us to operate the engines on
our Boeing 737 Next Generation aircraft with lower thrust, thus putting less strain on the engines. In 2011, we negotiated a maintenance
agreement with GE Engine Services for the repair and maintenance of our CF-34 engines.
Depreciation and amortization. These expenses correspond primary to the depreciation of aircraft owned by the company.
39
Flight operations. These expenses are generally directly related to the number of flights we operate, with a component
attributed to fixed costs relating to facility rental expenses.
Aircraft rentals and other rentals. Our aircraft rental expenses are generally fixed by the terms of our operating lease
agreements. We currently have 30 operating leases, 25 of which are operating leases with fixed rates not subject to fluctuations in
interest rates; the remaining five operating leases are tied to LIBOR. Our aircraft rent expense also includes rental payments related to
any wet-leasing of freighter aircraft to supplement our cargo operations.
Cargo and courier expenses. Cargo and Courier expenses consist of expenses related to handling of cargo and courier and
are driven by the volume of cargo transported.
Other operating and administrative expenses. Other expenses include our frequent flyer program, publicity and promotion
expenses, expenses related to our cargo operations, technology related initiatives and miscellaneous other expenses.
Taxes
We pay taxes in the Republic of Panama and in other countries in which we operate, based on regulations in effect in each
respective country. Our revenues come principally from foreign operations, and according to the Panamanian Fiscal Code income from
these foreign operations are not subject to income tax in Panama.
The Panamanian Fiscal Code for the airline industry states that tax is based on net income earned for traffic whose origin or
final destination is the Republic of Panama. The applicable tax rate is currently 25%. Dividends from our Panamanian subsidiaries,
including Copa, are separately subject to a 10% percent withholding tax on the portion attributable to Panamanian sourced income and a
5% withholding tax on the portion attributable to foreign sourced income. Additionally, a 7% value added tax is levied on tickets issued
in Panama for travel commencing in Panama and going abroad, irrespective of where such tickets were ordered.
We are also subject to local tax regulations in each of the other jurisdictions where we operate, the great majority of which
are related to the taxation of our income. In some of the countries to which we fly, we do not pay any income taxes because we do not
generate income under the laws of those countries either because they do not have income taxes or due to treaties or other arrangements
those countries have with Panama. In the remaining countries, we pay income tax at rates ranging from 22% to 34% of our income
attributable to those countries. Different countries calculate our income in different ways, but they are typically derived from our sales
in the applicable country multiplied by our net margin or by a presumed net margin set by the relevant tax legislation.
The determination of our taxable income in several countries is based on a combination of revenues sourced to each
particular country and the allocation of expenses to that particular country. The methodology for multinational transportation company
sourcing of revenue and expense is not always specifically prescribed in the relevant tax regulations, and therefore is subject to
interpretation by both ourselves and the respective tax authorities. Additionally, in some countries, the applicability of certain
regulations governing non-income taxes and the determination of our filing status are also subject to interpretation. We cannot estimate
the amount, if any, of the potential tax liabilities that might result if the allocations, interpretations and filing positions we use in
preparing our income tax returns were challenged by the tax authorities of one or more countries. If taxes were to increase, our financial
performance and results of operations could be materially and adversely affected. Due to the competitive revenue environment, many
increases in fees and taxes have been absorbed by the airline industry rather than being passed on to the passenger. Any such increases
in our fees and taxes may reduce demand for air travel and thus our revenues.
Under a reciprocal exemption confirmed by a bilateral agreement between Panama and the United States, we are exempt
from the U.S. source transportation income tax derived from the international operation of aircraft.
Our income tax expense totaled approximately $48.0 million in 2017, $38.3 million in 2016 and $32.8 million in 2015.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with IFRS as issued by the IASB requires our
management to adopt accounting policies and make estimates and judgments to develop amounts reported in our consolidated financial
statements and related notes. We strive to maintain a process to review the application of our accounting policies and to evaluate the
appropriateness of the estimates required for the preparation of our consolidated financial statements. We believe that our estimates and
judgments are reasonable; however, actual results and the timing of recognition of such amounts could differ from those estimates. In
addition, estimates routinely require adjustments based on changing circumstances and the receipt of new or better information.
40
Our critical accounting policies and estimates are described below as those that are reflective of significant judgments and
uncertainties and potentially result in materially different results under different assumptions and conditions. For a discussion of these
and other accounting policies, see notes 3 and 4 to our annual consolidated financial statements.
Goodwill. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred over the
net identifiable assets acquired and liabilities assumed of the acquired subsidiary at the date of acquisition. After initial recognition,
goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to each of the Company’s CGU or group of CGU’s that are expected to
benefit from the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units. When the
recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized.
The Company performed its annual impairment test in September 2017 and the recoverable amount was estimated at
$3.9 billion, an amount far in excess of the $20.4 million of goodwill recorded.
Provision for return condition. The Company records a maintenance provision to accrue for the cost that will be incurred in
order to return certain aircraft to their lessors in the agreed-upon condition. The methodology applied to calculate the provision requires
management to make assumptions, including the future maintenance costs, discount rate, related inflation rates and aircraft utilization.
Any difference in the actual maintenance cost incurred and the amount of the provision is recorded in maintenance expense in the
period. The effect of any changes in estimates, including changes in discount rates, inflation assumptions, cost estimates or lease
expiries, is also recognized in maintenance expense in the period.
Accounting for Property and Equipment. Property and equipment, including rotable parts, are recorded at cost and are
depreciated to estimated residual values over their estimated useful lives using the straight-line method.
Major maintenance events, including major engine overhauls, are capitalized and depreciated over the period until the next
major event. All other replacement spares and costs relating to maintenance of fleet assets are charged to the consolidated statement of
profit or loss on consumption or as incurred.
Pre-delivery deposits refer to prepayments made based on the agreements entered into with the Boeing Company for the
purchase of aircraft and include interest and other finance charges incurred during the manufacture of aircraft. Interest costs incurred on
borrowings that fund progress payments on assets under construction, including pre-delivery deposits to acquire new aircraft, are
capitalized and included as part of the cost of the assets through the earlier of the date of completion or aircraft delivery.
The residual values, useful lives, and methods of depreciation of property and equipment are reviewed at each financial
year-end and adjusted prospectively through depreciation and amortization expense, as required by the IFRS.
We evaluate annually whether there is an indication that our property, plant and equipment may be impaired. Factors that
would indicate potential impairment may include, but are not limited to technological obsolescence, significant decreases in the market
value of long-lived asset(s), a significant change in physical condition or useful life of long-lived asset(s), and operating or cash flow
losses associated with the use of long-lived asset(s). We have not identified any impairment related to our existing aircraft fleet.
Revenue recognition – Expired tickets. The Company recognizes estimated fare revenue for tickets that are expected to
expire based on departure date (unused tickets), based on historical data and experience. Estimating the expected expiration tickets
requires management’s judgment, among other things, the historical data and experience is an indication of future customer behavior.
Frequent Flyer Program. On July 1, 2015, the Company launched its frequent flyer program, whose objective is to reward
customer loyalty through the earning of miles whenever program members make certain flights. The miles or points earned can be
exchanged for flights on Copa or any of the other Star Alliance partners’ airlines.
When a passenger elects to receive Copa’s frequent flyer miles in connection with a flight, the Company recognizes a portion
of the ticket sales as revenue when the air transportation is provided and recognizes a deferred liability (Frequent flyer deferred
revenue) for the portion of the ticket sale representing the value of the related miles as a multiple-deliverable revenue arrangement, in
accordance with International Financial Reporting Interpretation Committee (IFRIC) 13: Customer loyalty programs. To determine the
amount of revenue to be deferred, the Company estimates and allocates the fair value of the miles that were essentially sold along with
the airfare, based on a weighted average ticket value, which incorporates the expected redemption of miles including factors such as
redemption pattern, cabin class, loyalty status and geographic region.
41
Furthermore, the Company estimates miles earned by members which will not be redeemed for an award before they expire
(breakage). A statistical model that estimates the percentage of points that will not be redeemed before expiration is utilized to estimate
breakage. The breakage and the fair value of the miles are reviewed annually.
The Company calculates the short and long-term portion of the frequent flyer deferred revenue, using a model that includes
estimates based on the members’ redemption rates projected by management due clients’ behavior.
Currently, when a member of another carrier frequent flyer program redeems miles on a Copa Airlines or Copa Colombia
flights, those carriers pay to the Company a per mile rate. The rates paid by them depend on the class of service, the flight length, and
the availability of the reward.
In addition, the Company sells miles to non-airline businesses with which it has marketing agreements. The main contracts to
sell miles relate to co-branded credit card relationships with major banks in the region. The Company determined the selling prices of
miles according to a negotiated rate.
Lease accounting. The Company enters into lease contracts on some of the aircraft it operates. The Company assesses, based
on the terms and conditions of the arrangements, whether or not substantially all risks and rewards of ownership of the aircraft it leases
have been transferred/retained by the lessor to determine the appropriate accounting classification of the contracts as an operating or
finance lease.
Finance lease assets are measured initially at an amount equal to the lower of their fair value and the present value of the
minimum lease payments. Minimum lease payments made under finance leases are apportioned between the finance cost and the
reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability; these are recognized as finance cost in the consolidated statement of
profit or loss. Lease agreements that do not transfer the risks and benefits to us are classified as operating leases. Operating leases are
accounted as a rental, and the minimum lease expense is recognized through the straight line method.
Lease accounting is critical for us because it requires an extensive analysis of the lease agreements in order to classify and
measure the transactions in our financial statements and significantly impacts our financial position and results of operations. Changes
in the terms of our outstanding lease agreements and the terms of future lease agreements may impact the accounting for the lease
transactions and our future financial position and results of operations.
Deferred taxes. Deferred taxes are recognized for tax losses, tax credits, and temporary differences between tax bases and
carrying amounts for financial reporting purposes of our assets and liabilities. Recognition and measurement of deferred taxes is a
critical accounting policy for us because it requires a number of assumptions and is based on our best estimate of our projections related
to future taxable profit. In addition, because the preparation of our business plan is subject to a variety of market conditions, the results
of our operations may vary significantly from our projections and as such, the amounts recorded as deferred tax assets may be impacted
significantly in the future.
Recently Issued Accounting Pronouncements
The standards and interpretations that are issued, but not yet effective, up to date of issuance of the Company’s financial
statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.
•
•
•
•
•
IFRS 9, Financial Instruments
IFRS 15, Revenue from Contracts with Customers
IFRS 16, Leases
IFRS 17, Insurance Contracts
Amendment to IFRS 2, Share based payments
42
•
•
•
•
•
•
•
Amendment to IFRS 4, Insurance contracts
Amendment to IFRS 9, Financial instruments
Amendment to IAS 28, Investments in Associates and Joint Ventures
Amendment to IAS 40, Investment property
IFRIC 22, Foreign currency transactions and advance consideration
IFRIC 23, Uncertainty over income tax treatments
Annual Improvements Cycle 2014–2016
For a discussion of these improvements to IFRS, see note 6 to our annual consolidated financial statements.
Results of Operation
The following table shows each of the line items in our statement of profit or loss for the periods indicated as a percentage of
our total operating revenues for that period:
Operating revenues:
Passenger revenue
Cargo and mail revenue
Other operating revenue
Total operating revenues
Operating expenses:
Fuel
Wages, salaries, benefits and other employees expenses
Passenger servicing
Airport facilities and handling charges
Sales and distribution
Maintenance, materials and repairs
Depreciation and amortization
Flight operations
Aircraft rentals and other rentals
Cargo and courier expenses
Other operating and administrative expenses
Total operating expenses
Operating income
Non-operating income (expense):
Finance cost
Finance income
Gain (loss) on foreign currency fluctuations
Net change in fair value of derivatives
Other non-operating income (expense)
Total non-operating income (expense)
Income/(loss) before income taxes
Income taxes
Net profit (loss)
43
2017
2016
2015
97.4%
2.2%
0.4%
100.0%
97.0%
2.4%
0.6%
100.0%
97.0%
2.5%
0.5%
100.0%
22.7%
16.4%
3.9%
6.8%
7.9%
4.9%
6.5%
4.0%
5.3%
0.3%
3.8%
82.6%
17.4%
-1.4%
0.7%
-0.2%
0.1%
-0.1%
-0.9%
0.0%
-16.5%
14.6%
20.9%
16.7%
3.9%
7.2%
8.7%
5.5%
7.2%
4.0%
6.3%
0.3%
4.2%
87.6%
12.4%
-1.7%
0.6%
0.6%
5.0%
-0.2%
4.4%
0.0%
-16.8%
15.1%
26.8%
16.6%
3.7%
6.6%
8.4%
4.9%
6.0%
3.8%
6.3%
0.3%
4.7%
88.1%
11.9%
-1.5%
1.2%
-19.5%
-0.5%
-0.1%
-20.4%
0.0%
8.5%
-10.0%
Year 2017 Compared to Year 2016
Our consolidated net profit in 2017 totaled $370.0 million, a 10.6% increase from net profit of $334.5 million in 2016. In
addition, we had consolidated operating profit of $440.1 million in 2017, a 59.4% increase over operating profit of $276.1 million in
2016. Our consolidated operating margin in 2017 was 17.4% an increase of 5.0 percentage point versus 2016.
Operating revenue
Our consolidated revenue totaled $2.5 billion in 2017, a 13.8% increase over operating revenue of $2.2 billion in 2016, due
to an increase in passenger revenue. This increase was driven by a 1.5% increase in passenger yield, and a 2.8 percentage point increase
in load factor, compared to 2016.
Passenger revenue. Passenger revenue totaled $2.5 billion in 2017, a 14.3% increase over passenger revenue of $2.2 billion
in 2016. This increase was driven by a 1.5% increase in passenger yield, and a 2.8 percentage point increase in load factor, compared to
2016.
Cargo and mail revenue. Cargo and mail revenue totaled $55.3 million in 2017, a 2.4% increase from cargo and mail
revenue of $54.0 million in 2016, driven by an increase in courier services, compared to 2016.
Other operating revenue. Other operating revenue totaled $9.8 million in 2017, a 22.4% decrease from other revenue of
$12.7 million in 2016 driven by a decrease in revenues from services to other airlines.
Operating expenses
Our consolidated operating expenses totaled $2.1 billion in 2017, a 7.3% increase over operating expenses of $1.9 billion in
2016. This resulted from an increase in fuel and wages, salaries, benefits and other employees’ expenses.
An overview of the major variances on a consolidated basis follows:
Fuel. Aircraft fuel totaled $572.7 million in 2017, an 8.3% increase from aircraft fuel of $529.0 million in 2016, primary due
to a 8.0% higher fuel consumption.
Wages, salaries and other employees’ expenses. Salaries and benefits totaled $415.1 million in 2017, a 12.1% increase over
salaries and benefits of $370.2 million in 2016, mainly driven by variable compensation, full year effects on salary adjustments and
headcount increases to support additional capacity.
Passenger servicing. Passenger servicing totaled $99.4 million in 2017 compared to $86.3 million in 2016. This represented
a 15.2% increase driven by passenger traffic growth and an effective rate per passenger related to longer flights.
Airport facilities and handling charges. Airport facilities and handling charges totaled $171.0 million in 2017, a 7.1%
increase of $159.8 million in 2016. This increase was driven mainly by a 3.1% departures increase and higher effective rates related to
airport services.
Sales and Distribution. Sales and distribution totaled $200.4 million in 2017, a 3.3% increase compared to $194.0 million in
2016, due to 14.3% higher passenger revenue, offset by lower commission rates.
Maintenance, materials and repairs. Maintenance, materials and repairs totaled $124.7 million in 2017, a 2.4% increase over
maintenance, materials and repairs of $121.8 million in 2016. This increase was primarily a result of more components and maintenance
expenses due to 8.4% more hours flown, offset by fewer aircraft leased returns.
Depreciation and amortization. Depreciation totaled $164.3 million in 2017, a 3.2% increase over $159.3 million in 2016,
mainly as a result of additional aircraft delivery and maintenance events capitalized.
Flight operations. Flight operations amounted to $101.6 million in 2017, a 15.3% increase compared to $88.2 million in
2016, mainly due to 8.1% more block hours and higher overflight rates.
Aircraft rentals and other rentals. Aircraft rental expense amounted to $134.5 million in 2017, a 3.1% decrease from
$138.9 million reported in 2016. This decrease was primarily a result of fewer leased aircraft.
44
Cargo and courier expenses. Cargo and courier expenses amounted to $7.4 million in 2017, a 20.9% increase compared to
$6.1 million in 2016, mainly due to a higher volume transported in courier services.
Other operating and administrative expenses. Other expenses totaled $96.1 million in 2017, a 4.2% increase from
$92.2 million in 2016, mainly due to more expenses in professional services and consultancies.
Total Non-operating Income (Expense)
Non-operating expense totaled $22.0 million in 2017, as compared to non-operating income of $96.7 million in 2016 mainly
due to fewer mark to market contracts (a net change in fair values of derivatives).
Finance cost. Finance cost totaled $35.2 million in 2017, an 4.9% decrease over finance cost of $37.0 million in 2016, as a
result of a lower average debt balance and a lower factoring interest rate offset by higher flows.
Finance income. Finance income totaled $17.9 million in 2017, a 38.0% decrease over finance income of $13.0 million in
2016 due to higher investments.
Net change in fair value of derivatives. In 2017 the net change in fair value of derivatives decreased from $111.6 million in
2016 to $2.8 million in 2017 as a result of fewer mark to market contracts.
Other non-operating expense. Other non-operating expense totaled $2.3 million in 2017, compared to $4.0 million in 2016,
mainly due to less maintenance scrap during 2017.
Year 2016 Compared to Year 2015
Our consolidated net profit in 2016 totaled $334.5 million, a substantial increase from a net loss of $225.0 million in 2015. In
2015, we recognized a Venezuelan currency translation and transactional loss of $432.5 million. In addition, we had consolidated
operating profit of $276.1 million in 2016, a 2.9% increase over operating profit of $268.3 million in 2015. Our consolidated operating
margin in 2016 was 12.4%, an increase of 0.5 percentage points versus 2015.
Operating revenue
Our consolidated revenue totaled $2.2 billion in 2016, a 1.4% decrease over operating revenue of $2.3 billion in 2015. This
was mainly a result of a decrease in passenger revenue, driven by a 9.1% decrease in passenger yield in 2016 compared to 2015.
Passenger revenue. Passenger revenue totaled $2.1 billion in 2016, a 1.4% or $30.3 million decrease over passenger revenue
of $2.2 billion in 2015. This decrease was mainly driven by a 9.1% drop in passenger yield compared to 2015 offset by a 5.1 percentage
point increase in load factor. Passenger yield decreased to 12.18 cents in 2016, from 13.40 in 2015, mainly due to weaker Latin
American currencies, especially during the first half of the year.
Cargo and mail revenue. Cargo, and mail revenue totaled $54.0 million in 2016, a 4.8% decrease from cargo and mail
revenue of $56.7 million in 2015. This decrease was primarily the result of less volume of cargo due to higher passenger load factors
during the second half of 2016, offset by better average rate per kilogram.
Other operating revenue. Other operating revenue totaled $12.7 million in 2016, a 10.3% increase from other operating
revenue of $11.5 million in 2015. This increase was primarily related to maintenance income and incentives received from airport
authorities for new routes.
Operating expenses
Our consolidated operating expenses totaled $1.9 billion in 2016, a 2.0% decrease over operating expenses of $2.0 billion in
2015, a result of lower all-in average fuel price per gallon of jet fuel.
An overview of the major variances on a consolidated basis follows:
Fuel. Fuel totaled $529.0 million in 2016, a 12.4% decrease from aircraft fuel of $603.8 million in 2015. This decrease was
primarily a result of 14.6% decrease in the all-in average fuel price per gallon of jet fuel ($1.86 in 2016 compared to $2.17 in 2015)
offset by a 2.6% higher fuel consumption, and is net of a realized fuel hedge loss of $93.7 million in 2016, as compared to a realized
fuel hedge loss of $95.2 million in 2015.
45
Wages, salaries and other employees’ expenses. Wages salaries and benefits totaled $370.2 million in 2016, a 0.9% decrease
over salaries and benefits of $373.6 million in 2015. This was primarily a result of a decrease in variable crew related expenses, offset
by an increase in variable compensation accruals and full-year effects of inflation adjustments slightly offset by foreign exchange rates.
Passenger servicing. Passenger servicing totaled $86.3 million in 2016 compared to $84.3 million in 2015. This represented
a 2.4% increase driven mainly by passenger traffic growth offset by efficiencies related to meals, beverages and supplies onboard.
Airport facilities and handling charges. Airport facilities and handling charges totaled $159.8 million in 2016, an increase of
7.9% over $148.1 million in 2015. This increase was driven mainly by an increase of departures and higher effective rates related to
airport services.
Sales and distribution. Sales and distribution totaled $194.0 million in 2016, a 2.7% increase from sales and distribution
expenses of $189.0 million in 2015. This increase was primarily because of higher volumes of net bookings, offset by a lower base of
sales through indirect channels (BSP) and lower commission rates compared to 2015.
Maintenance, materials and repairs. Maintenance, materials and repairs totaled $121.8 million in 2016, a 9.5% increase over
maintenance, materials and repairs of $111.2 million in 2015. This increase was primarily a result of aircraft lease returns, and increased
provisions for future lease returns.
Depreciation and amortization. Depreciation totaled $159.3 million in 2016, an 18.1% increase over $134.9 million in 2015,
mainly as a result of adjusting the fleet’s useful life assumption from 30 to 27 years, the full-year effect of additional aircraft and
maintenance events from 2015 and one additional delivery in 2015.
Flight operations. Flight operations amounted to $88.2 million in 2016, a 2.0% increase compared to $86.6 million in 2015,
mainly as a result of less overflights expenses and exchange rate devaluation on non-USD denominated costs mainly in Mexico and
Venezuela.
Aircraft rentals and other rentals. Aircraft rentals and other rentals expenses amounted to $138.9 million in 2016, a 2.3%
decrease from $142.2 million in 2015. This decrease is attributable to two leased aircraft returns and by fewer parts exchanges in 2016.
Cargo and courier expenses. Cargo and courier expenses totaled $6.1 million in 2016, a 5.7% decrease from cargo and
courier expenses of $6.5 million in 2015. This decrease was mainly driven by less cargo volume during 2016, compared to 2015.
Other operating and administrative expenses. Other operating and administrative expenses totaled $92.2 million in 2016, a
12.6% decrease from $105.5 million in 2015. This decrease was mainly driven by less discretionary spending mostly related to general
and administrative expenses.
Total Non-operating Income (Expense)
Non-operating income totaled $96.7 million in 2016, an increase from a net non-operating expense of $460.5 million in
2015. This was mainly recognition of a Venezuelan currency translation and transactional loss of $432.5 million during 2015.
Finance cost. Finance cost totaled $37.0 million in 2016, an 11.7% increase over finance cost of $33.2 million in 2015,
primarily resulting from a higher average interest rate during the period, offset by lower total debt. The average effective interest rate on
our debt increased by 0.1 basis points, from 2.6% during 2015 to 2.7% during 2016. At the end of 2016, 59.3% of our outstanding debt
was fixed at an average effective rate of 3.3%.
Finance income. Finance income totaled $13.0 million in 2016, a 49.9% decrease over finance income of $25.9 million in
2015. This came as a result of recognition of a Venezuelan currency translation and transactional loss of $432.5 million during 2015,
which affected our interest income related to our Venezuela funds.
46
B. Liquidity and Capital Resources
Our cash, cash equivalents, and short-term investments at December 31, 2017 increased by $129.2 million, to $943.9 million.
As part of our financing policy, we expect to continue to finance our liquidity needs with cash from operations. We forecast our cash
requirements weekly. As of the date hereof, our current unrestricted cash exceeds our forecasted cash requirements to carry out
operations, including payment of debt service for fiscal year 2018.
Our cash, cash equivalent and short-term investment position represented 37.3% of our revenues for the year ended
December 31, 2017; 22.2% of our total assets and 44.7% of our total equity as of December 31, 2017, which we believe provides us
with a strong liquidity position.
In recent years, we have been able to meet our working capital requirements through cash from our operations. Our capital
expenditures, which consist primarily of aircraft purchases, are funded through a combination of our cash from operations and long-
term financing. From time to time, we finance pre-delivery payments related to our aircraft with short or medium-term financing in the
form of commercial bank loans and/or bonds privately placed with commercial banks. In our opinion, the Company’s working capital is
sufficient for the Company’s present requirements.
Copa Airlines has lines of credit for a total of $212.3 million, in which it has committed lines of credit totaling $20.0 million,
including one line of credit for $15 million and one overdraft line of credit of $5 million with Banco General. Copa Airlines also has
uncommitted lines of credit for a total of $192.3 million, including one line of credit of $100.0 million with Bladex, one line of credit of
$77.3 million with Citibank, and one line of credit of $15 million with Banco Nacional de Panama. These lines of credit have been put
in place to bridge liquidity gaps and for other potential contingencies.
Operating Activities
We rely primarily on cash flows from operations to provide working capital for current and future operations. Net cash flows
provided by operating activities for the year ended December 31, 2017 were $727.3 million, an increase of $132.7 million over the
$594.6 million in 2016. Our principal source of cash is receipts from ticket sales to customers, which for the year ended December 31,
2017 increased by $336.0 million over receipts in the year 2016.
Net cash flows provided by operating activities for the year ended December 31, 2016 were $594.6 million, an increase of
$277.7 million over $316.9 million in 2015. Our principal source of cash is receipts from ticket sales to customers, which for the year
ended December 31, 2016 increased by $71.8 million over receipts in the year 2015. In addition, our cash outflows decreased overall in
2016 due to a decrease in cash payments for operational expenses of $67.5 million mainly related to fuel purchases, a decrease in
collateral cash of $76.0 million related to fuel hedge contracts coming to term, a net increase in our accounts payable of $48.3 million
related to the timing of certain payments at year-end, a decrease in passenger expenses of $3.4 million, and an increase in administrative
expenses of $3.5 million mainly relating to salaries and benefits.
Investing Activities
Net cash flow used in investing activities was $578.2 million in 2017 compared to a net cash flow used in investing activities
of $179.9 million in 2016 and net cash flow from investing activities of $32.4 million in 2015. During 2017, we made capital
expenditures of $81.1 million, which consisted of expenditures related to the net of acquisition of property and equipment and advance
payments on aircraft purchase contracts, compared to $50.9 million in 2016 and $82.8 million in 2015. In 2017, the Company used
287.1 million in acquiring investments compared to $67.1 million in 2016 and $52.1 million from net proceeds on investments in 2015.
Financing Activities
Net cash flow used in financing activities were $204.8 million in 2017 compared to net cash flows used in financing
activities of $248.6 million in 2016 and $357.5 million in 2015. During 2017, $147.8 million of proceeds from borrowings were offset
by the repayment of $246.3 million in debt and $106.8 million in dividends paid. During 2016, $164.4 million of proceeds from
financing were offset by the repayment of $327.0 million in debt and $86.1 million in dividends declared. During 2015, $130.0 million
of proceeds from borrowing were offset by the repayment of $221.9 million in long-term debt, $147.6 million in dividends paid and
$118.0 million in repurchases of treasury shares.
47
We have financed the acquisition of 40 Boeing 737-Next Generation aircraft through syndicated loans provided by
international financial institutions with the support of partial guarantees issued by the Export-Import Bank of the United States, or
“Ex-Im,” with repayment profiles of 12 years. The Ex-Im guarantees support 80% of the net purchase price and are secured with a first
priority mortgage on the aircraft in favor of a security trustee on behalf of Ex-Im. The documentation for each loan follows standard
market forms for this type of financing, including standard events of default. Our Ex-Im supported financings amortize on a quarterly
basis, are denominated in dollars and originally bear interest at a floating rate linked to LIBOR. Our Ex-Im guarantee facilities typically
offer an option to fix the applicable interest rate. We have exercised this option with respect to $231.9 million as of December 31, 2017
at an average weighted interest rate of 3.27%. $140.1 million bears interest at a floating weighted average interest rate of 1.89%
representing a spread of 20 bps over the 3 month LIBOR of December 31, 2017. At December 31, 2017, the total amount outstanding
under our Ex-Im-supported financings totaled $372 million.
We have effectively extended the maturity of certain of our Boeing aircraft financing to 15 years through the use of a
Stretched Overall Amortization and Repayment, or “SOAR,” structure which provides serial draw-downs calculated to result in a 100%
loan accreting to a recourse balloon at the maturity of the Ex-Im guaranteed loan. The SOAR portions of our facilities require us to
maintain certain financial covenants, including an EBITDAR to fixed-charge ratio, a long-term obligation to EBITDAR ratio and a
minimum unrestricted cash balance. To comply with the first ratio, our EBITDA plus aircraft rent expense, or EBITDAR, for the prior
year must be at least 2.0 times our fixed-charge expenses (including interest, commission, fees, discounts and other finance payments)
for that year. To comply with the second ratio, our long-term obligations must be no more than six times EBITDAR. Third, our cash,
cash equivalents and short-term investment balance should be at least $50.0 million. We also pay a commitment fee on the unutilized
portion of our SOAR loans.
In February 2011, participants from the member states of the Organization for Economic Co-operation and Development, or
“OECD,” including the Export-Import Bank of the United States, agreed to a new common approach with respect to aircraft purchase
financing, or the “2011 Aircraft Sector Understanding.” The 2011 Aircraft Sector Understanding unifies the terms, conditions and
procedures governing large and regional aircraft exports and in particular attempts to reduce the subsidies from which we benefit by
setting forth increased minimum guarantee premium rates, lower loan-to-value ratios and more restrictive repayment terms, all based on
the borrowers’ credit risk classification. These developments are likely to increase our financing costs and may negatively affect our
results of operation. Nevertheless, in recent years the Company has diversified its financing sources and obtained access to very
competitive financing terms. In fact, as of 2013 our aircraft deliveries have been financed through a mix of sale-leasebacks and
Japanese Operating Leases with Call Options or “JOLCO.”
JOLCO is a Japanese-sourced lease transaction that provides for 100% financing, and is typically used to finance new
aircraft and has a minimum lease term of 10 years. In a JOLCO, the aircraft is purchased by a Japanese equity investor. The Japanese
equity investor funds approximately 20-30% of the acquisition cost of the aircraft and becomes the owner of the aircraft via a Special
Purpose Entity. An international bank with on-shore lending capabilities provides the balance of the aircraft purchase price
(approximately 70-80%) via a senior secured mortgage loan. JOLCOs have a call option, which lessees often expect the lessor to
exercise. Under IFRS, these transactions are accounted for as financial leases. In 2015, 2016 and 2017 we financed 13 Boeing 737-800
aircraft through JOLCO.
Our Embraer aircraft have all been financed via commercial loans. During 2008, we secured a senior term loan facility in the
amount of $100.0 million for the purchase of four Embraer 190 aircraft. The loans have a term of twelve years. During 2008, we
utilized all of this facility. Under the 2008 loan agreement we are required to comply with certain financial covenants. The first
covenant requires our EBITDAR for the prior year to be at least 2.5 times our fixed-charge expenses (including interest, commission,
fees, discounts and other finance payments) for that year. The second covenant requires a total liability plus operating leases minus
operating cash to tangible net worth ratio of less than 5.5 to 1. The third covenant requires our tangible net worth to be at least
$160.0 million. The last covenant requires us to maintain a minimum of $75.0 million in available cash, cash equivalents and short-term
investments.
We complied with all required covenants in 2017.
Capital resources. We finance our aircraft through long-term debt and operating lease financings. Although we expect to
finance future aircraft deliveries with a combination of similar debt arrangements and financing leases, we may not be able to secure
such financing on attractive terms. To the extent we cannot secure financing, we may be required to modify our aircraft acquisition
plans or incur higher than anticipated financing costs. We expect to meet our operating obligations as they become due through
available cash and internally generated funds, supplemented as necessary by short-term or medium term credit lines.
48
As of December 31, 2017 the Company has two purchase contracts with Boeing: the first contract entails two firm orders of
Boeing 737 Next Generation aircraft, to be delivered in the first half of 2018, and the second contract entails 71 firm orders of Boeing
737 MAX aircraft, which will be delivered between 2018 and 2025. The firm orders have an approximate value $9.5 billion based on
aircraft list prices, including estimated amounts for contractual price escalation and pre-delivery deposits. We meet our pre-delivery
deposit requirements for our Boeing 737 aircraft by using cash from operations, or by using short or medium-term borrowing facilities
and/or vendor financing for deposits required between three years and six months prior to delivery.
We maintain available facilities for letters of credit with several banks with outstanding balances of $25.5 million and
$26.6 million at December 31, 2017 and 2016, respectively. These letters of credit are pledged mainly for operating lessors,
maintenance providers and airport operators.
At December 31, 2017 Copa Airlines has lines of credit for a total of $212.3 million, in which it has committed lines of
credit totaling $20.0 million, including one line of credit for $15.0 million and one overdraft line of credit of $5.0 million with Banco
General. Copa Airlines also has uncommitted lines of credit for a total of $192.3 million, including one line of credit of $100.0 million
with Bladex, one line of credit of $77.3 million with Citibank, and one line of credit of $15.0 million with Banco Nacional de Panama.
These lines of credit have been put in place to bridge liquidity gaps and for other potential contingencies.
C. Research and Development, Patents and Licenses, etc.
We believe that the Copa brand has strong value and indicates superior service and value in the Latin American travel
industry. We have registered the trademarks “Copa”, “Copa Airlines” and “Wingo” with the trademark offices in Panama, the United
States, and the majority of the countries in which we operate. We license certain brands, logos and trade uniforms under the trademark
license agreement with UAL related to our alliance. We will have the right to continue to use our current logos on our aircraft for up to
five years after the end of the alliance agreement term. “Copa Colombia”, “Copa Airlines Colombia” and “Wingo” are registered names
and trademarks in Colombia, Panama, Ecuador, Venezuela, Mexico, Dominican Republic, and Guatemala.
We operate many software products under licenses from our vendors, including our passenger services system, booking
engine, revenue management software and our cargo management system. Under our agreements with Boeing, we also use a large
amount of Boeing’s proprietary information to maintain our aircraft. The loss of these software systems or technical support
information from our vendors could negatively affect our business.
D. Trend Information
Since the latter half of 2016 and continuing in 2017, we have been able to deliver high load factors and year-over-year yield
improvement, resulting in a significant unit revenue expansion, mainly due to stable and improving macro-economic factors in the
region. We are optimistic this trend will continue into 2018.
We intend to continue developing initiatives to improve our operations, including a continued focus on on-time performance
and our completion factor. Additionally, we continue to seek further integration of Copa Airlines’ and Copa Colombia’s network
through code-sharing and fleet interchange agreements.
E. Off-Balance Sheet Arrangements
Our only off-balance sheet arrangements are operating leases, which are summarized in the contractual obligations table in
“F. Tabular disclosure of Contractual Obligations” below. We are responsible for all maintenance, insurance and other costs associated
with operating these aircraft; however, we have not made any residual value or other guarantees to our lessors.
We have no other off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
Our non-cancelable contractual obligations at December 31, 2017 included the following:
49
At December 31,
Total
Less than
1 Year
1-3 Years
(in thousands of dollars)
3-5 Years
More than
5 Years
Aircraft and engine purchase commitments
Aircraft operating leases
Other operating leases
Short-term debt and long-term debt(1)
Total
9,559,294
400,835
107,440
1,174,580
816,245 3,765,103 3,193,642 1,784,304
18,957
111,568
17,509
14,988
405,338
298,462
11,242,149 1,241,263 4,362,362 3,412,416 2,226,108
170,656
44,966
381,637
99,654
29,977
89,143
(1) Includes actual interest and estimated interest for floating-rate debt based on December 31, 2017 rates.
Most contract leases include renewal options. Non-aircraft related leases have renewable terms of one year, and their
respective amounts included in the table above have been estimated through 2019, but we cannot estimate amounts with respect to those
leases for later years. Our leases do not include residual value guarantees.
G.Safe harbor
Not applicable.
Item 6. Directors, senior management and employees
A. Directors and Senior Management
Currently, our Board of Directors is comprised of eleven members. The number of directors elected each year varies. Messrs.
Pedro Heilbron, Ricardo A. Arias, Alvaro Heilbron, Carlos A. Motta, John Gebo, Roberto Artavia and Andrew Levy were each
re-elected for two-year terms at our annual shareholders’ meeting held in 2016, while Messrs. Stanley Motta, Jose Castañeda Velez,
Jaime Arias and Josh Connor were re-elected as directors for two-year terms at our annual shareholders’ meeting held in 2017.
The following table sets forth the name, age and position of each member of our Board of Directors as of March 31, 2018. A
brief biographical description of each member of our Board of Directors follows the table:
Name
Pedro Heilbron
Stanley Motta
Alvaro Heilbron
Jaime Arias
Ricardo Alberto Arias
Carlos A. Motta
John Gebo
Jose Castañeda Velez
Roberto Artavia Loria
Andrew Levy
Josh Connor
Position
Chief Executive Officer and Director
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Age
60
73
53
84
79
46
48
74
59
49
44
Mr. Pedro Heilbron. See “—Executive Officers.”
Mr. Stanley Motta has been one of the directors of Copa Airlines since 1986 and a director of Copa Holdings since it was
established in 1998. Since 1990, he has served as the President of Motta Internacional, S.A. an international importer and distributor of
consumer goods. Mr. Motta is father of Mr. Carlos A. Motta. He serves on the boards of directors of Motta Internacional, S.A., BG
Financial Group, S.A., ASSA Compañía de Seguros, S.A., Televisora Nacional, S.A., Inversiones Bahía, Ltd. and GBM Corporation.
Mr. Motta is a graduate of Tulane University.
50
Mr. Alvaro Heilbron was elected as director of Copa Holdings in 2012. Mr. Heilbron is the brother of Mr. Pedro Heilbron,
our chief executive officer. He is an Executive Director at Editora del Caribe, S.A. and a director at Panama Star Tours, S.A.
Mr. Heilbron holds a BS in Business Administration from George Washington University, and a Post-Graduate degree in Management
from INCAE Business School. Mr. Heilbron also served as Vice-President of Commercial for Copa Airlines between the years of 1988
and 1999.
Mr. Jaime Arias has been one of the directors of Copa Airlines since 1983 and a director of Copa Holdings since it was
established in 1998. He is a founding partner of Galindo, Arias & Lopez. Mr. Arias holds a BA from Yale University, a JD from Tulane
University and completed legal studies at the University of Paris, Sorbonne. He serves on the boards of directors of Televisora
Nacional, S.A., ASSA Compañía de Seguros, S.A., Empresa General de Inversiones, S.A., Petroleos Delta, S.A., BAC International
Bank, Inc., Direct Vision, S.A. and Promed, S.A.
Mr. Ricardo Arias has been one of the directors of Copa Airlines since 1985 and a director of Copa Holdings since it was
established in 1998. He is a founding partner of Galindo, Arias & Lopez. Mr. Arias is the former Panamanian ambassador to the United
Nations. Mr. Arias holds a BA in international relations from Georgetown University, an LL.B. from the University of Puerto Rico and
an LL.M. from Yale Law School. He serves on the boards of directors of Banco General, S.A. and Empresa General de Inversiones,
S.A., which is the holding company that owns Banco General, S.A. Mr. Arias is also listed as a principal or alternate director of several
subsidiary companies of Banco General, S.A. and Empresa General de Inversiones, S.A. Mr. Arias is a former Director and President of
the Panamanian Stock Exchange.
Mr. Carlos A. Motta was elected as a director of Copa Holdings in 2014. He has held several positions within Motta
Internacional, S.A. and is currently a director and part of the executive committee. He is the son of Mr. Stanley Motta. Mr. Motta serves
on the board of Inversiones Bahia, Copa Holdings, Motco Inc., Latamel SLU, Cable Onda, Fundación Alberto C. Motta, and IFF
Panama (Panama Film Festival) among others. He is on the international advisory board of the IAE Business School, Universidad
Austral in Buenos Aires, Argentina, and is a member of Young Presidents Organization (YPO) and Entrepreneurs Organization (EO).
Mr. Motta received a bachelor’s degree in marketing from Boston College and an MBA from Thunderbird (The American Graduate
School of International Management) in 2000.
Mr. John Gebo was elected as a director of Copa Holdings in 2015. He is Senior Vice President of Alliances for United
Airlines. Prior to his current position, Mr. Gebo was United’s Senior Vice President of Financial Planning and Analysis. Mr. Gebo
joined United in 2000, and has held positions of increasing responsibility. Prior to joining United, Mr. Gebo worked at General Motors
Corporation in manufacturing engineering. Mr. Gebo received his bachelor’s degree in mechanical engineering from the University of
Texas and his master’s degree in business administration from the University of Michigan. Mr. Gebo is also Vice Chairman of the
board of directors of the Alliant Credit Union.
Mr. Jose Castañeda Velez is one of the independent directors of Copa Holdings. He is currently a director on the boards of
MMG Bank Corporation and MMG Trust S.A. Previously, Mr. Castañeda Velez was the chief executive officer of Banco
Latinoamericano de Exportaciones, S.A.—BLADEX and has held managerial and officer level positions at Banco Río de la Plata,
Citibank, N.A., Banco de Credito del Peru and Crocker National Bank. He is a graduate of the University of Lima.
Mr. Roberto Artavia Loria is one of the independent directors of Copa Holdings. He is Chairman of Viva Trust and Viva
Services, President of the Fundacion Latinoamérica Posible in Panama and Costa Rica, Board Member and visiting professor of INCAE
Business School, and Director of MarViva Foundation in Panama. Mr. Artavia Loria is also an advisor to the governments of five
countries in Latin America, and a strategic advisor to Purdy Motor, S.A., the Panama Canal Authority, Coyol Free Zone and Business
Park, Grupo Nación and FUNDESA, among other organizations in the region. Mr. Artavia Loria also serves on the board of directors of
the World Resources Institute and the Foundation for Management Education in Central America, both in Washington, Compañía
Cervecera de Nicaragua, OBS Americas in Costa Rica, and the IDC of Guatemala.
Mr. Andrew Levy currently serves as CFO at UAL. Previously, he was President, Chief Operating Officer and a member of
the Board of Directors of Allegiant Travel Company. He joined Allegiant in early 2001, and during his tenure, his executive
responsibilities included strategy, planning, finance, commercial, people and operations. Mr. Levy became President in 2009, served as
Chief Financial Officer from 2007 to 2010, and was its Treasurer from 2001 through 2010. Mr. Levy started his airline career in 1994 at
ValuJet Airlines, Inc. and then joined Savoy Capital, an investment, banking and advisory firm specializing in the airline industry in
1996. He holds a Juris Doctor degree from Emory University School of Law and a BA degree in Economics from Washington
University in St. Louis.
51
Mr. Josh Connor is one of the independent directors of Copa Holdings. He is the founding partner of the investment firm
Connor Capital SB. He was a Managing Director and the Head of the Industrials Banking Group at Barclays until July 2015, and was a
member of the firm’s Operating Committee. Prior to joining Barclays in 2011, he was with Morgan Stanley for 15 years and was the
Co-Head of Morgan Stanley’s Transportation & Infrastructure Investment Banking Group, a member of the firm’s Investment Banking
Management Committee, and was on the Board of Trustees for the Morgan Stanley Foundation. He has a BA degree in Economics from
Williams College, is on the Board of Directors of Frontier Airlines, is a strategic adviser to Oaktree Capital Management’s
Infrastructure Fund, and is a Trustee of the Pingry School.
The following table sets forth the name, age and position of each of our executive officers as of March 31, 2018. A brief
biographical description of each of our executive officers follows the table.
Name
Pedro Heilbron
José Montero
Daniel Gun
Dennis Cary
Vidalia de Casado
Julio Toro
Ahmad Zamany
Bolívar Domínguez
Timothy Manoles
Edwin Garcia
Christophe Didier
Christopher Amenechi
Position
Age
Chief Executive Officer and Director
Chief Financial Officer
Senior Vice-President of Operations
Senior Vice-President of Commercial and
Planning
Vice-President of Human Resources
Vice-President of Technology
Vice-President of Technical Operations
Vice-President of Flight Operations
Loyalty Vice-President
Vice-President of Airports
Vice-President of Sales
Vice-President of Pricing and Revenue
Management
60
48
50
54
61
44
60
43
58
46
54
52
56
Eduardo Lombana
Chief Executive Officer of Copa Colombia
Mr. Pedro Heilbron has been our Chief Executive Officer since 1988. He received an MBA from George Washington
University and a BA from College of the Holy Cross. Mr. Heilbron is the brother of Mr. Alvaro Heilbron, a member of our Board of
Directors.
Mr. Jose Montero has been our Chief Financial Officer since March 2013. He started his career with Copa Airlines in 1993
and has held various technical, supervisory, and management positions including Manager of Flight Operations, Director of System
Operations Control Center (SOCC), and, between 2004 and 2013, Director of Strategic Planning. He has a BS in Aeronautical Studies
from Embry Riddle University and an MBA from Cornell University.
Mr. Daniel Gunn has been our Senior Vice-President of Operations since February 2009. Prior to this Mr. Gunn had served
as Vice-President of Commercial and Planning and Vice-President of Planning and Alliances. Prior to joining Copa in 1999, he spent
five years with American Airlines holding positions in Finance, Real Estate and Alliances. Mr. Gunn received a BA in Business &
Economics from Wheaton College and an MBA from the University of Southern California.
Mr. Dennis Cary has been our Senior Vice-President of Commercial and Planning, since April 2015. Prior to joining Copa
Airlines, Mr. Cary held Senior Vice-President position in various industries, including aviation. Mr. Cary served as Senior Vice-
President, Chief Marketing and Customer Officer at United Airlines, and several other top management positions in United Airlines and
American Airlines. Mr. Cary graduated from California State University, Northridge with a bachelor’s degree in Computer Sciences
and holds an MBA from Duke University.
52
Ms. Vidalia de Casado has been our Vice-President of Human Resources since January 2016. Prior to this, she was our
Vice-President of On-Board Services. She joined Copa in 1989, serving as Passenger Services Manager from 1989 to 1995 and Vice-
President of Passenger Services from 1995 to 2010. Prior to joining Copa, she spent seven years as Human Resource and Service
Director with Air Panama Internacional, S.A. Ms. de Casado received a BS in Business from Universidad Latina and an MBA from the
University of Louisville.
Mr. Julio Toro has been our Vice-President of Technology since October 2015. He joined Copa in May 2011 as Director of
the Project Management Office. Before joining Copa, he served as Operations Manager and Vice-President of Information Systems for
Cable & Wireless Panama. He received a BS in Electrical Engineering from Texas A&M University, a Master in Renewable Energy
from Universidad Tecnológica, and an MBA jointly issued by New York University Stern School of Business, London School of
Economics and Political Science, and HEC Paris School of Management.
Mr. Ahmad Zamany joined Copa Airlines in August of 2010 as Vice-President of Technical Operations, ultimately
responsible for the maintenance, engineering and technical purchasing of the Company. Mr. Zamany started his aviation career with
Pan Am and has held several key roles with other carriers. He was previously with Atlas Air & Polar Air Cargo as Vice President of
Technical Operations, and Gemini Air Cargo as Senior Vice President and Chief Operating Officer. Mr. Zamany graduated from Parks
College of Saint Louis University with a bachelor’s degree in Aeronautics concentrated in Aircraft Maintenance Engineering in 1985.
Captain Bolivar Dominguez G. has been our Vice President of Flight Operations since December 2017. He began his
career with Copa Airlines in 2000 as a Copilot in the Boeing 737-200, and throughout his career within the Company, he has held roles
of increased responsibility, such as Head of Training on the Embraer fleet, Director of System Operations Control Center (SOCC), and
most recently Chief Pilot. Bolivar holds an Airline Transport Pilot License, with Type Ratings on the Boeing 727, Embraer 190, and
Boeing 737, and received a BS in Industrial Engineering from Universidad Latina and a MBA from the University of Louisville.
Mr. Timothy Manoles has been our Loyalty Vice-President since October 2016. Prior to joining Copa, he was a senior
Partner, Vice President for The Lacek Group, a specialty loyalty marketing agency of Ogilvy and Mather. He has over 30 years of
experience in loyalty marketing having led engagements and helped devise, negotiate and manage strategic alliances with a variety of
recognized category leaders, including Northwest Airlines, Delta Airlines, US Bank, Polo Ralph Lauren, American Express Travel,
Disney, Cox Communications, Swissôtel, American Family Insurance, Foundation Health Systems, American Family Insurance, and
Ford Motor Company. He holds a degree in economics from Westmont College, California, and in management information systems
from the University of Minnesota.
Mr. Edwin Garcia joined Copa Airlines in April 2013 and has been our Vice-President of Airports since November 2014.
Edwin is a seasoned executive with more than 18 years of experience in airport and airline operations. Prior to joining Copa Airlines he
held several leading positions in United Airlines based in Chicago, Denver and Los Angeles. He also served honorably and was
educated in the United States Marine Corps.
Mr. Christophe Didier has been our Vice-President of Sales since September 2016. Prior to joining Copa Airlines,
Mr. Didier held several sales and marketing positions in the airline industry since 1990, including Air France, Delta Air Lines and
Etihad Airways, based in Europe and the Americas. He served as Delta’s Vice-President for Latin America and the Caribbean during
Delta’s significant expansion in the region, merger with Northwest Airlines and Transatlantic joint venture implementation with Air
France / KLM. Mr. Didier, a French and Brazilian National, holds a Master in Management from ESCP Europe business school based
in Paris and speaks English, Spanish, Portuguese and French.
Mr. Christopher Amenechi has been our Vice-President of Pricing and Revenue Management since May 2016. Prior to
joining Copa, Mr. Amenechi was Vice-President of Revenue Management and Porter Escapes at Porter Airlines in Toronto, Canada. He
also served as Vice President of E-Commerce and Merchandising at United Airlines where he held several top management positions
over a 20 year career. Mr. Amenechi graduated from Embry Riddle Aeronautical University, Daytona Beach with a bachelor’s degree in
Aeronautical Engineering and a Masters in Aviation Management.
Mr. Eduardo Lombana joined the Company in May 2005 as Chief Operating Officer and was appointed as Chief Executive
Officer of Copa Colombia as of February 2012. He served three years at Avianca as Vice-President of Network, responsible for revenue
management, network planning and revenue accounting during the company’s bankruptcy turn over. Prior to that, he served as
VicePresident of Flight Operations for ACES before it merged with Avianca. Mr. Lombana holds a BS in Aviation Technology and an
AS in Aviation Maintenance Technology from Embry Riddle Aeronautical University.
53
The business address for all of our senior management is c/o Copa Airlines, Avenida Principal y Avenida de la Rotonda,
Urbanización Costa del Este, Complejo Business Park, Torre Norte, Parque Lefevre Panama City, Panama.
B. Compensation
In 2017, we paid an aggregate of approximately $5.1 million in cash compensation to our executive officers.
At the Compensation Committee meeting held in February 2011, the Chairman announced that members of our Board of
Directors that are not officers of either Copa or UAL would receive an increase of $15,000 per year to $40,000 per year plus expenses
incurred to attend our Board of Directors meetings. In addition, members of committees of the Board of Directors receive additional
compensation per committee meeting. All of the members of our Board of Directors and their spouses receive benefits to travel on Copa
flights as well.
Incentive Compensation Program
In 2005, the Compensation Committee of our Board of Directors eliminated the then-existing Long Term Retention Plan and
approved a one-time non-vested stock bonus award program for certain executive officers or the “Stock Incentive Plan.” Non-vested
stock delivered under the Stock Incentive Plan may be sourced from treasury stock or authorized un-issued shares. In accordance with
this program, the Compensation Committee of our Board of Directors had granted restricted stock awards to our senior management
and to certain named executive officers and key employees. Normally, these shares vest over three to five years in yearly installments
equal to one-third of the awarded stock on each anniversary of the grant date or in yearly installments equal to 15% of the awarded
stock on each of the first three anniversaries of the grant date, 25% on the fourth anniversary and 30% on the fifth anniversary.
The following table shows shares granted
Shares
Fair value
Contractual life
2017
36,229
$ 107.29
3 years
2016
291,872
$59.94 to $63.3
3 to 5 years
2015
36,291
$81.40 to $115.10
3 to 5 years
In March 2007, the Compensation Committee of our Board of Directors granted, for the first time, 35,657 equity stock
options to certain named executive officers, which vest over three years in yearly installments equal to one-third of the awarded stock
on each of the three anniversaries of the grant date. The exercise price of the options is $53.14, which was the market price of the
Company’s stock at the grant date. The stock options have a contractual term of 10 years.
The weighted-average fair value of the stock options at the grant date was $22.3, and was estimated using the Black-Scholes
option-pricing model assuming an expected dividend yield of 0.58%, expected volatility of approximately 37.8% based on historical
volatility, weighted average risk-free interest rate of 4.6%, and an expected term of six years calculated under the simplified method.
The Compensation Committee plans to make additional equity-based awards under the plan from time to time, including
additional non-vested stock and stock option awards. While the Compensation Committee will retain discretion to vary the exact terms
of future awards, we anticipate that future employee non-vested stock and stock option awards granted pursuant to the plan will
generally vest over a three-year period and the stock options will carry a ten year term.
The total compensation cost recognized for non-vested stock and option awards was $7.4 million, $7.5 million, $4.0 million,
$4.7 million, and $6.0 million in 2017, 2016, 2015, 2014, and 2013, respectively, and was recorded as a component of “Wages, salaries
and other employees benefits” within Operating Expense.
54
During the first quarter of 2018, the Compensation Committee of the Company’s Board of Directors approved three awards.
Awards under these plans will grant approximately 39,761 shares of non-vested stock, which will vest over a period of three to five
years. The Company estimates the fair value of these awards to be approximately $5.4 million and the 2018 compensation cost for these
plans will be $2.5 million.
Please also see “Item 6D. Employees” for a description of the bonus plan implemented by the Company.
C. Board Practices
Our Board of Directors currently meets quarterly. Additionally, informal meetings with UAL are held on an ongoing basis,
and are supported by annual formal meetings of an “Alliance Steering Committee,” which directs and reports on the progress of the
Copa and UAL Alliance. Our Board of Directors is focused on providing our overall strategic direction and as a result is responsible for
establishing our general business policies and for appointing our executive officers and supervising their management.
Currently, our Board of Directors is comprised of eleven members. The number of directors elected each year varies. Messrs.
Pedro Heilbron, Ricardo A. Arias, Alvaro Heilbron, Carlos A. Motta, John Gebo, Roberto Artavia and Andrew Levy were each
re-elected for two-year terms at our annual shareholders’ meeting held in 2016, while Messrs. Stanley Motta, Jose Castañeda Velez,
Jaime Arias and Josh Connor were re-elected as directors for two-year terms at our annual shareholders’ meeting held in 2017.
Pursuant to contractual arrangements with us and CIASA, UAL is entitled to designate one of our directors. Currently,
Mr. John Gebo is the UAL-appointed director.
None of our Directors has entered into any service contract with the Company or its subsidiaries.
Committees of the Board of Directors
Audit Committee. The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight
responsibilities by reviewing:
•
•
•
•
the integrity of financial reports and other financial information made available to the public or any regulator or
governmental body;
the effectiveness of our internal financial control and risk management systems;
the effectiveness of our internal audit function, and the independent audit process including the appointment, retention,
compensation, and supervision of the independent auditor; and
the compliance with laws and regulations, as well as the policies and ethical codes established by management and the Board
of Directors.
The Audit Committee is also responsible for implementing procedures for receiving, retaining and addressing complaints
regarding accounting, internal control and auditing matters, including the submission of confidential, anonymous complaints from
employees regarding questionable accounting or auditing matters.
Messrs. Roberto Artavia, Jose Castañeda and Josh Connor, all independent non-executive directors under the applicable rules
of the New York Stock Exchange, are the current members of the committee, which is chaired by Mr. Roberto Artavia. All members are
financially literate and have been determined to be financial experts by the Board of Directors.
Compensation Committee. Our Compensation Committee is responsible for the selection process of the Chief Executive
Officer and the evaluation of all executive officers (including the CEO), recommending the level of compensation and any associated
bonus. The charter of our Compensation Committee requires that all its members shall be non-executive directors, of which at least one
member will be an independent director under the applicable rules of the New York Stock Exchange. Messrs. Stanley Motta, Jaime
Arias and Jose Castañeda are the members of our Compensation Committee, and Mr. Stanley Motta is the Chairman of the
Compensation Committee.
Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee is
responsible for developing and recommending criteria for selecting new directors, overseeing evaluations of the Board of Directors, its
members and committees of the Board of Directors and handling other matters that are specifically delegated to the Nominating and
55
Corporate Governance Committee by the Board of Directors from time to time. Our charter documents require that there be at least one
independent member of the Nominating and Corporate Governance Committee until the first shareholders’ meeting to elect directors
after such time as the Class A shares are entitled to full voting rights. Messrs. Ricardo Arias, Carlos A. Motta, Alvaro Heilbron and
Roberto Artavia are the members of our Nominating and Corporate Governance Committee, and Mr. Ricardo Arias is the Chairman of
the Nominating and Corporate Governance Committee.
Independent Directors Committee. Our Independent Directors Committee is created by our Articles of Incorporation and
consists of any directors that the Board of Directors determines from time to time meet the independence requirements of the NYSE
rules applicable to audit committee members of foreign private issuers. Our Articles of Incorporation provide that there will be no fewer
than three independent directors at all times, subject to certain exceptions. Under our Articles of Incorporation, the Independent
Directors Committee must approve:
•
•
•
any transactions in excess of $5 million between us and our controlling shareholders;
the designation of certain primary share issuances that will not be included in the calculation of the percentage ownership
pertaining to the Class B shares for purposes of determining whether the Class A shares should be converted to voting shares
under our Articles of Incorporation; and
the issuance of additional Class B shares or Class C shares to ensure Copa Airlines’ compliance with aviation laws and
regulations.
The Independent Directors Committee shall also have any other powers expressly delegated by the Board of Directors.
Under the Articles of Incorporation, these powers can only be changed by the Board of Directors acting as a whole upon the written
recommendation of the Independent Directors Committee. The Independent Directors Committee will only meet regularly until the first
shareholders’ meeting at which the Class A shareholders will be entitled to vote for the election of directors and afterwards at any time
that Class C shares are outstanding. All decisions of the Independent Directors Committee shall be made by a majority of the members
of the committee. See “Item 10B. Memorandum and Articles of Association—Description of Capital Stock.”
Messrs. Josh Connor, Roberto Artavia, and Jose Castañeda, all independent non-executive directors under the applicable
rules of the New York Stock Exchange, are the current members of the committee.
D. Employees
We believe that our growth potential and the achievement of our results-oriented corporate goals are directly linked to our
ability to attract, motivate and maintain the best professionals available in the airline business. In order to help retain our employees, we
encourage open communication channels between our employees and management. Our CEO meets quarterly with all of our Copa
employees in Panama in town hall-style meetings during which he explains the Company’s performance and encourages feedback from
attendees. A similar presentation is made by our senior executives at each of our foreign stations. Our compensation strategy reinforces
our determination to retain talented and highly motivated employees and is designed to align the interests of our employees with our
shareholders through profit-sharing.
Approximately 75.2% of the Company’s employees are located in Panama, while the remaining 24.8% are distributed among
our foreign stations. Copa’s employees can be categorized as follows:
Pilots
Flight attendants
Mechanics
Customer service agents, reservation agents, ramp and others
Management and clerical
Total employees
December 31,
2016
1,183
2,043
477
2,954
2,076
8,733
2017
1,290
2,204
512
2,919
2,120
9,045
2015
1,275
1,965
529
3,427
2,106
9,302
Our profit-sharing program reflects our belief that our employees will remain dedicated to our success if they have a stake in
that success. We identify key performance drivers within each employee’s control as part of our annual objectives plan, or “Path to
Success.” Typically, we pay bonuses in the first quarter of the year based on our performance during the preceding calendar year. For
members of management, 75% of the bonus amount is based on our performance as a whole and 25% is based on the achievement of
individual goals. Bonuses for non-management employees are based on the Company’s performance and payment is typically a
56
multiple of the employee’s weekly salary. The bonus payments are approved by our compensation committee. We typically make
accruals each month for the expected annual bonuses, which are reconciled to actual payments at their dispersal within the first half of
the following year.
We provide training for all of our employees, including technical training for our pilots, dispatchers, flight attendants and
other technical staff. In addition, we provide recurrent customer service training to frontline staff, as well as leadership training for
managers. We currently have four flight simulators at our training facility in Panama’s City of Knowledge. In 2005, we leased a Level
B flight simulator for Boeing 737-Next Generation training that served 80% of our initial training, transition and upgrade training, and
100% of our recurrent training needs relating to that aircraft. During 2007, we upgraded this simulator to provide 100% of our initial
training. We leased a similar flight simulator for Embraer 190 until April 2017, when we decided to buy this simulator to serve our
initial and recurrent training needs. In 2010, Copa bought a second 737-Next Generation Full Flight Simulator, or “FFS”, Level D. The
Level D qualification is the highest certification provided by the Federal Aviation Administration (FAA) to any Flight Training Device.
Another important acquisition in 2011 was the second B737 Virtual Procedure Trainer (VPT), which complements the new FFS
training. In October 2012, the lease on our first B737 Next Generation simulator expired and we bought a new FFTX technology
training device accompanied by a new Virtual Procedure Trainer (VPT). In 2014, Copa bought a new Boeing 737-800 Full Flight
Simulator (FFS-X) compliant with regulatory Qualification Level D, and two new B737-800 Cockpit Procedure Trainers (CPTs)
compliant with regulatory Qualification FTD Level 4 to provide 100% of our initial, recurrent, transition and upgrade training needs.
We bought a new Boeing 737 MAX Full Flight Simulator compliant with regulatory qualification Level D to provide 100% of our
training needs which is expected to be available for use at the end of 2018.
Approximately 62.9% of the Company’s 9,045 employees are unionized. Our employees currently belong to nine union
organizations; five covering employees in Panama and four covering employees in Colombia, in addition to union organizations in
other countries to which we fly. Copa Airlines has traditionally had good relations with its employees and all the unions, and expects to
continue to enjoy good relations with its employees and the unions in the future.
The five unions covering employees in Panama include: the pilots’ union (UNPAC); the flight attendants’ union
(SIPANAB); the mechanics’ union (SITECMAP); the passenger service agents’ union (UGETRACO), and the industry union
(SIELAS), which represents ground personnel, messengers, drivers, passenger service agents, counter agents and other non-executive
administrative staff.
Copa entered into collective bargaining agreements with the pilots’ union in July 2017, the industry union in December
2017, the mechanics’ union in late first quarter 2018 and will enter negotiations with the flight attendants’ union in early third quarter of
2018. Collective bargaining agreements in Panama are typically between three and four-year terms.
The four unions covering employees in Colombia are: the pilots’ union (ACDAC), the flight attendants’ union (ACAV), the
industry union in Colombia (SINTRATAC), and the Mechanics Union in Colombia (ACMA).
Copa entered into collective bargaining with ACDAC and ACAV in January, 2018; both of which are expected to end
towards the end of the first quarter of 2018. Additionally, SINTRATAC and Copa entered into collective bargaining agreement in
December 2017 for terms of four years until December 2021. Negotiations with ACMA were resolved by arbitration on December 31,
2015, extending the validation every 6 months from this date, until June 30, 2017. As of December 31, 2017, ACMA has not presented
a new bill of petition.
Typically, collective bargaining agreements in Colombia have terms of two to three years. Although Copa Colombia usually
settles many of its collective bargaining agreement negotiations through arbitration proceedings, it has traditionally experienced good
relations with its unions.
In addition to the unions in Panama and Colombia, the Company’s employees in Brazil are covered by industry union
agreements that cover all airline industry employees in the country, employees in Uruguay are covered by an industry union, and airport
employees in Argentina are affiliated with an industry union (UPADEP).
E. Share Ownership
The members of our Board of Directors and our executive officers as a group own less than one percent of our Class A
shares. See “Item 7A. Major Shareholders.”
57
For a description of stock options granted to our Board of Directors and our executive officers, see
“—Compensation—Incentive Compensation Program.”
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth information relating to the beneficial ownership of our Class A shares as of December 31,
2017 by each person known to us to beneficially own 5% or more of our common shares and all our directors and officers as a group.
Class A shares are limited voting shares entitled only to vote in certain specified circumstances. See “Item 10B. Additional Information
– Memorandum and Articles of Association – Description of Capital Stock.”
Class A Shares
Beneficially Owned
CIASA(2)
Executive officers and directors as a group (24 persons)
Others
Total
Shares
0
99,557
31,086,084
31,185,641
(%)(1)
0.0%
0.3%
99.7%
(1) Based on a total of 31,185,641 Class A shares outstanding.
(2) CIASA owns 100% of the Class B shares of Copa Holdings representing 26.0% of our total capital stock.
In June 2006, Continental reduced its ownership of our total capital stock from 27.3% to 10.0%. In May 2008, Continental
sold down its remaining shares in the public market.
CIASA currently owns 100% of the Class B shares of Copa Holdings, representing 100% of the voting power of our capital
stock. CIASA is controlled by a group of Panamanian investors representing several prominent families in Panama. This group of
investors has historically acted together in a variety of business activities both in Panama and elsewhere in Latin America, including
banking, insurance, real estate, telecommunications, international trade and commerce and wholesale. Members of the Motta, Heilbron
and Arias families and their affiliated companies beneficially own approximately 90% of CIASA’s shares. Our Chief Executive Officer,
Mr. Pedro Heilbron, and several of our directors, including Messrs. Stanley Motta, Carlos A. Motta, Mr. Alvaro Heilbron, Mr. Jaime
Arias and Mr. Ricardo Alberto Arias, and their immediate families as a group, beneficially owned approximately 78% of CIASA’s
shares, as of March 31, 2017. Such individual shareholders of CIASA have entered into a shareholders’ agreement that restricts
transfers of CIASA shares to non-Panamanian nationals. Mr. Stanley Motta exercises effective control of CIASA.
In March 2010, CIASA converted a portion of its Class B shares into 1.6 million non-voting New York Stock Exchange-
listed Class A shares and sold such Class A shares in an SEC-registered public offering. As a result, CIASA’s ownership decreased
from 29.2% to 25.1% of our capital stock. CIASA’s current ownership is 26.0% of our capital stock. In the event CIASA seeks to
reduce its ownership below 10% of our total share capital, our independent directors may decide to issue special voting shares solely to
Panamanian nationals to maintain the ownership requirements mandated by the Panamanian Aviation Act.
The address of CIASA is Corporación de Inversiones Aéreas, S.A., c/o Compañía Panameña de Aviación, S.A., Boulevard
Costa del Este, Avenida Principal y Avenida de la Rotonda, Urbanización Costa del Este, Complejo Business Park, Torre Norte, Parque
Lefevre, Panama City, Panama.
It is not practicable for us to determine the number of Class A shares beneficially owned in the United States. As of
March 31, 2018, we had 144 registered record holders of our Class A shares.
B. Related Party Transactions
Registration Rights Agreement
58
Under the registration rights agreement, as amended by the supplemental agreement, CIASA continues to have the right to
make one demand on us with respect to the registration and sale of our common stock held by them. The registration expenses incurred
in connection with a demand registration requested after the date hereof, which expenses exclude underwriting discounts and
commissions, will be paid ratably by each security holder participating in such offering in proportion to the number of their shares that
are included in the offering.
Agreements with our controlling shareholders and their affiliates
Our directors and controlling shareholders have many other commercial interests within Panama and throughout Latin
America. We have commercial relationships with several of these affiliated parties from which we purchase goods or services, as
described below. In each case we believe our transactions with these affiliated parties are consistent with market rates and terms.
Banco General, S.A.
We have a strong commercial banking relationship with Banco General, S.A., a Panamanian bank partially owned by our
controlling shareholders. We have obtained financing from Banco General under short to medium-term financing arrangements for part
of the commercial loan tranche of one of the Company’s Export-Import Bank facilities. We also maintain general lines of credit and
time deposit accounts with Banco General. Interest received from Banco General amounted to $3.0 million, $1.3 million and
$1.3 million in 2017, 2016 and 2015, respectively. There have not been any material interest payments for the last three years. There
was no outstanding debt balance at December 31, 2017, 2016 or 2015. These amounts are included in “Current maturities of long-term
debt” and “Long-term debt” in the consolidated statement of financial position.
ASSA Compañía de Seguros, S.A.
Panamanian law requires us to maintain our insurance policies through a local insurance company. We have contracted with
ASSA, an insurance company controlled by our controlling shareholders, to provide substantially all of our insurance. ASSA has, in
turn, reinsured almost all of the risks under those policies with insurance companies around the world. The payments to ASSA totaled
$8.5 million in 2017, $7.1 million in 2016, and $9.2 million in 2015.
Petróleos Delta, S.A.
During 2005, we entered into a contract with Petróleos Delta, S.A. to supply our jet fuel needs. The price agreed to under this
contract is based on the two-week average of the U.S. Gulf Coast Waterborne Mean index plus local taxes, certain third-party handling
charges and a handling charge to Petróleos Delta, S.A. The contract term is two years and the last contract subscribed was in June 2016.
While our controlling shareholders do not hold a controlling equity interest in Petróleos Delta, S.A., several of our directors are also
board members of Petróleos Delta, S.A. Payments to Petróleos Delta totaled $290.2 million in 2017, $229.9 million in 2016 and
$248.9 million in 2015.
Desarollo Inmobiliario del Este, S.A.
During January 2006, we moved into headquarters located six miles away from Tocumen International Airport. We lease six
floors consisting of approximately 121,686 square feet of the building from Desarollo Inmobiliario del Este, S.A., an entity controlled
by the same group of investors that controls CIASA. This lease was renewed in 2015 for 10 more years at a rate of approximately
$0.3 million per month. Payments to Desarrollo Inmobiliario del Este, S.A. totaled $3.6 million, $3.8 million and $3.0 million in 2017,
2016 and 2015, respectively.
Galindo, Arias & Lopez
Most of our legal work is carried out by the law firm Galindo, Arias & Lopez. Messrs. Jaime Arias and Ricardo Alberto
Arias, partners of Galindo, Arias & Lopez, are indirect shareholders of CIASA and serve on our Board of Directors. Payments to
Galindo, Arias & Lopez totaled $0.4 million, $0.3 million and $0.3 million, in 2017, 2016 and 2015, respectively.
59
Cable Onda, S.A.
The Company is responsible for providing television and internet broadcasting services in Panama. A member of the
Company’s Board of Directors is shareholder of Cable Onda, S.A. Payments to Cable Onda, S.A. totaled $1.4 million and $1.6 million
in 2017 and 2016, respectively.
Panama Air Cargo Terminal
Provides cargo and courier services in Panama, an entity controlled by the same group of investors that controls CIASA.
Payments to Panama Air Cargo Terminal totaled $4.9 million in 2017.
Other Transactions
We also purchase most of the alcohol and some of the other beverages served on our aircraft from Motta Internacional, S.A.
and Global Brands, S.A., both of which are controlled by our controlling shareholders. We do not have any formal contracts for these
purchases, but pay wholesale prices based on price lists periodically submitted by those importers and comparisons to other options in
the marketplace. We paid these entities approximately $1.71 million in 2017, $1.71 million in 2016 and $1.3 million in 2015.
C. Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
See “Item 3A. Key Information—Selected Financial Data” and “Item 18. Financial Statements.”
Legal Proceedings
In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation
of our business. While legal proceedings are inherently uncertain, we believe that the outcome of the proceedings to which we are
currently a party is not likely to have a material adverse effect on our financial position, results of operations and cash flows.
Dividends and Dividend Policy
The payment of dividends on our shares is subject to the discretion of our Board of Directors. Under Panamanian law, we
may pay dividends only out of retained earnings and capital surplus. So long as we do not default on our payments under our loan
agreements, there are no covenants or other restrictions on our ability to declare and pay dividends. Our Articles of Incorporation
provide that all dividends declared by our Board of Directors will be paid equally with respect to all of the Class A and Class B shares.
See “Item 10B. Additional Information—Memorandum and Articles of Association—Description of Capital Stock—Dividends.”
In February 2016, the Board of Directors approved a change to the dividend policy to limit aggregate annual dividends to an
amount equal to 40% of the prior year’s annual consolidated underlying net income, to be distributed in equal quarterly installments
subject to board approvals. Our Board of Directors may, in its sole discretion and for any reason, amend or discontinue the dividend
policy. Our Board of Directors may change the level of dividends provided for in this dividend policy or entirely discontinue the
payment of dividends. Future dividends with respect to shares of our common stock, if any, will depend on, among other things, our
results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable
law and other factors that our Board of Directors may deem relevant.
Dividend for Fiscal Year:
Payment Date
Total Dividend Payment
(U.S. Dollars)
Cash Dividend per
Share
2017
2017
2017
2017
2016
2016
2016
December 15, 2017
September 12, 2017
June 15, 2017
March 13, 2017
December 15, 2016
September 13, 2016
June 16, 2016
$
$
$
$
$
$
$
32 million
32 million
22 million
22 million
22 million
22 million
21 million
0.75
0.75
0.51
0.51
0.51
0.51
0.51
2016
2015
2015
March 16, 2016
December 15, 2015
September 15, 2015
$
$
$
21 million
37 million
37 million
0.51
0.84
0.84
60
2015
2015
2014
2014
2014
2014
B. Significant Changes
None
Item 9. The Offer and Listing
A. Offer and Listing Details
June 15, 2015
March 16, 2015
December 15, 2014
September 15, 2014
June 16, 2014
March 17, 2014
$37 million
$37 million
$43 million
$43 million
$42 million
$43 million
0.84
0.84
0.96
0.96
0.96
0.96
Our Class A shares have been listed on the New York Stock Exchange, or NYSE, under the symbol “CPA” since
December 14, 2005. The following table sets forth, for the periods indicated, the high and low prices for the Class A shares on the
NYSE for the periods indicated.
2013
Annual
2014
Annual
2015
Annual
2016
Annual
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
Annual
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
October
November
December
2018
Annual
First Quarter
January
February
March
Low
High
96.38
161.36
87.00
162.83
39.03
121.25
42.61
42.61
48.57
50.36
83.26
90.85
90.85
107.90
116.54
120.22
120.22
121.09
131.14
122.03
122.03
130.37
122.03
126.33
97.00
72.00
70.88
90.75
97.00
138.72
112.80
125.78
134.25
138.72
131.70
138.69
138.72
138.72
141.34
141.34
141.00
140.33
61
B. Plan of Distribution
Not applicable.
C. Markets
Our Class A shares have been listed on the NYSE under the symbol “CPA” since December 14, 2005. Our Class B shares
are not listed on any exchange and are not publicly traded. We are subject to the NYSE corporate governance listing standards. The
NYSE requires that corporations with shares listed on the exchange comply with certain corporate governance standards. As a foreign
private issuer, we are only required to comply with certain NYSE rules relating to audit committees and periodic certifications to the
NYSE. The NYSE also requires that we provide a summary of the significant differences between our corporate governance practices
and those that would apply to a U.S. domestic issuer. Please refer to “Item 16 G. Corporate Governance” for a summary of the
significant differences between our corporate governance practices and those that would typically apply to a U.S. domestic issuer under
the NYSE corporate governance rules.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Copa Holdings was formed on May 6, 1998 as a corporation (sociedad anónima) duly incorporated under the laws of
Panama with an indefinite duration. The Registrant is registered under Public Document No. 3.989 of May 5, 1998 of the Notary
Number Eight of the Circuit of Panama and recorded in the Public Registry Office, Microfilm (Mercantile) Section, Microjacket
344962, Film Roll 59672, Frame 0023.
Objects and Purposes
Copa Holdings is principally engaged in the investment in airlines and aviation-related companies and ventures, although our
Articles of Incorporation grant us general powers to engage in any other lawful business, whether or not related to any of the specific
purposes set forth in the Articles of Incorporation (See Article 2 of the Company’s Articles of Incorporation).
Description of Capital Stock
The following is a summary of the material terms of Copa Holding’s capital stock and a brief summary of certain significant
provisions of Copa Holding’s Articles of Incorporation. This description contains all material information concerning the common
stock but does not purport to be complete. For additional information regarding the common stock, reference is made to the Articles of
Incorporation, a copy of which has been filed as an exhibit to this Form 20-F.
62
For purposes of this section only, reference to “our” or “the Company” shall refer only to Copa Holdings and references to
“Panamanians” shall refer to those entities or natural persons that are considered Panamanian nationals under the Panamanian Aviation
Act, as it may be amended or interpreted.
Common Stock
Our authorized capital stock consists of 80 million shares of common stock without par value, divided into Class A shares,
Class B shares and Class C shares. As of December 31, 2017, we had 33,776,480 Class A shares issued and 31,185,641 Class A shares
outstanding; 10,938,125 Class B shares issued and outstanding, and no Class C shares outstanding. Class A and Class B shares have the
same economic rights and privileges, including the right to receive dividends, except as described in this section.
Class A Shares
The holders of the Class A shares are not entitled to vote at our shareholders’ meetings, except in connection with the
following specific matters:
•
•
•
•
•
•
a transformation of Copa Holdings into another corporate type;
a merger, consolidation or spin-off of Copa Holdings;
a change of corporate purpose;
voluntarily delisting Class A shares from the NYSE;
approving the nomination of Independent Directors nominated by our board of director’s Nominating and
Corporate Governance Committee; and
any amendment to the foregoing special voting provisions adversely affecting the rights and privileges of the
Class A shares.
At least 30 days prior to taking any of the actions listed above, we must give notice to the Class A and Class B shareholders
of our intention to do so. If requested by shareholders representing at least 5% of our outstanding shares, the Board of Directors shall
call an extraordinary shareholders’ meeting to approve such action. At the extraordinary shareholders’ meeting, shareholders
representing a majority of all of the outstanding shares must approve a resolution authorizing the proposed action. For such purpose,
every holder of our shares is entitled to one vote per share. See “—Shareholders Meetings.”
The Class A shareholders will acquire full voting rights, entitled to one vote per Class A share on all matters upon which
shareholders are entitled to vote, if in the future our Class B shares ever represent fewer than 10% of the total number of shares of our
common stock and the Independent Directors Committee shall have determined that such additional voting rights of Class A
shareholders would not cause a triggering event referred to below. In such event, the right of the Class A shareholders to vote on the
specific matters described in the preceding paragraph will no longer be applicable. The 10% threshold described in the first sentence of
this paragraph will be calculated without giving effect to any newly issued shares sold with the approval of the Independent Directors
Committee.
At such time, if any, as the Class A shareholders acquire full voting rights, the Board of Directors shall call an extraordinary
shareholders’ meeting to be held within 90 days following the date as of which the Class A shares are entitled to vote on all matters at
our shareholders’ meetings. At the extraordinary shareholders’ meeting, the shareholders shall vote to elect all 11 members of the Board
of Directors in a slate recommended by the Nominating and Governance Committee. The terms of office of the directors that were
serving prior to the extraordinary shareholders’ meeting shall terminate upon the election held at that meeting.
Class B Shares
Every holder of Class B shares is entitled to one vote per share on all matters for which shareholders are entitled to vote.
Class B shares will be automatically converted into Class A shares upon the registration of transfer of such shares to holders which are
not Panamanian as described below under “—Restrictions on Transfer of Common Stock; Conversion of Class B Shares.”
63
Class C Shares
Upon the occurrence and during the continuance of a triggering event described below in “—Aviation Rights Protections,”
the Independent Directors Committee of our Board of Directors, or the Board of Directors as a whole if applicable, are authorized to
issue Class C shares to the Class B holders pro rata in proportion to such Class B holders’ ownership of Copa Holdings. The Class C
shares will have no economic value and will not be transferable except to Class B holders, but will possess such voting rights as the
Independent Directors Committee shall deem necessary to ensure the effective control of the Company by Panamanians. The Class C
shares will be redeemable by the Company at such time as the Independent Directors Committee determines that such a triggering event
shall no longer be in effect. The Class C shares will not be entitled to any dividends or any other economic rights.
Restrictions on Transfer of Common Stock; Conversion of Class B Shares
The Class B shares may only be held by Panamanians, and upon registration of any transfer of a Class B share to a holder
that does not certify that it is Panamanian, such Class B share shall automatically convert into a Class A share. Transferees of Class B
shares will be required to deliver to us written certification of their status as a Panamanian as a condition to registering the transfer to
them of Class B shares. Class A shareholders will not be required or entitled to provide such certification. If a Class B shareholder
intends to sell any Class B shares to a person that has not delivered a certification as to Panamanian nationality and immediately after
giving effect to such proposed transfer the outstanding Class B shares would represent less than 10% of our outstanding stock
(excluding newly issued shares sold with the approval of our Independent Directors Committee), the selling shareholder must inform
the Board of Directors at least ten days prior to such transfer. The Independent Directors Committee may determine to refuse to register
the transfer if the Committee reasonably concludes, on the basis of the advice of a reputable external aeronautical counsel, that such
transfer would be reasonably likely to cause a triggering event as described below. After the first shareholders’ meeting at which the
Class A shareholders are entitled to vote for the election of our directors, the role of the Independent Directors described in the
preceding sentence shall be exercised by the entire Board of Directors acting as a whole.
Also, the Board of Directors may refuse to register a transfer of stock if the transfer violates any provision of the Articles of
Incorporation.
Tag-along Rights
Our Board of Directors shall refuse to register any transfer of shares in which CIASA proposes to sell Class B shares
pursuant to a sale at a price per share that is greater than the average public trading price per share of the Class A shares for the
preceding 30 days to an unrelated third-party that would, after giving effect to such sale, have the right to elect a majority of the Board
of Directors and direct our management and policies, unless the proposed purchaser agrees to make, as promptly as possible, a public
offer for the purchase of all outstanding Class A shares and Class B shares at a price per share equal to the price per share paid for the
shares being sold by CIASA. While our Articles of Incorporation provide limited rights to holders of our Class A shares to sell their
shares at the same price as CIASA in the event that a sale of Class B shares by CIASA results in the purchaser having the right to elect a
majority of our board, there are other change of control transactions in which holders of our Class A shares would not have the right to
participate, including the sale of interests by a party that had previously acquired Class B shares from CIASA, the sale of interests by
another party in conjunction with a sale by CIASA, the sale by CIASA of control to more than one party, or the sale of controlling
interests in CIASA itself.
Aviation Rights Protections
As described in “Regulation—Panama,” the Panamanian Aviation Act, including the related decrees and regulations, and the
bilateral treaties between Panama and other countries that allow us to fly to those countries require that Panamanians exercise “effective
control” of Copa and maintain “significant ownership” of the airline. The Independent Directors Committee has certain powers under
our Articles of Incorporation to ensure that certain levels of ownership and control of Copa Holdings remain in the hands of
Panamanians upon the occurrence of certain triggering events referred to below.
In the event that the Class B shareholders represent less than 10% of the total share capital of the Company (excluding newly
issued shares sold with the approval of our Independent Directors Committee) and the Independent Directors Committee determines
that it is reasonably likely that Copa’s or Copa Holdings’ legal ability to engage in the aviation business or to exercise its international
route rights will be revoked, suspended or materially inhibited in a manner that would materially and adversely affect the Company, in
each case as a result of such non-Panamanian ownership (each a triggering event), the Independent Directors Committee may take
either or both of the following actions:
64
•
•
authorize the issuance of additional Class B shares to Panamanians at a price determined by the Independent
Directors to reflect the current market value of such shares or
authorize the issuance to Class B shareholders such number of Class C shares as the Independent Directors
Committee, or the Board of Directors if applicable, deems necessary and with such other terms and conditions
established by the Independent Directors Committee that do not confer economic rights on the Class C shares.
Dividends
The payment of dividends on our shares is subject to the discretion of our Board of Directors. Under Panamanian law, we
may pay dividends only out of retained earnings and capital surplus. Our Articles of Incorporation provide that all dividends declared
by our Board of Directors will be paid equally with respect to all of the Class A and Class B shares. Our Board of Directors has adopted
a dividend policy that provides for the payment of equal quarterly dividends, which amounts up to 40% of the previous year’s
consolidated underlying net income to Class A and Class B shareholders. Our Board of Directors may, in its sole discretion and for any
reason, amend or discontinue the dividend policy. Our Board of Directors may change the level of dividends provided for in this
dividend policy or entirely discontinue the payment of dividends.
Shareholder Meetings
Ordinary Meetings
Our Articles of Incorporation require us to hold an ordinary annual meeting of shareholders within the first five months of
each fiscal year. The ordinary annual meeting of shareholders is the corporate body that elects the Board of Directors, approves the
annual financial statements of Copa Holdings and approves any other matter that does not require an extraordinary shareholders’
meeting. Shareholders representing at least 5% of the issued and outstanding common stock entitled to vote may submit proposals to be
included in such ordinary shareholders meeting, provided the proposal is submitted at least 45 days prior to the meeting.
Extraordinary Meetings
Extraordinary meetings may be called by the Board of Directors when deemed appropriate. Ordinary and extraordinary
meetings must be called by the Board of Directors when requested by shareholders representing at least 5% of the issued shares entitled
to vote at such meeting. Only matters that have been described in the notice of an extraordinary meeting may be dealt with at that
extraordinary meeting.
Vote required
Resolutions are passed at shareholders meetings by the affirmative vote of a majority of those shares entitled to vote at such
meeting and present or represented at the meeting.
Notice and Location
Notice to convene the ordinary annual meeting or extraordinary meeting is given by publication in at least one national
newspaper in Panama and at least one national newspaper widely read in New York City not less than 30 days in advance of the
meeting. We intend to publish such official notices in a national journal recognized by the NYSE.
Shareholders’ meetings are to be held in Panama City, Panama unless otherwise specified by the Board of Directors.
Quorum
Generally, a quorum for a shareholders’ meeting is established by the presence, in person or by proxy, of shareholders
representing a simple majority of the issued shares eligible to vote on any actions to be considered at such meeting. If a quorum is not
present at the first meeting and the original notice for such meeting so provides, the meeting can be immediately reconvened on the
same day and, upon the meeting being reconvened, shareholders present or represented at the reconvened meeting are deemed to
constitute a quorum regardless of the percentage of the shares represented.
65
Proxy Representation
Our Articles of Incorporation provide that, for so long as the Class A shares do not have full voting rights, each holder, by
owning our Class A shares, grants a general proxy to the Chairman of our Board of Directors or any person designated by our Chairman
to represent them and vote their shares on their behalf at any shareholders’ meeting, provided that due notice was made of such meeting
and that no specific proxy revoking or replacing the general proxy has been received from such holder prior to the meeting in
accordance with the instructions provided by the notice.
Other Shareholder Rights
As a general principle, Panamanian law bars the majority of a corporation’s shareholders from imposing resolutions which
violate its articles of incorporation or the law, and grants any shareholder the right to challenge, within 30 days, any shareholders’
resolution that is illegal or that violates its articles of incorporation or by-laws, by requesting the annulment of said resolution and/or the
injunction thereof pending judicial decision. Minority shareholders representing at least 5% of all issued and outstanding shares have
the right to require a judge to call a shareholders’ meeting and to appoint an independent auditor to examine the corporate accounting
books, the background of the Company’s incorporation or its operation.
Shareholders have no pre-emptive rights on the issue of new shares.
Our Articles of Incorporation provide that directors will be elected in staggered two-year terms, which may have the effect of
discouraging certain changes of control.
Listing
Our Class A shares are listed on the NYSE under the symbol “CPA.” The Class B shares and Class C shares will not be
listed on any exchange unless the Board of Directors determines that it is in the best interest of the Company to list the Class B shares
on the Panama Stock Exchange.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A shares is Mellon Investor Services LLC. Until the Board of Directors
otherwise provides, the transfer agent for our Class B shares and any Class C shares is Galindo, Arias & Lopez, who maintains the share
register for each class in Panama. Transfers of Class B shares must be accompanied by a certification of the transferee that such
transferee is Panamanian.
Summary of Significant Differences between Shareholders’ Rights and Other Corporate Governance Matters Under
Panamanian Corporation Law and Delaware Corporation Law
Copa Holdings is a Panamanian corporation (sociedad anónima). The Panamanian corporation law was originally modeled
after the Delaware General Corporation Law. As such, many of the provisions applicable to Panamanian and Delaware corporations are
substantially similar, including (1) a director’s fiduciary duties of care and loyalty to the corporation, (2) a lack of limits on the number
of terms a person may serve on the board of directors, (3) provisions allowing shareholders to vote by proxy and (4) cumulative voting
if provided for in the articles of incorporation. The following table highlights the most significant provisions that materially differ
between Panamanian corporation law and Delaware corporation law.
Panama
Delaware
Directors
Conflict of Interest Transactions. Transactions involving a
Panamanian corporation and an interested director or officer are
initially subject to the approval of the board of directors.
Conflict of Interest Transactions. Transactions involving a
Delaware corporation and an interested director of that
corporation are generally permitted if:
At the next shareholders’ meeting, shareholders will then have the
right to disapprove the board of directors’ decision and to decide
to take legal actions against the directors or officers who voted in
favor of the transaction.
(1) the material facts as to the interested director’s
relationship or interest are disclosed and a majority of
disinterested directors approve the transaction;
(2) the material facts are disclosed as to the interested
director’s relationship or interest and the stockholders
approve the transaction; or
66
Panama
Delaware
Terms. Panamanian law does not set limits on the length of the
terms that a director may serve. Staggered terms are allowed but
not required.
(3) the transaction is fair to the corporation at the time it is
authorized by the board of directors, a committee of the
board of directors or the stockholders.
Terms. The Delaware General Corporation Law generally
provides for a one-year term for directors. However, the
directorships may be divided into up to three classes with up
to three-year terms, with the years for each class expiring in
different years, if permitted by the articles of incorporation,
an initial by-law or a by-law adopted by the shareholders.
Number. The board of directors must consist of a minimum of
three members, which could be natural persons or legal entities.
Number. The board of directors must consist of a minimum
of one member.
Authority to Take Actions. In general, a simple majority of the
board of directors is necessary and sufficient to take any action on
behalf of the board of directors.
Authority to Take Actions. The articles of incorporation or
by-laws can establish certain actions that require the
approval of more than a majority of directors.
Shareholder Meetings and Voting Rights
Quorum. The quorum for shareholder meetings must be set by the
articles of incorporation or the by-laws. If the articles of
incorporation and the notice for a given meeting so provide, if a
quorum is not met a new meeting can be immediately called and a
quorum shall consist of those present at such new meeting.
Action by Written Consent. Panamanian law does not permit
shareholder action without formally calling a meeting.
Quorum. For stock corporations, the articles of incorporation
or bylaws may specify the number to constitute a quorum but
in no event shall a quorum consist of less than one-third of
shares entitled to vote at a meeting. In the absence of such
specifications, a majority of shares entitled to vote shall
constitute a quorum.
Action by Written Consent. Unless otherwise provided in the
articles of incorporation, any action required or permitted to
be taken at any annual meeting or special meeting of
stockholders of a corporation may be taken without a
meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action to be so taken,
is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and noted.
Other Shareholder Rights
Shareholder Proposals. Shareholders representing 5% of the
issued and outstanding capital of the corporation have the right to
require a judge to call a general shareholders’ meeting and to
propose the matters for vote.
Shareholder Proposals. Delaware law does not specifically
grant shareholders the right to bring business before an
annual or special meeting. If a Delaware corporation is
subject to the SEC’s proxy rules, a shareholder who has
continuously owned at least $2,000 in market value, or 1% of
the corporation’s securities entitled to vote for at least one
year, may propose a matter for a vote at an annual or special
meeting in accordance with those rules.
Appraisal Rights. Shareholders of a Panamanian corporation do
not have the right to demand payment in cash of the judicially
determined fair value of their shares in connection with a merger
or consolidation involving the corporation. Nevertheless, in a
merger, the majority of shareholders could approve the total or
partial distribution of cash, instead of shares, of the surviving
entity.
Appraisal Rights. Delaware law affords shareholders in
certain cases the right to demand payment in cash of the
judicially-determined fair value of their shares in connection
with a merger or consolidation involving their corporation.
However, no appraisal rights are available if, among other
things and subject to certain exceptions, such shares were
listed on a national securities exchange or such shares were
held of record by more than 2,000 holders.
67
Panama
Delaware
Shareholder Derivative Actions. Any shareholder, with the
consent of the majority of the shareholders, can sue on behalf of
the corporation, the directors of the corporation for a breach of
their duties of care and loyalty to the corporation or a violation of
the law, the articles of incorporation or the by-laws.
Shareholder Derivative Actions. Subject to certain
requirements that a shareholder make prior demand on the
board of directors or have an excuse not to make such
demand, a shareholder may bring a derivative action on
behalf of the corporation to enforce the rights of the
corporation against officers, directors and third parties. An
individual may also commence a class action suit on behalf
of himself and other similarly-situated stockholders if the
requirements for maintaining a class action under the
Delaware General Corporation Law have been met. Subject
to equitable principles, a three-year period of limitations
generally applies to such shareholder suits against officers
and directors.
Inspection of Corporate Records. Shareholders representing at
least 5% of the issued and outstanding shares of the corporation
have the right to require a judge to appoint an independent auditor
to examine the corporate accounting books, the background of the
Company’s incorporation or its operation.
Inspection of Corporate Records. A shareholder may inspect
or obtain copies of a corporation’s shareholder list and its
other books and records for any purpose reasonably related
to a person’s interest as a shareholder.
Anti-Takeover Provisions
Panamanian corporations may include in their articles of
incorporation or by-laws classified board and super-majority
provisions.
Delaware corporations may have a classified board, super-
majority voting and shareholders’ rights plan.
Panamanian corporation law’s anti-takeover provisions apply only
to companies that are:
Unless Delaware corporations specifically elect otherwise,
Delaware corporations may not enter into a “business
combination,” including mergers, sales and leases of assets,
issuances of securities and similar transactions, with an
“interested stockholder,” or one that beneficially owns 15%
or more of a corporation’s voting stock, within three years of
such person becoming an interested shareholder unless:
(1) registered with the Superintendence of the Securities Market
(Superintendencia del Mercado de Valores, or SMV) for a period
of six months before the public offering,
(2) have over 3,000 shareholders, and
(3) have a permanent office in Panama with full time employees
and investments in the country for more than $1,000,000.
These provisions are triggered when a buyer makes a public offer
to acquire 5% or more of any class of shares with a market value
of at least $5,000,000. In sum, the buyer must deliver to the
corporation a complete and accurate statement that includes
(1) the transaction that will cause the person to become an
interested shareholder is approved by the board of directors
of the target prior to the transactions;
(1) the name of the Company, the number of the shares that the
buyer intends to acquire and the purchase price;
(2) after the completion of the transaction in which the
person becomes an interested shareholder, the interested
shareholder holds at least 85% of the voting stock of the
corporation not including shares owned by persons who are
directors and also officers of interested shareholders and
shares owned by specified employee benefit plans; or
(2) the identity and background of the person acquiring the shares;
(3) after the person becomes an interested shareholder, the
business combination is approved by the board of directors
of the corporation and holders of at least 66.67% of the
outstanding voting stock, excluding shares held by the
interested shareholder.
(3) the source and amount of the funds or other goods that will be
used to pay the purchase price;
(4) the plans or project the buyer has once it has acquired the
control of the Company;
(5) the number of shares of the Company that the buyer already
has or is a beneficiary of and those owned by any of its directors,
officers, subsidiaries, or partners or the same, and any transactions
made regarding the shares in the last 60 days;
(6) contracts, agreements, business relations or negotiations
regarding securities issued by the Company in which the buyer is
a party;
(7) contracts, agreements, business relations or negotiations
between the buyer and any director, officer or beneficiary of the
securities; and
(8) any other significant information. This declaration will be
accompanied by, among other things, a copy of the buyer’s
financial statements.
68
Panama
Delaware
If the board of directors believes that the statement does not
contain all required information or that the statement is inaccurate,
the board of directors must send the statement to the SMV within
45 days from the buyer’s initial delivery of the statement to the
SMV. The SMV may then hold a public hearing to determine if
the information is accurate and complete and if the buyer has
complied with the legal requirements. The SMV may also start an
inquiry into the case, having the power to decide whether or not
the offer may be made.
Regardless of the above, the board of directors has the authority to
submit the offer to the consideration of the shareholders. The
board should only convene a shareholders’ meeting when it deems
the statement delivered by the offeror to be complete and accurate.
If convened, the shareholders’ meeting should take place within
the next 30 days. At the shareholders’ meeting, two-thirds of the
holders of the issued and outstanding shares of each class of
shares of the corporation with a right to vote must approve the
offer and the offer is to be executed within 60 days from the
shareholders’ approval. If the board decides not to convene the
shareholders’ meeting within 15 days following the receipt of a
complete and accurate statement from the offeror, shares may then
be purchased. In all cases, the purchase of shares can take place
only if it is not prohibited by an administrative or judicial order or
injunction.
The law also establishes some actions or recourses of the sellers
against the buyer in cases the offer is made in contravention of the
law.
Previously Acquired Rights
No comparable provisions exist under Delaware law.
In no event can the vote of the majority shareholders deprive the
shareholders of a corporation of previously-acquired rights.
Panamanian jurisprudence and doctrine has established that the
majority shareholders cannot amend the articles of incorporation
and deprive minority shareholders of previously-acquired rights
nor impose upon them an agreement that is contrary to those
articles of incorporation.
Once a share is issued, the shareholders become entitled to the
rights established in the articles of incorporation and such rights
cannot be taken away, diminished or extinguished without the
express consent of the shareholders entitled to such rights. If by
amending the articles of incorporation, the rights granted to a class
of shareholders is somehow altered or modified to their
disadvantage, those shareholders will need to approve the
amendment unanimously.
C. Material Contracts
1998 Aircraft General Terms Agreement between The Boeing Company and Copa Airlines
In 1998, Copa entered into an agreement with Boeing for the purchase of aircraft, installation of buyer furnished equipment
provided by Copa, customer support services and product assurance. In addition to the aircraft supplied, the Boeing Company will
provide maintenance training and flight training programs, as well as operations engineering support. The agreement is still in effect
and has been amended several times since then, most recently in March 2015.
Purchase Agreement between Empresa Brasileira de Aeronautica, S.A. and Copa Airlines
In 2003 and 2006, Copa entered into a purchase agreement with Empresa Brasileira de Aeronautica, S.A (Embraer) for the
purchase of aircraft, customer support services and technical publications. This agreement is still in effect.
69
Engine Services Agreements between GE Engine Services, LLC and Copa Holdings, S.A.
Since May 2011, we have entered into three separate Rate per Engine Flight Hour Engine Services Agreements with GE
Engine Services, LLC, pursuant to which GE shall be the exclusive provider of maintenance, repair and overhaul services to our CF-34
and CFM-56 aircraft engines. Most maintenance services are performed at a certain rate per engine flight hour incurred by our engines.
These rates were set based on our predicted operating parameters and will be adjusted in case of variation of those parameters. Unless
terminated, the agreement with respect to the CF-34 engines will continue through September 30, 2022 while the agreements with
respect to the CFM-56 engines expire on December 31, 2016 and April 30, 2026, respectively, in each case unless renewed upon the
parties’ mutual agreements. Either party may terminate the agreement in the event of insolvency of the other party or upon a material
breach by the other party which remains uncured. Any material breach by us of this agreement could, at the option of GE, trigger a
cross-default of all our other contracts with GE. GE may also terminate this agreement if the number of engines covered decreases
below the prescribed minimum. Upon termination of the agreement for any reason, we shall pay GE for all services or work performed
by GE up to the time of such termination.
MAX Aircraft purchase Agreement between the Boeing Company and Copa Airlines.
In April 2015, Copa finalized negotiations with the Boeing Company for the purchase of 737 MAX airplanes. These
negotiations started in 2013, and the agreement has been amended several times since then, most recently in October 2015.
D. Exchange Controls
There are currently no Panamanian restrictions on the export or import of capital, including foreign exchange controls, and
no restrictions on the payment of dividends or interest, nor are there limitations on the rights.
E. Taxation
United States
The following summary describes the material United States federal income tax consequences of the ownership and
disposition of our Class A shares as of the date hereof. The discussion set forth below is applicable to United States Holders (as defined
below) that beneficially own our Class A shares as capital assets for United States federal income tax purposes (generally, property held
for investment). This summary does not represent a detailed description of the United States federal income tax consequences
applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:
•
•
•
•
•
•
•
•
•
•
•
•
•
a bank;
a dealer in securities or currencies;
a financial institution;
a regulated investment company;
a real estate investment trust;
an insurance company;
a tax-exempt organization;
a person holding our Class A shares as part of a hedging, integrated or conversion transaction, a constructive sale
or a straddle;
a trader in securities that has elected the mark-to-market method of accounting for your securities;
a person liable for alternative minimum tax;
a person who owns 10% or more of our voting stock;
a partnership or other pass-through entity (or investor there in) for United States federal income tax purposes; or
a person whose “functional currency” is not the United States dollar.
70
The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and
regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified
so as to result in United States federal income tax consequences different from those discussed below.
If you are considering the purchase, ownership or disposition of our Class A shares, you should consult your own tax advisors
concerning the United States federal income tax consequences to you in light of your particular situation as well as any
consequences arising under state or local law or under the laws of any other taxing jurisdiction.
As used herein, “United States Holder” means a beneficial owner of our Class A shares that is for United States federal
income tax purposes:
•
•
•
•
an individual citizen or resident of the United States;
a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or
organized in or under the laws of the United States, any state thereof or the District of Columbia;
an estate the income of which is subject to United States federal income taxation regardless of its source; or
a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United
States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in
effect under applicable United States Treasury regulations to be treated as a United States person.
If a partnership holds our Class A shares, the tax treatment of a partner will generally depend upon the status of the partner
and upon the activities of the partnership. An investor who is a partner of a partnership holding our Class A shares should consult its
own tax advisor.
Taxation of Dividends
Distributions on the Class A shares (including amounts withheld to reflect Panamanian withholding taxes, if any) will be
taxable as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal
income tax principles. Such income (including withheld taxes) will be includable in your gross income as foreign-source ordinary
income on the day actually or constructively received by you. Such dividends will not be eligible for the dividends received deduction
allowed to corporations. Because we do not intend to keep earnings and profits in accordance with United States federal income tax
principles, you should expect that distributions on the Class A shares will generally be treated as dividends.
With respect to non-corporate United States Holders, certain dividends received from a qualified foreign corporation may be
subject to reduced rates of taxation. A foreign corporation generally is treated as a qualified foreign corporation with respect to
dividends paid by that corporation on shares that are readily tradable on an established securities market in the United States. United
States Treasury Department guidance indicates that our Class A shares, which are listed on the NYSE, are currently readily tradable on
an established securities market in the United States. There can be no assurance, however, that our Class A shares will be considered
readily tradable on an established securities market at a later date. Non-corporate United States Holders that do not meet a minimum
holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as
“investment income” pursuant to Section 163(d) (4) of the Code will not be eligible for the reduced rates of taxation regardless of our
status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is
obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even
if the minimum holding period has been met. You should consult your own tax advisors regarding the application of these rules to your
particular circumstances.
Subject to certain conditions and limitations, Panamanian withholding taxes on dividends may be treated as foreign taxes
eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends
paid on the Class A shares generally will be treated as income from sources outside the United States and will generally constitute
passive income. Further, in certain circumstances, if you:
•
•
have held Class A shares for less than a specified minimum period during which you are not protected from risk
of loss, or
are obligated to make payments related to the dividends,
71
you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on the Class A shares, if any. The
rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign
tax credit under your particular circumstances.
Passive Foreign Investment Company
We do not believe that we are a passive foreign investment company (a “PFIC”) for United States federal income tax
purposes (or that we were one in 2016), and we expect to operate in such a manner so as not to become a PFIC. If, however, we are or
become a PFIC, you could be subject to additional United States federal income taxes on gain recognized with respect to the Class A
shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules.
Further, non-corporate United States Holders will not be eligible for reduced rates of taxation on any dividends received from us if we
are a PFIC in the taxable year in which such dividends are paid or the preceding taxable year.
Taxation of Capital Gains
For United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of a Class A
share in an amount equal to the difference between the amount realized for the Class A share and your tax basis in the Class A share.
Such gain or loss will generally be capital gain or loss. Capital gains of individuals derived with respect to capital assets held for more
than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss
recognized by you will generally be treated as United States source gain or loss.
Information reporting and backup withholding
In general, information reporting will apply to dividends in respect of our Class A shares and the proceeds from the sale,
exchange or redemption of our Class A shares that are paid to you within the United States (and in certain cases, outside the United
States), unless you are an exempt recipient such as a corporation. A backup withholding tax may apply to such payments if you fail to
provide a taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States
federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.
Panamanian Taxation
The following is a discussion of the material Panamanian tax considerations to holders of Class A shares under Panamanian
tax law, and is based upon the tax laws and regulations in force and effect as of the date hereof, which may be subject to change. This
discussion, to the extent it states matters of Panamanian tax law or legal conclusions and subject to the qualifications herein, represents
the opinion of Galindo, Arias & Lopez, our Panamanian counsel.
Taxation of dividends
Dividends paid by a corporation duly licensed to do business in Panama, whether in the form of cash, stock or other property,
are subject to a 10% withholding tax on the portion attributable to Panamanian sourced income, and a 5% withholding tax on the
portion attributable to foreign sourced income. Dividends paid by a holding company which correspond to dividends received from its
subsidiaries for which the dividend tax was previously paid, are not subject to any further withholding tax under Panamanian law.
Therefore, distributions on the Class A shares would not be subject to withholding tax to the extent that said distributions are
attributable to dividends received from any of our subsidiaries for which the dividend tax was previously paid.
Taxation of capital gains
As long as the Class A shares are registered with the SMV and are sold through an organized market, Panamanian taxes on
capital gains will not apply either to Panamanians or other countries’ nationals. We have registered the Class A shares, with both the
New York Stock Exchange and the SMV.
Other Panamanian taxes
There are no estate, gift or other taxes imposed by the Panamanian government that would affect a holder of the Class A
shares, whether such holder were Panamanian or a national of another country.
72
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the informational requirements of the U.S. Securities Exchange Act of 1934, which is also known as the
Exchange Act. Accordingly, we are required to file reports and other information with the Commission, including annual reports on
Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information to be filed with the Commission at the
Public Reference Room of the Commission at 100 F Street, N.W., Washington D.C. 20549, and copies of the materials may be obtained
there at prescribed rates. The public may obtain information on the operation of the Commission’s Public Reference Room by calling
the Commission in the United States at 1-800-SEC-0330. In addition, the Commission maintains a website at www.sec.gov, from which
you can electronically access the registration statement and its materials.
As a foreign private issuer, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the
Exchange Act. For example, we are not required to prepare and issue quarterly reports. In 2016, the SEC approved a new rule and the
NYSE published a new requirement for foreign private issuers to submit interim financials as of the end of and for the first two quarters
of its fiscal year if they do not already furnish interim financials at least semi-annually. This new requirement will not affect us because
we furnish our shareholders with annual reports containing financial statements audited by our independent auditors and make available
to our shareholders quarterly reports containing unaudited financial data for the first three quarters of each fiscal year. We furnish such
quarterly reports with the SEC within two months of each quarter of our fiscal year, and we file annual reports on Form 20-F within the
time period required by the SEC, which is currently four months from December 31, the end of our fiscal year.
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
The risks inherent in our business are the potential losses arising from adverse changes to the price of fuel, interest rates and
the U.S. dollar exchange rate. Please also refer to note 28 of our financial statements.
Aircraft Fuel. Our results of operations are affected by changes in the price and availability of aircraft fuel. To manage the
price risk, we use crude oil swap agreements. Market risk is estimated as a hypothetical 10% increase in the December 31, 2017 cost per
gallon of fuel. Based on projected 2017 fuel consumption, such an increase would result in an increase to aircraft fuel expense of
approximately $60.9 million in 2018. There are no hedged contracts for 2018.
Interest. Our earnings are affected by changes in interest rates due to the impact those changes have on interest expense from
variable-rate debt instruments and operating leases and on interest income generated from our cash and investment balances. If interest
rates average 10% more in 2018 than they did during 2017, our interest expense would increase by approximately $1.4 million and the
fair value of the debt would decrease by approximately $1.3 million. If interest rates average 10% less in 2018 than they did in 2017,
our interest income from marketable securities would decrease by approximately $1.4 million and the fair value of our debt would
increase by approximately $1.3 million. These amounts are determined by considering the impact of the hypothetical interest rates on
our variable-rate debt and marketable securities equivalent balances at December 31, 2017.
Foreign Currencies. The majority of our obligations are denominated in U.S. dollars. Since Panama uses the U.S. dollar as
legal tender, the majority of our operating expenses are also denominated in U.S. dollars, approximately 43.7% of revenues and 59.8%
of expenses are in U.S. dollars. A significant part of our revenue is denominated in foreign currencies, including the Brazilian real,
Colombian peso, and Argentinian peso, which represented 16.5%, 11.4%, and 7.8% of our revenue in 2017, respectively.
73
On January 1, 2015, given the change in its business strategy focused on international markets, Copa Colombia concluded
that the most appropriate functional currency of the Company would be U.S. dollars. This reflects the fact that the majority of the
airline’s business is influenced by pricing in international markets, with a dollar economic environment. In the same way, the major
operating expenses such as fuel, leasing, airport services and sales commissions are dollarized. Until December 31, 2014, the previous
functional currency of the Company was the Colombian peso.
The following chart summarizes the Company’s exchange risk exposure (assets and liabilities denominated in foreign
currency) at December 31, 2017 and 2016:
As of
December 31,
2017
$
25,189
277
75,769
32,045
29,459
$ 162,739
$
37,186
50,922
25,471
$ 113,579
49,160
$
As of
December 31,
2016
$
51,718
276
69,670
23,137
46,631
$ 191,432
$
32,098
37,435
57,967
$ 127,500
63,932
$
Assets
Cash and cash equivalents
Investments
Accounts receivables, net
Prepaid expenses
Other assets
Total assets
Liabilities
Accounts payables suppliers and agencies
Accumulated taxes and expenses payables
Other liabilities
Total liabilities
Net position
Item 12. Description of Securities Other than Equity Securities
Not applicable.
A. Debt securities
Not applicable.
B. Warrants and rights
Not applicable.
C. Other securities
Not applicable.
D. American depositary shares
Not applicable.
74
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
PART II
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures Disclosure controls and procedures
Disclosure controls and procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in
reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. We carried out an evaluation under the supervision of our Management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2017. There are inherent limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based
upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms,
and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
The Management of Copa Holdings, S.A. or the “Company”, is responsible for establishing and maintaining effective
internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Company’s
internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of
directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control – Integrated Framework (2013).
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of our
management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
our assets that could have a material effect on our financial statements.
Based on this assessment, Management believes that, as of December 31, 2017, the Company’s internal control over
financial reporting is effective based on those criteria.
75
Attestation Report of the registered public accounting firm
The effectiveness of our internal controls over financial reporting as of December 31, 2017 has been audited by Ernst &
Young, the independent registered public accounting firm who also audited the Company’s consolidated financial statements. Ernst &
Young’s attestation report of the effectiveness of the Company’s internal control over financial reporting is included herein.
Changes in internal control over financial reporting
There has been no change in our internal control over financial reporting during 2017 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
76
Report of Independent Registered Public Accounting Firm
To The Board of Directors and Shareholders
COPA HOLDINGS, S.A. and Subsidiaries
Opinion on Internal control over Financial Reporting
We have audited Copa Holdings, S.A. and subsidiaries’ internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Copa Holdings, S.A. and subsidiaries (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated statements of financial position of the Company as of December 31, 2017 and 2016 and the related
consolidated statements of profit or loss, comprehensive income (loss), changes in equity and cash flows for each of the three years in
the period ended December 31, 2017, and the related notes, and our report dated April 18, 2018, expressed an unqualified opinion
thereon.
Basis for Opinion
The Company management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International
Financial Reporting Standards, as issued by the International Accounting Standards Board. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards, as
issued by the International Accounting Standards Board, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect
on the financial statements.
77
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Ernst & Young Limited Corp.
A member practice of
Ernst & Young Global Limited
/s/ Ernst & Young
Panama City, Republic of Panama
April 18, 2018
78
Item 16. Reserved
Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that Messrs. Jose Castañeda, Roberto Artavia and Josh Connor qualify as an “audit
committee financial experts” as defined by current SEC rules and meet the independence requirements of the SEC and the NYSE listing
standards. For a discussion of the role of our audit committee, see “Item 6C. Board Practices—Audit Committee.”
Item 16B. Code of Ethics
Our Board of Directors has adopted a Code of Business Conduct and Ethics applicable to our directors, officers, employees
and consultants. The Code of Business Conduct and Ethics can be found at www.copaair.com under the heading “Investor
Relations—Corporate Governance.” Information found on this website is not incorporated by reference into this document.
Item 16C. Principal Accountant Fees and Services
The following table sets forth by category of service the total fees for services performed by our independent registered
public accounting firm Ernst & Young and its affiliates during the fiscal years ended December 31, 2017, 2016 and 2015:
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
Audit Fees
2017
$1,025,000
$1,025,000
2016
$1,150,000
—
—
—
$1,150,000
2015
$835,200
—
4,889
—
$840,089
Audit fees for 2017, 2016 and 2015 included the audit of our annual financial statements and internal controls, and the
review of our quarterly reports.
Audit-Related Fees
There were no audit-related fees for 2017, 2016 or 2015.
Tax Fees
Tax fees for 2015 were $4,889. There were no tax fees for 2017 or 2016.
All Other Fees
Other fees for 2017, 2016 and 2015 included amounts paid for permitted consulting services performed by Ernst & Young
and pre-approved by our audit committee. There were no such fees in 2017, 2016 or 2015.
Pre-Approval Policies and Procedures
Our audit committee approves all audit, audit-related, tax and other services provided by Ernst & Young. Any services
provided by Ernst & Young that are not specifically included within the scope of the audit must be pre-approved by the audit committee
in advance of any engagement. Pursuant to Rule 201 of Regulation S-X, audit committees are permitted to approve certain fees for
audit-related services, tax services and other services pursuant to a de minimis exception prior to the completion of an audit
engagement. In 2016, none of the fees paid to Ernst & Young were approved pursuant to the de minimis exception.
Item 16D. Exemptions from the Listing Standards for Audit Committees None
None
79
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information related to the share repurchase program executed by month:
Period
Program 2014 (EOMR)
December 2014
January 2015
February 2015
ASR 2015
September 2015
December 2015
Total
Total number of shares
purchased
Average price paid
per share
Total number of shares
purchased as part of
publicly announced
program
Maximum number of
shares that may be yet be
purchased under the
program
182,592
139,196
28,454
$
$
$
101.84
104.13
109.65
500,000
1,460,250
2,310,492
182,592
321,788
350,242
850,242
2,310,492
2,274,440
2,084,941
1,951,529
In November 2014, the Board of Directors of the Company approved a $250 million share repurchase program. Purchases
will be made from time to time, subject to market and economic conditions, applicable legal requirements, and other relevant factors.
During December of 2014 the Company repurchased 182,592 shares for a total amount of $18.4 million.
In the first quarter of 2015, the Company repurchased 167,650 shares for a total amount of $17.9 million.
During September 2015 the Company entered into an Accelerated Share Repurchase, or “ASR”, with Citibank for an
approximate period of 3 months for a total amount of $100 million. On December 15, 2015, Citibank delivered 1,960,250 shares to the
Company, recognized at the settlement price of $51.01 per share.
No transactions were made in 2016 or 2017.
Item 16F. Changes in Registrant’s Certifying Accountant
None
Item 16G. Corporate Governance
Companies that are registered in Panama are required to disclose whether or not they comply with certain corporate
governance guidelines and principles that are recommended by the Superintendence of the Securities Market (Superintendencia del
Mercado de Valores, or SMV). Statements below referring to Panamanian governance standards reflect these voluntary guidelines set
by the SMV rather than legal requirements or standard national practices. Our Class A shares are registered with the SMV, and we
comply with the SMV’s disclosure requirements.
NYSE Standards
Director Independence.
Majority of board of directors must be independent. §303A.01
Our Corporate Governance Practice
Panamanian corporate governance standards recommend that
one in every five directors should be an independent director.
The criteria for determining independence under the
Panamanian corporate governance standards differs from the
NYSE rules. In Panama, a director would be considered
independent as long as the director does not directly or
indirectly own 5% or more of the issued and outstanding
voting shares of the Company, is not involved in the daily
management of the Company and is not a spouse or related
to the second degree by blood or marriage to the persons
named above.
80
NYSE Standards
Our Corporate Governance Practice
Our Articles of Incorporation require us to have three
independent directors as defined under the NYSE rules.
Executive Sessions. Non-management directors must meet
regularly in executive sessions without management.
Independent directors should meet alone in an executive session
at least once a year. §303A.03
There are no mandatory requirements under Panamanian law
that a company should hold, and we currently do not hold,
such executive sessions.
Nominating/Corporate Governance Committee.
Nominating/corporate governance committee of independent
directors is required. The committee must have a charter
specifying the purpose, duties and evaluation procedures of the
committee. §303A.04
Compensation Committee. Compensation committee of
independent directors is required, which must approve or make a
recommendation to the board regarding executive officer
compensation. The committee must have a charter specifying the
purpose, duties and evaluation procedures of the committee.
§303A.05
Panamanian corporate governance standards recommend that
registered companies have a nominating committee
composed of three members of the board of directors, at least
one of which should be an independent director, plus the
chief executive officer and the chief financial officer. In
Panama, the majority of public corporations do not have a
nominating or corporate governance committee. Our Articles
of Incorporation require that we maintain a Nominating and
Corporate Governance Committee with at least one
independent director until the first shareholders’ meeting to
elect directors after such time as the Class A shares are
entitled to full voting rights.
Panamanian corporate governance standards recommend that
the compensation of executives and directors be overseen by
the nominating committee but do not otherwise address the
need for a compensation committee.
While we maintain a compensation committee that operates
under a charter as described by the NYSE governance
standards, currently only one of the members of that
committee is independent.
Equity Compensation Plans. Equity compensation plans require
shareholder approval, subject to limited exemptions.
Under Panamanian law, shareholder approval is not required
for equity compensation plans.
Code of Ethics. Corporate governance guidelines and a code of
business conduct and ethics is required, with disclosure of any
waiver fordirectors or executive officers. §303A.10
Panamanian corporate governance standards do not require
the adoption of specific guidelines as contemplated by the
NYSE standards, although they do require that companies
disclose differences between their practices and a list of
specified practices recommended by the SMV.
We have not adopted a set of corporate governance
guidelines as contemplated by the NYSE, although we will
be required to comply with the disclosure requirement of the
SMV.
Panamanian corporate governance standards recommend that
registered companies adopt a code of ethics covering such
topics as its ethical and moral principles, how to address
conflicts of interest, the appropriate use of resources,
obligations to inform of acts of corruption and mechanism to
enforce the compliance with established rules of conduct.
Item 16H. Mine Safety Disclosure
None
81
PART III
Item 17. Financial Statements
See “Item 18. Financial Statements”
Item 18. Financial Statements
See our consolidated financial statements beginning on page F-1.
Item 19. Exhibits
3.1**
10.1**†
English translation of the Amended Articles of Incorporation (Pacto Social) of the Registrant
Aircraft Lease Agreement, dated as of October 1, 1998, between First Security Bank—now Wells Fargo Bank
Northwest, National association— and Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q
Aircraft, Serial No. 29047
10.2 (2008)
Filed as 10.1. Supplemental Agreement dated as of May 13, 2008 by and among Copa Holdings, S.A. Corporation
de Inversiones Aereas, S.A. and Continental Airlines, Inc.
10.3**†
10.4**†
10.5**†
10.6**†
10.7**†
10.8**†
10.9**†
10.10**†
10.11**†
10.12**†
10.13**†
Filed as 10.2. Letter Agreement dated as of November 6, 1998 amending Aircraft Lease Agreement, dated October
1, 1998, between First Security Bank—now Wells Fargo Bank Northwest, National association—and Compañía
Panameña de Aviación, S.A., in respect of One Boeing Model 737-71Q Aircraft, Manufacturer’s Serial No. 29047
Filed as 10.3. Aircraft Lease Amendment Agreement dated as of May 21, 2003 to Aircraft Lease Agreement, dated
October 1, 1998, between First Security Bank—now Wells Fargo Bank Northwest, National association—and
Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, Serial No. 29047
Filed as 10.4. Aircraft Lease Agreement, dated as of October 1, 1998, between First Security Bank—now Wells
Fargo Bank Northwest, National association—and Compañía Panameña de Aviación, S.A., in respect of Boeing
Model 737-71Q Aircraft, Serial No. 29048
Filed as 10.5. Letter Agreement dated as of November 6, 1998 amending Aircraft Lease Agreement, dated as of
October 1, 1998, between First Security Bank—now Wells Fargo Bank Northwest, National association—and
Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, Serial No. 29048
Filed as 10.6. Aircraft Lease Amendment Agreement dated as of May 21, 2003 to Aircraft Lease Agreement, dated
October 1, 1998, between First Security Bank—now Wells Fargo Bank Northwest, National association—and
Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, Serial No. 29048
Filed as 10.7. Aircraft Lease Agreement, dated as of November 18, 1998, between Aviation Financial Services Inc.
and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 28607
Filed as 10.8. Letter Agreement No. 1 dated as of November 18, 1998 to Aircraft Lease Agreement, dated November
18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-
700 Aircraft, Serial No. 28607
Filed as 10.9. Letter Agreement No. 2 dated as of March 8, 1999 to Aircraft Lease Agreement, dated November 18,
1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700
Aircraft, Serial No. 28607
Filed as 10.10. Lease Extension and Amendment Agreement dated as of April 30, 2003, to Aircraft Lease
Agreement, dated November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de
Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 28607
Filed as 10.11. Aircraft Lease Agreement, dated as of November 18, 1998, between Aviation Financial Services Inc.
and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 30049
Filed as 10.12. Letter Agreement No. 1 dated as of November 18, 1998 to Aircraft Lease Agreement, dated
November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing
Model 737-700 Aircraft, Serial No. 30049
82
10.14**†
10.15**†
10.16**†
10.17**†
10.18**†
10.19**†
10.20**†
10.21**†
10.22**
10.23**†
10.24**†
10.25**†
10.26**†
10.27**†
10.28**†
10.29**†
10.30**†
10.31**†
10.32**†
10.33**†
10.34**†
Filed as 10.13. Letter Agreement No. 2 dated as of March 8, 1999 to Aircraft Lease Agreement, dated November 18,
1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700
Aircraft, Serial No. 30049
Filed as 10.14. Lease Extension and Amendment Agreement dated as of April 30, 2003, to Aircraft Lease
Agreement, dated November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de
Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 30049
Filed as 10.15. Aircraft Lease Agreement, dated as of November 30, 2003, between International Lease Finance
corporation and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 or 800 Aircraft, Serial No. 30676
Filed as 10.16. Aircraft Lease Agreement, dated as of March 4, 2004, between International Lease Finance
corporation and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 or 800 Aircraft, Serial No. 32800
Filed as 10.17. Aircraft Lease Agreement, dated as of December 23, 2004, between Wells Fargo Bank Noorthwest,
N.A. and Compañía Panameña de Aviación, S.A., Boeing Model 737- 800 Aircraft, Serial No. 29670
Filed as 10.18. Embraer 190LR Purchase Agreement DCT-006/2003 dated as of May 2003 between Embraer—
Empresa Brasileira de Aeronáutica S.A. and Regional Aircraft Holdings Ltd.
Filed as 10.19. Letter Agreement DCT-007/2003 dated as of May, 2003 to Aircraft Purchase Agreement DCT-
006/2003 dated as of May, 2003, between Embraer— Empresa Brasileira de Aeronáutica S.A. and Regional Aircraft
Holdings Ltd.
Filed as 10.20. Letter Agreement DCT-008/2003 dated as of May, 2003 to Aircraft Purchase Agreement DCT-
006/2003 dated as of May, 2003, between Embraer— Empresa Brasileira de Aeronáutica S.A. and Regional Aircraft
Holdings Ltd.
Filed as 10.21. Aircraft General Terms Agreement, dated November 25, 1998, between The Boeing Company and
Copa Holdings, S.A.
Filed as 10.22. Purchase Agreement Number 2191, dated November 25, 1998, between The Boeing Company and
Copa Holdings, S.A., Inc. relating to Boeing Model 737-7V3 & 737-8V3 Aircraft
Filed as 10.23. Supplemental agreement No. 1 dated 2001 to Purchase Agreement Number 2191 between The
Boeing Company and Copa Holdings, S.A.
Filed as 10.24. Supplemental Agreement No. 2 dated as of December 21, 2001 to Purchase Agreement Number 2191
between The Boeing Company and Copa Holdings, S.A.
Filed as 10.25. Supplemental Agreement No. 3 dated as of June 14, 2002 to Purchase Agreement Number 2191
between The Boeing Company and Copa Holdings, S.A.
Filed as 10.26. Supplemental Agreement No. 4 dated as of December 20, 2002 to Purchase Agreement Number 2191
between The Boeing Company and Copa Holdings, S.A.
Filed as 10.27. Supplemental Agreement No. 5 dated as of October 31, 2003 to Purchase Agreement Number 2191
between The Boeing Company and Copa Holdings, S.A.
Filed as 10.28. Supplemental Agreement No. 6 dated as of September 9, 2004 to Purchase Agreement Number 2191
between The Boeing Company and Copa Holdings, S.A.
Filed as 10.29. Supplemental Agreement No. 7 dated as of December 9, 2004 to Purchase Agreement Number 2191
between The Boeing Company and Copa Holdings, S.A.
Filed as 10.30. Supplemental Agreement No. 8 dated as of April 15, 2005 to Purchase Agreement Number 2191
between The Boeing Company and Copa Holdings, S.A.
Filed as 10.31. Maintenance Cost per Hour Engine Service Agreement, dated March 5, 2003, between G.E. Engine
Services, Inc. and Copa Holdings, S.A.
Filed as 10.32. English translation of Aviation Fuel Supply Agreement, dated July 18, 2005, between Petróleos
Delta, S.A. and Compañía Panameña de Aviación, S.A.
Filed as 10.33. Form of Amended and Restated Alliance Agreement between Continental Airlines, Inc. and
Compañía Panameña de Aviación, S.A.
83
10.35**
10.36**
10.37**
10.38**
10.39**
10.40**
10.41*
10.42**
10.43*†
10.44*†
10.45*†
Filed as 10.34. Form of Amended and Restated Services Agreement between Continental Airlines, Inc. and
Compañía Panameña de Aviación, S.A.
Filed as 10.35. Form of Second Amended and Restated Shareholders’ Agreement among Copa Holdings, S.A.,
Corporación de Inversiones Aéreas, S.A. and Continental Airlines, Inc.
Filed as 10.36. Form of Guaranteed Loan Agreement
Filed as 10.37. Form of Amended and Restated Registration Rights Agreement among Copa Holdings, S.A.,
Corporación de Inversiones Aéreas, S.A. and Continental Airlines, Inc.
Filed as 10.38. Form of Copa Holdings, S.A. 2005 Stock Incentive Plan
Filed as 10.39. Form of Copa Holdings, S.A. Restricted Stock Award Agreement
Filed as 10.40. Form of Indemnification Agreement with the Registrant’s directors
Filed as 10.41. Form of Amended and Restated Trademark License Agreement between Continental Airlines, Inc.
and Compañía Panameña de Aviación, S.A.
Filed as 10.42. Embraer 190 Purchase Agreement COM 0028-06 dated February 2006 between Embraer—Empresa
Brasileira de Aeronáutica S.A. and Copa Holdings, S.A. relating to Embraer 190LR aircraft
Filed as 10.43. Letter Agreement COM 0029-06 to the Embraer Agreement dated February 2006 between
Embraer—Empresa Brasileira de Aeronáutica S.A. and Copa Holdings, S.A. relating to Embraer 190LR aircraft
Filed as 10.44. Supplemental Agreement No. 9 dated as of March 16, 2006 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
10.46 (2006)†
Filed as 10.44. Supplemental Agreement No. 11 dated as of August 30, 2006 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
10.47*†
10.48 (2006)†
10.49 (2006)†
10.50(2007)†
10.51(2007)†
10.52(2008)†
10.53(2008)†
10.54(2009)†
10.55(2009)†
10.56(2009)†
10.57(2010)†
10.58(2010)†
Filed as 10.45. Supplemental Agreement No. 10 dated as of May 8, 2006 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Filed as 10.45. Supplemental Agreement No. 12 dated as of February 26, 2007 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Filed as 10.46. Supplemental Agreement No. 13 dated as of April 23, 2007 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Filed as 10.47. Supplemental Agreement No. 14 dated as of August 31, 2007 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Filed as 10.48. Supplemental Agreement No. 15 dated as of February 21, 2008 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Filed as 10.49. Supplemental Agreement No. 16 dated as of June 30, 2008 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Filed as 10.50. Supplemental Agreement No. 17 dated as of December 15, 2008 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Filed as 10.51. Supplemental Agreement No. 18 dated as of July 15, 2009 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A
Filed as 10.52. Supplemental Agreement No. 19 dated as of August 31, 2009 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A
Filed as 10.53. Supplemental Agreement No. 20 dated as of November 19, 2009 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A
Filed as 10.54. Supplemental Agreement No. 21 dated as of May 28, 2010 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A
Filed as 10.55. Supplemental Agreement No. 22 dated as of September 24, 2010 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A
84
10.59(2010)†
10.60(2011)†
10.61(2012)†
10.62 †
Filed as 10.56. Supplemental Agreement No. 23 dated as of October, 2010 to the Boeing Purchase Agreement
Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A
Filed as 10.57. On Pointsm Solutions Rate per Engine Flight Hour Service Agreement dated as of May 22, 2011
between GE Engine Services, LLC., Copa Holdings, S.A., and Lease Management Services, LLC.
Filed as 10.58. On Pointsm Solutions Rate per Engine Flight Hour Service Agreement dated as of April 15, 2012
between GE Engine Services, LLC., Copa Holdings, S.A., and Lease Management Services, LLC.
Purchase Agreement No. PA-03774 dated June 27, 2012 between The Boeing Company and Copa Holdings S.A.
relating to Boeing Model 737 MAX Aircraft.
12.1
12.2
13.1
13.2
21.1**
101. INS
101. SCH
101. CAL
101. LAB
101. PRE
101. DEF
*
**
2006
2007
2008
2009
2010
2011
2012
Certification of the Chief Executive Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act
of 1934.
Certification of the Chief Financial Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act
of 1934.
Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Subsidiaries of the Registrant
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
XBRL Taxonomy Extension Definition Document.
Previously filed with the SEC as an exhibit and incorporated by reference from our Registration Statement on Form F-1,
filed June 15, 2006, File No. 333-135031.
Previously filed with the SEC as an exhibit and incorporated by reference from our Registration Statement on Form F-1,
filed November 28, 2005, as amended on December 1, 2005 and December 13, 2005, File No. 333-129967.
Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed
July 2, 2007, File No.001-07956031.
Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed
May 9, 2008, File No.001-08818238.
Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed
May 6, 2009, File No. 001- 09801609.
Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed
March 17, 2010, File No. 001- 10686910.
Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed
May 17, 2011, as amended on December 22, 2011, File No. 001- 111276555
Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed
April 16, 2012, File No. 001- 12762135.
Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed
April 29, 2013, File No. 001- 13792566.
†
The Registrant was granted confidential treatment for portions of this exhibit.
85
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
COPA HOLDINGS, S.A.
By: /s/ Pedro Heilbron
Name: Pedro Heilbron
Title: Chief Executive Officer
By: /s/ Jose Montero
Name: Jose Montero
Title: Chief Financial Officer
Dated: April 18, 2018
86
Consolidated Financial Statements
Copa Holdings, S. A. and Subsidiaries
Year ended December 31, 2017
with Report of the Independent Registered Public Accounting Firm
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Contents
Report of the independent registered public accounting firm
Consolidated statement of financial position
Consolidated statement of profit or loss
Consolidated statement of comprehensive income (loss)
Consolidated statement of changes in equity
Consolidated statement of cash flows
1.
2.
3.
4.
5.
6.
7.
8.
Corporate information
Basis of preparation
Significant accounting policies
(a) Basis of consolidation
(b) Current versus non-current classification
(c) Foreign currencies
(d) Revenue recognition
(e) Cash and cash equivalents
(f) Financial instruments
(g)
Impairment
(h) Expendable parts and supplies
(i) Passenger traffic commissions
(j) Property and equipment
(k) Leases
(l)
Intangible assets
(m) Taxes
(n) Borrowing costs
(o) Provisions
(p) Employee benefits
Significant accounting judgments, estimates and assumptions
Changes in disclosures
5.1 Adoption of new and amended standards and interpretations
5.2 Change in accounts classifications
New standards and interpretations not yet adopted
Segment reporting
Cash and cash equivalents
Pages
F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-8
F-8
F-9
F-9
F-10
F-11
F-12
F-15
F-16
F-16
F-17
F-17
F-19
F-20
F-22
F-22
F-22
F-23
F-26
F-26
F-26
F-29
F-39
F-40
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Contents
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
Investments
Accounts receivable
Expendable parts and supplies
Prepaid expenses
Property and equipment
Leases
Net pension assets
Intangible assets
Other assets
Debt
Trade, other payables and financial liabilities
Accrued expenses payable
Other long-term liabilities
Income taxes
Accounts and transactions with related parties
Equity
Share-based payments
Earnings (loss) per share
Commitments and contingencies
Financial instruments - Risk management and fair value
28.1
28.2
28.3
28.4
28.5
28.6
28.7
Fuel price risk
Market risk
Credit risk
Interest rate and cash flow risk
Liquidity risk
Equity risk management
Fair value measurement
29.
Subsequent events
F-40
F-41
F-42
F-42
F-43
F-44
F-46
F-49
F-51
F-51
F-53
F-53
F-54
F-55
F-57
F-59
F-60
F-63
F-63
F-65
F-65
F-66
F-67
F-68
F-68
F-69
F-70
F-71
Report of the independent registered public accounting firm
To the Shareholders and the Board of Directors of
Copa Holdings, S.A. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Copa Holdings, S.A. and subsidiaries as of
December 31, 2017 and 2016, and the related consolidated statements of profit or loss, comprehensive income (loss), changes in equity
and cash flows for each of the three years in the period ended December 31, 2017 and the related notes (collectively referred to as the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2017, in conformity with International Financial Reporting
Standards, as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Company’s internal control over financial reporting as December 31, 2017, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(2013 framework)” and
our report dated April 18, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Ernst & Young Limited Corp.
A member practice of
Ernst & Young Global Limited
/s/ Ernst & Young
We have served as the Company’s auditor since 1999.
Panama City, Republic of Panama
April 18, 2018
F-1
Copa Holdings, S. A. and Subsidiaries
Consolidated statement of financial position
As of December, 31
(In US$ thousands)
ASSETS
Current assets
Cash and cash equivalents
Investments
Accounts receivable
Expendable parts and supplies
Prepaid expenses
Other currents assets
Non-current assets
Investments
Accounts receivable
Prepaid expenses
Property and equipment
Net pension asset
Intangible assets
Deferred tax assets
Other non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt
Trade, other payables and financial liabilities
Air traffic liability
Frequent flyer deferred revenue
Taxes and interest payable
Accrued expenses payable
Income tax payable
Non-current liabilities
Long-term debt
Frequent flyer deferred revenue
Other long-term liabilities
Deferred tax liabilities
Total liabilities
Equity
Issued capital
Class A common stock - 33,776,480 (2016 - 33,743,286) shares issued, 31,185,641 (2016 -
31,112,356) outstanding
Class B common stock - 10,938,125 (2016 - 10,938,125) shares issued and outstanding, no
par value
Additional paid in capital
Treasury stock
Retained earnings
Accumulated other comprehensive loss
Total equity
Commitments and contingencies
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Notes
2017
2016
8
9
10,23
11
12
17
9
10
12
13
15
16
22
17
18
19,23
20
18
21
22
24
27
$ 238,792
705,108
115,641
81,825
45,421
11,701
1,198,488
65,953
2,444
26,130
2,825,904
3,185
81,115
18,572
31,140
3,054,443
$4,252,931
$ 298,462
130,590
470,693
13,186
81,440
60,321
3,700
1,058,392
876,119
33,115
123,182
50,628
1,083,044
2,141,436
$ 331,687
483,002
114,143
74,502
58,407
7,650
1,069,391
953
1,957
26,398
2,623,682
8,826
69,502
18,339
27,065
2,776,722
$3,846,113
$ 222,718
120,437
396,237
9,044
68,483
44,362
1,401
862,682
961,414
26,324
108,448
44,974
1,141,160
2,003,842
21,038
20,988
7,466
72,945
(136,388)
2,150,322
(3,888)
7,466
64,986
(136,388)
1,887,091
(1,872)
2,111,495
—
$4,252,931
1,842,271
—
$3,846,113
Copa Holdings, S. A. and Subsidiaries
Consolidated statement of profit or loss
For the year ended December, 31
(In US$ thousands)
Operating revenue
Passenger revenue
Cargo and mail revenue
Other operating revenue
Operating expenses
Fuel
Wages, salaries, benefits and other employees’ expenses
Passenger servicing
Airport facilities and handling charges
Sales and distribution
Maintenance, materials and repairs
Depreciation and amortization
Flight operations
Aircraft rentals and other rentals
Cargo and courier expenses
Other Operating and administrative expenses
Operating profit
Non-operating income (expense)
Finance cost
Finance income
(Loss) Gain on foreign currency fluctuations
Net change in fair value of derivatives
Other non-operating expense
Profit (loss) before taxes
Income tax expense
Net profit (loss)
Earnings (loss) per share
Basic and diluted
Notes
2017
2016
2015
$2,462,419
55,290
9,847
2,527,556
$2,155,167
53,989
12,696
2,221,852
$2,185,465
56,738
11,507
2,253,710
7
13,16
572,746
415,147
99,447
171,040
200,413
124,709
164,345
101,647
134,539
7,375
96,087
2,087,495
440,061
528,996
370,190
86,329
159,771
193,984
121,781
159,278
88,188
138,885
6,099
92,215
1,945,716
276,136
603,760
373,631
84,327
148,078
188,961
111,178
134,888
86,461
142,177
6,471
105,484
1,985,416
268,294
18
18
22
(35,223)
17,939
(5,218)
2,801
(2,337)
(22,038)
418,023
(48,000)
(37,024)
13,000
13,043
111,642
(3,982)
96,679
372,815
(38,271)
$ 370,023
$ 334,544
(33,155)
25,947
(440,097)
(11,572)
(1,632)
(460,509)
(192,215)
(32,759)
$ (224,974)
26
$
8.72
$
7.90
$
(5.13)
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Copa Holdings, S. A. and Subsidiaries
Consolidated statement of comprehensive income (loss)
For the year ended December, 31
(In US$ thousands)
Net profit (loss)
Other comprehensive income (loss)
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent
periods -
Net change in fair value of derivative instrument
Other comprehensive loss not to be reclassified to profit or loss in subsequent periods -
Remeasurement of actuarial loss, net of amortization
Other comprehensive loss for the year, net of tax
Total comprehensive income (loss) for the year
F-4
2017
$370,023
2016
$334,544
2015
$(224,974)
—
—
—
—
1,206
1,206
(2,016)
(2,016)
(2,016)
(1,104)
(1,104)
(1,104)
$368,007
$333,440
(2,212)
(2,212)
(1,006)
$(225,980)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Copa Holdings, S. A. and Subsidiaries
Consolidated statement of changes in equity
For the year ended December,31
(In US$ thousands)
Common stock
(Non - par value)
Issued capital
Notes
Class A
Class B
Class A
Class B
Additional
paid in
capital
Treasury
stock
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
equity
33,050,298
—
10,938,125 $20,859 $7,466 $ 53,486 $ (18,426) $2,011,485 $
—
— —
—
—
(224,974)
238 $2,075,108
—
(224,974)
—
—
— —
—
—
—
(1,006)
(1,006)
94,704
—
65 —
(65)
—
—
(2,127,900)
—
—
—
—
—
—
— —
4,034
—
— —
— —
— —
(117,962)
—
—
—
—
(147,592)
(186)
—
—
—
—
—
—
—
—
—
4,034
(117,962)
(147,592)
(186)
31,017,102
—
10,938,125 $20,924 $7,466 $ 57,455 $(136,388) $1,638,733 $
—
— —
—
—
334,544
(768) $1,587,422
334,544
—
—
—
— —
—
—
—
(1,104)
(1,104)
94,208
—
64 —
(64)
—
—
25
24
—
—
1,046
—
—
—
— —
— —
— —
7,539
—
56
—
—
—
—
(86,116)
(70)
—
—
—
—
—
7,539
(86,116)
(14)
31,112,356
—
10,938,125 $20,988 $7,466 $ 64,986 $(136,388) $1,887,091 $
—
— —
—
—
370,023
(1,872) $1,842,271
370,023
—
—
—
— —
—
—
—
(2,016)
(2,016)
62,224
—
42 —
(42)
—
—
25
24
25
—
—
11,061
—
—
—
— —
— —
7,422
—
8 —
579
—
—
—
—
(106,792)
—
—
—
—
—
—
7,422
(106,792)
587
31,185,641
10,938,125 $21,038 $7,466 $ 72,945 $(136,388) $2,150,322 $
(3,888) $2,111,495
At December 31,
2014
Net loss
Other
comprehensive
income
Issuance of stock
for employee
awards
Share-based
compensation
expense
Repurchase of
treasury shares
Dividends paid
Other
At December 31,
2015
Net income
Other
comprehensive
income
Issuance of stock
for employee
awards
Share-based
compensation
expense
Dividends paid
Other
At December 31,
2016
Net income
Other
comprehensive
income
Issuance of stock
for employee
awards
Share-based
compensation
expense
Dividends paid
Share options
exercised
At December 31,
2017
The accompanying notes are an integral part of these consolidated financial statements.
F-5
(Continued)
Copa Holdings, S. A. and Subsidiaries
Consolidated statement of cash flows
For the year ended December, 31
(In US$ thousands)
Operating activities
Net profit (loss)
Adjustments for:
Income tax expense
Finance cost
Finance income
Depreciation, amortization and impairment
Loss (gain) on sale of property and equipment
Disposal of assets
Impairment of accounts receivable
Allowance for obsolescence of expendable parts and supplies
Derivative instruments mark to market
Share-based compensation expense
Net foreign exchange differences
Change in:
Accounts receivable
Accounts receivable from related parties
Other current assets
Restricted cash
Other assets
Accounts payable
Accounts payable from related parties
Air traffic liability
Frequent flyer deferred revenue
Other liability
Cash from operating activities
Income tax paid
Interest paid
Interest received
Net cash from operating activities
Investing activities
Acquisition of investments
Proceeds from redemption of investments
Advance payments on aircraft purchase contracts and other
Reimbursement of advance payments on aircraft purchase contracts
Acquisition of property and equipment
Proceeds from sale of property and equipment
Acquisition of intangible assets
Net cash (used in) from investing activities
Financing activities
Proceeds from new borrowings
Payments on loans, borrowings and finance leases
Dividends paid
Proceeds from exercise of share options
Repurchase of treasury shares
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at January 1
Effect of exchange rate change on cash
Cash and cash equivalents at December 31
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Notes
2017
2016
2015
$ 370,023
$ 334,544
$(224,974)
18
18
13,16
10
25
10
19
16
24
48,000
35,223
(17,939)
164,345
(2)
3,318
879
182
(2,801)
7,422
38,017
(3,534)
181
25,770
—
(1,012)
20,943
4,199
74,456
10,933
20,883
799,486
(51,077)
(35,312)
14,235
727,332
(854,119)
567,007
(191,315)
28,888
(109,945)
6
(18,681)
(578,159)
38,271
37,024
(13,000)
159,194
604
4,139
1,511
87
(111,642)
7,539
35,525
(9,967)
143
(14,745)
64,228
10,202
16,387
3,076
44,127
16,484
30,117
653,848
(33,364)
(37,420)
11,526
594,590
(553,037)
485,944
(47,479)
29,150
(88,345)
8,332
(14,474)
(179,909)
147,798
(246,349)
(106,792)
164,400
(326,965)
(86,116)
587
—
(204,756)
(55,583)
331,687
(37,312)
56
—
(248,625)
166,056
204,715
(39,084)
32,759
33,155
(25,947)
134,888
1,896
3,344
(71)
63
11,572
4,034
435,983
17,471
(317)
4,398
(11,803)
14,628
(31,913)
(1,801)
(55,902)
18,884
2,598
362,945
(39,168)
(31,668)
24,754
316,863
(383,005)
435,110
(83,064)
161,169
(81,788)
3,380
(19,418)
32,384
130,000
(221,912)
(147,592)
—
(117,962)
(357,466)
(8,219)
221,443
(8,509)
$ 238,792
$ 331,687
$ 204,715
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
1. Corporate information
Copa Holdings, S. A. (“the Company”) was incorporated according to the laws of the Republic of Panama on May 6, 1988 with an
indefinite duration. The Company is a public company listed in the New York Stock Exchange (NYSE) under the symbol CPA since
December 14, 2005. The address of its registered office is Boulevard Costa del Este, Avenida Principal y Avenida de la Rotonda,
Urbanización Costa del Este, Complejo Business Park, Torre Norte, Parque Lefevre, Panama City, Republic of Panama.
These consolidated financial statements comprise the Company and its subsidiaries: Compañía Panameña de Aviación, S. A. (“Copa
Airlines”), Oval Financial Leasing, Ltd. (“OVAL”), AeroRepública, S. A. (“Copa Colombia”):
•
•
•
Copa Airlines: the Company’s core operation is incorporated according to the laws of the Republic of Panama and provides
international air transportation for passengers, cargo and mail, operating from its Panama City hub in the Republic of Panama.
Copa Colombia: is a Colombian air carrier, incorporated according to the laws of the Republic of Colombia which provides
domestic and international air transportation for passengers, cargo, and mail.
In October 2016, Copa Colombia officially launched “Wingo” a new low-cost business model. Wingo operates administratively
and functionally under Copa Colombia, with an independent structure for its commercialization, distribution systems and customer
service. Wingo began operations on December 1st, 2016, currently flights to 14 destinations, 6 domestic and 8 international, in 8
countries in South, Central America and the Caribbean.
OVAL: incorporated according to the laws of the British Virgin Islands, it controls the special-purpose entities that have a
beneficial interest in the majority of the Company’s fleet, which is leased to either Copa Airlines or Copa Colombia.
The Company currently offers approximately 347 daily scheduled flights to 75 destinations in 31 countries in North, Central and South
America and the Caribbean, mainly from its Panama City Hub. Additionally, the Company provides passengers with access to flights to
more than 200 international destinations through codeshare agreements. The Company is part of Star Alliance, the leading global airline
network since June 2012.
The Company has a broad commercial alliance with United Continental Holdings, Inc. (“United”), which was renewed during May
2016, for another five years. This Alliance includes an extensive and expanding code-sharing and technology cooperation. The
Company participated in United’s Mileage Plus frequent flyer loyalty program until June 30, 2015.
On July 1, 2015, Copa Airlines started its new loyalty program “ConnectMiles”, designed to strengthen the relationship with its
frequent flyers and provide exclusive attention. The program maintains the mile accumulation and redemption model that Copa
Airlines’s passengers have enjoyed in recent years in United’s Mileage Plus frequent flyer loyalty program. ConnectMiles members are
eligible to earn and redeem miles to any of Star Alliance’s 1,300 (unaudited) destinations in 190 countries within 28 airlines members
(unaudited).
As of December 31, 2017, the Company operates a fleet of 100 aircraft with an average age of 8.00 years, and consists of 66 Boeing
737-800 Next Generation aircraft, 14 Boeing 737-700 Next Generation aircraft and 20 Embraer E190 aircraft.
F-7
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The consolidated financial statements for the year ended December 31, 2017 have been authorized for issuance by the Company’s Chief
Executive Officer and Chief Financial Officer on April 18, 2018.
2.
Basis of preparation
Statement of compliance
The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
As used in these notes to consolidated financial statements, the terms “the Company”, “we”, “us”, “our”, and similar terms refer to
Copa Holdings, S. A. and, unless the context indicates otherwise, its consolidated subsidiaries.
Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, except for the following:
•
•
•
available-for-sale financial assets, derivative instruments, certain classes of property, plant and equipment and
investment property – measured at fair value
assets held for sale – measured at fair value less cost of disposal, and
defined benefit pension plans – plan assets measured at fair value.
Functional and presentation currency
These consolidated financial statements are presented in United States dollars (U.S. dollars “$”), which is the Company’s
functional currency and the legal tender of the Republic of Panama. The Republic of Panama does not issue its own paper
currency; instead, the U.S. dollar is used as legal currency.
All values are rounded to the nearest thousand in U.S. dollars ($000), except when otherwise indicated.
3.
Significant accounting policies
(a) Basis of consolidation
These consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Control is
achieved when the Company is exposed to, or has right to, variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the investee. Specifically, the Company controls the investee, when
it has:
•
•
•
power over the investee
exposure, or rights to, variable returns from its involvement with the investee, and
the ability to use its power over the investee to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over
the subsidiary and ceases when the Company loses control of the subsidiary.
F-8
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using
consistent accounting policies. All intercompany balances, transactions, and dividends are eliminated in full.
The following are the significant subsidiaries included in these financial statements:
Name
Copa Airlines
Copa Colombia
Oval
Country of
Incorporation
Panama
Colombia
British Virgin Islands
Ownership
interest
2017
2016
99%
99%
100%
99%
99%
100%
(b) Current versus non-current classification
The Company presents assets and liabilities in the statement of financial position based on current/non-current classification.
An asset is current when it is:
•
•
•
expected to be realized or intended to be sold or consumed in the normal operating cycle
expected to be realized within twelve months after the reporting period, or
cash or cash equivalent, unless restricted.
All other assets are classified as non-current.
A liability is current when:
•
•
•
it is expected to be settled in the normal operating cycle
it is due to be settled within twelve months after the reporting period, or
there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting
period.
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
(c) Foreign currencies
The Company’s consolidated financial statements are presented in U.S. dollars, which is the Company’s functional currency.
The Company determines the functional currency for each entity, and the items included in the financial statements of each
entity are measured using that functional currency.
Transactions and balances
Transactions in foreign currencies are initially recorded by the Company at the respective functional currency spot rates on
the date when the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot exchange rate
at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rates at the dates of the initial transactions.
F-9
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Foreign exchange gains and losses are included in the exchange rate difference line in the consolidated statement of profit or
loss for the year.
(d) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue
can be reliably measured, regardless of when the payment is made. Revenue is measured at the fair value of the consideration
received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties. The
following specific recognition criteria must also be met before revenue is recognized:
Passenger revenue
Passenger revenue is recognized when transportation is provided rather than when a ticket is sold. The amount of passenger
ticket sales, not yet recognized as revenue, is reflected under “Air traffic liability” in the consolidated statement of financial
position. The Company performs a monthly liability evaluation, and a provision is recognized for tickets that are expected
not to be used or redeemed. A year after the sales is made, all unredeemed sales are transferred from “Air Traffic liability”
and recognized as revenue, and the provision is reversed.
A significant portion of the Company’s ticket sales are processed through major credit card companies, resulting in accounts
receivable that are generally short-term in duration and typically collected prior to when revenue is recognized. The
Company believes that the credit risk associated with these receivables is minimal.
The Company is required to charge certain taxes and fees on its passenger tickets. These taxes and fees include transportation
taxes, airport passenger facility charges, and arrival and departure taxes. These taxes and fees are legal assessments on the
customer. Since the Company has a legal obligation to act as a collection agent with respect to these taxes and fees, we do
not include such amounts in passenger revenue. The Company records a liability when these amounts are collected and
derecognizes the liability when payments are made to the applicable government agency or operating carrier.
Cargo and mail revenue
Cargo and mail revenue is recognized when the Company provides and completes the shipping services as requested by the
client and the risks on the merchandise and goods are transferred.
Other operating revenue
Other operating revenue is primarily comprised of commissions earned on tickets sold for flights on other airlines, special
charges, charter flights, and other services provided to other airlines and are recognized when the transportation or service is
provided.
Frequent flyer program
On July 1, 2015, the Company launched its frequent flyer program, whose objective is to reward customer loyalty through
the earning of miles whenever the programs members make certain flights. The miles or points earned can be exchanged for
flights on Copa or any of other Star Alliance partners’ airlines.
F-10
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
When a passenger elects to receive Copa’s frequent flyer miles in connection with a flight, the Company recognizes a portion
of the tickets sale as revenue when the air transportation is provided and recognizes a deferred liability (Frequent flyer
deferred revenue) for the portion of the ticket sale representing the value of the related miles as a multiple-deliverable
revenue arrangement, in accordance with International Financial Reporting Interpretation Committee (IFRIC) 13: Customer
loyalty programs. To determine the amount of revenue to be deferred, the Company estimates and allocates the fair value of
the miles that were essentially sold along with the airfare, based on a weighted average ticket value, which incorporates the
expected redemption of miles including factors such as redemption pattern, cabin class, loyalty status and geographic region.
Furthermore, the Company estimates miles earned by members which will not be redeemed for an award before they expire
(breakage). A statistical model that estimates the percentages of points that will not be redeemed before expiration is used to
estimate breakage. The breakage and the fair value of the miles are reviewed annually.
The Company calculates the short and long-term portion of the frequent flyer deferred revenue, using a model that includes
estimates based on the members´ redemption rates projected by management due to clients’ behavior.
Currently, when a member of another carrier frequent flyer program redeems miles on a Copa Airlines or Copa Colombia
flights, those carriers pay to the Company a per mile rate. The rates paid by them depend on the class of service, the flight
length, and the availability of the reward.
In addition, the Company sells miles to non-airline businesses with which it has marketing agreements. The main contracts to
sell miles are related to co-branded credit card relationships with major banks in the region. The Company determined the
selling prices of miles according to a negotiated rate.
Prior to July 1, 2015, the Company participated in United Airlines (“United”) Mileage Plus frequent flyer program. Under
the terms of the Company’s frequent flyer agreement with United, Mileage Plus members received Mileage Plus frequent
flyer mileage credits for traveling on the Company’s flights. Copa paid United a per mile rate for each mileage credit granted
by United at the time of Copa’s flight.
The amounts paid to United were recognized by the Company as a reduction to “Passenger revenue” in the consolidated
statement of profit or loss. Upon payment the Company did not have any further obligation with respect to the mileage
credits.
(e) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position, comprise cash on hand and in banks, money market
accounts, and time deposits with original maturities of three months or less from the date of purchase.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash net of outstanding
bank overdrafts, if any. The Company has elected to present the statement of cash flows using the indirect method.
F-11
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
(f) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.
Financial assets
The Company’s financial assets include cash and cash equivalents, short and long-term investments and accounts receivable.
(i)
Initial recognition and derecognition
Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, receivables, held to
maturity investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial
assets are recognized initially at fair value plus directly attributable transaction costs, except in the case of financial assets at
fair value through profit and loss.
A financial asset is derecognized when:
•
•
the rights to receive cash flows from the asset have expired, or
the 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” arrangement, and either
(a) the Company has transferred substantially all of the risks and rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all of the risks and rewards of the asset, but has transferred control of the asset.
When the 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 asset is
recognized to the extent of the Company’s continuing involvement in the asset. In that case, the 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 Company has retained.
(ii) Measurement
The subsequent measurement of financial assets depends on their classification as described below (see also note 4, Fair
value measurement for financial assets):
•
Held to maturity investments
The Company invests in short-term deposits with original maturities of more than three months but less than one year.
Additionally, the Company invests in long-term deposits with maturities greater than one year. These investments are
classified as short and long-term investments, respectively, in the accompanying consolidated statement of financial position.
All of these investments are classified as held-to-maturity securities and are subsequently measured at amortized cost using
the Effective Interest Rate (EIR) method, less impairment, since the Company has determined that it has the intent and
ability to hold the securities to maturity.
F-12
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an
integral part of the EIR. The EIR amortization is included in finance income in the consolidated statement of profit or loss.
Restricted cash and cash equivalents are classified within short-term and long-term investments and are held as collateral for
letters of credit.
•
Receivables
Accounts receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. These financial instruments, which generally have 30 days terms, are initially recognized and carried at the original
invoice amount since recognition of interest under the amortized cost would be immaterial less a provision for impairment.
Losses arising from impairment are recognized under “Other operating expenses” in the consolidated statement of profit or
loss.
The Company records its best estimate of the provision for impairment of receivables, based on several factors, including
varying customer classifications, agreed upon credit terms, and the aging of the individual debt.
When the Company considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written
off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event
occurring after the impairment was recognized, then the previously recognized impairment loss is reversed through profit or
loss.
The Company considers that there is evidence of impairment if any of the following indicators are present:
•
•
•
•
the debtor is in a state of permanent disability
the Company has exhausted all legal and/or administrative recourse
where the account exceeds one year without decreases
when there are not documents that establishing the debt.
(iii) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when,
and only when, the Company has a legally enforceable right to set off the recognized amounts and it intends either to settle
them on a net basis or to realize the asset and settle the liability simultaneously. The legally enforceable right must not be
contingent on future events and must be enforceable in the ordinary course of business and in the event of default, insolvency
or bankruptcy of the Company or the counterparty.
Non-derivative financial liabilities
(i)
Initial recognition and derecognition
The Company’s financial liabilities include trade and other payables and loans and borrowings.
Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or
derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the
classification of its financial liabilities at initial recognition.
F-13
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly
attributable transaction costs.
Financial liabilities are derecognized when the obligation under the liability is discharged, cancelled, or expire. When an
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the
consolidated statement of profit or loss.
(ii) Measurement
The measurement of financial liabilities depends on their classification as described below:
•
Debt
All borrowings and loans are initially recognized at fair value less any directly attributable transaction costs. Subsequent to
initial recognition, these liabilities are measured at amortized cost using the effective interest rate (EIR) method. Gains and
losses are recognized in the consolidated statement of profit or loss when the liabilities are derecognized as well as through
the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an
integral part of the EIR. The EIR amortization is included under finance cost in the consolidated statement of profit or loss.
•
Other financial liabilities
Other financial liabilities are initially recognized at fair value, including directly attributable transaction costs. Subsequent to
initial recognition, they are measured at amortized cost using the EIR method.
Gains and losses are recognized in the consolidated statement of profit or loss when the liabilities are derecognized as well as
through the amortization process.
Derivative financial instruments and hedging activities
Derivative instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are
subsequently remeasured at their fair value.
Derivatives are carried as financial assets when the fair value results in a right to the Company and as financial liabilities
when the fair value results in an obligation. The accounting for changes in value depends on whether the derivative is
designated as a hedging instrument, and if so, the classification of the hedge. The fair values of various derivative
instruments used for hedging purposes are shown in note 28.7.
For hedge accounting purposes, hedges are classified into:
•
•
•
fair value hedges
cash flow hedges
hedges of a net investment in a foreign operation.
F-14
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The Company designated certain derivatives as cash flow hedges.
At the inception of a hedge relationship, the Company formally designates and documents the relationship between the
hedging instruments and the hedged items, as well as its risk management objectives and strategy for undertaking various
hedging transactions.
The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives
that are used in hedging transactions, as expected, are highly effective in offsetting changes in fair values or cash flows of
hedged items.
Any gain or loss on the hedging instrument relating to the effective portion of a cash flow hedge is recognized in the
consolidated statement of comprehensive income. The gain or loss relating to the ineffective portion is recognized
immediately in the consolidated statement of profit or loss.
Amounts recognized as other comprehensive income are transferred to the statement of profit or loss when the hedged
transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized. When the
hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognized as other comprehensive
income are transferred to the initial carrying amount of the non-financial asset or liability.
As of December 31, 2017 and 2016, the Company does not have financial instruments designated under hedge accounting.
(g)
Impairment
Impairment of financial assets
The Company assesses at the end of each reporting date whether there is objective evidence that a financial asset or group of
financial assets is impaired. An impairment exists if one or more events that have occurred since the initial recognition of the
asset (an incurred “loss event”) have an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
Evidence of impairment may include indicators that the debtors or the group of debtors are experiencing financial difficulty,
default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial
reorganization, and observable data indicating that there is a measurable decrease in the estimated future cash flows.
•
Impairment of financial assets carried at amortized cost
For financial assets carried at amortized cost, the Company first assesses whether impairment exists individually for financial
assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company
determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or
not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them
for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be,
recognized are not included in a collective assessment of impairment.
The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the
present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The
present value of the estimated future cash flows is discounted at the financial asset’s original EIR.
F-15
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The carrying amount of the asset is reduced and the loss recorded in the consolidated statement of profit or loss.
Impairment of non-financial assets
The Company assesses at each reporting date whether there is an indication that an asset or its cash-generating unit (CGU)
may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company
estimates the asset’s or CGU’s recoverable amount. The recoverable amount is the higher of an asset’s or its CGU’s fair
value less costs to sell and its value in use. 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 group 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 assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates
of future cash flows have not been adjusted.
Impairment losses of continuing operations, including impairment on inventories, are recognized in the consolidated
statement of profit or loss in those expense categories consistent with the function of the impaired asset.
For assets, excluding goodwill, an assessment is made at each reporting date to determine whether there is any indication that
previously recognized impairment losses no longer exist or may have decreased. If such indication exists, the Company
estimates 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 the
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, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the
statement of profit or loss.
(h) Expendable parts and supplies
Expendable parts and supplies for flight equipment are carried at the lower of the average acquisition cost or replacement
cost, and are expensed when used in operations. The replacement cost is the estimated purchase price in the ordinary course
of business.
(i)
Passenger traffic commissions
Passenger traffic commissions are recognized as expense when transportation is provided and the related revenue is
recognized. Passenger traffic commissions paid but not yet recognized as expense are included under “Prepaid expenses” in
the accompanying consolidated statement of financial position.
F-16
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
(j)
Property and equipment
Property and equipment comprise mainly airframe, engines, and other related flight equipment. All property and equipment
is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any.
Major maintenance events, including major engine overhauls, are capitalized and depreciated over the period until the next
major maintenance event. All other replacement spares and costs relating to maintenance of fleet assets are charged to the
consolidated statement of profit or loss on consumption or as incurred. Depreciation is calculated on a straight-line basis over
the estimated useful lives of the assets and considering the following values:
Property and equipment
Flight equipment -
Airframe and engines
Aircraft components (rotable parts)
Major maintenance events
Ramp and miscellaneous -
Ground equipment
Furniture, fixture, equipment and other
Leasehold improvements
Estimate useful
life (years)
Residual
Value
27
27
1-8
10
5-10
Lesser of remaining lease term and
estimated useful life of the leasehold
improvement
15%
15%
—
—
—
—
An item of property and equipment and any significant part initially recognized is derecognized upon disposal or when no
future economic benefits are expected from its use or disposal. 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 included in the
statement of profit or loss when the asset is derecognized.
The costs of major maintenance events for leased aircraft (including operating leases) are capitalized and depreciated over
the shorter of the scheduled usage period to the next major inspection event or the remaining life of lease term (as
appropriate).
The residual values, useful lives, and methods of depreciation of property and equipment are reviewed at each financial
year-end and adjusted prospectively, if appropriate.
During 2017, as result of the annual review of the useful life, the Company concluded that aircraft components are now
expected to remain in operations for 27 years from the purchase date.
During 2016, as result of the annual review of the useful life, the Company concluded that airframe and engines are now
expected to remain in operations for 27 years from the purchase date. As consequence the expected useful life of the fleet
decreased by 3 years (see note 13).
The land owned by the Company is recognized at cost less any accumulated impairment.
(k) Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at the
inception date. The arrangement is assessed for whether the fulfillment of the agreement is dependent on the use of a specific
asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in the
arrangement.
F-17
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
A reassessment is made after inception of the lease only if one of the following applies:
•
•
•
•
there is a change in contractual terms, other than a renewal or extension of the arrangement;
a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included
in the lease term;
there is a change in the determination of whether fulfillment is dependent on a specified asset; or
there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances
gave rise to the reassessment. When a renewal option is exercised or extension granted, lease accounting shall commence or
cease at the date of renewal or extension.
The Company as lessor
(i)
Operating leases
When assets are leased under operating leases, the asset is included in the consolidated statement of financial position
according to its nature. Revenue from operating leases is recognized over the lease term on a straight-line basis.
Initial direct costs incurred by the Company in negotiating and arranging an operating lease are added to the carrying
amount of the leased asset and recognized as an expense over the lease term on the same basis as the related lease
income.
The Company as lessee
(ii)
Operating leases
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are
classified as operating leases.
Operating lease payments are recognized as an expense in the consolidated statement of profit or loss on a straight-
line basis over the lease term.
(iii)
Finance leases
Leases where the lessor substantially transfers all the risks and benefits of ownership of the leased item are classified
as finance leases.
The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the
minimum lease payments. Minimum lease payments made under finance leases are apportioned between the finance
cost and the reduction of the outstanding liability.
The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability; these are recognized as finance costs in the consolidated statement of
profit or loss.
F-18
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Sale and leaseback transactions
The Company enters into transactions whereby aircraft are sold and subsequently leased back. The Company has not entered
into sale and leaseback transactions that resulted in finance leases.
If a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is established at fair value,
any profit or loss is recognized immediately. If the sale price is below fair value any profit is recognized immediately. If the
transaction is not at fair value, any resulting loss that is compensated for by future lease payments at below market rate is
deferred and amortized over the lease term.
(l)
Intangible assets
Goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred over the net
identifiable assets acquired and liabilities assumed of the acquired subsidiary at the date of acquisition.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
Company’s CGU or group of CGU’s that are expected to benefit from the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units. When the recoverable amount of the CGU is less than its carrying
amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
Other intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a
business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried
at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets,
excluding capitalized development costs, are not capitalized and the expenditure is reflected in the consolidated statement of
profit or loss in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over their useful economic life and assessed for impairment whenever there
is an indication that the intangible asset may be impaired. The amortization period and amortization method for an intangible
asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the
amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense
on intangible assets with finite lives is recognized in the consolidated statement of profit or loss as the expense category that
is consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually, either
individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite
life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
F-19
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Gains and losses arising from the derecognition of an intangible asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of profit or loss
when the asset is derecognized.
The Company’s intangible assets and the policies applied are summarized as follows:
•
Licenses and software rights
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific
software. These costs are amortized using the straight-line method over their estimated useful lives (from three to eight
years).
Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred.
Costs that are directly associated with the production of identifiable and unique software products controlled by the
Company and that are estimated to generate economic benefits exceeding costs beyond one year, are recognized as intangible
assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads.
These costs are amortized using the straight-line method over their estimated useful lives (from five to fifteen years).
Computer software development costs recognized as assets are amortized on a straight-line basis over their estimated useful
lives, which range between three and five years.
Licenses and software rights acquired by the Company have finite useful lives and are amortized on a straight-line basis over
the term of the contract and the amortization is recognized in the consolidated statement of profit or loss.
(m) Taxes
Income tax expense
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except when related to the items
recognized directly in equity or in other comprehensive income (“OCI”).
Current income tax
The Company pays taxes in the Republic of Panama and in other countries in which it operates, based on regulations in
effect in each respective country.
Revenue arise principally from foreign operations, and according to the Panamanian Tax Code, these foreign operations are
not subject to income tax in Panama.
The Panamanian tax code for the airline industry states that tax is based on net income earned for traffic with origin or final
destination in the Republic of Panama. The applicable tax rate is currently 25.0%. Dividends from the Panamanian
subsidiaries, are separately subject to a 10% withholding tax on the portion attributable to Panamanian sourced income and a
5% withholding tax on the portion attributable to foreign sourced income.
The Company is also subject to local tax regulations in each of the other jurisdictions where it operates, the great majority of
which are related to income taxes.
Current income tax assets and liabilities are measured at the amount expected to be paid to the taxation authorities. The tax
rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the
countries where the Company operates and generates taxable income.
F-20
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes provisions when appropriate.
Deferred tax
Deferred tax is calculated using the liability method on temporary differences 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, the carry forward of unused tax credits and
unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available
against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be
utilized, except:
•
•
when the deferred tax asset relating to the deductible temporary difference arises from initial recognition of an asset or
liability in a transaction that is not a business combination and, at the time of the transaction, affects neither
accounting profit nor taxable profit or loss.
in respect of deductible temporary differences associated with investments in subsidiaries, associates, and interests in
joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences
will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can
be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.
Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become
probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
•
•
when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable
profit or loss.
in respect of taxable temporary differences associated with investments in subsidiaries, associates, and interests in
joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is
realized or the liability settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the
reporting date.
F-21
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
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 other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets
against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
(n) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction, or production of any qualifying asset, that necessarily
takes a substantial period of time to get ready for its intended use or sale, are capitalized as part of the cost of the asset during
that period of time.
Other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs
that an entity incurs in connection with the borrowing of funds.
(o) Provisions
Provisions for costs, including restitution, restructuring and legal claims and assessments are recognized when:
•
•
•
the Company has a present legal or constructive obligation as a result of past events;
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
the amount of obligation can be reliably estimated.
For certain operating leases, the Company is contractually obliged to return the aircraft in a defined condition. The Company
accrues a provision for restitution costs related to aircraft held under operating leases throughout the duration of the lease.
Restitution costs are based on the net present value of the estimated costs of returning the aircraft and are recognized in the
consolidated statement of profit or loss under “Maintenance, materials and repairs”. These costs are reviewed annually and
adjusted as appropriate.
(p) Employee benefits
Defined benefit plan
The Company sponsors a defined benefit plan, which requires contributions to be made to a separately administered fund.
The calculation of the defined benefit obligation is performed annually by a qualified actuary using the projected unit credit
actuarial cost method (PUC).
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets and
the effect of the asset ceiling (if any), are recognized immediately in other comprehensive income. The Company determines
the net interest by applying the discount rate to the net defined benefit liability or asset. The Company recognizes the
following changes in the net defined benefit obligation in the consolidated statement of profit or loss.
F-22
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Share-based payments
Employees (including senior executives) of the Company receive compensation in the form of share-based payment
transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions).
The cost of equity-settled transactions is recognized, together with a corresponding increase in additional paid in capital in
equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized
for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has
expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. Expense or credit for
a period represents the movement in cumulative expense recognized as of the beginning and end of that period and is
recognized under “Salaries and benefits” expense in the consolidated statement of profit or loss (note 25).
Termination benefits
Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination
benefits when it is demonstrably committed to either terminating the employment of current employees according to a
detailed formal plan without realistic possibility of withdrawal, or providing termination benefits as a result of an offer made
to encourage voluntary redundancy.
4.
Significant accounting judgments, estimates and assumptions
The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates, and
assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and the accompanying disclosures and the
disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities in future periods.
Judgments
In the process of applying the Company’s accounting policies, management has made judgments, which have the most significant effect
on the amounts recognized in the consolidated financial statements in the following area:
•
Leases
The Company enters into lease contracts on some of the aircraft it operates. The Company assesses, based on the terms and conditions
of the arrangements, whether or not substantially all risks and rewards of ownership of the aircraft it leases have been
transferred/retained by the lessor to determine the appropriate accounting classification of the contracts as an operating or finance
leases.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.
F-23
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared.
Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances
arising beyond the Company’s control. Such changes are reflected in the assumptions when they occur.
•
Impairment of non-financial assets
Impairment exists when the carrying amount of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value
less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales
transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset.
The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five
years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will
enhance the asset’s performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the
discounted cash flow model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes (see note
16).
•
Property and equipment
The Company’s management has determined that the residual value of the airframe, engines, and components (rotable parts) owned is
15% of the cost of the asset, so the depreciation of flight equipment is made accordingly. Annually, management reviews the useful life
and residual value of each of these assets (see note 13).
•
Provision for return condition
The Company records a maintenance provision to accrue for the cost that will be incurred in order to return certain aircraft to their
lessor in the agreed-upon condition. The methodology applied to calculate the provision requires management to make assumptions,
including the future maintenance costs, discount rate, related inflation rates and aircraft utilization.
Any difference in the actual maintenance cost incurred and the amount of the provision is recorded in maintenance expenses in the
period. The effect of any changes in estimates, including those mentioned above, is also recognized in maintenance expenses for the
period (see note 21).
•
Share-based payments
The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at
the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most
appropriate valuation model, which is dependent 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, volatility, and dividend yield and
making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are
disclosed in note 25.
•
Revenue recognition – expired tickets
The Company recognizes estimated fare revenue for tickets that are expected to expire based on departure date (unused tickets), based
on historical data and experience. Estimating the expected expiration rate requires management’s judgment, among other things, the
historical data and experience is an indication of the future customer behavior.
F-24
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
•
Multiple deliverable revenue arrangements - Frequent flyer program
The Company recognizes a portion of the proceeds from the sale of tickets as frequent-flyer deferred revenue, reflecting the value of the
related miles earned by the passenger in a multiple element revenue arrangement. Pursuant to IFRIC 13, the Company estimates the fair
value of the miles sold along with the ticketed flight using a blended calculation of rates charged when miles are sold to other partners
and the average value of a mile flown by a customer. Also, the Company estimates and reduces the liability for the value of miles
earned but expected to expire unused, based on historical experience.
•
Taxes
The Company believes that tax positions taken are reasonable. However, in the event of an audit by the tax authorities, they may
challenge the positions taken by the Company, resulting in additional taxes and interest liabilities.
The tax positions involve considerable judgment by management and are reviewed and adjusted to account for changes in
circumstances, such as lapsing of applicable statutes of limitations, conclusion of tax audits, additional exposures based on
identification of new issues, or court decisions affecting a particular tax issue. Actual results may differ from estimates (see note 22).
•
Fair value measurement
The Company measures financial instruments such as derivatives at fair value at the date of each statement of financial position. Fair
values of financial instruments measured at amortized cost are disclosed in note 28.7.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly 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 Company.
The fair value of an asset or a 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.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by
using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best
use.
The 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 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 (see note
28.7 for further disclosures):
i)
ii)
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 fair value measurement is directly or
indirectly observable.
F-25
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
iii) Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment
is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility.
Changes in assumptions about these factors could affect the reported fair value of financial instruments.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the 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.
5. Changes in disclosures
5.1 Adoption of new and amended standards and interpretations
The Company applied for the first time certain amendments to the standards, which are effective for annual periods beginning on or
after January 1, 2017. The Company has not early adopted any standards, interpretations or amendments that have been issued but are
not yet effective.
•
Amendments to IAS 7 Statement of cash flows: disclosure initiative
The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). The Company has provided the
information for the current period in note 18.
•
Other standards
The following amendments effective for annual periods beginning on or after January 1, 2017, had no impact on the company’s
financial statements:
Annual Improvements Cycle - 2014-2016: IFRS 12 ’Disclosure of interests in other entities’ regarding clarification of the scope
of the standard.
Amendments to IAS 12 Income Taxes: recognition of deferred tax assets for unrealized losses
5.2 Change in accounts classifications
Consolidated statement of financial position
As disclosed in the table below, certain retrospective corrections have been made to the December 31, 2016 consolidated statement of
financial position to conform to the 2017 presentation. The movement between current and non-current liabilities corresponds to the
classification to non-current liabilities of a portion of the provision for maintenance. This provision include the accrual of formal
agreements with third parties for operational maintenance events, the Company has determined that a part of this provision is not going
to be settled within 12 months after the reporting period.
Additionally, the Company is adjusting the presentation of the prepaid income tax, previously presented within taxes and interest
payables.
F-26
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The following table reconcile the changes in presentation in prior years for comparative effects on the consolidated statement of
financial position:
Current liabilities
Taxes and interest payable
Accrued expenses payable
Income tax payable
Non-current liabilities
Other long-term liabilities
Consolidated statement of profit or loss
As previosly
reported
$ 47,389
$ 80,116
$ 22,495
$ 72,694
2016
(Adjusted)
$ 68,483
$ 44,362
$ 1,401
Reclasification
21,094
(35,754)
(21,094)
$
$
$
$
35,754
$108,448
The Company has historically presented its IFRS consolidated statement of profit or loss “by nature and function on a ‘mixed basis” as
permitted by IAS 1. During February 2017, the Company introduced a new business, planning and financial consolidation accounting
system, with the objective of improving and giving greater uniformity to the structure and presentation of the consolidated financial
statements. While the Company continues to present its consolidated income statement “by nature and function on a ‘mixed basis”, a
new chart of accounts was implemented resulting in the reclassification of certain lines in the consolidated financial statements, as well
as certain new financial statement line items. In the accompanying consolidated statements, prior periods have been retrospectively
reclassified giving effect to the new classifications. The Company does not believe these reclassifications significantly affect its
previously reported financial statements, nor do they have any significant impact on previously reported Key Performance Indicators
(KPIs) or debt covenant compliance. There was also no impact on the Company’s basic or diluted earnings per share and no impact on
the total operating, investing or financing cash flows for the years ended December 31, 2016 and 2015.
F-27
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The following tables discloses both previously reported and as adjusted amounts of the consolidated statements of profit or loss:
Operating revenue
Passenger revenue
Cargo and mail revenue
Other operating revenue
Operating expenses
Fuel
Wages, salaries, benefits and other
employees’ expenses
Passenger servicing
Airport facilities and handling charges
Sales and distribution
Maintenance, materials and repairs
Depreciation and amortization
Flight operations
Aircraft rentals and other rentals
Cargo and courier expenses
Other Operating and administrative expenses
Operating profit
Non-operating income (expense)
Finance cost
Finance income
(Loss) Gain on foreign currency fluctuations
Net change in fair value of derivatives
Other non-operating expense
Profit (loss) before taxes
Income tax expense
Net profit (loss)
2016
(Adjusted)
$2,155,167
53,989
12,696
2,221,852
528,996
370,190
86,329
159,771
193,984
121,781
159,278
88,188
138,885
6,099
92,215
1,945,716
276,136
(37,024)
13,000
13,043
111,642
(3,982)
96,679
372,815
(38,271)
Operating revenue
Passenger revenue
Cargo, mail and other
Operating expenses
Aircraft fuel
Salaries and benefits
Passenger servicing
Commissions
Reservations and sales
Maintenance, material and repairs
Depreciation, amortization and impairment
Flight operations
Aircraft rentals
Landing fees and other rentals
Other
Operating profit
Non-operating income (expense)
Finance cost
Finance income
Exchange rate difference, net
Mark to market derivative income (expense)
Other income
Other expense
Profit (loss) before taxes
Income tax expense
2016
(Previously
reported)
$2,133,186
88,663
2,221,849
527,918
293,044
259,524
83,981
99,918
122,873
159,278
127,777
120,841
55,498
94,584
1,945,236
276,613
(37,024)
13,000
13,043
111,642
2,888
(7,347)
96,202
372,815
(38,271)
$ 334,544
Net profit (loss)
$ 334,544
F-28
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Operating revenue
Passenger revenue
Cargo and mail revenue
Other operating revenue
Operating expenses
Fuel
Wages, salaries, benefits and other
employees’ expenses
Passenger servicing
Airport facilities and handling charges
Sales and distribution
Maintenance, materials and repairs
Depreciation and amortization
Flight operations
Aircraft rentals and other rentals
Cargo and courier expenses
Other Operating and administrative expenses
Operating profit
Non-operating income (expense)
Finance cost
Finance income
(Loss) Gain on foreign currency fluctuations
Net change in fair value of derivatives
Other non-operating expense
Profit (loss) before taxes
Income tax expense
Net profit (loss)
2015
(Adjusted)
$2,185,465
56,738
11,507
2,253,710
603,760
373,631
84,327
148,078
188,961
111,178
134,888
86,461
142,177
6,471
105,484
1,985,416
268,294
(33,155)
25,947
(440,097)
(11,572)
(1,632)
(460,509)
(192,215)
(32,759)
$ (224,974)
Operating revenue
Passenger revenue
Cargo, mail and other
Operating expenses
Aircraft fuel
Salaries and benefits
Passenger servicing
Commissions
Reservations and sales
Maintenance, material and repairs
Depreciation, amortization and impairment
Flight operations
Aircraft rentals
Landing fees and other rentals
Other
Operating profit
Non-operating income (expense)
Finance cost
Finance income
Exchange rate difference, net
Mark to market derivative income (expense)
Other income
Other expense
Profit (loss) before taxes
Income tax expense
Net profit (loss)
2015
(Previously
reported)
$2,166,727
83,335
2,250,062
602,777
289,512
258,302
88,557
88,051
111,181
134,888
130,930
122,217
56,703
100,856
1,983,974
266,088
(33,155)
25,947
(440,097)
(11,572)
7,025
(6,451)
(458,303)
(192,215)
(32,759)
$ (224,974)
6. New standards and interpretations not yet adopted
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements
are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.
As part of the implementation of IFRS 9 Financial instruments, IFRS 15 Revenue from contracts with customers and IFRS 16 Leases,
the Company has actively participated in a specialized airline industry accounting group, which is comprise of by various airline
members, accounting firms and the staff of the International Air Transport Association (IATA). The objective of this group is to discuss
the nature and volume of implementation questions to adopt uniform accounting policies about these new standards within the airline
industry.
IFRS 15 Revenue from contracts with customers
The new standard provides a framework that replaces existing revenue recognition guidance in IFRS. Entities will apply a five-step
model to determine when to recognize revenue, and at what amount.
F-29
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
During April 2016, the IASB issued an amendment to this standard, introducing some clarification and guidance to identifying
performance obligations, accounting for licenses of intellectual property and the principal versus agent assessment.
The model specifies that revenue should be recognized when (or as) an entity transfers control of goods or services to a customer at the
amount to which the entity expects to be entitled.
Depending on whether certain criteria are met, revenue is recognized:
•
•
over time, in a manner that depicts the entity’s performance; or
at a point in time, when control of the goods or services is transferred to the customer.
The Company plans to adopt IFRS 15 in its consolidated financial statements for the annual period beginning on January 1, 2018, using
the full retrospective approach. The comparative results included in the 2018 financial statements will be restated with an adjustment to
the opening equity at December 31, 2016.
The Company´s decision to adopt retrospectively was the result of a number of factors considering the time, effort and cost involved in
doing so when compared to the benefits to users of the consolidated financial statements.
The Company has carried out an evaluation and implementation process, culminating at the end of the 2017 period. The Company’s
analysis has resulted in a number of impacts on its consolidated financial statements, due to changes mainly related to the revenue
recognition of passenger services.
The following are the causes of the impacts related to the process of adoption of the new standard:
•
•
•
Ancillary services: considerations about these contracts are at what level and when revenues take place. This was evaluated
under the performance obligations criteria, including services such as excess baggage fees, exchange fees, upgrades fees and
other fees. The main change is the recognition of revenue from the sales date to the departure date, the moment when the
performance obligations are fulfilled. Under the new standard these deliverables are considered a single performance
obligation, which will not exist without the main performance obligation, the travel service that is fulfilled at departure date.
Loyalty program contract: considerations about loyalty point valuations, related to co-brand contracts. Multiple deliverable
in this contract relate to points earn by the passenger and marketing related to the credit card with the financial entities were
changed from a residual method to a method which allocates consideration based upon the relative selling price of the
deliverables. The relative selling price of the deliverables is determined based upon the estimated standalone selling prices of
each deliverable in the arrangement. Due to this assessment, the value applied to miles earned under the co-brand agreements
will be adjusted, changing the amount of revenue recognized from the inceptions of these contracts.
Denied board compensation: considerations about whether this performance obligation should be recognized as an
operational expense or be allocated against the revenue. This impact consist in the reclassification of this type of
performance obligation from the operational expense to contra revenue.
F-30
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
•
Classification of revenue streams: certain revenues that are currently presented as passenger revenue will be reclassified to
other revenue. We expect that these revenues will be reclassified between passenger revenue, other revenue and operational
expenses after the adoption. This reclassification occurs due to the analysis and classification of each contract according to
each associated performance obligations. Some of this concepts include charter flights, publicity and fees related to cobrand
agreements.
The impact of the adoption of the new standard on the Company’s equity, as at January 1, 2018, is based on assessments undertaken to
date and is summarized below. The actual impacts of adopting the standard, at January 1, 2018, may be subject to changes arising from
further reasonable and supportable information being made available to the Company during 2018.
For the period 2017, the Company’s consolidated statement of financial position and the consolidated statement of profit or loss
presents the following impacts due to the adoption of the new standard:
ASSETS
Current assets
Non - current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Air traffic liability
Frequent flyer deferred revenue
Income tax payable
Other current liabilities
Non - current liabilities
Frequent flyer deferred revenue
Other non - current liabilities
Total liabilities
Equity
Issued capital
Additional paid in capital
Treasury stock
Retained earnings
Net income
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
2017
Transition impact
$1,198,488
3,054,443
$4,252,931
$ 470,693
13,186
3,700
570,813
1,058,392
33,115
1,049,929
1,083,044
2,141,436
28,496
72,953
(136,388)
1,780,299
370,023
(3,888)
2,111,495
$4,252,931
—
6,475
4,011
(820)
9,666
—
9,666
(4,524)
(5,142)
(9,666)
—
2017
under IFRS15
1,198,488
3,054,443
4,252,931
477,168
17,197
2,880
570,813
1,068,058
33,115
1,049,929
1,083,044
2,151,102
28,496
72,953
(136,388)
1,775,775
364,881
(3,888)
2,101,829
4,252,931
F-31
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Operating revenue
Passenger revenue
Cargo and mail revenue
Other operating revenue
Operating expenses
Other operating expenses
Sales and distribution
Operating profit
Non - operating income (expense)
Profit (loss) before taxes
Income tax expense
Net profit (loss)
2017
Transition impact
2017
under IFRS15
$2,462,419
55,290
9,847
2,527,556
1,887,082
200,413
2,087,495
440,061
(22,038)
(22,038)
418,023
(48,000)
370,023
(18,442)
12,672
(5,770)
(157)
(157)
(5,613)
—
(5,613)
471
(5,142)
2,443,977
55,290
22,519
2,521,786
1,887,082
200,256
2,087,338
434,448
(22,038)
(22,038)
412,410
(47,529)
364,881
The main components of the adjustment, for the period, are as follows:
•
•
•
•
An increase of $6.4 million and $4.0 million in Air traffic liability and Frequent flyer deferred revenue, due to the change in
the timing of revenue recognition related to exchange fee and other ancillary, from the sales date, to the departure date, and
the change in the amount deferred for mileages credits due to sales from co-brand partner agreements resulting from the
change from the residual method to the relative selling price method, respectively.
A decrease of $4.5 million in retained earnings due to the impacts of the 2016 period.
A decrease of $18.4 million in Passenger revenue by: $2.8 million due to the change in the timing of revenue recognition
related to exchange fee and other ancillary, from the sales date, to the departure date; $15.4 million due to the reclassification
between Passenger revenue and Other operating revenue of the revenue related to the sale and transfer of miles and cobrand
agreements from our frequent flyer program, the sale of advertising space, and charter flights; and $0.2 million due the
reclassification of denied board compensation from the Sales and distribution operating expenses to Passenger revenue.
An increase of $12.7 million in Other operating revenue by: a decrease of $2.7 million due to the change in the amount
deferred for mileages credits due to sales from co-brand partner agreements resulting from the change from the residual
method to the relative selling price method; and an increase of $15.4 million due to the reclassification between Passenger
revenue and Other operating revenue of the revenue related to the sale and transfer of miles and cobrand agreements from
our frequent flyer program, the sale of advertising space, and charter flights.
•
A decrease of $0.4 million in Income tax expense, and Income tax payable as a result of the transitions impacts.
F-32
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
For the period 2016, the Company’s consolidated statement of financial position and the consolidated statement of profit or loss
presents the following impacts due to the adoption of the new standard:
ASSETS
Current assets
Non - current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Air traffic liability
Frequent flyer deferred revenue
Income tax payable
Other current liabilities
Non - current liabilities
Frequent flyer deferred revenue
Other non - current liabilities
Total liabilities
Equity
Issued capital
Additional paid in capital
Treasury stock
Retained earnings
Net income
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
2016
Transition impact
$1,069,391
2,776,722
$3,846,113
$ 396,237
9,044
22,495
470,660
898,436
26,324
1,079,082
1,105,406
2,003,842
28,454
64,986
(136,388)
1,552,547
334,544
(1,872)
1,842,271
$3,846,113
—
3,559
1,314
(349)
4,524
—
4,524
(2,354)
(2,170)
(4,524)
—
2016
under IFRS15
1,069,391
2,776,722
3,846,113
399,796
10,358
22,146
470,660
902,960
26,324
1,079,082
1,105,406
2,008,366
28,454
64,986
(136,388)
1,550,193
332,374
(1,872)
1,837,747
3,846,113
F-33
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Operating revenue
Passenger revenue
Cargo and mail revenue
Other operating revenue
Operating expenses
Other operating expenses
Sales and distribution
Operating profit
Non - operating income (expense)
Profit (loss) before taxes
Income tax expense
Net profit (loss)
2016
Transition impact
2016
under IFRS15
$2,155,167
53,989
12,696
2,221,852
1,751,732
193,984
1,945,716
276,136
96,679
96,679
372,815
(38,271)
334,544
(6,666)
4,000
(2,666)
(147)
(147)
(2,519)
—
(2,519)
349
(2,170)
2,148,501
53,989
16,696
2,219,186
1,751,732
193,837
1,945,569
273,617
96,679
96,679
370,296
(37,922)
332,374
The main components of the adjustment, for the period 2016, are as follows:
•
•
•
•
An increase of $3.6 million, and $1.3 million in Air traffic liability and Frequent flyer deferred revenue, due to the change in
the timing of revenue recognition related to exchange fee and other ancillary, from the sales date, to the departure date, and
the change in the amount deferred for mileages credits due to sales from co-brand partner agreements resulting from the
change from the residual method to the relative selling price method product, respectively.
A decrease of $2.4 million in retained earnings by: $2.2 million due to the change in the timing of revenue recognition
related to exchange fee and other ancillary, from the sales date, to the departure date; and $0.2 million due to the change in
the amount deferred for mileages credits due to sales from co-brand partner agreements resulting from the change from the
residual method to the relative selling price method. This effect is the product of the impact of the 2015 period.
A decrease of $6.7 million in Passenger revenue by: $1.4 million due to the change in the timing of revenue recognition
related to exchange fee and other ancillary, from the sales date, to the departure date; $5.1 million due to the reclassification
between Passenger revenue and Other operating revenue of the revenue related to the sale and transfer of miles and cobrand
agreements from our frequent flyer program, the sale of advertising space, and charter flights; and $0.2 million due the
reclassification of denied board compensation from the Sales and distribution operating expenses to Passenger revenue.
An increase of $4.0 million in Other operating revenue by: an increase of $5.1 million due to the reclassification
between Passenger revenue and Other operating revenue of the revenue related to the sale and transfer of miles and cobrand
agreements from our frequent flyer program, the sale of advertising space, and charter flights; and a decrease of $1.1 million
due to the change in the amount deferred for mileages credits due to sales from co-brand partner agreements resulting from
the change from the residual method to the relative selling price method.
F-34
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
•
A decrease of $0.3 million in Income tax expense, and Income tax payable as a result of the transitions impacts.
The presentation and disclosure requirements in IFRS 15 are more detailed than under current IFRS.
IFRS 9 Financial Instruments
The new standard includes revised guidance on the classification and measurement of financial assets, including impairment, and
supplements the new hedge accounting principles published in 2013. IFRS 9 contains three main classification categories for financial
assets measured at: amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss
(FVTPL). Otherwise, the new standard retains almost all of the existing requirements for financial liabilities in IAS 39 Financial
Instruments: Recognition and Measurement.
The Company plans to adopt the new standard on the required effective date and will not restate comparative information. The
Company will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to
classification and measurement (including impairment) changes.
During 2017, the Company has performed an assessment of all three aspects of IFRS 9: classification and measurement, impairment
and hedge accounting. This assessment is based on currently available information and may be subject to changes arising from further
reasonable and supportable information being made available to the Company during 2018, when the Company will adopt this standard.
•
Classification and measurement
The Company does not expect a significant impact on its consolidated statement of financial position on applying the classification and
measurement requirements of IFRS 9, trade receivables and investments are held to collect contractual cash flows and are expected to
give rise to cash flows representing solely payments of principal and interest. The Company analyzed the contractual cash flow
characteristics of those instruments and concluded that they meet the criteria for amortized cost measurement under IFRS 9 therefore;
reclassification for these instruments is not required.
There will be no impact on the Company’s accounting for financial liabilities, as the new requirements only affect the accounting for
financial liabilities that are designated at fair value through profit or loss and the Company as of December 31, 2017 does not have any
such liabilities.
•
Impairment
The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only
incurred credit losses as is the case under IAS 39. The Company will apply the simplified approach and record lifetime expected losses
on all trade receivables. The Company does not expect a material increase in the provision for impairment of accounts receivable due
the application this method.
•
Hedge accounting
As of December 31, 2017, the Company does not have financial instruments designated under hedge accounting.
F-35
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
•
Other
The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the
nature and extent of the Company’s disclosures about its financial instruments particularly in the year of the adoption of the new
standard.
Amendments to IFRS 9 Financial instruments
This amendment was issue in October, 2017 and confirm when a financial liability measured at amortized cost is modified without this
resulting in de-recognition, a gain or loss should be recognized immediately in profit or loss.
The gain or loss is calculated as the difference between the original contractual cash flows and the modified cash flows discounted at
the original effective interest rate. This means that the difference cannot be spread over the remaining life of the instrument which may
be a change in practice from IAS 39.
The Amendment is mandatory for annual reporting periods beginning on or after January 1, 2019, with earlier application permitted.
The Amendment is required to be applied retrospectively.
The Amendment provides specific transition provisions if it is only applied in 2019 rather than in 2018 with the remainder of IFRS 9:
•
•
•
The Company must revoke its application of the fair value option if, as a result of the Amendment, an accounting mismatch
no longer exists, and may newly designate a financial asset or liability to be measured at fair value though profit or loss if a
new accounting mismatch is created.
Restatement of prior periods is not required and is only permitted if such restatement is possible without the use of hindsight.
Additional disclosures must be made to describe the effect of applying the Amendment and any changes to the use of the fair
value option.
During 2018, the Company will assess the impact on its consolidated financial statements resulting from the application of this
amendment.
IFRS 16 Leases
This standard was issued in January 2016 and sets out the principles for the recognition, measurement, presentation and disclosure of
leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 eliminates the classification of leases
as either operating leases or finance leases for a lessee. Instead all leases are treated in a similar way to finance leases under IAS 17
Leases.
The lessee is required to recognize the present values of future lease payments and showing them either as lease assets (right-of-use
assets “ROU”) or together with property, plant and equipment, and also recognizing a financial liability representing its obligation to
make future lease payments. Lessees will be required to separately recognise the interest expense on the lease liability and the
depreciation expense on the ROU. IFRS 16 does not require a company to recognize assets and liabilities for (a) short-term leases (i.e.
leases of 12 months or less), and (b) leases of low-value assets.
As a lessee, the Company can either apply the standard using a:
•
•
retrospective approach; or
modified retrospective approach with optional practical expedients.
F-36
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
As a lessor, the Company´s accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17.
The new standard is effective for annual periods beginning on or after January 1, 2019, early adoption is permitted for entities that apply
IFRS 15. The Company is evaluating some implementation topics, including, but not limited to:
•
•
•
•
assessment of the maintenance obligation as part of the ROU of the leased aircraft
assessment of the lease term
contracts in the airports, hub and non-hub, about if there is genuine right of substitution of the airport
determination of the discount rate in the calculation of ROU.
The Company is assessing the potential impact on its consolidated financial statements but has not yet completed its detailed
assessment. The actual impact of applying IFRS 16 on its initial application will depend of future economic conditions, including the
Company’s borrowing rate at January 1, 2019, the composition of the Company’s lease portfolio at that date, the latest assessment about
the exercise of renewal options, among others.
The most significant impact identified is that the Company will recognize new assets and liabilities for its aircraft under operating
leases. As of December 31, 2017, the Company’s future minimum lease payments under non-cancellable aircraft operating leases
amount to $400.8 million on an undiscounted basis (see note 14). No significant impact is expected for the Company’s finance leases.
In the case of operating leases of facilities as real estate, airport and terminals, sales offices, and general offices, the Company is
assessing which of these contracts meet the definition of a lease within the scope of IFRS 16.
In 2018, the Company will continue to assess the potential effect of IFRS 16 on its consolidated financial statements and covenant
compliance, and expects to disclose quantitative information before adoption. The Company intends to apply the retrospective transition
approach and will restate comparative amounts for the year prior to first adoption.
IFRIC 23 Uncertainty over income tax treatments
This IFRIC was issue in June, 2017 and clarifies how the recognition and measurement requirements of IAS 12 Income taxes, are
applied where there is uncertainty over income tax treatments.
The IFRIC had clarified previously that IAS 12, not IAS 37 ‘Provisions, contingent liabilities and contingent assets’, applies to
accounting for uncertain income tax treatments. IFRIC 23 explains how to recognize and measure deferred and current income tax
assets and liabilities where there is uncertainty over a tax treatment.
An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be
accepted by the tax authority. For example, a decision to claim a deduction for a specific expense or not to include a specific item of
income in a tax return is an uncertain tax treatment if its acceptability is uncertain under tax law. IFRIC 23 applies to all aspects of
income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of
assets and liabilities, tax losses and credits and tax rates.
F-37
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The Interpretation is applicable for annual reporting periods beginning on or after January 1, 2019; it provides a choice of two transition
approaches:
•
•
full retrospective using IAS 8, only if the application is possible without the use of hindsight; or
modified retrospective with the cumulative effect of the initial application recognized as an adjustment to equity on the date
of initial application. In this approach, comparative information is not restated.
During 2018, the Company will continue to assess the possible impact, if any, on its consolidated financial statements resulting from the
application of this amendment.
Amendments to IFRS 2 Share-based payments
This amendment address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment
transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and
accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash
settled to equity settled.
The amendment is effective for annual periods beginning on or after January 1, 2018. Based on the actual share-based payment plans,
the Company does not expect any impact.
Amendments to IFRS 4 Insurance contracts
The amended standard will give all companies that issue insurance contracts the option to recognize in other comprehensive income,
rather than in profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts standard is issued;
and give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS
9 until 2021. The entities that defer the application of IFRS 9 will continue to apply the existing standard IAS 39.
The amendment is effective for annual periods beginning on or after January 1, 2018, and will not be relevant to the Company.
Amendment to IAS 40 Investment property
These amendments clarify when an entity should transfer property into, or out of investment property. The amendments state that a
change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the
change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use.
The amendment is effective for annual periods beginning on or after January 1, 2018, and is not expected to be relevant to the
Company, since does not have any investment property.
Annual Improvements Cycle 2014–2016
These amendments impact two standards:
•
•
IFRS 1,’ First-time adoption of IFRS’, regarding the deletion of short-term exemptions for first-time adopters regarding
IFRS 7, IAS 19, and IFRS 10 effective January, 1 2018.
IAS 28,’Investments in associates and joint ventures’ regarding measuring an associate or joint venture at fair value effective
January, 1 2018.
The amendments are not expected to be relevant to the Company.
F-38
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Amendment to IAS 28 - Investments in Associates and Joint Ventures
This Amendment was issue in October, 2017 and clarify that companies account for long-term interests in an associate or joint venture
to which the equity method is not applied using IFRS 9.
The Amendment is mandatory for annual reporting periods beginning on or after January 1, 2019, and is not expected to be relevant to
the Company.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance
contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance
Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and
reinsurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with
discretionary participation features.
IFRS 17 is effective for reporting periods beginning on or after January 1, 2021 with comparative figures required. Early application is
permitted; provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not
applicable to the Company.
IFRIC 22 Foreign currency transactions and advance consideration
This IFRIC addresses foreign currency transactions or parts of transactions where there is a consideration that is denominated or priced
in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where
multiple payments/receipts are made. The guidance aims to reduce diversity in practice.
The amendment is effective for annual periods beginning on or after January 1, 2018, since the Company’s current practice is in line
with the Interpretation, the Company does not expect any effect on its consolidated financial statements.
7.
Segment reporting
The Company’s business activities are conducted as one operating segment – Air transportation, the reporting results of which are
regularly reviewed by management for purposes of analyzing its performance and making decisions about resource allocations.
Information concerning operating revenue by geographic area for the period ended December 31 is as follows (in millions):
North America
Panama
Central America and the Caribbean
Brazil
Colombia
Others South America
2017
$ 610.0
413.5
275.3
363.7
197.9
667.2
$2,527.6
2016
$ 638.9
371.6
273.6
245.4
146.1
546.2
$2,221.8
2015
$ 559.6
374.2
289.0
290.6
174.2
566.1
$2,253.7
F-39
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The Company attributes revenue to the geographic areas based on point of sales. Our tangible assets and capital expenditures consist
primarily of flight and related ground support equipment, which is mobile across geographic markets and, therefore, has not been
allocated.
8. Cash and cash equivalents
Checking and saving accounts
Time deposits of no more than ninety days
Overnight deposits
Cash on hand
2017
$145,283
30,000
63,157
352
$238,792
2016
$173,943
57,500
99,933
311
$331,687
As of December 31, 2017 and 2016, the Company’s cash and cash equivalents are free of restriction or charges that could limit its
availability.
Time deposits earned interest based on rates determined by the banks in which the instruments are held, ranging between 1.49% and
1.58% for U.S. dollars investments until December 2017 (2016: between 0.42% and 1.00%).
9.
Investments
Short-term
Time deposits between 90 and 365 days
Long-term
Time deposits of more than 365 days
2017
2016
$705,108
$705,108
$483,002
$483,002
$ 65,953
$ 65,953
$
$
953
953
Time deposits earned interest based on rates determined by the banks in which the instruments are held. The use of the time deposits
depends on the cash requirements of the Company and bear interest at rates ranging between 1.37% and 3.75% for investments
denominated in U.S. dollars (2016: between 1.00% and 3.75%).
During 2017, the Company acquired time deposits denominated in U.S. dollars with a contractual maturity of more than 365 days and
bear interest at rates ranging between 3.20% and 3.75%.
F-40
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
10. Accounts receivable
Credit cards
Travel agencies and airlines clearing house
Cargo, mail and other travel agencies
Trade receivables due from related parties
Government
Other
Provision for impairment
Current
Non-current
2017
$ 64,420
36,640
6,798
318
6,216
7,366
121,758
2016
$ 65,052
36,318
9,278
499
1,957
6,735
119,839
(3,673)
(3,739)
$118,085
115,641
2,444
$118,085
$116,100
114,143
1,957
$116,100
See detail of trade receivables due from related parties in note 23.
As of December 31, 2017, the Company maintained a non-current account receivable with a government institution in the amount of
$2.4 million (2016: $1.9 million).
The maturity of the portfolio at each year-end is as follows:
Neither past due nor impaired
Past due 1 to 30 days
Past due 31 to 60 days
More than 60 days
Impaired
Total accounts receivable
2017
$115,685
1,286
617
497
118,085
3,673
$121,758
2016
$110,524
711
914
3,951
116,100
3,739
$119,839
Neither past due nor impaired accounts receivable are those that do not show delays in their payments, according to the payment date
agreed with the customer.
Movements in the provision for impairment of receivables are as follows:
Balance at beginning of year
(Additions) reversals
Write-offs
Balance at end of year
2017
$(3,739)
(879)
945
$(3,673)
2016
$(2,997)
(1,511)
769
$(3,739)
2015
$(3,691)
71
623
$(2,997)
F-41
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
11. Expendable parts and supplies
Material for repair and maintenance
Other inventories
Allowance for obsolescence
2017
$79,424
3,058
82,482
2016
$71,876
3,101
74,977
(657)
(475)
$81,825
$74,502
Expendable parts and supplies recognized as an expense in the accompanying consolidated statement of profit or loss under
“Maintenance, materials and repairs” amount to $ 28.1 million, $24.7 million and $27.2 million, for the years ended December 31,
2017, 2016 and 2015, respectively.
12. Prepaid expenses
Prepaid taxes
Prepaid commissions
Prepaid rent
Prepaid insurance
Prepaid other
Current
Non-current
2017
$38,672
5,297
7,479
207
19,896
$71,551
45,421
26,130
$71,551
2016
$39,153
4,649
6,707
772
33,524
$84,805
58,407
26,398
$84,805
Prepaid taxes include $12.5 million of tax advance of VAT and withholdings taxes (2016: $12.7 million). The non-current portion of
prepaid expenses corresponds to $12.9 million (2016: $14.8 million) of advance payments of taxes which are credited to future
payments from tax dividends in Panama and $13.2 million in tax credits (2016: $11.5 million).
“Prepaid other” mainly includes operating expenses related to management of fuel and maintenance services. As of December 31, 2017,
“Prepaid other” includes $4.0 million (2016: $20.0 million) paid in advance to GE Engines Services, LLC, for the purpose of future
maintenance services related to aircraft engines.
F-42
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
13. Property and equipment
Land
Flight
equipment
Purchase
deposits for flight
equipment
Ramp and
miscellaneous
Furniture,
fixtures,
equipment a
and other
Leasehold
improvements
Construction
in progress
Total
Cost -
Balance at January 1,
2015
$6,301 $2,707,019 $
321,175 $
39,740 $ 25,308 $
28,580 $
7,716 $3,135,839
Transfer of
pre-delivery
payments
Additions
Disposals
Reclassifications
Balance at December 31,
—
—
—
—
161,169
178,582
(16,773)
364
(161,169)
83,064
—
—
—
2,827
(25)
495
—
2,269
(864)
(766)
—
3,190
(881)
4,977
—
9,751
(2,343)
(5,070)
—
279,683
(20,886)
—
2015
$6,301 $3,030,361 $
243,070 $
43,037 $ 25,947 $
35,866 $
10,054 $3,394,636
Transfer of
pre-delivery
payments
Additions
Disposals
Adjustments
Reclassifications
Balance at December 31,
—
—
—
—
—
27,585
94,348
(36,812)
100
(340)
(27,585)
34,680
—
—
—
—
3,026
(604)
—
(289)
—
1,878
(1,226)
2,363
645
—
73
(98)
—
9,140
—
7,435
—
—
(10,896)
—
141,440
(38,740)
2,463
(1,740)
2016
$6,301 $3,115,242 $
250,165 $
45,170 $ 29,607 $
44,981 $
6,593 $3,498,059
Transfer of
pre-delivery
payments
—
—
Additions
Disposals
—
Reclassifications —
Balance at December 31,
28,674
158,557
(54,114)
3,870
(28,674)
192,196
(54)
—
—
1,461
(228)
1,950
—
3,392
(711)
(4,764)
—
1,614
—
3448
—
5,246
—
(6,061)
—
362466
(55,107)
(1,557)
2017
$6,301 $3,252,229 $
413,633 $
48,353 $ 27,524 $
50,043 $
5,778 $3,803,861
Accumulated depreciation -
Balance at January 1,
2015
$ — $ (567,341) $
— $
(26,560) $ (18,197) $
(18,405) $
— $ (630,503)
Depreciation for the
year
Disposals
Reclassifications
Balance at December 31,
—
—
—
(117,385)
13,341
(39)
—
—
—
(3,214)
23
1,202
(2,774)
581
(1,501)
(4,229)
177
338
—
—
—
(127,602)
14,122
—
2015
$ — $ (671,424) $
— $
(28,549) $ (21,891) $
(22,119) $
— $ (743,983)
Depreciation for the
year
Disposals
Adjustments
Reclassifications
Balance at December 31,
—
—
—
—
(132,802)
13,587
(14)
(99)
—
—
—
—
(3,724)
524
—
(116)
(2,284)
1,220
(2,667)
41
(4,246)
12
—
174
—
—
—
—
(143,056)
15,343
(2,681)
—
2016
$ — $ (790,752) $
— $
(31,865) $ (25,581) $
(26,179) $
— $ (874,377)
Depreciation for the
year
Disposals
Reclassifications
—
—
—
(145,209)
51,233
(1,335)
—
—
—
(3,811)
200
(1,540)
(2,192)
704
4,110
(4,505)
—
(1,235)
—
—
—
(155,717)
52,137
—
Balance at December 31,
2017
Carrying amounts -
At December 31,
$ — $ (886,063) $
— $
(37,016) $ (22,959) $
(31,919) $
— $ (977,957)
2015
$6,301 $2,358,937 $
243,070 $
14,488 $
4,056 $
13,747 $
10,054 $2,650,653
At December 31,
2016
$6,301 $2,324,490 $
250,165 $
13,305 $
4,026 $
18,802 $
6,593 $2,623,682
At December 31,
2017
$6,301 $2,366,166 $
413,633 $
11,337 $
4,565 $
18,124 $
5,778 $2,825,904
F-43
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Flight equipment comprises aircraft, engines, aircraft components and, major maintenance.
The amount of $192.2 million corresponds to the advance payments on aircraft purchase contracts during 2017 (2016: $34.7 million),
which include $1.8 million of borrowing costs capitalized during the year ended December 31, 2017 (2016 and 2015: Nil). The rate
used to determine the amount of borrowing costs eligible for capitalization was 2.14%, which is the interest rate of the specific
borrowing (see note 18). As of December 31, 2017, the carrying amount of the asset acquired under finance leases is $535.5 million
(2016: $463.4 million).
Aircraft with a carrying value of $1.7 billion are pledged as collateral for the obligation of the special purpose entities as of
December 31, 2017 and 2016.
As of December 31, 2017 and 2016, construction in progress mainly comprises remodeling projects for airport facilities and offices, and
the construction of the new hangar.
During 2016, as a result of the annual review of the useful life, the Company concluded that airframe and engines are now expected to
remain in operation for 27 years from the purchase date. As consequence the expected useful life of the fleet decreased by 3 years. The
effects of these changes on actual and expected depreciation expense of the current fleet, included in the operational expenses in the
consolidated statement of profit or loss, amounts to $11.8 million per year.
14. Leases
Finance leases
The Company entered into finance leases of aircraft through Japanese Operating Leases with Call Option (JOLCO) arrangements.
These arrangements establish semi-annual payments of obligations, and have a minimum lease term of 10 years, with a purchase option
at the end of the lease.
As of December 31, 2017, the scheduled future minimum lease payments required under finance leases are as follows:
Up to one year
One to five years
Over five years
Total minimum lease payments
Future minimum
lease payments
46,274
$
186,344
388,005
620,623
$
Interest
$16,180
54,830
26,924
$97,934
Present value
of minimum
lease payments
45,416
$
169,383
310,388
525,187
$
As of December 31, 2016, the scheduled future minimum lease payments required under finance leases are as follows:
Up to one year
One to five years
Over five years
Total minimum lease payments
Future minimum
lease payments
39,016
$
152,880
366,131
558,027
$
Interest
$14,524
48,979
32,727
$96,230
Present value
of minimum
lease payments
38,407
$
139,322
288,638
466,367
$
F-44
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Assets acquired under finance leases are classified under property and equipment, and the finance leases are classified as long-term debt
(see note 18).
During the years ended 2017 and 2016, the Company’s non-cash investing and financing transactions include the acquisition of new
aircraft that are financed using a JOLCO structure in the amounts of $89.0 million and $46.0 million, respectively.
Operating leases
As of December 31, 2017, the scheduled future minimum lease payments required under aircraft and non-aircraft operating leases that
have initial non-cancellable lease terms in excess of one year are as follows:
Up to one year
One to five years
More than five years
Total minimum lease payments
Aircraft
$111,568
270,310
18,957
$400,835
Others
$ 14,988
74,943
17,509
$107,440
Total lease expense amount to $134.5 million for the year ended December, 31 2017 (2016: $138.8 million and 2015: $142.2 million)
included under “Aircraft rentals and other rentals” in the accompanying consolidated statement of profit or loss.
The Company leases some of the aircraft it operates under long-term lease agreements with an average duration of 10 years. Aircraft
under operating leases may be renewed in accordance with management’s business plan.
Other leased assets include real estate, airport and terminal facilities, sales offices, maintenance facilities, and general offices. Most
lease agreements include renewal options; a few have escalation clauses, but no purchase options.
Because the lease renewals are not considered to be reasonably assured, the lease payments that would be due during the renewal
periods are not included in the determination of lease expenses until the leases are renewed. Leasehold improvements are amortized
over the contractually committed lease term, which does not include the renewal periods.
Since 2015, the Company is the lessor of two aircraft, as part of the strategy of fleet management, in order to optimize the use of aircraft
in relation to the routes scheduled for that year. Each lease is scheduled to expire in 2020. The carrying amount of the two aircraft under
operating leases is up to $37.0 million (2015: $41.6 million).
Total lease income amounts to $3.5 million for the year ended December 31, 2017 (2016: $3.5 million and 2015: $1.9 million),
included under “Other operating revenue” in the accompanying consolidated statement of profit or loss.
As of December 31, 2017, future minimum lease receivables under non-cancellable leases are as follows:
Up to one year
One to five years
Total minimum lease rental payments
2017
$3,480
5,075
$8,555
2016
$ 3,480
8,555
$12,035
F-45
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
15. Net pension assets
Pension assets
Post-employment benefits
Other employee benefits
Total employee benefits liability
Net pension asset
2017
$ 23,794
(19,997)
(612)
$(20,609)
$ 3,185
2016
$ 25,946
(16,498)
(622)
$(17,120)
$ 8,826
In accordance with Panamanian law, the Company contributes to the following defined benefit plans:
Seniority premium plan: it covers all employees eligible for the seniority premium as provided by the Company. Employees are fully
vested in their benefit upon leaving the Company. The benefits consist of 1.92% of eligible earnings
accumulated for each year of service.
Indemnity plan: it covers all employees eligible for the indemnity plan as provided by the Company. The benefits consist of 6.54% of
eligible earnings accumulated for each year of service.
The actuarial liability is recognized for the legal obligation under the formal terms of the plan, and for the implied projections as
required under IAS 19R. These actuarial projections do not constitute a legal obligation for the Company.
The following table summarizes the components of net benefit expense included under “Wages, salaries, benefits and other employees
‘expenses” in the accompanying consolidated statement of profit or loss:
Year ended December 31,2017
Current service cost
Interest cost on net benefit obligation
Net benefit expense
Year ended December 31,2016
Current service cost
Interest cost on net benefit obligation
Net benefit expense
Year ended December 31,2015
Current service cost
Interest cost on net benefit obligation
Net benefit expense
Defined benefit
obligation
Fair value of
assets
Defined benefit
assets (liability)
(1,767)
(568)
(2,335)
$
—
778
778
$
(1,767)
210
(1,557)
$
Defined benefit
obligation
Fair value of
assets
Defined benefit
assets (liability)
(1,724)
(516)
(2,240)
$
—
689
689
$
(1,724)
173
(1,551)
$
Defined benefit
obligation
Fair value of
assets
Defined benefit
assets (liability)
(1,638)
(422)
(2,060)
—
532
532
$
(1,638)
110
(1,528)
$
(Continued)
$
F-46
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The following table shows reconciliation from the opening balance to the closing balances for net pension asset and its components:
At January 1, 2015
Current service cost
Interest cost
Return on plan assets greater (less)
than discount rate
Experience (gain) loss
Invesment return
Gross benefits paid
Assumption changes
Employer contributions
Benefits paid
Adjustments
At December 31, 2015
Current service cost
Interest (cost) income
Return on plan assets greater (less)
than discount rate
Experience gain (loss)
Invesment return
Gross benefits paid
Assumption changes
Employer contributions
Benefits paid
Adjustments
As of December 31, 2016
Current service cost
Interest (cost) income
than discount rate
Experience gain (loss)
Invesment return
Gross benefits paid
Assumption changes
Employer contributions
Benefits paid
Adjustments
As of December 31, 2017
Defined benefit
obligation
$
$
$
$
(12,778)
(1,638)
(422)
—
(809)
—
—
222
—
957
—
(14,468)
(1,724)
(516)
—
(1,052)
—
—
(67)
—
1,329
—
(16,498)
(1,767)
(568)
—
(2,033)
—
—
(226)
—
1,095
—
(19,997)
$
Fair value of
assets
18,559
—
532
—
701
—
105
(599)
—
3,749
(774)
—
22,273
—
689
$
518
—
27
(513)
—
3,970
(1,018)
—
25,946
—
778
(21)
—
88
(440)
—
(1,677)
(880)
—
23,794
$
$
Other employee
benefits liability
$
(3,259)
—
—
—
—
—
—
—
—
1,504
(1,755)
—
—
—
—
—
—
—
(75)
1,208
(622)
—
—
—
—
—
—
—
—
—
10
(612)
$
$
$
Defined benefit
assets (liability)
2,522
$
(1,638)
110
—
701
(809)
105
(599)
222
3,749
183
1,504
6,050
(1,724)
173
$
518
(1,052)
27
(513)
(67)
3,970
236
1,208
8,826
(1,767)
210
(21)
(2,033)
88
(440)
(226)
(1,677)
215
10
3,185
$
$
As of December 31, 2017 and 2016, plan assets are comprised totally by fixed term deposits. As of December 31, 2017 employer
contributions is a net amount of regular contributions by $3.5 million and retirement of interest earned by $5.2 million.
For the year ended December 31, 2017 actuarial loss of $2.0 million (2016: $1.1 million and 2015:$2.2 million) where recognized in
other comprehensive income
F-47
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The following were the principal actuarial assumptions at the reporting date:
Economic assumptions -
Discount rate
Compensation - salary increase
Demographic assumptions -
Mortality
Termination
Retirement
Males
Females
2017
2016
2015
3.15%
4%
3.37%
4%
3.45%
4%
RP - 2000 no collar
13% all ages
62 years
57 years
Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant,
would have affected the defined benefit obligation by the amount shown below:
Discount rate (0.5% movement)
Salary rate (0.5% movement)
December, 31 2017
December, 31 2016
December, 31 2015
Increase
$ (506) $
99
Decrease
537
(89)
Increase
$ (410) $
122
Decrease
434
(117)
Increase
$ (366) $
114
Decrease
388
(109)
The following payments are expected contributions to the defined benefit plan in future years:
Up to one year
One to five years
Over five years
Total expected payments
2017
$ 3,424
10,794
11,401
$25,619
2016
$ 2,823
9,195
9,453
$21,471
F-48
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
16.
Intangible assets
Cost -
Balance at January 1, 2015
Additions
Disposals
Reclassifications
Balance at December 31, 2015
Additions
Disposals
Impairment loss
Reclassifications
Balance at December 31, 2016
Additions
Disposals
Reclassifications
Balance at December 31, 2017
Amortization -
Balance at January 1, 2015
Amortization for the year
Disposals
Balance at December 31, 2015
Amortization for the year
Disposals
Balance at December 31, 2016
Amortization for the year
Disposals
Balance at December 31, 2017
Carrying amounts -
At December 31, 2015
At December 31, 2016
At December 31, 2017
Other intangibles assets
License and
software rights
Intangible
in process
$
$
$
$
$
37,663
121
(65)
26,090
63,809
73
(1,546)
—
11,813
74,149
1,783
(4,891)
3,642
74,683
(25,222)
(7,287)
65
(32,444)
(10,207)
1,546
(41,105)
(8,628)
4,894
(44,839)
31,365
33,044
29,844
$ 24,474
19,297
—
(26,090)
17,681
14,401
—
(5,931)
(10,073)
16,078
16,898
—
(2,085)
30,891
$ —
—
—
—
—
—
—
—
—
—
$ 17,681
$ 16,078
$ 30,891
Total
$ 82,517
19,418
(65)
—
101,870
14,474
(1,546)
(5,931)
1,740
110,607
18,681
(4,891)
1,557
125,954
$ (25,222)
(7,287)
65
(32,444)
(10,207)
1,546
(41,105)
(8,628)
4,894
(44,839)
$ 69,426
$ 69,502
$ 81,115
Goodwill
$20,380
—
—
—
20,380
—
—
—
—
20,380
—
—
—
20,380
$ —
—
—
—
—
—
—
—
—
—
$20,380
$20,380
$20,380
Goodwill
The Company performed its annual impairment test in September 2017 and the recoverable amount was estimated at $4.4 billion (2016:
$3.5 billion), an amount far in excess of the $20.4 million of goodwill recorded.
The cash flows beyond the five-year period are extrapolated using a 3.1% growth rate. It was concluded that no impairment charge is
necessary since the estimated recoverable amount of the CGU exceed its carrying value by approximately 92%.
F-49
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Key assumptions used in value in use calculations
The calculations of value in use of the CGU are sensitive to the following main assumptions:
•
•
•
•
Revenue – the Company calculated the projected passenger revenue based on the current beliefs, expectations, and
projections about future events and financial trends affecting its business.
Cash flows - determination of the terminal value is based on the present value of the Company’s cash flows in perpetuity.
When estimating the cash flows for use in the residual value calculation, it is essential to clearly define the normalized cash
flows level, the appropriate discount rate for the degree of risk inherent in that return stream, and a constant future growth
rate for the related cash flows. To estimate the value, the Gordon Growth Model was used.
Discount rates – The selected pre-tax rate of 12.92% represents the current market assessment of the risks specific to the
CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been
incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Company
and its operating segment and is derived from its pre-tax weighted average cost of capital (WACC). The WACC takes into
account both debt and equity. The cost of equity is derived from the expected return on investment by the Company’s
investors. The cost of debt is based on the interest-bearing borrowings the Company is obliged to service. Segment-specific
risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available
market data.
Sensitivity to changes in assumptions
The Company estimated that a reduction to 11.5% or an increase to 13.5% in the discount rate would not cause the carrying
amounts to exceed the recoverable amount.
Other intangible assets
Intangible assets in process
During 2016, the Company evaluated the recoverability of the development cost generated in a project in process related to some
systems; as a result of this evaluation, the Company recognized an impairment of $5.9 million of incurred cost that will no longer
generate probable future economic benefits.
Intangible assets in process as of December 31, 2017 and 2016 mainly comprise improvements to the tickets reservation system, and
other operational system.
During 2016, the Company capitalized an $11.8 million of a new operating and administrative systems and other program for
ConnectMiles.
F-50
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
17. Other assets
Current -
Interest receivable
Other
Non-current -
Guarantee deposits
Deposits for litigation
Other
2017
2016
$10,443
1,258
11,701
14,568
12,390
4,182
31,140
$42,841
$ 6,741
909
7,650
10,401
12,482
4,182
27,065
$34,715
Guarantee deposits are mainly amounts paid to fuel suppliers, as required at the inception of the agreements (see note 23).
Deposit for litigation is cash deposited into the escrow account until the related dispute is settled (see note 21).
18. Debt
Long-term fixed rate debt
Long-term variable rate debt
Loans payables
Current maturities
Long-term debt
Long-term fixed rate debt
Long-term variable rate debt
Loans payables
Current maturities
Long-term debt
Due
through
2025
2027
2018
Due
through
2025
2026
2017
2017
Effective rates
ranged
Carrying
Amount
1.81% to 5.58% $ 626,150
420,634
1.54% to 3.04%
127,797
2.33% to 2.58%
1,174,581
(298,462)
$ 876,119
2016
Effective rates
ranged
Carrying
Amount
1.81% to 5.58% $ 702,454
398,178
0.90% to 2.23%
83,500
1.88% to 1.98%
1,184,132
(222,718)
$ 961,414
F-51
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Maturities of long-term debt for the next five years are as follows:
Year ending December 31, 2018
2019
2020
2021
2022
Thereafter
298,462
167,191
118,376
96,070
89,144
405,338
$1,174,581
As of December 31, 2017, long-term fixed rate debt included $394.2 million (2016: $416.3 million) and long-term variable debt
included $128.4 million corresponding to finance leases (2016: $45.4 million) (see note 14).
As of December 31, 2017 the Company had $372.0 million (2016: $446.5 million) of outstanding indebtedness that is owed to financial
institutions under financing arrangements guaranteed by the Export-Import Bank of the United States. The Export-Import Bank
guarantees support 80% of the net purchase price of the aircraft and are secured with a first priority mortgage on the aircraft in favor of
a security trustee on behalf of Export-Import Bank.
The Company’s Export-Import Bank supported financings are amortized on a quarterly basis, are denominated in U.S. dollars, and
originally bear interest at a floating rate linked to LIBOR. The Export-Import Bank guaranteed facilities typically offer an option to fix
the applicable interest rate. The Company has exercised this option with respect to $231.9 million as of December 31, 2017 (2016:
$286.1 million).
In the past, the Company has extended the maturity of some of its aircraft financing to 15 years through the use of a “Stretched Overall
Amortization and Repayment” (SOAR), structure which provides serial draw-downs, calculated to result in a 100% loan accreting to a
recourse balloon at the maturity of the Export-Import Bank guaranteed loan. The Company currently has 4 aircraft finance under SOAR
structure which had an outstanding balance of $28.3 million as of December 31, 2017 (2016: $24.8 million).
As of December 31, 2017, the loan payable in the amount of $127.8 million (2016: $83.5 million) resulted from the use of the lines of
credits (see note 27 for information regarding financial covenants related to the Company’s financial agreement).
The detail of finance cost and income is as follows:
Finance income -
Interest income on short-term bank deposits
Interest income on investment
Finance cost -
Interests expense on bank loans
Interest on factoring
2017
2016
2015
$ 1,499
16,440
$ 17,939
$
675
12,325
$ 13,000
$ 3,662
22,285
$ 25,947
$(32,599)
(2,624)
$(35,223)
$(32,647)
(4,377)
$(37,024)
$(30,866)
(2,289)
$(33,155)
F-52
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Changes in liabilities arising from financing activities:
Debt
Obligations under finance leases
Debt
2016
Cash flows
New debt
Non-cash
transactions
2017
$ 461,797
722,335
$ (28,107) $ —
147,798
(218,242)
$ 89,000
—
$ 522,690
651,891
Total liabilities from
financing activities
$1,174,581
During 2017, the Company’s non-cash investing and financing transactions are comprised of $89.0 million related to the acquisition of
new aircraft that are financed using the JOLCO structure (see note 14).
$(246,349) $147,798
$1,184,132
$ 89,000
19. Trade, other payables and financial liabilities
Account payables
Account payables to related parties
Other payables and financial liabilities - Fuel derivative instruments
Others
2017
$116,554
12,880
129,434
—
1,156
1,156
$130,590
2016
$104,176
8,681
112,857
2,801
4,779
7,580
$120,437
See details of the account due to related parties in note 23.
The Company used to engage on fuel derivative instruments, with the purpose of covering the risk of potential sudden and significant
increases in jet fuel prices. However, the use of these instruments does not satisfy the requirement for hedge accounting. There are no
fuel derivative instruments outstanding at December, 2017 (see note 28.1).
20. Accrued expenses payable
Accruals and estimations
Labor related provisions
Liability for social security contributions
Other
2017
$ 9,059
44,188
6,432
642
$60,321
2016
$ 5,849
31,785
5,700
1,028
$44,362
As of December 31, 2017 accruals and estimations include the estimated balance of the current portion of the provision for return
condition of $4.9 million (2016: $2.3 million) (see note 21).
As of December 31, 2017, accruals and estimations include the estimated balance of the current portion of the provision for
maintenance of $4.2 million (2016: $3.5 million) (see note 21).
Labor related provisions include a profit-sharing program for both management and non-management personnel. For members of
management, profit-sharing is based on a combination of the Company’s
F-53
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
performance as a whole and the achievement of individual goals. Profit-sharing for non-management employees is based solely on the
Company’s performance. The accrual at year-end represents the amount expensed for the current year, which is expected to be settled
within 12 months.
21. Other long-term liabilities
Balance at January 1, 2017
Increases
Used
Reclassification
Effect of movements in exchange rates
Balance at December 31, 2017
Current
Non-current
Provision
for litigations
14,318
$
1,021
—
—
(187)
$
$
15,152
—
15,152
15,152
Provision for
return condition
58,299
$
33,060
(5,824)
—
—
85,535
4,897
80,638
85,535
$
$
Other long-
term liabilities
41,651
$
463
(3,325)
(7,235)
—
31,554
4,162
27,392
31,554
$
$
Total
$114,268
34,544
(9,149)
(7,235)
(187)
$132,241
9,059
123,182
$132,241
Provision for litigation
Provisions for litigation in process and expected payments related to labor legal cases.
The Company is the plaintiff in an action in October 2003 against Empresa Brasileira de Infraestrutura Aeroportuária (“INFRAERO”),
Brazil’s airport operator, the legality of the Additional Airport Tariffs (Adicional das Tarifas Aeroportuárias, or ATAERO), which is a
50% surcharge imposed on all airlines which fly to Brazil. Similar suits have been filed against INFRAERO by other major airline
carriers. In this case, the court of first instance ruled in favor of INFRAERO and the Company has appealed the judgment. While the
litigation is still pending, the Company continues to pay the ATAERO amounts due into an escrow account and as of December 31,
2017, the aggregate amount in such account totaled $12.4 million (2016: $12.5 million).
In the event that the Company receives a final unfavorable judgment it will be required to release the escrowed fund to INFRAERO and
will not be able to recover such amounts. The Company does not, however, expect the release of such amounts to have a material
impact on its financial results since these amounts already had been expensed.
Provision for return condition
For operating leases, the Company is contractually obliged to return aircraft in an agreed-upon condition. The Company accrues for
restitution costs related to aircraft held under operating leases throughout the duration of the lease. As of December 31, 2017 and 2016,
the Company presented the estimated balance of the current portion of this provision as “Accrued expenses payable” in the consolidated
statement of financial position (see note 20).
F-54
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Other long-term liabilities
Other long-term liabilities include principally the provision for maintenance which mainly include the accrual of formal agreements
with third parties for operational maintenance events. The cost of these agreements are billed by power by the hour and charged to the
consolidated statement of profit or loss. As of December 31, 2017, the provision for maintenance amount to $28.9 million and the
Company has presented the estimated balance of the current portion of this provision as “Accrued expenses payable” in the
consolidated statement of financial position (see note 20).
Other long-term liabilities also include the provision for the non-compete agreement created for payment to senior management related
to covenants not to compete with the Company in the future (relative to the $3.1 million trust fund). This provision is accounted for as
“Other long-term employee benefits” under IAS 19R Employee benefits. The accrued amount is revalued annually using the projected
benefit method as required by IAS 19R.
22.
Income taxes
Current taxes expense -
Current period
Adjustment for prior period
Deferred taxes expenses -
Origination and reversal of temporary differences
Total income tax expense
2017
2016
2015
$(43,034)
455
$(42,579)
—
(5,421)
$(48,000)
$(31,666)
(127)
$(31,793)
—
(6,478)
$(38,271)
$(30,435)
(1,228)
$(31,663)
—
(1,096)
$(32,759)
During the year 2016 the deferred tax balances have been re-measured as a result of the change in Colombia’s income tax rate, 37% for
short term position and 33% for long term position according to the law N°1819 published on December 29, 2016. Deferred tax
expected to reverse in the year 2018, has been measured using the effective rate that will apply in Colombia for the period (37%).
F-55
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The balances of deferred taxes are as follows:
Deferred tax liabilities
Maintenance deposits
Prepaid dividend tax
Property and equipment
Other
Set off tax
Deferred tax assets
Provision for return conditions
Air traffic liability
Fuel derivative
Other provisions
Tax loss
Set off tax
Statement
of financial position
2016
2017
Statement of
profit or loss
2016
2015
2017
$(26,586) $(23,790) $ 2,796
1,671
445
(2,137)
2,879
$(50,628) $(44,974) $ 5,654
(12,432)
(7,867)
(6,013)
5,128
(14,103)
(8,312)
(3,876)
2,249
$ 2,286
5,300
(1,599)
(10,147)
16,269
$ 12,109
$ 5,866
—
3,579
11,692
(24,568)
$ (3,431)
$ 7,332
1,281
—
4,859
7,349
(2,249)
$ 7,606
1,015
107
4,587
10,152
(5,128)
$ 18,572
$ 18,339
$(32,056) $(26,635) $ 5,421
$
$(11,203)
$ 4,417
274
1,076
305
(266)
94
4,403
107
4,716
(3,059)
(272)
(14,724)
4,572
2,803
(2,879)
24,568
(16,269)
$ (233) $ (5,631) $ 4,527
$ 1,096
$ 6,478
At December 31, 2017 the deferred tax assets include an amount of $7.3 million ($10.1 million at December, 2016) which relates to
carried forward tax losses of Copa Colombia. During 2017, the subsidiary generated a tax profit. The Company has concluded that the
deferred assets will be recoverable using the estimated future taxable income based on the approved business plans for the subsidiary.
The Company expects to use the remaining tax losses within the next three to five years, however, these tax losses can be carried
forward indefinitely.
The aggregate amount of temporary differences associated with investments in subsidiaries, for which deferred tax liabilities have not
been recognized, is $397.9 million as of December 31, 2017 (2016: $237.1 million).
Reconciliation of the effective tax rate is as follows:
Net income (loss)
Total income tax expense
Profit (loss) excluding income tax
Income taxes at Panamanian statutory rates
Panamanian gross tax election
Effect of tax rates in non - panamanian jurisdictions
Exemption in non - taxable countries
Adjustment for prior period
Provision for income taxes
2017
$370,023
48,000
418,023
104,506
—
2,626
(58,677)
(455)
$ 48,000
Tax rate
25.0%
0.0%
(2.6%)
(12.2%)
0.03%
10.2%
2016
$334,544
38,271
372,815
93,204
—
(9,729)
(45,330)
127
$ 38,271
Tax rate
25.0%
—
0.6%
(14.0%)
(0.1%)
11.5%
F-56
Tax rate
2015
$(224,974)
32,759
(192,215)
(48,054)
25.0%
—
—
(11.4%)
21,986
(30.0%)
57,599
1,228
(0.6%)
(17.0%) $ 32,759
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
23. Accounts and transactions with related parties
Account receivable -
Panama Air Cargo Terminal
Editora del Caribe, S.A.
Petroleos Delta, S.A.
Banco General, S.A.
Assa Compañía de Seguros, S.A.
Account payable -
Petróleos Delta, S.A.
Assa Compañía de Seguros, S.A.
Desarrollos Inmobiliarios del Este, S.A.
Motta International, S.A.
Panama Air Cargo Terminal
Cable Onda, S.A.
Galindo, Arias & López
Global Brands, S.A.
2017
2016
$
$
254
32
19
12
1
318
$10,371
1,431
650
81
200
112
31
4
$12,880
$ —
15
5
—
479
$ 499
$7,504
687
421
25
—
21
16
7
$8,681
Transactions with related parties for the year ended December 31 are as follows:
Related party
Petróleos Delta, S.A.
ASSA Compañía de Seguros, S.A.
Desarrollo Inmobiliario del Este, S.A.
Profuturo Administradora de Fondos de Pensión y Cesantía
Motta International
Cable Onda, S.A.
GBM International, Inc.
Galindo, Arias & López
Global Brands, S.A.
Panama Air Cargo Terminal
Lubricantes Delta, S.A.
Editora del Caribe, S.A.
Banco General, S.A.
Transaction
Purchase of jet fuel
Insurance
Property leasing
Payments
Purchase
Communications
Technological support
Legal services
Purchase
Handling
Fuel accesories
Advertising
Interest income
Amount of
transaction
2017
290,172
8,527
3,625
2,386
1,632
1,448
273
373
79
4,869
—
4
$ (2,986)
Amount of
transaction
2016
229,899
7,128
3,795
3,238
1,646
1,625
272
341
67
—
63
(162)
$ (1,284)
Amount of
transaction
2015
248,944
9,170
2,982
—
1,290
—
533
271
47
—
—
22
$ (1,301)
Banco General, S.A.: The Company’s controlling shareholders have a vote and a decision within the board of directors of BG Financial
Group, which is the controlling company of Banco General. Likewise, Banco General, S. A. owns ProFuturo Administradora de Fondos
de Pensión y Cesantía S.A., which manage the Company’s reserves for pension purposes.
Petróleos Delta, S.A.: Since 2005, the fuel company entered into a contract with the Company to meet its jet fuel needs. The contract’s
term is two years, and the last contract subscribed was on June, 2016.
F-57
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
As of December 31, 2017, the Company maintained guarantee deposits with Petróleos Delta, S.A. in the amount of $11.8 million (2016:
$7 million), recorded as “Other non-current assets” in the consolidated statement of financial position. While the Company’s controlling
shareholders do not hold a controlling equity interest in Petróleos Delta, S. A., various members of the Company’s Board of Directors
are also board members of Petróleos Delta, S. A.
ASSA Compañía de Seguros, S. A.: An insurance company controlled by the Company’s controlling shareholders that provide
substantially all of the Company’s insurance policies.
Desarrollo Inmobiliario del Este, S. A.: The Company leases five floors consisting of approximately 121,686 square feet of the building
from Desarrollo Inmobiliario, an entity controlled by the same group of investors that controls Corporación de Inversiones Aéreas, S. A.
(“CIASA”). CIASA owns 100% of the class B shares of the Company.
Motta Internacional, S.A. & Global Brands, S. A.: The Company purchases most of the alcohol and other beverages served on its
aircraft from Motta Internacional, S. A. and Global Brands, S. A., both of which are controlled by the Company’s controlling
shareholders.
GBM International, Inc.: Provides systems integration and computer services, as well as technical services and enterprise management.
A member of the Company’s Board of Directors is shareholder of GBM International, Inc.
Galindo, Arias & López: Certain partners of Galindo, Arias & López (a law firm) are indirect shareholders of CIASA and serve on the
Company’s Board of Directors.
Editora del Caribe, S.A.: this Panamanian publisher is responsible for publishing the official journal of Copa Airlines “Panorama of the
Americas”. A member of the Company’s Board of Directors is shareholder of Editora del Caribe, S. A.
Cable Onda, S.A.: The Company is responsible for providing television and internet broadcasting services in Panama. A member of the
Company’s Board of Directors is shareholder of Cable Onda, S. A.
Panama Air Cargo Terminal: Provides cargo and courier services in Panama, an entity controlled by the same group of investors that
controls CIASA.
Compensation of key management personnel
Key management personnel compensation is as follows:
Short-term employee benefits
Post-employment pension
Share-based payments
2017
$ 5,133
99
5,524
$10,756
2016
$3,763
72
5,799
$9,634
2015
$3,570
68
3,023
$6,661
The Company has not set aside any additional funds for future payments to executive officers, other than one pursuant to a non-compete
agreement for $3.1 million established in 2006 (see note 21).
F-58
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
24. Equity
Common stock
The authorized capital stock consists of 80 million shares of common stock without par value, divided into Class A shares, Class B
shares, and Class C shares. As of December 31, 2017, the Company had 33,776,480 Class A shares issued (2016: 33,743,286) and
31,185,641 shares outstanding (2016: 31,112,356), 10,938,125 Class B shares issued and outstanding (2016: 10,938,125), and no
Class C shares outstanding. Class A and Class B shares have the same economic rights and privileges, including the right to receive
dividends.
•
Class A shares
The holders of the Class A shares are not entitled to vote at our shareholders’ meetings, except in connection with the following specific
matters: (i) a transformation of the Company into another corporate type; (ii) a merger, consolidation, or spin-off of the Company, (iii) a
change of corporate purpose; (iv) voluntarily delisting Class A shares from the NYSE; (v) and any amendment to the foregoing special
voting provisions adversely affecting the rights and privileges of the Class A shares.
•
Class B shares
Every holder of Class B shares is entitled to one vote per share on all matters for which shareholders are entitled to vote. The Class B
shares may only be held by Panamanians, and upon registration of any transfer of a Class B share to a holder that does not certify that it
is Panamanian, such Class B share shall automatically convert into a Class A share.
Transferees of Class B shares will be required to deliver to the Company a written certification of their status as Panamanian as a
condition to registering the transfer to them of Class B shares.
•
Class C shares
The Independent Directors Committee of the Board of Directors, or the Board of Directors as a whole if applicable, is authorized to
issue Class C shares to the Class B holders pro rata in proportion to such Class B holders’ ownership of Copa Holdings. The Class C
shares will have no economic value and will not be transferable except to Class B holders, but will possess such voting rights as the
Independent Directors Committee shall deem necessary to ensure the effective control of the Company by Panamanians.
The Class C shares will be redeemable by the Company at such time as the Independent Directors Committee determines that such a
triggering event shall no longer be in effect. The Class C shares will not be entitled to any dividends or any other economic rights.
Class A shares are listed on the NYSE under the symbol “CPA.” The Class B shares and Class C shares will not be listed on any stock
exchange unless the Board of Directors determines that it is in the best interest of the Company to list the Class B shares on the Panama
Stock Exchange.
Dividends
The payment of dividends on shares is subject to the discretion of the Board of Directors. Under Panamanian law, the Company may
pay dividends only out of retained earnings and capital surplus. The Articles of Incorporation provides that all dividends declared by the
Board of Directors will be paid equally with respect to all of the Class A and Class B shares.
F-59
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
In February 2016, the Board of Directors of the Company approved to change the dividend policy to base the calculation of the payment
of yearly dividends to shareholders in an amount of up to 40% of the prior year’s annual consolidated underlying net income,
distributed in equal quarterly installments upon board ratifications.
In 2017, the Company paid quarterly dividends in the amount of $0.51 per share for the first and second quarters and $0.75 per share for
the third and fourth quarter (2016: $0.51 per share).
Treasury stock
When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable cost net of
any tax effects, is recognized as a deduction from equity and presented separately in the balance sheet. When treasury shares are sold or
reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction
is presented within share premium.
Since treasury stock is not considered outstanding for share count purposes, it is excluded from average common shares outstanding for
basic and diluted earnings per share.
In November 2014, the Board of Directors of the Company approved a $250 million share repurchase program. Purchases will be made
from time to time, subject to market and economic conditions, applicable legal requirements, and other relevant factors.
In the first quarter of 2015, the Company repurchased 167,650 shares for a total amount of $17.9 million.
During September 2015, the Company entered into an Accelerated Share Repurchase (“ASR”) with Citibank for a period of
approximately three months for a total amount of $100 million. On December 15, 2015, the Bank delivered to the Company 1,960,250
shares, recognized at the settlement price of $51.01 per share.
25. Share-based payments
The Company has established equity compensation plans under which it administers restricted stock, stock options, and certain other
equity-based awards to attract, retain, and motivate executive officers, certain key employees, and non-employee directors to
compensate them for their contributions to the growth and profitability of the Company. Shares delivered under this award program
may be sourced from treasury stock, or authorized unissued shares.
The Company’s equity compensation plans are accounted for under IFRS 2 Share-Based Payment (“IFRS 2”). IFRS 2 requires
companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award or at fair value of the award at each reporting date, depending on the type of award granted. The resulting cost is
recognized over the period during which an employee is required to provide service in exchange for the award, which is usually the
vesting period.
The total compensation cost recognized for non-vested stock and options awards amounts to $7.4 million, $7.5 million, and $4.0 million
in 2017, 2016, and 2015, respectively, and was recorded as a component of “Wages, salaries, benefits and other employees’ expenses”
within operating expenses.
Non-vested Stock
The Company approved a non-vested stock bonus award for certain executive officers of the Company.
F-60
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
A summary of the terms and conditions, properly approved by the Compensation Committee of our Board of Directors, relating to the
grants of the non-vested stock award under the equity compensation plan is as follows:
Grant date
February, 2013
February, 2015
April, 2015
June, 2015
June, 2015
June, 2015
December, 2015
February, 2016
February, 2016
February, 2016
May, 2016
May, 2016
June, 2016
June, 2016
September, 2016
September, 2016
February, 2017
June, 2017
June, 2017
Number of
instruments
19,786
13,709
4,915
10,920
4,912
6,750
429
19,012
147,000
63,000
7,899
4,739
25,280
7,925
6,668
5,005
22,012
11,980
2,237
Vesting conditions
15% first three anniversaries
25% fourth and 30% fifth anniversary
One-third every anniversary
15% first three anniversaries
25% fourth anniversary
30% fifth anniversary
One-third every anniversary
Third anniversary
15% first three anniversaries
25% fourth anniversary
30% fifth anniversary
Third anniversary
One-third every anniversary
15% first three anniversaries
25% fourth anniversary
30% fifth anniversary
Fifth anniversary
15% first three anniversaries
25% fourth anniversary
30% fifth anniversary
One-third every anniversary
One-third every anniversary
Third anniversary
Third anniversary
One-third every anniversary
One-third every anniversary
One-third every anniversary
Third anniversary
Contractual life
5 years
3 years
5 years
3 years
3 years
5 years
3 years
3 years
5 years
5 years
5 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
Non-vested stock awards were measured at their fair value on the grant date. For the 2017 grants, the fair value of these non-vested
stock awards amounts to $107.29 per share (2016: $59.94, $63.3 and $59.94).
F-61
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
A summary of the non-vested stock award activity under the plan as of December 31, 2017 and 2016 with changes during these years is
as follows (in number of shares):
Non-vested as of January 1
Granted
Vested
Forfeited
Non-vested as of December 31
2017
333,183
36,229
(62,224)
(3,035)
2016
139,962
291,872
(94,208)
(4,443)
2015
199,786
36,291
(94,704)
(1,411)
304,153
333,183
139,962
The Company uses the accelerated attribution method to recognize the compensation cost for awards with graded vesting periods. The
Company estimates that the remaining compensation cost, not yet recognized for the non-vested stock awards, amounts to $9.3 million
(2016: $13.1 million), with a weighted average remaining contractual life of 2.1 years (2016: 2.8 years). Additionally, the Company
estimates that the 2018 compensation cost related to these plans amounts to $4.9 million.
Stock options
In March 2007, Copa Holdings granted 35,657 equity stock options to certain named executive officers, which vested over three
(3) years in yearly installments equal to one-third of the awarded stock on each of the three anniversaries of the grant date. The exercise
price of the options amounts to $53.1, which was the market price of the Company’s stock at the grant date. The stock options have a
contractual term of 10 years.
The weighted-average fair value of the stock options at the grant date amounts to $22.3 and was estimated using the Black-Scholes
option-pricing model assuming an expected dividend yield of 0.58%, expected volatility of approximately 37.80% based on historical
volatility, weighted average risk-free interest rate of 4.59%, and an expected term of 6 years calculated under the simplified method.
A summary of the options award activity under the plan as of December 31, 2017 and 2016 and changes during the year is as follows
(in number of shares):
Outstanding as of January 1
Exercised
Forfeited
Outstanding as of December 31
2017
19,894
(11,061)
(8,833)
—
2016
20,940
(1,046)
—
19,894
2015
20,940
—
—
20,940
The Company uses the accelerated method to recognize the compensation cost for stock options. There is no additional compensation
cost to be recognized for stock options. This option award expired on March 2017.
The Company plans to make additional equity-based awards under the plan from time to time, including additional non-vested stock
and stock option awards. The Company anticipates that future employee non-vested stock and stock option awards granted pursuant to
the plan will generally vest over a three to five year period and the stock options will carry a ten-year term.
F-62
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
26. Earnings (loss) per share
Basic earnings per share amounts are calculated by dividing the net profit (loss) for the year attributable to ordinary equity holders of
the parent by the weighted average number of shares outstanding during the year, increased by the number of non-vested dividend
participating share-based payment awards outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the net profit (loss) attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares
that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares, when the effect of their inclusion is
dilutive (decreases earnings per share or increases loss per share).
The computation of the income (loss) and share data used in the basic and diluted earnings per share is as follows:
Basic earnings (loss) per share -
Net income (loss)
Weighted-average shares outstanding
Non-vested dividend participating awards
Diluted earnings (loss) per share -
Net income (loss)
Weighted-average shares outstanding used for basic
earnings per share
Share options on issue
2017
2016
2015
$370,023
42,111
308
42,419
8.72
$334,544
42,036
322
42,358
7.90
$(224,974)
43,716
145
43,861
(5.13)
2017
2016
2015
$370,023
$334,544
$(224,974)
42,419
—
42,419
8.72
42,358
5
42,363
7.90
43,861
8
43,869
(5.13)
27. Commitments and contingencies
Purchase contracts
As of December 31, 2017, the Company has subscribed two (2) purchase contracts with Boeing. The first contract entails two (2) firm
orders of Boeing 737 Next Generation aircraft, which will be delivered in 2018, while the second contract entails seventy-one (71) firm
orders of Boeing 737 MAX aircraft, which will be delivered between 2018 and 2025.
The firm orders have an approximate value of $9.5 billion based on aircraft list prices, including estimated amounts for contractual price
escalation and pre-delivery deposits.
F-63
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Covenants
As a result of the various aircraft financing contracts entered into by the Company, the Company is required to comply with certain
financial covenants. These covenants, among other things, require the Company to maintain earnings before income taxes, depreciation,
amortization, and restructuring, or rent cost (“EBITDAR”) to a fixed charge ratio of at least 2.5 times, a minimum tangible net worth of
$160 million, an EBITDAR to a finance charge expense ratio of at least 2.0 times, a total liability plus operating leases minus operating
cash to tangible net worth ratio of less than 5.5, a long-term obligations to an EBITDAR ratio of less than 6.0, a minimum unrestricted
cash balance of $50 million, and a minimum of $75 million in available cash, cash equivalents, and short-term investments.
As of December 31, 2017 and 2016, the Company was in compliance with all required covenants.
Labor unions
Approximately 62% of the Company’s 9,045 employees are unionized. There are currently nine (9) union organizations, five
(5) covering employees in Panama and four (4) covering employees in Colombia. The Company traditionally had good relations with its
employees and with all the unions and expects to continue to enjoy good relations with its employees and the unions in the future.
The five (5) unions covering employees in Panama include the pilots’ union (UNPAC); the flight attendants’ union (SIPANAB); the
mechanics’ union (SITECMAP); the passenger service agents’ union (UGETRACO), and the industry union (SIELAS), which
represents ground personnel, messengers, drivers, passenger service agents, counter agents, and other non-executive administrative
staff.
Copa entered into collective bargaining agreements with the pilot’s union in July 2017, the industry union in December 2017, the
mechanics’ union during the late first quarter 2018 and the flight attendants’ union during the early third quarter of 2018.
Collective bargaining agreements in Panama typically have terms of four years.
The four (4) unions covering employees in Colombia are: the pilots’ union (ACDAC), the flight attendants’ union (ACAV), the industry
union (SINTRATAC), and the Mechanics Union (ACMA).
Copa entered into collective bargaining with ACDAC and ACAV in January 2018; both of which are expected to end towards the end
of the first quarter of 2018. Additionally, SINTRATAC and Copa entered into collective bargaining agreement in December 2017 for
terms of four years until December 2021. Negotiations with ACMA were resolved by arbitration on December 31, 2015, extending the
validation every 6 months from this date, until June 30, 2017. As of December 31, 2017, ACMA has not presented a new bill of
petition.
Typically, collective bargaining agreements in Colombia have terms of two to three years. Although Copa Colombia usually settles
many of its collective bargaining agreement negotiations through arbitration proceedings, it has traditionally experienced good relations
with its unions.
In addition to unions in Panama and Colombia, the Company’s employees in Brazil are covered by industry union agreements that
cover all airline industry employees in the country; employees in Uruguay are covered by an industry union, and airport employees in
Argentina are affiliated to an industry union (UPADEP).
F-64
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Lines of credit for working capital and letters of credit
The Company maintained letters of credit with several banks with a value of $25.5 million as of December 31, 2017 (2016: $26.6
million). These letters of credit are pledged mainly for operating lessors, maintenance providers and airport operators.
Copa Airlines has lines of credit for a total of $212.3 million, in which it has committed lines of credit totaling $20.0 million, including
one line of credit for $15 million and one overdraft line of credit of $5 million with Banco General. Copa Airlines also has uncommitted
lines of credit for a total of $192.3 million, including one line of credit of $100.0 million with Bladex, one line of credit of $77.3 million
with Citibank, and one line of credit of $15 million with Banco Nacional de Panama. These lines of credit have been put in place to
bridge liquidity gaps and for other potential contingencies.
As of December 31, 2017, the Company has a balance of $127.8 million from lines of credit (2016: $83.5 million).
Tax audit
In March 2016, the Company received notifications from the tax authorities in Colombia and Brazil. The Company, along with its tax
advisors, has concluded that it is not probable that an outflow of resources embodying economic benefits will be required to settle them,
especially considering that the Company has enough arguments to support its position and also taking into consideration that both cases
are in the preliminary stages.
28. Financial instruments - Risk management and fair value
In the normal course of its operations, the Company is exposed to a variety of financial risks: market risk (especially cash flow,
currency, commodity prices and interest rate risk), credit risks and liquidity risk. The Company has established risk management
policies to minimize potential adverse effects on the Company’s financial performance:
28.1 Fuel price risk
The Company has risks that are common in its industry, which it mitigates through derivatives contracts. The main risk associated with
the industry is the variation in fuel prices, which the Company mitigates through derivatives instruments contracts.
The Company periodically enters into transactions for derivative financial instruments, namely, fuel derivative instruments, with the
purpose of providing for short to mid-term hedging (generally three to eighteen months) against sudden and significant increases in jet
fuel prices, while simultaneously ensuring that the Company is not at competitive disadvantage in the event of a substantial decrease in
jet fuel prices. The Company does not hold or issue derivative financial instruments for trading purposes.
The Company’s derivative contracts did not qualify as hedges for financial reporting purposes. Accordingly, changes in fair value of
such derivative contracts, which amounted to gains of $2.8 million (2016: gains of $111.6 million and loss of $11.6 million in 2015),
were recorded as a component of “Net change in fair value of derivatives” in the accompanying consolidated statement of profit or loss.
The Company’s derivative contracts matured in December 2017 (2016: $2.8 million), the fair value of derivative was recorded in
“Trade, other payables and financial liabilities” in the consolidated statement of financial position. The Company’s purchases of jet fuel
are made primarily from one supplier (see note 19).
F-65
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Financial derivative instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the
agreements. However, the Company does not expect any failure of the counterparties to meet their obligations, as the Company’s policy
to manage credit risk is to engage in business with counterparties that are financially stable and experienced in energy risk management.
The amount of such credit exposure is generally the unrealized gain, if any, of such contracts.
Fuel price risk is estimated as a hypothetical 10% increase in the December 31, 2017 cost per gallon of fuel. Based on projected 2018
fuel consumption, such an increase would result in an increase to aircraft fuel expense of approximately $60.9 million in 2018
(unaudited).
28.2 Market risk
Foreign currency risk
Foreign exchange risk is originated when the Company performs transactions and maintains monetary assets and liabilities in currencies
that are different from the functional currency of the Company. Assets and liabilities in foreign currency are translated using with the
exchange rates at the end of the period, except for non-monetary assets and liabilities that are translated at the equivalent cost of the
U.S. dollar at the acquisition date and maintained at the historical rate. The results of foreign operations are translated using the average
exchange rates that were in place during the period. Gains and losses deriving from exchange rates are included within “(Loss) Gain on
foreign currency fluctuations” in the consolidated statement of profit or loss.
The majority of the obligations are denominated in U.S. dollars. Since Panama uses the U.S. dollar as legal tender, the majority of the
Company’s operating expenses are also denominated in U.S. dollars, approximately 43.7% of revenues and 59.8% of expenses,
respectively. A significant part of our revenue is denominated in foreign currencies, including the Brazilian real, Colombian peso and
Argentinian peso, which represented 16.5%, 11.4% and 7.8%, respectively (2016: 10.1%, 11.8% and 6.8% respectively).
Generally, the Company’s exposure to most of these foreign currencies, with the exception of the Venezuelan bolivar, is limited to the
period of up to two weeks between the completion of a sale and the conversion to U.S. dollar.
Foreign companies operating in Venezuela, including airlines, have experienced increasing delays for approvals by the Venezuelan
government to repatriate funds. To reduce the cash exposure in Venezuela, the Company processes its passenger tickets mainly in U.S.
dollars, constantly monitors sales and adjusts capacity.
During 2015, the Company used Sistema Complementario de Administracion de divisas (“SICAD”) rate of VEF 13.50 per U.S. dollar.
As of December 31, 2015, the Company decided that in view of the lack of repatriation the SICAD rate could no longer be considered
available in practice, this combined with the deterioration of the Venezuelan economy. Instead, the Company has chosen to use Sistema
Marginal de Divisas (“SIMADI”) exchange rate of VEF198.7 per U.S. dollar to translate all the financial assets and liabilities at the
2015 year-end, which is considered a better reflection of the Bolivar given the current economic reality of that country.
This rate was applied to all funds in Venezuela, resulting in a foreign currency translation loss of $430.2 million as of December 31,
2015.
On March 9, 2016, the Venezuelan government published in official gazette The Exchange Agreement No. 35 where is indicated the
elimination of the SICAD and the preferential exchange rate of VEF 13.50 per U.S. dollar for aeronautical operations. The SICAD was
replace by Sistema de tipo de cambio complementario flotante de Mercado (DICOM), which consists of a system of floating exchange
rate according to market conditions. As of December 31, 2017, the exchange rate to translate all the financial assets and liabilities in
Venezuela, according to DICOM, is VEF 3,345.0 (2016: VEF 673.7) per U.S. dollar.
F-66
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The following chart summarizes the Company’s foreign currency risk exposure (assets and liabilities denominated in foreign currency)
as of December 31:
Assets
Cash and cash equivalents
Investments
Accounts receivable, net
Prepaid expenses
Other assets
Total assets
Liabilities
Accounts payable
Taxes payable
Other liabilities
Total liabilities
Net position
2017
2016
$ 25,189
277
75,769
32,045
29,459
$162,739
37,186
50,922
25,471
$113,579
$ 49,160
$ 51,718
276
69,460
34,635
35,343
$191,432
32,098
55,060
40,342
$127,500
$ 63,932
From time to time the, Company enters into factoring agreements on receivables outstanding on credit card sales in certain countries.
28.3 Credit risk
Credit risk originates from cash and cash equivalents, deposits in banks, investments in financial instruments and accounts receivables.
It is the risk that the counterparty is not being capable of fulfilling its contractual obligations, causing financial losses to the Company.
To mitigate the credit risk arising from deposits in banks and investments in financial instruments, the Company only conducts business
with financial institutions that have an investment grade above BBB-from Fitch or Standard & Poor’s, with strength and liquidity
indicators aligning with or above the market average.
Regarding credit risk originating from commercial accounts receivable, the Company does not consider it significant since most of the
accounts receivable can be easily converted into cash, usually in periods no longer than one month. Accounts receivable from cargo
agencies are more likely to be exposed to credit risk, but this is mitigated with the established policies to make sure that the credit sales
are to clients with good credit history. Specific credit limits and payment terms have been established according to periodic analysis of
the client’s payment capacity.
A considerable amount of the Company’s tickets sales are processed through major credit cards, resulting in accounts receivable that are
generally short-term and usually collected before revenue is recognized. The Company considers that the credit risk associated with
these accounts receivable is controllable based on the industry’s trends and strong policies and procedures established and followed by
the Company.
F-67
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
28.4 Interest rate and cash flow risk
The income and operating cash flows of the Company are substantially independent of changes in interest rates, because the Company
does not have significant assets that generate interest except for surplus cash and cash equivalents and short and long-term investments.
Interest rate risk is originates mainly from long-term debts related to aircraft acquisition. These long-term lease payments at variable
interest rates expose the Company to cash flow risk. To mitigate the effect of variable cash flows associated to contracted rates and
transform them into fixed rates, the Company entered into one Interest Rates Swap contract to hedge against market rates fluctuations.
As of December 31, 2017 and 2016, fixed interest rates range from 1.81% to 5.58%, and the main floating rate is LIBOR.
The Company’s earnings are affected by changes in interest rates due to the impact of those changes on interest expenses from variable-
rate debt instruments and operating leases, and on interest income generated from cash and investment balances. If the interest rate
average is 10% more in 2018 than in 2017, the interest expense would increase by approximately $1.4 million and the fair value of the
debt would decrease by approximately $1.3 million. If interest rates average 10% less in 2018 than in 2017, the interest income from
marketable securities would decrease by approximately $1.4 million and the fair value of the debt would increase by approximately
$1.3 million. These amounts are determined by considering the impact of the hypothetical interest rates on the variable-rate debt and
marketable securities equivalent balances at December 31, 2017.
28.5 Liquidity risk
The Company’s policy requires having sufficient cash to fulfill its obligations. The Company maintains sufficient cash on hand and in
banks or cash equivalents that are highly liquid. The Company also has credit lines in financial institutions that allow it to withstand
potential cash shortages to fulfill its short-term commitments (see note 27).
The table below summarizes the Company’s financial liabilities according to their maturity date. The amounts in the table are the
contractual undiscounted cash flows. Balances due within twelve months equal their carrying balances as the impact of discounting is
not significant.
December 31, 2017
Non-derivative financial liabilities
Debt
Account payable
Account payable to related parties
Note
18
19
19
Carrying
amount
Contractual
cash flow
Less than
twelve months
Between 1
and 4 years
More than
4 years
$1,174,581
116,554
12,880
$1,304,015
$1,313,191
116,554
12,880
$1,442,625
$
$
329,284
116,554
12,880
458,718
$ 549,726
—
—
$ 549,726
$434,181
—
—
$434,181
F-68
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
December 31, 2016
Non-derivative financial liabilities
Debt
Account payable
Account payable to related parties
Derivative financial liabilities
Fuel derivative instrument
28.6 Equity risk management
Note
Carrying
amount
Contractual
cash flow
Less than
twelve months
Between 1
and 4 years
More than
4 years
18
19
19
19
$1,184,132
104,174
8,681
1,296,987
$1,334,816
104,174
8,681
1,447,671
2,801
2,801
$
2,801
2,801
$
$
$
252,680
104,174
8,681
365,535
$ 616,031
—
—
616,031
$466,105
—
—
466,105
2,801
2,801
—
$ —
—
$ —
The Company’s objectives when managing equity are to safeguard the Company’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal equity structure to reduce the cost of
capital.
Consistent with others in the industry, the Company monitors equity on the basis of the gearing ratio. This ratio is calculated as net debt
divided by total equity. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the
consolidated statement of financial position), less cash and cash equivalents and short-term investments. Total capitalization is
calculated as equity as shown in the consolidated statement of financial position plus net debt.
The Company’s gearing ratio (unaudited) is a follows:
Total debt (note 18)
Less: non-restricted cash and cash equivalents and short-term
investments
Net debt
Total equity
Total capitalization
Gearing ratio
2017
$1,174,581
2016
$1,184,132
(943,900)
230,681
2,111,495
2,342,176
(814,689)
369,443
1,842,271
2,211,714
9.8%
16.7%
F-69
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
28.7 Fair value measurement
The following table shows the carrying amount and fair values of financial assets and financial liabilities as of December 31:
Financial assets
Cash and cash equivalents
Short-term investments
Account receivable
Long-term investments
Financial liabilities
Debt
Account payable
Fuel derivative instruments
Carrying amount
Fair Value
Note
2017
2016
2017
2016
8
9
10
9
18
19
19
$ 238,792
705,108
118,085
65,953
1,174,581
129,434
—
$ 331,687
483,002
116,100
953
1,184,132
112,857
2,801
$ 238,792
705,108
118,085
65,953
1,053,070
129,434
—
$ 331,687
483,002
116,100
953
1,062,952
112,857
2,801
The fair value of the financial assets and liabilities is the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
•
•
•
Cash and cash equivalents, short-term investments approximate their carrying amounts largely due to the short-term
maturities of these instruments.
Accounts receivable are evaluated by the Company based on parameters such as interest rates, and risk characteristics. Based
on this evaluation, allowances are taken into account for the expected losses of these receivables.
Debt obligations, financial assets, and financial liabilities are estimated by discounting future cash flows using the
Company’s current incremental borrowing for a similar liability.
The following chart summarizes the Company’s financial instruments measured at fair value, classified according to the valuation
method:
Liabilities
Fuel derivatives
Total liabilities
Fair value measurement as of reporting date
2016
Level 1
Level 2
Level 3
2,801
$ 2,801
—
$ —
2,801
$ 2,801
—
$ —
F-70
(Continued)
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
29. Subsequent events
Stock Grants
During the first quarter of 2018, the Compensation Committee of the Company’s Board of Directors approved three awards. Awards
under these plans will grant approximately 39,761 shares of non-vested stock, which will vest over a period of three to five years. The
Company estimates the fair value of these awards to be approximately $5.4 million and the 2018 compensation cost for these plans will
be $2.5 million.
Venezuela’s exchange rate
On January 26, 2018, the Venezuelan government published in official gazette the Exchange Agreement No. 39 where is indicated the
elimination of the Sistema de divisas protegidas (DIPRO) which were the preferential exchange rate of VEF 10 per U.S. dollar for
importation of medicine and foods. The new model unifies the exchange rate that will manage through the DICOM and also include
change to the way of auctions are held.
The new regulation establishes that the exchange rate resulting from the auctions carried out through the DICOM is the one that will be
used as a reference for all foreign currency settlement operations, both in the public and private sectors. In its first auction on
February 5, 2018, the Venezuela’s Central Bank reports the new DICOM exchange rate of VEF 25,000.0 per U.S. dollar. The Company
does not expect a significant impact on its consolidated financial statement on applying the new exchange rate since the operations,
assets and liabilities in VEF are not material.
Temporarily cancelation of all flights to Venezuela
On April 5, 2018, the government of Venezuela announced that it was temporarily suspending economic, financial and commercial
relations with Panama, including certain companies and Panamanian citizens, for a period of 90 days. This announcement includes the
operations of Copa Airlines in Venezuela. Copa Airlines has cancelled all of its flights between Panama and Venezuela for the next 90
days, effective immediately. For the year ended December 31, 2017, revenue from Copa Airlines’ flights to Venezuela, including
connecting traffic, represented about 5% of consolidated revenues and direct flights between Panama and Venezuela. While it is too
early to predict the ultimate impact of these restrictions, the Company does not expect any such cancellations to have other effects on
Company’ consolidated operations.
F-71
Exhibit 10.62
PURCHASE AGREEMENT NUMBER PA-03774
between
THE BOEING COMPANY
and
COPA HOLDINGS S.A.
Relating to Boeing Model 737 MAX Aircraft
COP-PA-03774
Page 1
BOEING PROPRIETARY
TABLE OF CONTENTS
ARTICLES
Article 1.
Article 2.
Article 3.
Article 4.
Article 5.
TABLE
1.
1-2
1-3
1-4
EXHIBIT
A
A-1-2011
A-2
B.
Quantity, Model and Description
Delivery Schedule
Price
Payment
Additional Terms
Aircraft Information Table 737-8
Aircraft Information Table 737-9
Aircraft Information Table 737-10
Aircraft Information Table 737-9 2011
Aircraft Number 11 and On
Aircraft Configuration 737-8 MAX
Aircraft Configuration 737-9 MAX
Aircraft Configuration 737-10
Aircraft Delivery Requirements and Responsibilities
SUPPLEMENTAL EXHIBITS
AE1.
BFE1.
CS1.
EE1.
SLP1.
Escalation Adjustment/Airframe and Optional Features
BFE Variables
Customer Support Variables
Engine Escalation, Engine Warranty and Patent Indemnity
Service Life Policy Components
SA-11
BOEING PROPRIETARY
SA
NUMBER
SA-11
SA-11
SA-10
SA-11
SA-11
SA-10
SA-1
Page 2
LETTER AGREEMENTS
LA-1207593R1
LA-1207596
LA-1207601R1
LA-1207602
LA-1207605
LA-1207607R1
LA-1702975
SA-11
BOEING PROPRIETARY
SA
NUMBER
SA-10
SA-10
SA-10
SA-10
Page 3
RESTRICTED LETTER AGREEMENTS:
SA
NUMBER
LA-1207594R1
LA-1207595 R1
LA-1207597R1
LA-1207599R1
LA-1207600
LA-1207604
LA-1207608, R3
LA-1207930
LA-1207931
LA-1208299
LA-1208302
LA 1208560R12
LA-1208842
LA-1208845
LA-1208861R2
LA-1500213
LA-1601981
LA-1702990
LA-1700960
LA-1702992
LA-1703174
LA-1743401
SA-11
BOEING PROPRIETARY
SA-10
SA-11
SA-4
SA-10
SA-11
SA-10
SA-10
SA-4
SA-9
SA-10
SA-10
SA-10
SA-10
SA-10
Page 4
SUPPLEMENTAL AGREEMENTS
Supplemental Agreement No. 1
Supplemental Agreement No. 2
Supplemental Agreement No. 3
Supplemental Agreement No. 4
Supplemental Agreement No. 5
Supplemental Agreement No. 6
Supplemental Agreement No. 7
Supplemental Agreement No. 8
Supplemental Agreement No. 9
Supplemental Agreement No. 10
Supplemental Agreement No. 11
SA-11
BOEING PROPRIETARY
DATED AS OF:
30 May 2013
28 November 2013
10 October 2014
23 February 2015
23 March 2015
12 August 2015
30 October 2015
31 March 2016
30 May 2016
31 May 2017
Page 5
Purchase Agreement No. PA-03774
between
The Boeing Company
and
COPA HOLDINGS S.A.
This Purchase Agreement No. PA-03774 between The Boeing Company, a Delaware corporation, (Boeing) and COPA
HOLDINGS S.A., a Panama corporation, (Customer) relating to the purchase and sale of Boeing Model 737 MAX aircraft together
with all tables, exhibits, supplemental exhibits, letter agreements and other attachments thereto, if any, (together, the “Purchase
Agreement”) incorporates the terms and conditions (except as specifically set forth below) of the Aircraft General Terms Agreement
dated as of November 25, 1998 between the parties, identified as AGTA/COP (AGTA).
1. Quantity, Model and Description.
The aircraft to be delivered to Customer will be designated as Model 737-8 MAX or 737-9 MAX aircraft (collectively, the
Aircraft and each an Aircraft). Boeing will manufacture and sell to Customer Aircraft conforming to the configuration described in
Exhibit A in the quantities listed in Table 1 to the Purchase Agreement, as the same may be amended from time to time in accordance
with the provisions of this Purchase Agreement.
2. Delivery Schedule.
The scheduled months of delivery of the Aircraft are listed in the attached Table 1. Exhibit B describes certain responsibilities for
both Customer and Boeing in order to accomplish the delivery of the Aircraft.
3. Price.
3.1 Aircraft Basic Price. The Aircraft Basic Price is listed in Table 1 and is subject to escalation in accordance with the terms of
this Purchase Agreement.
3.2 Advance Payment Base Prices. The Advance Payment Base Prices listed in Table 1 were calculated using the 737-8 Airframe
Price and average optional features price as of the date of this Purchase Agreement escalated at a rate of three percent (3%) per year to
the scheduled delivery year.
4. Payment.
4.1 Boeing acknowledges receipt of a deposit in the amount shown in Table 1 for each Aircraft (Deposit).
COP-PA-03774
Page 6
4.2 The standard advance payment schedule for the Aircraft requires Customer to make certain advance payments, expressed in a
percentage of the Advance Payment Base Price of each Aircraft beginning with a payment of one percent (1%), less the Deposit, on the
effective date of the Purchase Agreement for the Aircraft. Additional advance payments for each Aircraft are due as specified in and on
the first business day of the months listed in the attached Table 1.
4.3 For any Aircraft whose scheduled month of delivery is less than twenty-four (24) months from the date of this Purchase
Agreement, the total amount of advance payments due for payment upon signing of this Purchase Agreement will include all advance
payments which would have become due and payable on or before the date hereof, in accordance with the standard advance payment
schedule set forth in paragraph 4.2 above.
4.4 Customer will pay the balance of the Aircraft Price of each Aircraft at delivery.
5. Additional Terms.
5.1 Aircraft Information Table. Table 1 consolidates information contained in Articles 1, 2, 3 and 4 with respect to (i) quantity of
Aircraft, (ii) applicable Detail Specification, (iii) month and year of scheduled deliveries, (iv) Aircraft Basic Price, (v) applicable
escalation factors and (vi) Advance Payment Base Prices and advance payments and their schedules.
5.2 Escalation Adjustment/Airframe and Optional Features. Supplemental Exhibit AE1 contains the applicable airframe and
optional features escalation formula. The provisions of Exhibit D to the AGTA are not applicable to this Purchase Agreement.
5.3 Buyer Furnished Equipment Variables. Supplemental Exhibit BFE1 contains supplier selection dates, on dock dates and other
variables applicable to the Aircraft.
5.4 Customer Support Variables. Information, training, services and other things furnished by Boeing in support of introduction of
the Aircraft into Customer’s fleet are described in Supplemental Exhibit CS1. The level of support to be provided under Supplemental
Exhibit CS1 (Entitlements) assumes that at the time of delivery of Customer’s first Aircraft under the Purchase Agreement, Customer
has not taken possession of a Boeing Model 737 aircraft whether such 737 aircraft was purchased, leased or otherwise obtained by
Customer from Boeing or another party. If prior to the delivery of Customer’s first Aircraft, Customer has taken possession of a 737
aircraft, Boeing will revise the Entitlements to reflect the level of support normally provided by Boeing to operators already operating
such aircraft. Under no circumstances under the Purchase Agreement or any other agreement will Boeing provide the Entitlements more
than once to support Customer’s operation of 737 aircraft.
COP-PA-03774
Page 7
BOEING PROPRIETARY
5.5 Engine Escalation Variables. Supplemental Exhibit EE1 describes the applicable engine escalation formula and contains the
engine warranty and the engine patent indemnity for the Aircraft.
5.6 Service Life Policy Component Variables. Supplemental Exhibit SLP1 lists the SLP Components covered by the Service Life
Policy for the Aircraft.
5.7 Public Announcement. Boeing reserves the right to make a public announcement regarding Customer’s purchase of the
Aircraft upon written approval of Boeing’s press release by Customer’s public relations department or other authorized representative.
5.8 Negotiated Agreement; Entire Agreement. This Purchase Agreement, including the provisions of Article 8.2 of the AGTA
relating to insurance, and Article 11 of Part 2 of Exhibit C of the AGTA relating to DISCLAIMER AND RELEASE and EXCLUSION
OF CONSEQUENTIAL AND OTHER DAMAGES, has been the subject of discussion and negotiation and is understood by the
parties; the Aircraft Price and other agreements of the parties stated in this Purchase Agreement were arrived at in consideration of such
provisions. This Purchase Agreement, including the AGTA, contains the entire agreement between the parties and supersedes all
previous proposals, understandings, commitments or representations whatsoever, oral or written, with respect to the purchase by
customer and manufacture, sale and delivery by Boeing of the Aircraft and may be changed only in writing signed by authorized
representatives of the parties.
AGREED AND ACCEPTED this
June 27, 2012
Date
THE BOEING COMPANY
COPA HOLDINGS S.A.
Signature
David L. Gossard
Printed name
Attorney-in-Fact
Title
COP-PA-03774
Signature
Printed name
Title
BOEING PROPRIETARY
Page 8
Table 1 To
Purchase Agreement No. PA-03774
Aircraft Delivery, Description, Price and Advance Payments
Airframe Mode/MTOW:
737-8
Engine Model/Thrust:
CFMLEAP-1B25
Airframe Price:
Optional Features:
Sub-Total of Airframe and Features:
Engine Price (Per Aircraft):
Aircraft Basic Price (Excluding BFE/SPE):
Buyer Furnished Equipment (BFE) Estimate:
Seller Purchased Equipment (SPE) Estimate:
Deposit per Aircraft:
$140,000
Escalation
Factor
(Airframe)
Escalation Estimate
Adv Payment Base
Price Per A/P
Advanced Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing
1%
36/30 Mos.
2%
24 Mos.
3%
21/15 Mos.
5%
9 Mos.
2%
Total
20%
Delivery
Date
May-2020
Jun-2020
Jul-2020
Aug-2020
Sep-2020
Oct-2020
Nov-2020
Apr-2022
May-2022
Jun-2022
Aug-2022
Sep-2022
Oct-2022)
Nov-2022
Number of
Aircraft
1
1
1
1
2
2
1
1
2
1
1
2
1
1
COP-PA-03774 72533F.TXT
Page 9
Table 1 To
Purchase Agreement No. PA-03774
Aircraft Delivery, Description, Price and Advance Payments
Escalation
Factor
(Airframe)
Escalation
Estimate
Adv Payment Base
Price Per A/P
Advanced Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing
1%
36/30 Mos.
2%
24 Mos.
3%
21/15 Mos.
5%
9 Mos.
2%
Total
20%
Delivery
Date
Feb-2023
Mar-2023
Apr-2023
May-2023
Jun-2023
Jul-2023
Aug-2023
Sep-2023
Oct-2023
Nov-2023
Feb-2024
Mar-2024
Apr-2024
May-2024
Jun-2024
Jul-2024
Aug-2024
Sep-2024
Oct-2024
Mar-2025
Apr-2025
May-2025
Jun-2025
Total:
Notes:
Number of
Aircraft
2
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
43
1) Actual delivery months provided in accordance with LA-1207602.
COP-PA-03774 72533F.TXT
Page 10
BOEING PROPRIETARY
Table 1 To
Purchase Agreement No. PA-03774
Aircraft Delivery, Description, Price and Advance Payments
Delivery
Date
Number of
Aircraft
Escalation
Factor
(Airframe)
Escalation
Estimate
Adv Payment Base
Price Per A/P
Advanced Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At
Signing
1%
36/30 Mos.
2%
24 Mos.
3%
21/15 Mos.
5%
9 Mos.
2%
Total
20%
COP-PA-03774 72533F.TXT
Page 11
BOEING PROPRIETARY
Table 1-2 To
Purchase Agreement No. PA-03774
737-9 2011 Bas Year Aircraft Delivery, Description, Price and Advance Payments
Airframe Mode/MTOW:
737-9
Engine Model/Thrust:
CFMLEAP-1B28
Airframe Price:
Optional Features:
Sub-Total of Airframe and Features:
Engine Price (Per Aircraft):
Aircraft Basic Price (Excluding BFE/SPE):
Buyer Furnished Equipment (BFE) Estimate:
Seller Purchased Equipment (SPE) Estimate:
Deposit per Aircraft:
Delivery
Date
Feb-2023
Mar-2023
Apr-2023
May-2023
Jun-2023
Jul-2023
Aug-2023
Sep-2023
Total:
Number of
Aircraft
1
2
1
1
1
1
1
2
10
Escalation
Factor
(Airframe)
1
1
Page 12
Table 1-3 To
Purchase Agreement No. PA-03774
Boeing 737-10 MAX
Aircraft Delivery, Description, Price and Advance Payments
Airframe Mode/MTOW:
737-10
Engine Model/Thrust:
CFMLEAP-1B28
Airframe Price:
Optional Features:
Sub-Total of Airframe and Features:
Engine Price (Per Aircraft):
Aircraft Basic Price (Excluding BFE/SPE):
Buyer Furnished Equipment (BFE) Estimate:
Seller Purchased Equipment (SPE) Estimate:
Deposit per Aircraft:
Escalation
Factor
(Airframe)
Escalation Estimate
Adv Payment Base
Price Per A/P
Advanced Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing
1%
36/30 Mos.
2%
24 Mos.
3%
21/15 Mos.
5%
9 Mos.
2%
Total
20%
Delivery
Date
Feb-2021
Mar-2021
Apr-2021
May-2021
Jun-2021
Aug-2021
Sep-2021
Oct-2021
Nov-2021
Feb-2022
Mar-2022
Total:
Number of
Aircraft
1
2
1
2
1
1
1
2
1
1
2
15
PA-03774 101321-1F.TXT
Page 13
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
COPA
HOLDINGS S.A.
COP-PA-03774-EXA
Page 1
Exhibit A to Purchase Agreement Number PA-03774
Exhibit A
AIRCRAFT CONFIGURATION
relating to
BOEING MODEL 737-8 MAX AIRCRAFT
The Detail Specification is Boeing document number D019A001, revision TBD, dated as of October 27, 2011. The Detail
Specification provides further description of Customer’s configuration set forth in this Exhibit A. Such Detail Specification will be
comprised of Boeing configuration specification D019A001, revision TBD, dated October 27, 2011, as amended to incorporate the
optional features (Options) yet to be defined by Customer, and the effects on Manufacturer’s Empty Weight (MEW) and Operating
Empty Weight (OEW). The Aircraft Basic Price reflects and includes all effects of such estimated Options, except such Aircraft Basic
Price does not include the price effects of any Buyer Furnished Equipment or Seller Purchased Equipment.
The content of this Exhibit A will be defined pursuant to the provisions of Letter Agreement No. 1207602 to the Purchase
Agreement, entitled “Open Matters”.
COP-PA-03774-EXA
Page 2
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
COPA HOLDINGS S.A.
Exhibit A-1 to Purchase Agreement Number PA-03774
COP-PA-03774-EXA-1
SA-11
Page 1
BOEING PROPRIETARY
Exhibit A-1
AIRCRAFT CONFIGURATION
relating to
BOEING MODEL 737-9 MAX AIRCRAFT
The Detail Specification is Boeing document number D019A008, revision C, dated as of March 15, 2013. The Detail Specification
provides further description of Customer’s configuration set forth in this Exhibit A-1. Such Detail Specification will be comprised of
Boeing configuration specification D019A008, revision C, dated as of March 15, 2013, as amended to incorporate the optional features
(Options) yet to be defined by Customer, and the effects on Manufacturer’s Empty Weight (MEW) and Operating Empty Weight
(OEW). The Aircraft Basic Price reflects and includes all effects of such estimated Options, except such Aircraft Basic Price does not
include the price effects of any Buyer Furnished Equipment or Seller Purchased Equipment.
The content of this Exhibit A-1 will be defined pursuant to the provisions of Letter Agreement No. 1207602 to the Purchase
Agreement, entitled “Open Matters”.
COP-PA-03774-EXA-1
BOEING PROPRIETARY
SA-11
Page 2
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
COPA HOLDINGS S.A.
COP-PA-03774-EXA-1-2011
Exhibit A-1- 2011 to Purchase Agreement No. PA-03774
SA-11
Page 1
BOEING PROPRIETARY
Exhibit A-1-2011
AIRCRAFT CONFIGURATION
relating to
BOEING MODEL 737-9 2011 BASE YEAR MAX AIRCRAFT
The Detail Specification is Boeing document number D019A008, revision C, dated as of March 15, 2013. The Detail Specification
provides further description of Customer’s configuration set forth in this Exhibit A-1. Such Detail Specification will be comprised of
Boeing configuration specification D019A008, revision C, dated as of March 15, 2013, as amended to incorporate the optional features
(Options) yet to be defined by Customer, and the effects on Manufacturer’s Empty Weight (MEW) and Operating Empty Weight
(OEW). The Aircraft Basic Price reflects and includes all effects of such estimated Options, except such Aircraft Basic Price does not
include the price effects of any Buyer Furnished Equipment or Seller Purchased Equipment.
COP-PA-03774-EXA-1-2011
SA-11
Page 2
BOEING PROPRIETARY
AIRCRAFT CONFIGURATION
737-10
between
THE BOEING COMPANY
and
COPA HOLDINGS S.A
EXHIBIT A-2 to PURCHASE AGREEMENT
NUMBER PA-03774
BOEING PROPRIETARY
SA-10
Page 1
COP-PA-03774-EXA-2
EXHIBIT A-2
AIRCRAFT CONFIGURATION
relating to
BOEING MODEL 737-10 AIRCRAFT
The content of this Exhibit A-2 will be defined pursuant to the provisions of Letter Agreement No. COP-LA-03774-LA-1702975
to the Purchase Agreement, entitled “73710 Open Matters”.
COP-PA-03774-EXA-2
SA-10
Page 2
BOEING PROPRIETARY
AIRCRAFT DELIVERY REQUIREMENTS AND
RESPONSIBILITIES
between
THE BOEING COMPANY
and
COPA HOLDINGS S.A.
Exhibit B to Purchase Agreement Number PA-03774
COP-PA-03774-EXB
Page 1
BOEING PROPRIETARY
Exhibit B
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
relating to
BOEING MODEL 737 MAX AIRCRAFT
Both Boeing and Customer have certain documentation and approval responsibilities at various times during the construction
cycle of each of the Customer’s Aircraft that are critical to making the delivery of each Aircraft a positive experience for both parties.
This Exhibit B documents those responsibilities and indicates recommended completion deadlines for the actions to be accomplished.
1. GOVERNMENT DOCUMENTATION REQUIREMENTS.
Certain actions are required to be taken by or on behalf of Customer in advance of the scheduled delivery month of each Aircraft
with respect to obtaining certain government issued documentation.
1.1 Airworthiness and Registration Documents. Not later than six (6) months prior to delivery of each Aircraft, Customer will
notify Boeing of the registration number to be painted on the side of the Aircraft. In addition, and not later than three (3) months prior
to delivery of each Aircraft, Customer will or will cause, by letter to the regulatory authority having jurisdiction, such regulatory
authority to authorize the temporary use of such registration numbers by Boeing during the pre-delivery testing of the Aircraft.
Customer is responsible for furnishing any Temporary or Permanent Registration Certificates required by any governmental
authority having jurisdiction to be displayed aboard the Aircraft after delivery.
1.2 Certificate of Sanitary Construction.
Boeing will obtain from the United States Public Health Service, a United States Certificate of Sanitary Construction to be
displayed aboard each Aircraft after delivery to Customer. The above Boeing obligation only applies to commercial
passenger-configured aircraft.
1.3 Customs Documentation.
1.3.1 Import Documentation. If the Aircraft is intended to be exported from the United States, Customer must notify Boeing
not later than three (3) months prior to delivery of each Aircraft of any documentation required by the customs authorities or by any
other agency of the country of import.
COP-PA-03774-EXB
Page 2
BOEING PROPRIETARY
1.3.2 General Declaration - U.S. Unless otherwise notified by Customer, Boeing will prepare Customs Form 7507, General
Declaration, for execution by U.S. Customs immediately prior to the ferry flight of the Aircraft. For this purpose, Customer will furnish
to Boeing not later than twenty (20) days prior to delivery all information required by U.S. Customs and Border Protection, including
without limitation (i) a complete crew and passenger list identifying the names, birth dates, passport numbers and passport expiration
dates of all crew and passengers and (ii) a complete ferry flight itinerary, including point of exit from the United States for the Aircraft.
If Customer intends, during the ferry flight of an Aircraft, to land at a U.S. airport after clearing Customs at delivery, Customer
must notify Boeing not later than twenty (20) days prior to delivery of such intention. If Boeing receives such notification, Boeing
will provide to Customer the documents constituting a Customs permit to proceed, allowing such Aircraft to depart after any such
landing. Sufficient copies of completed Form 7507, along with passenger manifest, will be furnished to Customer to cover U.S. stops
scheduled for the ferry flight.
1.3.3 Export Declaration - U.S. Boeing will file an export declaration electronically with U.S. Customs and Border
Protection (CBP) in respect of each Aircraft.
2. Insurance Certificates.
Unless provided earlier, Customer will provide to Boeing not later than thirty (30) days prior to delivery of the first Aircraft, a
copy of the requisite annual insurance certificate in accordance with the requirements of Article 8 of the AGTA.
3. NOTICE OF FLYAWAY CONFIGURATION.
Not later than twenty (20) days prior to delivery of an Aircraft, Customer will provide to Boeing a configuration letter stating the
requested “flyaway configuration” of such Aircraft for its ferry flight. This configuration letter should include:
(i)
(ii)
(iii)
(iv)
the name of the company which is to furnish fuel for the ferry flight and any scheduled post-delivery flight training,
the method of payment for such fuel, and fuel load for the ferry flight;
the cargo to be loaded and where it is to be stowed on board the Aircraft, the address where cargo is to be shipped
after flyaway and notification of any hazardous materials requiring special handling;
any BFE equipment to be removed prior to flyaway and returned to Boeing BFE stores for installation on Customers
subsequent Aircraft;
a complete list of names and citizenship of each crew member and non-revenue passenger who will be aboard the
ferry flight; and
(v)
a complete ferry flight itinerary.
COP-PA-03774-EXB
BOEING PROPRIETARY
Page 3
4. DELIVERY ACTIONS BY BOEING.
4.1 Schedule of Inspections. All FAA, Boeing and Customer inspections will be scheduled by Boeing for completion prior to
delivery of each Aircraft and, if required, all US Customs Bureau or similar inspections will be provided prior to delivery or departure
(in each case as required by applicable rules and procedures of the relevant governmental agency) of the Aircraft. Customer will be
informed of such schedules.
4.2 Schedule of Demonstration Flights. All FAA and Customer demonstration flights will be scheduled by Boeing for completion
prior to delivery of the Aircraft.
4.3 Schedule for Customer’s Flight Crew. Boeing will inform Customer of the date that a flight crew is required for acceptance
routines associated with delivery of the Aircraft.
4.4 Flight Crew and Passenger Consumables. Boeing will provide reasonable quantities of food, coat hangers, towels, toilet tissue,
drinking cups and soap for the first segment of the ferry flight for the Aircraft.
4.5 Delivery Papers, Documents and Data. Boeing will have available at the time of delivery of the Aircraft certain delivery
papers, documents and data for execution and delivery. If title for the Aircraft will be transferred to Customer through a Boeing
subsidiary and if the Aircraft will be registered with the FAA, Boeing will pre-position in Oklahoma City, Oklahoma, for filing with the
FAA at the time of delivery of the Aircraft an executed original Form 8050-2, Aircraft Bill of Sale, indicating transfer of title to the
Aircraft from Boeing’s subsidiary to Customer.
4.6 Delegation of Authority. Boeing will present a certified copy of a Resolution of Boeing’s Board of Directors, designating and
authorizing certain persons to act on its behalf in connection with delivery of the Aircraft.
5. DELIVERY ACTIONS BY CUSTOMER.
5.1 Aircraft Radio Station License. At delivery Customer will provide or cause to be provided an Aircraft Radio Station License to
be placed on board the Aircraft following delivery.
5.2 Aircraft Flight Loq. At delivery Customer will provide or cause to be provided the Aircraft Flight Log for the Aircraft.
5.3 Delegation of Authority. Customer will present to Boeing at delivery of the Aircraft an original or certified copy of
Customer’s Delegation of Authority designating and authorizing certain persons to act on its behalf in connection with delivery of the
specified Aircraft.
COP-PA-03774-EXB
Page 4
BOEING PROPRIETARY
5.4 TSA Waiver Approval. Customer may be required to have an approved Transportation Security Administration (TSA) waiver
for the ferry flight depending upon the Customer’s en-route stop(s) and destination unless the Customer already has a TSA approved
security program in place. Customer is responsible for application for the TSA waiver and obtaining TSA approval. Customer will
provide a copy of the approved TSA waiver to Boeing upon arrival at the Boeing delivery center.
5.5 Electronic Advance Passenger Information System. Should the ferry flight of an Aircraft leave the United States, the
Department of Homeland Security office requires Customer to comply with the Electronic Advance Passenger Information System
(eAPIS). Customer needs to establish their own account with US Customs and Border Protection in order to file for departure. A copy
of the eAPIS forms is to be provided by Customer to Boeing upon arrival of Customer’s acceptance team at the Boeing delivery center.
COP-PA-03774-EXB
Page 5
BOEING PROPRIETARY
ESCALATION ADJUSTMENT
AIRFRAME AND OPTIONAL FEATURES
between
THE BOEING COMPANY
and
COPA HOLDINGS S.A.
Supplemental Exhibit AE1
to Purchase Agreement Number PA-03774
COP-PA-03774-EXHAE1
Page 1
BOEING PROPRIETARY
ESCALATION ADJUSTMENT
AIRFRAME AND OPTIONAL FEATURES
relating to
BOEING MODEL 737 MAX AIRCRAFT
1. Formula.
Airframe and Optional Features price adjustments (Airframe Price Adjustment) are used to allow prices to be stated in current year
dollars at the signing of this Purchase Agreement and to adjust the amount to be paid by Customer at delivery for the effects of
economic fluctuation. The Airframe Price Adjustment will be determined at the time of Aircraft delivery in accordance with the
following formula:
Pa = (P) (L + M) - P
Where:
Pa = Airframe Price Adjustment. (For Models 737, 747-8, 777-200LR, 777-F, and 777-300ER the Airframe Price includes the Engine
Price at its basic thrust level.)
P = Airframe Price plus the price of the Optional Features (as set forth in Table 1 of this Purchase Agreement).
L=.65 x (ECI
ECIb)
Where:
ECIb is the base year airframe escalation index (as set forth in Table 1 of this Purchase Agreement);
ECI is a value determined using the U.S. Department of Labor, Bureau of Labor Statistics, Employment Cost Index for NAICS
Manufacturing — Total Compensation (BLS Series ID CIU20130000000001), calculated by establishing a three (3) month arithmetic
average value (expressed as a decimal and rounded to the nearest tenth) using the values for the 11th, 12th, and 13th months prior to the
month of scheduled delivery of the applicable Aircraft. As the Employment Cost Index values are only released on a quarterly basis, the
value released for the first quarter will be used for the months of January, February, and March; the value released for the second
quarter will be used for the months of April, May, and June; the value released for the third quarter will be used for the months of July,
August, and September; the value released for the fourth quarter will be used for the months of October, November, and December.
M = .35 x (CPI
CPIb)
COP-PA-03774-EXHAE1
BOEING PROPRIETARY
Page 2
Where:
CPIb is the base year airframe escalation index (as set forth in Table 1 of this Purchase Agreement); and
CPI is a value determined using the U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Index — All Urban
Consumers (BLS Series ID CUUR0000SA0), calculated as a three (3) month arithmetic average of the released monthly values
(expressed as a decimal and rounded to the nearest tenth) using the values for the 11th, 12th, and 13th months prior to the month of
scheduled delivery of the applicable Aircraft.
As an example, for an Aircraft scheduled to be delivered in the month of July, the months of June, July, and August of the preceding
year will be utilized in determining the value of ECI and CPI.
Note:
(i)
In determining the values of L and M, all calculations and resulting values will be expressed as a decimal rounded to
the nearest ten-thousandth.
(ii)
.65 is the numeric ratio attributed to labor in the Airframe Price Adjustment formula.
(iii)
.35 is the numeric ratio attributed to materials in the Airframe Price Adjustment formula.
(iv)
The denominators (base year indices) are the actual average values reported by the U.S. Department of Labor,
Bureau of Labor Statistics. The actual average values are calculated as a three (3) month arithmetic average of the
released monthly values (expressed as a decimal and rounded to the nearest tenth) using the values for the 11th, 12th,
and 13th months prior to the airframe base year. The applicable base year and corresponding denominator is provided
by Boeing in Table 1 of this Purchase Agreement.
(v)
The final value of Pa will be rounded to the nearest dollar.
(vi)
The Airframe Price Adjustment will not be made if it will result in a decrease in the Aircraft Basic Price.
COP-PA-03774-EXHAE1
Page 3
BOEING PROPRIETARY
2. Values to be Utilized in the Event of Unavailability.
2.1 If the Bureau of Labor Statistics substantially revises the methodology used for the determination of the values to be used to
determine the ECI and CPI values (in contrast to benchmark adjustments or other corrections of previously
released values), or for any reason has not released values needed to determine the applicable Airframe Price Adjustment, the parties
will, prior to the delivery of any such Aircraft, select a substitute from other Bureau of Labor Statistics data or similar data reported by
non-governmental organizations. Such substitute will result in the same adjustment, insofar as possible, as would have been calculated
utilizing the original values adjusted for fluctuation during the applicable time period. However, if within twenty-four (24) months after
delivery of the Aircraft, the Bureau of Labor Statistics should resume releasing values for the months needed to determine the Airframe
Price Adjustment, such values will be used to determine any increase or decrease in the Airframe Price Adjustment for the Aircraft from
that determined at the time of delivery of the Aircraft.
2.2 Notwithstanding Article 2.1 above, if prior to the scheduled delivery month of an Aircraft the Bureau of Labor Statistics
changes the base year for determination of the ECI and CPI values as defined above, such re-based values will be incorporated in the
Airframe Price Adjustment calculation.
2.3 In the event escalation provisions are made non-enforceable or otherwise rendered void by any agency of the United States
Government, the parties agree, to the extent they may lawfully do so, to equitably adjust the Aircraft Price of any affected Aircraft to
reflect an allowance for increases or decreases consistent with the applicable provisions of paragraph 1 of this Supplemental Exhibit
AE1 in labor compensation and material costs occurring since August of the year prior to the price base year shown in the Purchase
Agreement.
2.4 If within twelve (12) months of Aircraft delivery, the published index values are revised due to an acknowledged error by the
Bureau of Labor Statistics, the Airframe Price Adjustment will be re-calculated using the revised index values (this does not include
those values noted as preliminary by the Bureau of Labor Statistics). A credit memorandum or supplemental invoice will be issued for
the Airframe Price Adjustment difference. Interest charges will not apply for the period of original invoice to issuance of credit
memorandum or supplemental invoice.
Note:
(i)
The values released by the Bureau of Labor Statistics and available to Boeing thirty (30) days prior to the first day of
the scheduled delivery month of an Aircraft will be used to determine the ECI and CPI values for the applicable
months (including those noted as preliminary by the Bureau of Labor Statistics) to calculate the Airframe Price
Adjustment for the Aircraft invoice at the time of delivery. The values will be considered final and no Airframe Price
Adjustments will be made after Aircraft delivery for any subsequent changes in published Index values, subject
always to paragraph 2.4 above.
COP-PA-03774-EXHAE1
Page 4
BOEING PROPRIETARY
(ii)
The maximum number of digits to the right of the decimal after rounding utilized in any part of the Airframe Price
Adjustment equation will be four (4), where rounding of the fourth digit will be increased to the next highest digit
when the 5th digit is equal to five (5) or greater.
COP-PA-03774-EXHAE1
Page 5
BOEING PROPRIETARY
BUYER FURNISHED EQUIPMENT VARIABLES
between
THE BOEING COMPANY
and
COPA HOLDINGS S.A.
Supplemental Exhibit BFE1
to Purchase Agreement Number PA-03774
COP-PA-03774-BFE1
SA-1
Page 1
BOEING PROPRIETARY
BUYER FURNISHED EQUIPMENT VARIABLES
relating to
BOEING MODEL 737-8 MAX AIRCRAFT
This Supplemental Exhibit BFE1 contains supplier selection dates, on-dock dates and other requirements applicable to the
Aircraft.
1. Supplier Selection.
Customer will:
Select and notify Boeing of the suppliers and part numbers of the following BFE items by the following dates:
Galley System
Galley Inserts
Seats (passenger)
Overhead & Audio System
In-Seat Video System
Miscellaneous Emergency Equipment
Cargo Handling Systems*
(Single Aisle Programs only)
12 months
prior to first
delivery
12 months
prior to first
delivery
14 months
prior to first
delivery
12 months
prior to first
delivery
14 months
prior to first
delivery
12 months
prior to first
delivery
8 months
prior to first
delivery
For a new certification, supplier requires notification ten (10) months prior to Cargo Handling System on-dock date.
*
** Actual Supplier Selection dates will be provided thirty six (36) months prior to first aircraft delivery.
COP-PA-03774-BFE1
SA-1
Page 2
BOEING PROPRIETARY
Customer will enter into initial agreements with the selected Galley System, Galley Inserts, Seats, and In-Seat Video System
suppliers on or before twenty (20) calendar days after the above supplier selection dates to actively participate with Customer and
Boeing in coordination actions including the Initial Technical Coordination Meeting (ITCM).
2. On-dock Dates and Other Information.
On or before nine (9) months prior to delivery of Customer’s first Aircraft, Boeing will provide to Customer the BFE
Requirements electronically through My Boeing Fleet (MBF) in My Boeing Configuration (MBC). These requirements may be
periodically revised, setting forth the items, quantities, on-dock dates and shipping instructions and other requirements relating to the
in-sequence installation of BFE.
3. Additional Delivery Requirements - Import.
Customer will be the “importer of record” (as defined by the U.S. Customs and Border Protection) for all BFE imported into the
United States, and as such, it has the responsibility to ensure all of Customer’s BFE shipments comply with U.S. Customs Service
regulations. In the event Customer requests Boeing, in writing, to act as importer of record for Customer’s BFE, and Boeing agrees to
such request, Customer is responsible for ensuring Boeing can comply with all U.S. Customs Import Regulations by making certain
that, at the time of shipment, all BFE shipments comply with the requirements in the “International Shipment Routing Instructions”,
including the Customs Trade Partnership Against Terrorism (C-TPAT), as set out on the Boeing website referenced below. Customer
agrees to include the International Shipment Routing Instructions, including C-TPAT requirements, in each contract between Customer
and BFE supplier.
http://www.boeinq.com/companyoffices/doingbizJsupplier portal/index qeneral.html
COP-PA-03774-BFE1
BOEING PROPRIETARY
SA-1
Page 3
CUSTOMER SUPPORT VARIABLES
between
THE BOEING COMPANY
and
COPA HOLDINGS S.A.
Supplemental Exhibit CS1
to Purchase Agreement Number PA-03774
COP-PA-03774-EXCS1
Page 1
BOEING PROPRIETARY
CUSTOMER SUPPORT VARIABLES
relating to
BOEING MODEL 737 MAX AIRCRAFT
Customer and Boeing will conduct planning conferences approximately twelve (12) months prior to delivery of the first Aircraft,
or as mutually agreed, in order to develop and schedule a customized Customer Support Program to be furnished by Boeing in support
of the Aircraft.
The customized Customer Services Program will be based upon and equivalent to the entitlements summarized below.
1. Maintenance Training.
1.1 Mechanical/Power Plant Course; one (1) class of fifteen (15) students;
1.2 Electrical Systems Course; one (1) class of fifteen (15) students;
1.3 Avionics Systems Course; one (1) class of fifteen (15) students;
1.4 Aircraft Rigging Course; one (1) class of six (6) students;
1.5 Advanced Composite Repair Course; one (1) class of eight (8) students.
1.6 Training materials will be provided to each student. In addition, one set of training materials as used in Boeing’s training
program, including visual aids, Computer Based Training Courseware, instrument panel wall charts, text/graphics, video programs, etc.
will be provided for use in Customer’s own training program.
2. Flight Training.
2.1 Boeing will provide one classroom course to acquaint up to eight (8) students (four (4) flight crews) with operational, systems
and performance differences between Customer’s newly-purchased Aircraft and an aircraft of the same model currently operated by
Customer.
2.2 Training materials will be provided to each student. In addition, one set of training materials as used in Boeing’s training
program, including Computer Based Training Courseware, instrument panel wall charts, Flight Attendant Manuals, etc. will be
provided for use in Customer’s own training program. Customer is authorized to duplicate and use Boeing provided training materials
to train Customer’s personnel in their own training program, it being understood that revision service for these materials is not provided
by Boeing.
COP-PA-03774-EXCS1
Page 2
BOEING PROPRIETARY
3. Planning Assistance.
3.1 Maintenance Engineering. Notwithstanding anything in Exhibit B to the AGTA seemingly to the contrary, Boeing will provide
the following Maintenance Engineering support:
3.1.1 Maintenance Planning Assistance. Upon request, Boeing will provide one (1) on-site visit to Customer’s main base to
assist with maintenance program development and to provide consulting related to maintenance planning. Consultation with Customer
will be based on ground rules and requirements information provided in advance by Customer.
3.1.2 ETOPS Maintenance Planning Assistance. Upon request, Boeing will provide one (1) on site visit to Customer’s main
base to assist with the development of their ETOPS maintenance program and to provide consultation related to ETOPS maintenance
planning. Consultation with Customer will be based on ground rules and requirements information provided in advance by the
Customer.
3.1.3 GSE/Shops/Toolinq Consulting. Upon request, Boeing will provide consulting and data for ground support equipment,
maintenance tooling and requirements for maintenance shops. Consultation with Customer will be based on ground rules and
requirements information provided in advance by Customer.
3.1.4 Maintenance Engineering Evaluation. Upon request, Boeing will provide one (1) on-site visit to Customer’s main base
to evaluate Customer’s maintenance and engineering organization for conformance with industry best practices. The result of such
evaluation will be documented by Boeing in a maintenance engineering evaluation presentation. Customer will be provided with a copy
of the maintenance engineering evaluation presentation. Consultation with Customer will be based on ground rules and requirements
information provided in advance by Customer.
3.2 Spares.
(i)
Recommended Spares Parts List (RSPL). A customized RSPL, data and documents will be provided to identify spare
parts required for Customers support program.
(ii)
Illustrated Parts Catalog (IPC). A customized IPC in accordance with ATA 100 will be provided.
(iii)
Provisioning Training. Provisioning training will be provided for Customer’s personnel at Boeing’s facilities, where
documentation and technical expertise are available. Training is focused on the initial provisioning process and
calculations reflected in the Boeing RSPL.
COP-PA-03774-EXCS1
Page 3
BOEING PROPRIETARY
(iv)
Spares Provisioning Conference. A provisioning conference will be conducted, normally at Boeing’s facilities where
technical data and personnel are available.
4. Technical Data and Documents.
The following will be provided in mutually agreed formats and quantities:
4.1 Flight Operations.
Airplane Flight Manual
Operations Manual
Quick Reference Handbook
Weight and Balance Manual
Dispatch Deviation Procedures Guide
Flight Crew Training Manual
Performance Engineer’s Manual
Fault Reporting Manual
FMC Supplemental Data Document
Operational Performance Software
ETOPS Guide Vol. III
4.2 Maintenance.
Aircraft Maintenance Manual
Wiring Diagram Manual
Systems Schematics Manual
Fault Isolation Manual
Structural Repair Manual
Overhaul/Component Maintenance Manual
Standard Overhaul Practices Manual
Standard Wiring Practices Manual
Non-Destructive Test Manual
Service Bulletins and Index
Corrosion Prevention Manual
Fuel Measuring Stick Calibration Document
Power Plant Buildup Manual
Combined Index
Significant Service Item Summary
All Operators Letters
Structural Item Interim Advisory and Index
Service Letters and Index
Maintenance Tips
Production Management Data Base (PMDB)
Electrical Connectors Options Document
COP-PA-03774-EXCS1
Page 4
BOEING PROPRIETARY
4.3 Maintenance Planning.
Maintenance Planning Data Document
Maintenance Task Cards and Index
Maintenance Inspection Intervals Report
4.4 Spares.
Illustrated Parts Catalog
Standards Books
4.5 Facilities and Equipment Planning.
Facilities and Equipment Planning Document
Special Tool & Ground Handling Equipment Drawings & Index
Supplementary Tooling Documentation
Illustrated Tool and Equipment Manual
Aircraft Recovery Document
Airplane Characteristics for Airport Planning Document
Aircraft Rescue and Firefighting Document
Engine Handling Document
Configuration, Maintenance and Procedures for ETOPS
ETOPS Guide Vols. I & II
4.6 Supplier Technical Data.
Service Bulletins
Ground Support Equipment Data
Provisioning Information
Component Maintenance/Overhaul Manuals and Index
Publications Index
Product Support Supplier Directory
4.7 Fleet Statistical Data and Reporting.
Fleet reliability views, charts, and reports
5. Aircraft Information.
5.1 Aircraft Information is defined as that data provided by Customer to Boeing which falls into one of the following categories:
(i) aircraft operational information (including, but not limited to, flight hours, departures, schedule reliability, engine hours, number of
aircraft, aircraft registries, landings, and daily utilization and schedule interruptions for Boeing model aircraft); (ii) summary and
detailed shop findings data; (iii) line maintenance data; (iv) airplane message data, (v) scheduled maintenance data; (vi) service bulletin
incorporation; and (vii) aircraft data generated or received by equipment installed on Customer’s aircraft in analog or digital form
including but not limited to information regarding the state, condition, performance, location, setting, or path of the aircraft and
associated systems, sub-systems and components.
COP-PA-03774-EXCS1
Page 5
BOEING PROPRIETARY
5.2 License Grant. To the extent Customer has or obtains rights to Aircraft Information, Customer grants to Boeing a perpetual,
world-wide, non-exclusive license to use and disclose Aircraft Information and create derivatives thereof in Boeing data and
information and products and services provided Customer identification information as originating from Customer is removed.
Customer identification information may be retained as necessary for Boeing to provide products and services Customer has requested
from Boeing or for Boeing to inform Customer of additional Boeing products and services. This grant is in addition to any other grants
of rights in the agreements governing provision of such information to Boeing regardless of whether that information is identified as
Aircraft Information in such agreement including any information submitted under the In Service Data Program (ISDP).
For purposes of this article, Boeing is defined as The Boeing Company and its wholly owned subsidiaries.
5.3 Customer will provide Aircraft Information to Boeing through an automated software feed necessary to support Fleet
Statistical Analysis. Boeing will provide assistance to Customer under a separate agreement for mapping services to enable the
automated software feed.
COP-PA-03774-EXCS1
Page 6
BOEING PROPRIETARY
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
between
THE BOEING COMPANY
and
COPA HOLDINGS S.A.
Supplemental Exhibit EE1
to Purchase Agreement Number PA-03774
COP-PA-03774-EXEE1
Page 1
BOEING PROPRIETARY
ENGINE ESCALATION
ENGINE WARRANTY AND PATENT INDEMNITY
relating to
BOEING MODEL 737 MAX AIRCRAFT
1. ENGINE ESCALATION.
No separate engine escalation methodology is applicable to the 737-600, -700, 800, -900 or -900ER, -7, -8, -9 Aircraft. Pursuant to
the AGTA, the engine prices for these Aircraft are included in and will be escalated in the same manner as the Airframe.
2. ENGINE WARRANTY AND PRODUCT SUPPORT PLAN.
Boeing has obtained from CFM International, Inc. (or CFM International, S.A., as the case may be) (CFM) the right to extend to
Customer the provisions of CFM’s warranty as set forth below (herein referred to as Warranty); subject, however, to Customer’s
acceptance of the conditions set forth herein. Accordingly, Boeing hereby extends to Customer and Customer hereby accepts the
provisions of CFM’s Warranty as hereinafter set forth, and such Warranty shall apply to all CFM56-7 and CFM-LEAP-1B type Engines
(including all Modules and Parts thereof) installed in the Aircraft at the time of delivery or purchased from Boeing by Customer for
support of the Aircraft except that, if Customer and CFM have executed, or hereafter execute, a General Terms Agreement which
includes by its terms such engines, then the terms of that Agreement shall be substituted for and supersede the provisions of paragraphs
2.1 through 2.10 below and paragraphs 2.1 through 2.10 below shall be of no force or effect and neither Boeing nor CFM shall have any
obligation arising therefrom. In consideration for Boeing’s extension of the CFM Warranty to Customer, Customer hereby releases and
discharges Boeing from any and all claims, obligations and liabilities whatsoever arising out of the purchase or use of such CFM56-7
and CFM-LEAP-1B type Engines and Customer hereby waives, releases and renounces all its rights in all such claims, obligations and
liabilities. In addition, Customer hereby releases and discharges CFM from any and all claims, obligations and liabilities whatsoever
arising out of the purchase or use of such CFM56-7 and CFM-LEAP-1B type Engines except as otherwise expressly assumed by CFM
in such CFM Warranty or General Terms Agreement between Customer and CFM and Customer hereby waives, releases and renounces
all its rights in all such claims, obligations and liabilities.
2.1 Title. CFM warrants that at the date of delivery, CFM has legal title to and good and lawful right to sell its CFM56-7 and
CFM-LEAP type Engine and Products and furthermore warrants that such title is free and clear of all claims, liens and encumbrances of
any nature whatsoever.
COP-PA-03774-EXEE1
Page 2
BOEING PROPRIETARY
2.2 Patents.
2.2.1 CFM shall handle all claims and defend any suit or proceeding brought against Customer insofar as based on a claim
that any product or part furnished under this Agreement constitutes an infringement of any patent of the United States, and shall pay all
damages and costs awarded therein against Customer. This paragraph shall not apply to any product or any part manufactured to
Customer’s design or to the aircraft manufacturer’s design. As to such product or part, CFM assumes no liability for patent
infringement.
2.2.2 CFM’s liability hereunder is conditioned upon Customer promptly notifying CFM in writing and giving CFM
authority, information and assistance (at CFM’s expense) for the defense of any suit. In case said equipment or part is held in such suit
to constitute infringement and the use of said equipment or part is enjoined, CFM shall expeditiously, at its own expense and at its
option, either (i) procure for Customer the rights to continue using said product or part; (ii) replace the same with a satisfactory and
non-infringing product or part; or (iii) modify the same so it becomes satisfactory and non-infringing. The foregoing shall constitute the
sole remedy of Customer and the sole liability of CFM for patent infringement.
2.2.3 The above provisions also apply to products which are the same as those covered by this Agreement and are delivered
to Customer as part of the installed equipment on CFM56-7 and CFM-LEAP-1B powered Aircraft.
2.3 Initial Warranty. CFM warrants that CFM56-7 and CFM-LEAP-1B Engine products will conform to CFM’s applicable
specifications and will be free from defects in material and workmanship prior to Customer’s initial use of such products.
2.4 Warranty Pass-On.
2.4.1 If requested by Customer and agreed to by CFM in writing, CFM will extend warranty support for Engines sold by
Customer to commercial airline operators, or to other aircraft operators. Such warranty support will be limited to the New Engine
Warranty, New Parts Warranty, Ultimate Life Warranty and Campaign Change Warranty and will require such operator(s) to agree in
writing to be bound by and comply with all the terms and conditions, including the limitations, applicable to such warranties.
2.4.2 Any warranties set forth herein shall not be transferable to a third party, merging company or an acquiring entity of
Customer.
2.4.3 In the event Customer is merged with, or acquired by, another aircraft operator which has a general terms agreement
with CFM, the Warranties as set forth herein shall apply to the Engines, Modules, and Parts.
COP-PA-03774-EXEE1
Page 3
BOEING PROPRIETARY
2.5 New Engine Warranty.
2.5.1 CFM warrants each new Engine and Module against Failure for the initial 3000 Flight Hours as follows:
(i)
(ii)
(iii)
Parts Credit Allowance will be granted for any Failed Parts.
Labor Allowance for disassembly, reassembly, test and Parts repair of any new Engine Part will be granted for
replacement of Failed Parts.
Such Parts Credit Allowance and Labor Allowance will be: One hundred percent (100%) from new to two thousand
five hundred (2,500) Flight Hours and decreasing pro rata from one hundred percent (100%) at two thousand five
hundred (2,500) Flight Hours to zero percent (0%) at three thousand (3,000) Flight Hours.
2.5.2 As an alternative to the above allowances, CFM shall, upon request of Customer:
(i)
Arrange to have the failed Engines and Modules repaired, as appropriate, at a facility designated by CFM at no charge
to Customer for the first at two thousand five hundred (2,500) Flight Hours and at a charge to Customer increasing pro
rata from zero percent (0%) of CFM’s repair cost at two thousand five hundred (2,500) Flight Hours to one hundred
percent (100%) of such CFM repair costs at three thousand (3,000) Flight Hours.
(ii)
Transportation to and from the designated facility shall be at Customer’s expense.
2.6 New Parts Warranty. In addition to the warranty granted for new Engines and new Modules, CFM warrants Engine and
Module Parts as follows:
2.6.1 During the first one thousand (1,000) Flight Hours for such Parts and Expendable Parts, CFM will grant one hundred
percent (100%) Parts Credit Allowance or Labor Allowance for repair labor for failed Parts.
2.6.2 CFM will grant a pro rata Parts Credit Allowance for Scrapped Parts decreasing from one hundred percent (100%) at
one thousand (1,000) Flight Hours Part Time to zero percent (0%) at the applicable hours designated in Table 1.
2.7 Ultimate Life Warranty.
2.7.1 CFM warrants Ultimate Life limits on the following Parts:
(i)
(ii)
Fan and Compressor Disks/Drums
Fan and Compressor Shafts
(iii) Compressor Discharge Pressure Seal (CDP)
(iv)
Turbine Disks
COP-PA-03774-EXEE1
BOEING PROPRIETARY
Page 4
(v)
HPT Forward and Stub Shaft
(vi)
LPT Driving Cone
(vii) LPT Shaft and Stub Shaft
2.7.2 CFM will grant a pro rata Parts Credit Allowance decreasing from one hundred percent (100%) when new to zero
percent at twenty-five thousand (25,000) Flight Hours or fifteen thousand (15,000) Flight Cycles, whichever comes earlier. Credit will
be granted only when such Parts are permanently removed from service by a CFM or a U.S. and/or French Government imposed
Ultimate Life limitation of less than twenty-five thousand (25,000) Flight Hours or fifteen thousand (15,000) Flight Cycles.
2.8 Campaign Change Warranty.
2.8.1 A campaign change will be declared by CFM when a new Part design introduction, Part modification, Part Inspection,
or premature replacement of an Engine or Module is required by a mandatory time compliance CFM Service Bulletin or FAA
Airworthiness Directive. Campaign change may also be declared for CFM Service Bulletins requesting new Part introduction no later
than the next Engine or Module shop visit. CFM will grant following Parts Credit Allowances:
Engines and Modules
(i)
(ii)
One hundred percent (100%) for Parts in inventory or removed from service when new or with two thousand five
hundred (2,500) Flight Hours or less total Part Time.
Fifty percent (50%) for Parts in inventory or removed from service with over two thousand five hundred (2,500)
Flight Hours since new, regardless of warranty status.
2.8.2 Labor Allowance - CFM will grant one hundred percent (100%) Labor Allowance for disassembly, reassembly,
modification, testing, or Inspection of CFM supplied Engines, Modules, or Parts therefore when such action is required to comply with
a mandatory time compliance CFM Service Bulletin or FAA Airworthiness Directive. A Labor Allowance will be granted by CFM for
other CFM issued Service Bulletins if so specified in such Service Bulletins.
2.8.3 Life Controlled Rotating Parts retired by Ultimate Life limits including FAA and/or EASA Airworthiness Directive,
are excluded from Campaign Change Warranty.
2.9 Limitations. THE PROVISIONS SET FORTH HEREIN ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
WARRANTIES WHETHER WRITTEN, ORAL OR IMPLIED. THERE ARE NO IMPLIED WARRANTIES OF FITNESS OR
MERCHANTABILITY. SAID PROVISIONS SET FORTH THE MAXIMUM LIABILITY OF
COP-PA-03774-EXEE1
Page 5
BOEING PROPRIETARY
CFM WITH RESPECT TO CLAIMS OF ANY KIND, INCLUDING NEGLIGENCE, ARISING OUT OF MANUFACTURE, SALE,
POSSESSION, USE OR HANDLING OF THE PRODUCTS OR PARTS THEREOF OR THEREFORE, AND IN NO EVENT
SHALL CFM’S LIABILITY TO CUSTOMER EXCEED THE PURCHASE PRICE OF THE PRODUCT GIVING RISE TO
CUSTOMER’S CLAIM OR INCLUDE INCIDENTAL OR CONSEQUENTIAL DAMAGES.
2.10 Indemnity and Contribution.
2.10.1 IN THE EVENT CUSTOMER ASSERTS A CLAIM AGAINST A THIRD PARTY FOR DAMAGES OF THE
TYPE LIMITED OR EXCLUDED IN LIMITATIONS, PARAGRAPH 2.9. ABOVE, CUSTOMER SHALL INDEMNIFY AND
HOLD CFM HARMLESS FROM AND AGAINST ANY CLAIM BY OR LIABILITY TO SUCH THIRD PARTY FOR
CONTRIBUTION OR INDEMNITY, INCLUDING COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES) INCIDENT
THERETO OR INCIDENT TO ESTABLISHING SUCCESSFULLY THE RIGHT TO INDEMNIFICATION UNDER THIS
PROVISION. THIS INDEMNITY SHALL APPLY WHETHER OR NOT SUCH DAMAGES WERE OCCASIONED IN WHOLE
OR IN PART BY THE FAULT OR NEGLIGENCE OF CFM, WHETHER ACTIVE, PASSIVE OR IMPUTED.
2.10.2 CUSTOMER SHALL INDEMNIFY AND HOLD CFM HARMLESS FROM ANY DAMAGE, LOSS, CLAIM,
AND LIABILITY OF ANY KIND (INCLUDING EXPENSES OF LITIGATION AND ATTORNEYS’ FEES) FOR PHYSICAL
INJURY TO OR DEATH OF ANY PERSON, OR FOR PROPERTY DAMAGE OF ANY TYPE, ARISING OUT OF THE
ALLEGED DEFECTIVE NATURE OF ANY PRODUCT OR SERVICE FURNISHED UNDER THIS AGREEMENT, TO THE
EXTENT THAT THE PAYMENTS MADE OR REQUIRED TO BE MADE BY CFM EXCEED ITS ALLOCATED SHARE OF THE
TOTAL FAULT OR LEGAL RESPONSIBILITY OF ALL PERSONS ALLEGED TO HAVE CAUSED SUCH DAMAGE, LOSS,
CLAIM, OR LIABILITY BECAUSE OF A LIMITATION OF LIABILITY ASSERTED BY CUSTOMER OR BECAUSE
CUSTOMER DID NOT APPEAR IN AN ACTION BROUGHT AGAINST CFM. CUSTOMER’S OBLIGATION TO INDEMNIFY
CFM HEREUNDER SHALL BE APPLICABLE AT SUCH TIME AS CFM IS REQUIRED TO MAKE PAYMENT PURSUANT TO
A FINAL JUDGEMENT IN AN ACTION OR PROCEEDING IN WHICH CFM WAS A PARTY, PERSONALLY APPEARED,
AND HAD THE OPPORTUNITY TO DEFEND ITSELF. THIS INDEMNITY SHALL APPLY WHETHER OR NOT CUSTOMER’S
LIABILITY IS OTHERWISE LIMITED.
COP-PA-03774-EXEE1
Page 6
BOEING PROPRIETARY
SERVICE LIFE POLICY COMPONENTS
between
THE BOEING COMPANY
and
COPA HOLDINGS S.A.
Supplemental Exhibit SLP1
to Purchase Agreement Number PA-03774
BOEING PROPRIETARY
Page 1
SERVICE LIFE POLICY COMPONENTS
relating to
BOEING MODEL 737 MAX AIRCRAFT
This is the listing of SLP Components for the Aircraft which relate to Part 3, Boeing Service Life Policy of Exhibit C, Product
Assurance Document to the AGTA and is a part of Purchase Agreement No. PA-03774.
1. Wing.
(i)
Upper and lower wing skins and stiffeners between the forward and rear wing spars.
(ii) Wing spar webs, chords and stiffeners.
(iii)
Inspar wing ribs.
(iv)
Inspar splice plates and fittings.
(v) Main landing gear support structure.
(vi) Wing center section lower beams, spanwise beams and floor beams, but not the seat tracks attached to floor beams.
(vii) Wing-to-body structural attachments.
(viii) Engine strut support fittings attached directly to wing primary structure.
(ix)
Support structure in the wing for spoilers and spoiler actuators; for aileron hinges and reaction links; and for leading
edge devices and trailing edge flaps.
(x)
Trailing edge flap tracks and carriages.
(xi) Aileron leading edge device and trailing edge flap internal, fixed attachment and actuator support structure.
2. Body.
(i)
External surface skins and doublers, longitudinal stiffeners, longerons and circumferential rings and frames between
the forward pressure bulkhead and the vertical stabilizer rear spar bulkhead and structural support and enclosure for
the APU but excluding all system components and related installation and connecting devices, insulation, lining, and
decorative panels and related installation and connecting devices.
BOEING PROPRIETARY
Page 2
(ii) Window and windshield structure but excluding the windows and windshields.
(iii)
Fixed attachment structure of the passenger doors, cargo doors and emergency exits, excluding door mechanisms and
movable hinge components. Sills and frames around the body openings for the passenger doors, cargo doors and
emergency exits, excluding scuff plates and pressure seals.
(iv) Nose wheel well structure, including the wheel well walls, pressure deck, bulkheads, and gear support structure.
(v) Main gear wheel well structure including pressure deck and landing gear beam support structure.
(vi)
Floor beams and support posts in the control cab and passenger cabin area, but excluding seat tracks.
(vii) Forward and aft pressure bulkheads.
(viii) Keel structure between the wing front spar bulkhead and the main gear wheel well aft bulkhead including splices.
(ix) Wing front and rear spar support bulkheads, and vertical and horizontal stabilizer front and rear spar support
bulkheads including terminal fittings but excluding all system components and related installation and connecting
devices, insulation, lining, and decorative panels and related installation and connecting devices.
(x)
Support structure in the body for the stabilizer pivot and stabilizer screw.
3. Vertical Stabilizer.
(i)
(ii)
External skins between front and rear spars.
Front, rear and auxiliary spar chords, webs and stiffeners and attachment fittings.
(iii)
Inspar ribs.
(iv) Rudder hinges and supporting ribs, excluding bearings.
(v)
Support structure in the vertical stabilizer for rudder hinges, reaction links and actuators.
(vi) Rudder internal, fixed attachment and actuator support structure.
BOEING PROPRIETARY
Page 3
4. Horizontal Stabilizer.
(i)
(ii)
External skins between front and rear spars.
Front and rear spar chords, webs and stiffeners.
(iii)
Inspar ribs.
(iv)
Stabilizer center section including hinge and screw support structure.
(v)
Support structure in the horizontal stabilizer for the elevator hinges, reaction links and actuators.
(vi)
Elevator internal, fixed attachment and actuator support structure.
5. Engine Strut.
(i)
(ii)
Strut external surface skin and doublers and stiffeners.
Internal strut chords, frames and bulkheads.
(iii)
Strut to wing fittings and diagonal brace.
(iv)
Engine mount support fittings attached directly to strut structure and including the engine-mounted support fittings.
6. Main Landing Gear.
(i)
(ii)
Outer cylinder.
Inner cylinder, including axles.
(iii) Upper and lower side struts, including spindles, universals and reaction links.
(iv) Drag strut.
(v)
Orifice support tube.
(vi) Downlock links including spindles and universals.
(vii) Torsion links.
(viii) Bell crank.
(ix)
Trunnion link.
(x)
Actuator beam, support link and beam arm.
COP-PA-03774-EXEE1
Page 4
BOEING PROPRIETARY
7. Nose Landing Gear.
(i)
(ii)
Outer cylinder.
Inner cylinder, including axles.
(iii) Orifice support tube.
(iv) Upper and lower drag strut, including lock links.
(v)
Steering plates and steering collars.
(vi)
Torsion links.
NOTE: The Service Life Policy does not cover any bearings, bolts, bushings, clamps, brackets, actuating mechanisms or latching
mechanisms used in or on the SLP Components.
COP-PA-03774-EXEE1
BOEING PROPRIETARY
Page 5
COP-PA-03774-LA-1207593R1
COPA Holdings S.A.
Business Park, Torre Norte
Urbanizacion Costa del Este
Apartado 0816-06819
Panama, Republic of Panama
The Boeing Company
P.O. Box 3707
Seattle, WA 98124-2207
BOEING PROPRIETARY
SA-10
Page 1
1. Supplier Selection.
Customer will:
Attachment A
1.1 Select and notify Boeing of the suppliers and part numbers of the following SPE items by the following dates:
**TBD
Seats
Galleys/Furnishings
Antennas and Mounting Equipment
Avionics
IFE/CCS
Miscellaneous Emergency Equipment
Textiles/Raw Material
Cargo Systems*(single Aisle Programs only)
Provision Kits (single Aisle Programs only)
Radomes (single Aisle Programs only)
*
For a new certification, Customer will need to provide Supplier Selections two (2) months earlier than stated above.
BOEING PROPRIETARY
Page 9
I, Pedro Heilbron, certify that:
Certification
EXHIBIT 12.1
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Copa Holdings, S.A.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report;
The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during
the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting; and
5.
The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the company’s internal control over financial reporting.
Date: April 18, 2018
/s/ Pedro Heilbron
Pedro Heilbron
Chief Executive Officer
(Section 302 CEO Certification)
I, Jose Montero, certify that:
Certification
EXHIBIT 12.2
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Copa Holdings, S.A.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report;
The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during
the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting; and
5.
The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the company’s internal control over financial reporting.
Date: April 18, 2018
/s/ Jose Montero
Jose Montero
Chief Financial Officer
(Section 302 CFO Certification)
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
EXHIBIT 13.1
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United
States Code), each of the undersigned officers of Copa Holdings, S.A. (the “ Company ”), does hereby certify, to such officer’s
knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2017 of the Company fully complies with the requirements of
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all
material respects, the financial condition and results of operations of the Company.
Dated: April 18, 2018
/s/ Pedro Heilbron
Pedro Heilbron
Chief Executive Officer
(Section 906 CEO Certification)
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
EXHIBIT 13.2
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United
States Code), each of the undersigned officers of Copa Holdings, S.A. (the “ Company ”), does hereby certify, to such officer’s
knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2017 of the Company fully complies with the requirements of
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all
material respects, the financial condition and results of operations of the Company.
Dated: April 18, 2018
/s/ Jose Montero
Jose Montero
Chief Financial Officer
(Section 906 CFO Certification)