Copa Holdings
Annual Report 2018

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Table of ContentsAs filed with the Securities and Exchange Commission on April 24, 2019 UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 20-F ☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIESEXCHANGE ACT OF 1934OR ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934OR ☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934Commission 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 EsteComplejo Business Park, Torre NorteParque Lefevre, Panama CityPanama(Address of Principal Executive Offices)Raul PascualComplejo Business Park, Torre NorteParque 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: Name of Each Exchange On Which RegisteredClass A Common Stock, without par value 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 theannual report: At December 31, 2018, there were outstanding 42,195,811 shares of common stock, without par value, of which 31,257,686 wereClass 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 ☐ NoIf 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 ☒ NoIndicate 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 of1934 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 suchfiling requirements for the past 90 days. ☒ Yes ☐ NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule405 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 submitsuch files). ☒ Yes ☐ NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growthcompany. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of Exchange Act.: Large Accelerated Filer ☒ Accelerated Filer ☐Non-accelerated Filer ☐ Emerging Growth Company ☐If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant haselected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant toSection 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 issuedby 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 haselected to follow: ☐ Item17 ☐ Item18If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). ☐ Yes ☒ No Table of ContentsTable of Contents Introduction ii Market Data ii Presentation of Financial and Statistical Data ii Special Note About Forward-Looking Statements iii PART I 1 Item 1. Identity of Directors, Senior Management and Advisers 1 Item 2. Offer Statistics and Expected Timetable 1 Item 3. Key Information 1 Item 4. Information on the Company 21 Item 4A. Unresolved Staff Comments 38 Item 5. Operating and Financial Review and Prospects 38 Item 6. Directors, senior management and employees 51 Item 7. Major Shareholders and Related Party Transactions 58 Item 8. Financial Information 61 Item 9. The Offer and Listing 62 Item 10. Additional Information 63 Item 11. Quantitative and Qualitative Disclosures about Market Risk 74 Item 12. Description of Securities Other than Equity Securities 75 PART II 76 Item 13. Defaults, Dividend Arrearages and Delinquencies 76 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 76 Item 15. Controls and Procedures Disclosure controls and procedures 76 Item 16. Reserved 80 Item 17. Financial Statements Item 18. Financial Statements Item 19. Exhibits i Table of ContentsIntroductionIn 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 consolidated operating entity, “Copa Colombia” refers to AeroRepública, S.A., “Wingo” refers to the low-cost business model offered byAeroRepública, 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 asfollows: • “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 revenuepassenger 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 milesand other travel awards) flown on all flight segments (with each connecting segment being considered a separate flight segment). • “Yield” represents the average amount one passenger pays to fly one mile.Market DataThis annual report contains certain statistical data regarding our airline routes, our competitive position, market share and the market size of theLatin American airline industry. This information has been derived from a variety of sources, including the International Air Transport Association, theU.S. Federal Aviation Administration, the International Monetary Fund and other third-party sources, governmental agencies or industry or generalpublications. Information for which no source is cited has been prepared by us on the basis of our knowledge of Latin American airline markets andother information available to us. The methodology and terminology used by different sources are not always consistent, and data from differentsources are not readily comparable. In addition, sources other than us use methodologies that are not identical to ours and may produce results thatdiffer from our own estimates. Although we have not independently verified the information concerning our competitive position, market share, marketsize, market growth or other similar data provided by third-party sources or by industry or general publications, we believe these sources andpublications are generally accurate and reliable.Presentation of Financial and Statistical DataIncluded in this annual report are our audited consolidated statement of financial position as of December 31, 2018 and 2017, and the relatedaudited consolidated statements of profit or loss, comprehensive income or loss, changes in equity and cash flows for the years ended December 31,2018, 2017 and 2016. Our audited consolidated financial statements as of December 31, 2018 and for the years ended December 31, 2017 and 2016have been restated to reflect the application of IFRS 15 (see note 5.1 to our annual consolidated financial statements). ii Table of ContentsThe 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 tablesmay not be an arithmetic aggregation of the figures that precede them.Special Note About Forward-Looking StatementsThis annual report includes forward-looking statements, principally under the captions “Risk Factors”, “Business Overview” and “Operating andFinancial Review and Prospects”. We have based these forward-looking statements largely on our current beliefs, expectations and projections aboutfuture events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this annual report, couldcause 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 weserve; • 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 identifyforward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, businessstrategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effectsof competition. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to reviseany forward-looking statements after the date of this annual report because of new information, future events or other factors. In light of the risks anduncertainties described above, the forward- looking events and circumstances discussed in this annual report might not occur and are not guarantees offuture performance.Considering these limitations, you should not place undue reliance on forward-looking statements contained in this annual report. iii Table of ContentsPART IItem 1. Identity of Directors, Senior Management and AdvisersNot applicable. Item 2. Offer Statistics and Expected TimetableNot applicable.Item 3. Key InformationA. Selected Financial DataThe following table presents summary consolidated financial and operating data for each of the periods indicated. Our consolidated financialstatements are prepared in accordance with IFRS, as issued by the IASB and are stated in U.S. dollars. You should read this information in conjunctionwith our consolidated financial statements included in this annual report and the information under “Item 5. Operating and Financial Review andProspects” appearing elsewhere in this annual report.The summary consolidated financial information as of December 31, 2018, and for the years ended December 31, 2018, 2017 and 2016 havebeen derived from our audited consolidated financial statements included elsewhere in this annual report. The summary consolidated financialinformation for the years ended December 31, 2015 and 2014 have been derived from our audited consolidated financial statements for those years (notincluded herein), which have not been restated to reflect the application of IFRS 15. Year Ended December 31,(in thousands of dollars, except share and per share data and operating data) 2018 2017 2016 2015 2014 STATEMENT OF PROFIT OR LOSS DATA Operating revenue: Passenger revenue 2,587,389 2,444,251 2,148,501 2,185,465 2,638,392 Cargo and mail revenue 62,483 55,290 53,989 56,738 60,715 Other operating revenue 27,755 22,245 16,696 11,507 12,218 Total operating revenues 2,677,627 2,521,786 2,219,186 2,253,710 2,711,325 Operating expenses: Fuel 765,781 572,746 528,996 603,760 822,130 Wages, salaries, benefits and other employees expenses 443,287 415,147 370,190 373,631 376,193 Passenger servicing 104,346 99,447 86,329 84,327 90,457 Airport facilities and handling charges 186,422 171,040 159,771 148,078 141,594 Sales and distribution 210,158 200,256 193,837 188,961 193,038 Maintenance, materials and repairs 111,677 132,148 121,781 111,178 100,307 Depreciation, amortization and impairment 358,060 167,324 167,894 150,548 115,147 Flight operations 108,437 101,647 88,188 86,461 85,183 Aircraft rentals and other rentals 132,534 134,539 138,885 142,177 129,431 Cargo and courier expenses 10,075 7,375 6,099 6,471 7,601 Other operating and administrative expenses 101,812 96,087 92,215 105,484 118,746 Total operating expenses 2,532,589 2,097,756 1,954,185 2,001,076 2,179,827 Operating profit 145,038 424,030 265,001 252,634 531,498 Non-operating income (expense): Finance cost (35,850) (35,223) (37,024) (33,155) (29,529) Finance income 23,628 17,939 13,000 25,947 18,066 Gain (loss) on foreign currency fluctuations (9,952) 6,145 13,043 (440,097) (6,448) Net change in fair value of derivatives — 2,801 111,642 (11,572) (117,950) Other non-operating income (expense) (239) (2,337) (3,982) (1,632) 2,671 Total non-operating income (expense), net (22,413) (10,675) 96,679 (460,509) (133,190) Profit (loss) before taxes 122,625 413,355 361,680 (207,875) 398,308 Income tax expenses (34,530) (49,310) (38,271) (32,759) (36,639) Net profit (loss) 88,095 364,045 323,409 (240,634) 361,669 1 Table of ContentsSTATEMENT OF FINANCIAL POSITION DATA Total cash, cash equivalents and short-term investments 722,358 943,900 814,689 684,948 766,603 Accounts receivable, net 117,231 118,085 116,100 105,777 122,150 Total current assets 1,062,999 1,198,488 1,069,391 907,585 1,011,449 Purchase deposits for flight equipment 474,060 413,633 250,165 243,070 321,175 Total property and equipment 2,701,322 2,617,407 2,623,682 2,453,751 2,505,336 Total assets 4,087,250 4,044,961 3,846,113 3,518,574 4,079,612 Long-term debt 975,283 876,119 961,414 1,055,183 928,964 Total equity 1,840,679 1,895,126 (48,708) 1,390,520 2,075,108 Capital stock 108,594 101,449 93,440 85,845 81,811 CASH FLOW DATA Net cash from operating activities 436,759 727,332 594,590 316,863 384,892 Net cash from (used in) investing activities (149,596) (578,159) (179,909) 32,384 21,147 Net cash used in financing activities (323,937) (204,756) (248,625) (357,466) (316,420) OTHER FINANCIAL DATA Underlying net profit(1) 276,719 361,244 190,244 210,342 486,181 Adjusted EBITDA(2) 492,907 597,963 553,598 (50,119) 524,918 Aircraft rentals 113,327 116,449 120,841 122,217 112,082 Operating margin(3) 5.4% 16.8% 11.9% 11.2% 19.6% Weighted average shares used in computing net income per share(basic) 42,468,402 42,418,773 42,358,091 43,861,084 44,381,265 Weighted average shares used in computing net income per share(diluted) 42,468,402 42,418,773 42,363,171 43,868,864 44,393,054 Earnings (Loss) per share (basic) 2.07 8.59 7.64 (5.49) 8.15 Earnings (Loss) per share (diluted) 2.07 8.59 7.63 (5.49) 8.15 Dividends per share paid 3.48 2.52 2.04 3.36 3.84 Total number of shares at end of period 42,195,811 42,123,766 42,050,481 41,955,227 43,988,423 OPERATING DATA Revenue passengers carried(4) 15,168 14,201 12,870 11,876 11,681 Revenue passenger miles(5) 21,529 19,914 17,690 16,309 15,913 Available seat miles(6) 25,817 23,936 22,004 21,675 20,757 Load factor(7) 83.4% 83.2% 80.4% 75.2% 76.7% Total block hours(8) 444,851 419,610 388,058 388,355 376,903 Average daily aircraft utilization(9) 12.0 11.5 10.6 10.8 11.0 Average passenger fare 170.6 172.1 166.9 184.0 225.9 Yield(10) 12.02 12.27 12.15 13.40 16.58 Passenger revenue per ASM(11) 10.02 10.21 9.76 10.08 12.71 Operating revenue per ASM(12) 10.37 10.54 10.09 10.40 13.06 Operating expenses per ASM (CASM)(13) 9.81 8.76 8.88 9.23 10.50 Departures 132,498 126,963 123,098 122,588 121,310 Average daily departures 363.0 347.8 337.3 335.9 332.4 Average number of aircraft 106.0 100.4 99.9 98.3 93.8 Airports served at period end 80 75 73 73 69 On-Time Performance(14) 89.8% 86.8% 88.4% 90.6% 90.5% Stage Length(15) 1,321 1,282 1,213 1,236 1,213 2 Table of Contents(1)Underlying net profit represents net income (loss) minus the sum of Embraer 190 impairment, fuel hedge mark-to-market gain/(loss), anddevaluation and translation losses in Venezuela and Argentina. Underlying net profit is presented because the Company uses this measure todetermine annual dividends. However, underlying net profit should not be considered in isolation, as a substitute for net profit (loss) prepared inaccordance with IFRS as issued by the IASB or as a measure of our profitability. The following table presents a reconciliation of our net profit(loss) to underlying net profit for the specified periods. 2018 2017 2016 2015 2014 Net profit (loss) 88,095 364,045 323,409 (240,634) 361,669 Fuel hedge Mark to market loss/(gain) — (2,801) (111,642) 11,572 117,950 Venezuela Devaluation — — (21,543) 432,503 6,562 Argentina Devaluation — — — 6,901 — Impairment of non-financial assets 188,624 — — — — Underlying net profit 276,719 361,244 190,224 210,342 486,181 (2)Adjusted EBITDA represents net income (loss) plus the sum of interest expense, income taxes, depreciation, amortization and impairment minusfinance income. Adjusted EBITDA is presented as supplemental information because we believe it is a useful indicator of our operatingperformance and is useful in comparing our operating performance with other companies in the airline industry. However, adjusted EBITDAshould not be considered in isolation, as a substitute for net profit (loss) prepared in accordance with IFRS as issued by the IASB or as a measureof our profitability. In addition, our calculation of adjusted EBITDA may not be comparable to other companies’ similarly titled measures. Thefollowing table presents a reconciliation of our net profit (loss) to adjusted EBITDA for the specified periods. Aircraft rentals represent asignificant operating expense of our business. Because we leased several of our aircraft during the periods presented, we believe that whenassessing our adjusted EBITDA, you should also consider the impact of our aircraft rentals. 2018 2017 2016 2015 2014 Net profit (loss) 88,095 364,045 323,409 (240,634) 361,669 Finance cost 35,850 35,223 37,024 33,155 29,529 Income taxes 34,530 49,310 38,271 32,759 36,639 Depreciation, amortization and impairment 358,060 167,324 167,894 150,548 115,147 Finance income (23,628) (17,939) (13,000) (25,947) (18,066) Adjusted EBITDA 492,907 597,963 553,598 (50,119) 524,918 (3)Operating margin represents operating profit 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 seatmiles.(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 Table of ContentsB. Capitalization and IndebtednessNot applicable.C. Reasons for the Offer and Use of ProceedsNot applicable.D. Risk FactorsRisks Relating to Our CompanyFailure to successfully implement our growth strategy may adversely affect our results of operations and harm the market value of our Class Ashares.We intend to continue to expand our service to new markets and to increase the frequency of flights to the markets we currently serve. Achievingthese goals allows our business to benefit from cost efficiencies resulting from economies of scale. We expect to have substantial cash needs as weexpand, 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 suchprojects, we may not be able to successfully expand our route system, therefore, 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 promotionalcosts 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 substantialamount 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. Thenumber of markets we serve and flight frequencies depend on our ability to identify the appropriate geographic markets upon which to focus to gainsuitable airport access and route approval in these markets. There can be no assurance that the new markets we enter will yield passenger traffic, at theexpected fares, that is sufficient to make our operations in those new markets profitable. Any condition that would prevent or delay our access to keyairports or routes, including limitations on the ability to process more passengers, the imposition of flight capacity restrictions, the inability to secureadditional route rights under bilateral agreements or the inability to maintain our existing slots, flight banks and obtain additional slots, couldconstrain 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 retainpilots and other personnel or secure the required equipment and facilities efficiently, cost-effectively, and on a timely basis, could adversely affect ourability to execute our plans. It also could strain our existing management resources and operational, financial and management information systems tothe point where they may no longer be adequate to support our operations, requiring us to make significant expenditures in these areas. In light of thesefactors, 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 havean 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 expectationsand foreign exchange rate variations. In the past, we have been negatively impacted by poor economic performance in certain emerging marketcountries in which we operate, as well as by weaker Latin American currencies. For example, in 2018 we experienced a decrease of 1.9% in passengerrevenue per available seat mile (PRASM) compared to 2017, mainly due to currency devaluation and the deteriorating demand environment in Braziland Argentina. In addition, Venezuela has experienced difficult political conditions and declines in the rate of economic growth in recent periods aswell as governmental actions that have adversely impacted businesses that operate there. The Company cancelled flights between Panama andVenezuela during April 2018, as a result of a temporary suspension of diplomatic and commercial relations between the two countries. Any of thefollowing developments (or a continuation or worsening of any of the following currently in existence) in the countries in which we operate couldadversely affect our business, financial condition, liquidity and results of operations: • changes in economic or other governmental policies, including exchange controls; 4 Table of Contents • 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 economicdownturns and political conditions. An adverse economic and/or political environment, whether global, regional or in a specific country, could resultin 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 raisefares, which in turn would materially and negatively affect our financial condition and results of operations.The cost of financing our aircraft may increase, which could negatively impact our business.We have historically been able to achieve favorable financing terms through commercial and US Export-Import bank guaranteed loans, sale-leasebacks and operating leases. In recent years, due to the fact that U.S. Export-Import Bank guaranteed loans have not been available, the Companyhas diversified its financing sources and obtained access to very competitive financing terms. Since 2014 our aircraft deliveries have been financedthrough a mix of sale-leasebacks and Japanese Operating Leases with Call Options (“JOLCO”). As of December 31, 2018, we had $776.8 million ofoutstanding indebtedness under JOLCO financing arrangements.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 existingfinancing 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 anticipatedfinancing 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 weserve and/or opening new hubs.The general structure of our flight operations follows what is known in the airline industry as a “hub-and-spoke” model. This model aggregatespassengers by operating flights from a number of “spoke” origins to a central hub through which they are transported to their final destinations. Inrecent years, many traditional hub-and-spoke operators have faced significant and increasing competitive pressure from low-cost, point-to-pointcarriers 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 ofour competitors have initiated non-stop service between destinations that we currently serve through our hub in Panama. Additionally, newer aircraftmodels, such as, Boeing 737 MAX and Airbus 320-NEO, allow nonstop flights in certain city pairs that could not be served with prior generationnarrow-body aircraft and may bypass our hub. Competitors are also opening new international hubs, especially in Brazil. Competitive services, whichbypass our hub in Panama, may be more convenient and possibly less expensive than our services and could significantly decrease demand for ourservice to those destinations. In December 2016, we launched a low-cost business model, Wingo, to diversify our offerings and to better compete withother low-cost carriers, or “LCCs,” in the market. However, our traditional hub and spoke model remains our primary operational model and we believethat 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 intensifyin the future. As a result, the effect of competition on us could be significant and could have a material adverse effect on our business, financialcondition 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 Aerorepublica, S.A., utilizes four of our 737-700s, each configured with 142 seats in asingle class cabin. By the end of 2019, we expect to swap the four 737-700s with 737-800s, each configured with 186 seats in a single class cabin; wealso expect to transfer a fifth 737-800 with potential base in Panama. Wingo operates point-to-point flights within Colombia and to other internationaldestinations 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 lineservices. In particular, if demand for Wingo flights is not substantial, if our pricing strategy does not adequately align with our cost structure, if Wingodoes not meet customer expectations or if demand for Wingo flights cannibalizes some of our main line flights, Wingo’s operations may have anegative impact on our reputation or our operating results. 5 Table of ContentsWe may not realize benefits from our strategic alliances and other commercial relationships, including from our recently announced jointbusiness agreement with United Airlines, Inc. (“UAL”) and Avianca Holdings (“Avianca”).We maintain a number of strategic alliances and other commercial relationships in many of the jurisdictions in which we operate. For example,we have been a Star Alliance member since June 2012, and we renewed our strategic alliance with UAL in May 2016. In addition, on November 30,2018, we disclosed that we have entered into a three-way joint business agreement (“JBA”) with UAL and Avianca that is intended to cover ourcombined network between the United States and Latin America (except Brazil). We, UAL and Avianca intend to apply for regulatory approval of theJBA and an accompanying grant of antitrust immunity from the U.S. Department of Transportation and other relevant agencies. However, we canprovide no assurances as to whether or when the parties will receive such approvals, and we do not plan to fully implement the JBA until we havereceived such approvals. The purpose of these alliances and relationships is to increase revenues by enhancing our network and offering our customersservices that we could not otherwise offer. However, the intended benefits may not be realized, or may not outweigh the technological and other costsassociated with any alliance or relationship. In addition, if any of our strategic alliances or commercial relationships deteriorates, or is terminated, ourbusiness, financial condition and operational results could be adversely affected.Our business is subject to extensive regulation which may restrict our growth or our operations or increase our costs.Our business, financial condition and operational results could be adversely affected if we, or certain aviation authorities in the countries towhich we fly, fail to maintain the required foreign and domestic governmental authorizations necessary for our operations. In order to maintain thenecessary authorizations issued by the Panamanian Civil Aviation Authority (the Autoridad de Aeronáutica Civil, or the “AAC”), the Colombian CivilAviation Administration (the Unidad Administrativa Especial de Aeronáutica Civil, or the “UAEAC”), and other corresponding foreign authorities, wemust continue to comply with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that maybe adopted in the future. In addition, Panama is a member state of the International Civil Aviation Organization, or “ICAO,” a United Nationsspecialized agency. ICAO coordinates with its member states and various industry groups to establish and maintain international civil aviationstandards and recommended practices and policies, which are then used by ICAO member states to ensure that their local civil aviation operations andregulations conform to global standards. We cannot predict or control any actions that the AAC, the UAEAC, the ICAO or other foreign aviationregulators may take in the future, which could include restricting our operations or imposing new and costly regulations or policies. Also, our fares aresubject 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 imposerestrictions 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 Panamaand Colombia, and various other countries, and we must obtain permission from the applicable foreign governments to provide service to foreigndestinations. There can be no assurance that existing bilateral agreements between the countries in which our airline operating companies are basedand foreign governments will continue, or that we will be able to obtain more route rights under those agreements to accommodate our futureexpansion 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 ourprovisional routes, the inability for us to obtain favorable take-off and landing rights at certain high-density airports or the imposition of othersanctions could also have a negative impact on our business. We cannot be certain that a change in a foreign government’s administration of currentlaws and regulations or the adoption of new laws and regulations will not have a material adverse effect on our business, financial condition and resultsof 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 tosuccessfully implement this strategy will depend upon many factors, several of which are outside our control or subject to change. These factorsinclude the permanence of a suitable political, economic and regulatory environment in the Latin American countries in which we operate or intend tooperate 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 fromtime to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. FAArequirements cover, among other things, security measures, collision avoidance systems, airborne wind shear avoidance systems, noise abatement andother environmental issues, and increased inspections and maintenance procedures to be conducted on older aircraft. Additional new regulationscontinue to be regularly implemented by the U.S. Transportation Security Administration, or “TSA”, as well. As we continue to expand our presence onroutes 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 inthe cost of compliance could have an adverse effect on our financial condition and results of operations. 6 Table of ContentsThe growth of our operations to the United States and the benefits of our code-sharing arrangements with UAL are dependent on Panama’scontinued favorable safety assessment.The FAA periodically audits the aviation regulatory authorities of other countries. As a result of this inspection, each country is given anInternational Aviation Safety Assessment, or “IASA”, rating. In connection with its most recent assessment in 2018 and since April 2004, IASA hasrated Panama as a Category 1 country, which means that Panama complies with the safety requirements set forth by ICAO. A 2015 ICAO study foundsignificant safety deficiencies in Panama, but the country’s category was not downgraded. A 2017 ICAO study found no significant safety deficienciesin Panama. We cannot guarantee that the government of Panama and the AAC in particular, will continue to meet international safety standards, and wehave no direct control over their compliance with IASA guidelines. If Panama’s IASA rating were to be downgraded in the future, it could prohibit usfrom increasing service to the United States and could affect our code-share arrangement with UAL.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. Most of our Copa flights eitherdepart from or arrive at our hub. Our operations and growth strategy is therefore highly dependent on its facilities and infrastructure, including thesuccess of its multi-phase expansion projects, certain of which have been completed and others, such as Terminal 2, that are underway and haveexperienced important delays. One of the contractors responsible for the construction of Terminal 2, Norberto Odebrecht Construction, was subject topenalties in 2017 for its past practices related to project approvals. Their involvement in the construction of Terminal 2 may further delay completionof the expansion based on delays related to government approvals of individual projects or if they lack sufficient liquidity to complete their portion ofthe Tocumen International Airport. Terminal 2 is currently scheduled for completion toward the end of 2019. Due to the magnitude of the constructionrequired for this new Terminal 2, we may experience logistical issues and/or be subject to further increases in passenger taxes and airport chargesrelated 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 offlights (or banks) to ensure that passengers can make timely connections to continuing flights. Like other airlines, we are subject to delays caused byfactors beyond our control, including air traffic congestion at airports, adverse weather conditions, power outages and increased security measures.Delays affect passengers, reduce aircraft utilization and increase costs, all of which in turn negatively affect our profitability. In addition, at its currentutilization 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, or do tankering, until fuel levels are reestablished. A significant interruption or disruption in service or fuel atTocumen International Airport could have a serious impact on our business, financial condition and operating results. Nevertheless, new fuel storagecapacity, consisting of three 1 million-gallon tanks, is expected to be added to existing storage capacity during 2019. This would increase airportstorage capacity from 1.5 million to 4.5 million gallons, which represents approximately five days of fuel availability at current consumption levels.Tocumen International Airport is operated by a corporation that is owned and controlled by the government of the Republic of Panama. Wedepend on our good working relationship with the quasi-governmental corporation that operates the airport to ensure that we have adequate access toaircraft 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 governrights to use the airport’s jet ways or aircraft parking spaces. Therefore, we would not have contractual recourse if the airport authority assigned newcapacity to competing airlines, reassigned our resources to other aircraft operators, raised fees or discontinued investments in the airport’s maintenanceand expansion. Any of these events could result in significant new competition for our routes or could otherwise have a material adverse effect on ourcurrent 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 landingrights 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 TocumenInternational Airport, could have a material adverse impact on our results of operations. Passenger taxes and airport charges have increased in recentyears, sometimes substantially. Certain important airports that we use may be privatized in the near future, which is likely to result in significant costincreases to the airlines that use these airports. We cannot ensure that the airports used by us will not impose, or further increase, passenger taxes andairport charges in the future, and any such increases could have an adverse effect on our financial condition and results of operations. 7 Table of ContentsCertain airports that we serve (or that we plan to serve in the future) are subject to capacity constraints and impose various restrictions, includingslot restrictions during certain periods of the day, limits on aircraft noise levels, limits on the number of average daily departures and curfews onrunway 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 servicesin 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 notavailable or their availability is restricted in some way, we may have to amend our schedules, change routes or reduce aircraft utilization. Any of thesealternatives could have an adverse financial impact on us. In addition, we cannot ensure that airports at which there are no such restrictions may notimplement restrictions in the future or that, where such restrictions exist, they may not become more onerous. Such restrictions may limit our ability tocontinue 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 andfacility rental costs, and substantially all of our property and equipment is pledged to secure indebtedness. For the year ended December 31, 2018, ourfinance cost, in combination with aircraft and other rental expense under operating leases, totaled $168.4 million. At December 31, 2018,approximately 60.6% of our total indebtedness bore interest at fixed rates and the remainder was determined with reference to LIBOR. Most of ouraircraft lease obligations bear interest at fixed rates.As of December 31, 2018, the Company had one purchase contract with Boeing which entails 67 firm orders of Boeing 737 MAX aircraft, agreedto be delivered between 2019 and 2025. The aircraft under this contract have an approximate value of $8.8 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 tomeet our future financial commitments. In addition, the acquisition and financing of these aircraft will likely result in a substantial increase in ourleverage 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.If we fail to successfully 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, 2018 we operated a fleet of 86 Boeing aircraft and 19 Embraer 190 aircraft.In 2019, we expect to take delivery of nine additional Boeing 737 MAX 9 aircraft.In the future, we expect to continue incorporating new aircraft into our fleet. This is based on a variety of factors, including the implementationof 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 topurchase; 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 new fleet as the aircraft matures. In particular, we cannot predict the reliability of the Boeing737 MAX aircraft, powered by, Leap 1B engines, from CFM International, which first entered commercial service in May 2017. The LEAP engine wasdeveloped by Safran Aircraft Engines and GE through their joint company, CFM International, to power the next generation of single-aisle commercialjets. The LEAP-1B has been selected by Boeing as the exclusive powerplant for the new 737 MAX single-aisle jetliner. 8 Table of ContentsFollowing the Ethiopian Airlines accident involving a Boeing 737 MAX 8 aircraft on March 10, 2019, we temporarily suspended operations ofour 6 Boeing 737 MAX 9 aircraft, after authorities in Panama and other countries grounded worldwide the 737 MAX fleet, during the investigationinto the cause of the accident. We had been covering most of our regular operation, with other aircraft in our fleet, with minor cancellations and delays.Any technical issues with our aircraft would increase our maintenance expenses and could cause flight cancellations and other disruptions in ourservices.If we were to determine that our aircraft, rotable parts or inventory were impaired, it would have a significant adverse effect on our operatingresults.If there is objective evidence that an impairment loss on long-lived assets carried at amortized cost has been incurred, the amount of theimpairment 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 theasset’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. Inaddition to the fact that the value of our fleet declines as it ages, any potential excess capacity in the airline industry, airline bankruptcies and otherfactors beyond our control may further contribute to the decline of the fair market value of our aircraft and related rotable parts and inventory. If suchimpairment does occur, we would be required under IFRS to write down these assets through a charge to earnings. A significant charge to earningswould adversely affect our financial condition and operating results. In addition, the interest rates on and the availability of certain of our aircraftfinancing 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 thelenders under those loans may cease extending credit to us, either of which could have an adverse impact on our financial condition and results ofoperations.For example, as a result of the Company’s continuing fleet optimization and efficiency efforts, in October 2018 the Company signed a letter ofintent with Azorra Aviation for the sale of up to six Embraer 190 aircraft, five of which are expected to exit the fleet in 2019. In connection with thetransaction, we recognized an impairment charge in respect of our entire Embraer 190 fleet and related spare parts. This impairment generated aone-time non-cash loss of $188.6 million, which was recorded in the fourth quarter of 2018.We rely on information and other aviation technology systems to operate our businesses and any failure or disruption of these systems may havean impact on our operational and financial results.We rely upon information technology systems to operate our business and increase our efficiency. We are highly reliant on certain systems forflight operations, maintenance, reservations, check-in boarding, revenue management, baggage handling accounting and cargo distribution. Othersystems are designed to decrease distribution costs through internet reservations and to maximize cargo distributions, crew utilization and flightscheduling. 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 addresschanging business requirements. In particular, our digital channels rely on advanced technology and, as this technology is updated, older technologymay become obsolete. Our operations and competitive position could be adversely affected if we are unable to upgrade or replace our systems in atimely and effective manner once they become outdated, and any inability to upgrade or replace our systems could negatively impact our financialresults.Any transition to new systems may result in a loss of data or service interruption that could harm our business. Information systems could alsosuffer disruptions due to events beyond our control, including natural disasters, power failures, terrorist attacks, cyber-attacks, data theft, equipment orsoftware failures, computer viruses or telecommunications failures. We cannot ensure that our security measures or disaster recovery plans are adequateto prevent failures or disruptions. Substantial or repeated website, reservations systems or telecommunication system failures or disruptions, includingfailures 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 protectedinformation, 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 informationsecurity.We make extensive use of online services and centralized data processing, including through third-party service providers. The securemaintenance and transmission of customer and employee information is a critical element of our operations. Our information technology and othersystems, or those of service providers or business partners that maintain and transmit customer information, may be 9 Table of Contentscompromised by a malicious third-party penetration of our security measures, or of a third-party service provider or business partner, or impacted bydeliberate or inadvertent actions or inactions by our employees, or those of a third-party service provider or business partner. As a result, personalinformation may be lost, disclosed, accessed or taken without consent.We transmit confidential credit card information throughout secure private retail networks and rely on encryption and authentication technologylicensed 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 data network. If our security or network werecompromised 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 CardIndustry security requirements or rectify a security issue may result in fines and the imposition of restrictions on the Company’s ability to accept creditcards as a form of payment.As a result of these types of risks, we regularly review and update procedures and processes to prevent and protect against unauthorized access toour 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 recentadvances in technical capabilities, and increased financial and political motivations to carry out cyber-attacks on physical systems, gain unauthorizedaccess to information, and make information unavailable for use through, for example, ransomware or denial-of-service attacks, and otherwise exploitnew and existing vulnerabilities in our infrastructure. The risk of a data security incident or disruption, particularly through cyber-attack or cyberintrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication ofattempted attacks and intrusions from around the world have increased. Furthermore, in response to these threats there has been heightened legislativeand regulatory focus on attacks on critical infrastructures, including those in the transportation sector, and on data security in Panama, the UnitedStates 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 ourinformation security could result in legal claims or legal proceedings, including regulatory investigations and actions, may have a negative impact onour reputation and may materially adversely affect our business, operating results and financial condition. Furthermore, the loss, disclosure ormisappropriation 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 forpayments 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 ourcustomers. Credit card processors have financial risk associated with tickets purchased for travel that can occur several weeks after the purchase. Ourcredit card processing agreements provide for reserves to be deposited with the processor in certain circumstances. We do not currently have reservesposted for our credit card processors. If circumstances were to occur requiring us to deposit reserves, the negative impact on our liquidity could besignificant, 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 airtravel is higher in the third and fourth quarters, particularly in international markets, because of the increase in vacation travel during these periodsrelative 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 inDecember 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, capacityadditions by competitors, 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 begood indicators of our future performance. In addition, it is possible that in any quarter our operating results could be below the expectations ofinvestors and any published reports or analyses regarding our Company. In that event, the price of our Class A shares could decline, perhapssubstantially. 10 Table of ContentsOur 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 significantcosts related to the repair or replacement of a damaged aircraft and its temporary or permanent loss from service. We are required by our creditors andthe lessors of our aircraft under our operating lease agreements to carry liability insurance, but the amount of such liability insurance coverage may notbe 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 oureligibility for insurance, due to an accident or incident affecting one of our aircraft. Substantial claims resulting from an accident in excess of ourrelated insurance coverage or increased premiums would harm our business and financial results.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. Adversepublicity (whether or not justified) could tarnish our reputation and reduce the value of our brand. Adverse perceptions of the types of aircraft that weoperate arising from safety concerns or other problems, whether real or perceived, or in the event of an accident involving those types of aircraft, couldsignificantly harm our business as the public may avoid flying on our aircraft.Fluctuations in foreign exchange rates could negatively affect our net income.In 2018, approximately 55.3% of our expenses and 44.7% of our revenues were denominated in U.S. dollars, respectively (2017: 59.8% and43.7%, respectively). A significant part of our revenue is denominated in foreign currencies, including the Brazilian real, Colombian peso andArgentinian peso, which represented 22.7%, 11.3% and 7.2%, respectively (2017: 16.5%, 11.4% and 7.8% respectively). If any of these currenciesdecline in value against the U.S. dollar, our revenues, expressed in U.S. dollars, and our operating margin would be adversely affected. For example,weakening currencies in Brazil and Argentina impacted yields in the third and fourth quarter of fiscal 2018. We may not be able to adjust our faresdenominated in other currencies to offset any increases in U.S. dollar-denominated expenses, increases in interest expense or exchange losses on fixedobligations 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 against the U.S. dollar duringthe 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, thisprocess takes between one and two weeks in most countries to which we fly, excluding Venezuela.Changes in accounting standards could adversely affect our financial results.The IASB, or other regulatory authorities, periodically introduce modifications to financial accounting and reporting standards or issue newfinancial accounting and reporting standards under which we prepare our consolidated financial statements. These changes can materially affect theway we present our financial condition and results of operations. We may also be required to retroactively apply new or revised standards, which wouldrequire us to restate previous financial statements.Effective from January 1, 2019, we are required to adopt the new accounting standard IFRS 16 Leases (“IFRS 16”).IFRS 16 requires significant changes that will affect the accounting treatment for all lease contracts where we act as lessee, other than certainshort-term leases and leases of low-value assets. We estimate that the initial application of IFRS 16 will result in the recognition of additional assetsand liabilities in a range of approximately $390 million to $430 million, this calculation excluded the impact that would occur if the lease returnconditions are included in the ROU (Right of Use) asset and lease liability for which the Company have not yet completed evaluation.The actual impacts of adopting the standard on January 1, 2019 may change because the new accounting policies are subject to change until theCompany presents its first financial statements that include the date of initial application.See note 6 to our annual consolidated financial statements for more information on the main impacts expected from the initial adoption ofIFRS 16. 11 Table of ContentsOur maintenance costs will increase as our fleet ages.The average age of our fleet was approximately 8.5 years as of December 31, 2018. Historically, we have incurred low levels of maintenanceexpenses 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 thesewarranties expire and the mileage on each aircraft increases, our maintenance costs will increase, both on an absolute basis and as a percentage of ouroperating 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 substantiallyincrease the salaries or benefits of our employees, it may have an adverse impact on our operations and financial condition.Approximately 63.2% of our 9,450 employees are unionized. There are currently four unions covering our employees based in Panama: thepilots’ union; the flight attendants’ union; the mechanics’ 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 thepilot’s union in July 2017, the industry union in December 2017, the mechanics’ union in May 2018 and the flight attendants’ union in October 2018.Collective bargaining agreements in Panama typically have four-year terms. In addition to unions in Panama, there are four unions covering employeesin Colombia; in Brazil, all airline industry employees in the country are covered by the industry union agreements; employees in Uruguay are coveredby 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 anadverse impact on our operations. These risks are typically exacerbated during periods of renegotiation with the unions, which typically occurs everytwo to four years depending on the jurisdiction and the union. Any renegotiated collective bargaining agreement could feature significant wageincreases and a consequent increase in our operating expenses. Any failure to reach an agreement during negotiations with unions may require us toenter into arbitration proceedings, use financial and management resources, and potentially agree to terms that are less favorable to us than our existingagreements. 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 costscould 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.Our revenues depend on our relationship with travel agents and tour operators and we must manage the costs, rights and functionality of thesethird-party distribution channels effectively.In 2018, approximately 67.2% of our revenues were derived from tickets sold through third-party distribution channels, including those providedby conventional travel agents, online travel agents, or “OTAs,” or tour operators. We cannot assure that we will be able to maintain favorablerelationships with these ticket sellers. Our revenues could be adversely impacted if travel agents or tour operators elect to favor other airlines or todisfavor 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 toobtain airline travel information and issue airline tickets, are more expensive than those we operate ourselves, such as our website. Certain of thesedistribution channels also effectively restrict the manner in which we distribute our products generally. To remain competitive, we will need tosuccessfully manage our distribution costs and rights, increase our distribution flexibility and improve the functionality of third-party distributionchannels, while maintaining an industry-competitive cost structure. These initiatives may affect our relationships with our third-party distributionchannels. Any inability to manage our third-party distribution costs, rights and functionality at a competitive level or any material diminishment ordisruption in the distribution of our tickets could have a material adverse effect on our business, results of operations and financial condition. 12 Table of ContentsWe 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 includeaircraft heavy checks, engine maintenance, overhaul, component repairs and line maintenance activities. In addition to call center services, third-partycontractors also provide us with airport services. At airports other than Tocumen International Airport, most of our aircraft services are performed bythird-party contractors. Substantially all of our agreements with third-party contractors are subject to termination on short notice. The loss or expirationof these agreements or our inability to renew these agreements or to negotiate new agreements with other providers at comparable rates couldnegatively impact our business and results of operations. Further, our reliance on third parties to provide reliable equipment or essential services on ourbehalf could lead us to have less control over the costs, efficiency, timeliness and quality of our service. A contractor’s negligence could compromiseour aircraft or endanger passengers and crew. This could also have a material adverse effect on our business. We expect to be dependent on suchagreements 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 tosave costs by operating a simplified fleet. Copa currently operates a fleet of Boeing 737-700/800 Next Generation aircraft powered by CFM 56-7Bengines from CFM International, Embraer 190, powered by CF 34-10 engines from General Electric, and Boeing 737MAX 9, powered by, Leap 1Bengines, from 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 findanother supplier for a similar type of aircraft or engine.If we have to lease or purchase aircraft from another supplier, including in connection with the Boeing 737 MAX aircraft that have beentemporarily grounded by global aviation requirements, we could lose the benefits we derive from our current fleet composition. We cannot ensure thatany replacement aircraft would have the same operating advantages as the Boeing 737-700/800 Next Generation, Boeing 737 MAX 9 or Embraer 190aircraft that would be replaced or that Copa could lease or purchase engines that would be as reliable and efficient as the CFM 56-7B, Leap 1B and GECF34-10. We may also incur substantial transition costs, including costs associated with acquiring spare parts for different aircraft models, retrainingour 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.Our business would be impacted if a design defect or mechanical problem with any of the types of aircraft, engines or components that we operatewere 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 ofour aircraft could be suspended or restricted by regulatory authorities in the event of any actual or perceived mechanical or design issues. Followingthe Ethiopian Airlines accident involving a Boeing 737 MAX 8 aircraft, we temporarily suspended operations of our six Boeing 737 MAX 9 aircraftduring the investigation into the cause of the accident, as regulatory authorities around the world grounded the aircraft. Our business would also benegatively impacted if the public began to avoid flying with us due to an adverse perception of the types of aircraft that we operate stemming fromsafety 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 beable to maintain the pace of our growth and our requirements may exceed their capabilities, which may adversely affect our ability to execute ourday-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 businesseffectively. 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 obtainan adequate replacement, or if we are unable to attract and retain new qualified personnel, our business, financial condition and results of operationscould be materially adversely affected. 13 Table of ContentsRisks Relating to the Airline IndustryThe 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 ourcompetitors have significantly greater financial and marketing resources than we have. Airlines based in other countries may also receive subsidies, taxincentives or other state aid from their respective governments, which are not provided by the Panamanian government. Changes in our interactionswith our passengers or our product offerings could negatively impact our business. For example, prior to 2015, we had participated in UAL’s loyaltyprogram, MileagePlus. Starting in July 2015, we launched our own ConnectMiles frequent flyer program. Although, ConnectMiles is allowing us tobuild a more direct relationship with our customers, it may not be as successful as UAL’s MileagePlus program in building, and maintaining, brandloyalty. In addition, the commencement of, or increase in, service on the routes we serve by existing or new carriers could negatively impact ouroperating 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 characterizethe airline industry and tend to intensify competition. Several air carriers have merged and/or reorganized, including certain of our competitors, such asLAN-TAM, Avianca-Taca, American-US Airways and Delta-Northwest. As a result, they have benefited from lower operating costs and fare discountingin 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 LCCsoffering discounted fares. The LCC business model appears to be gaining acceptance in the Latin American aviation industry. The LCCs’ operationsare typically characterized by point-to-point route networks focusing on the highest demand city pairs, high aircraft utilization, single class service andfewer in-flight amenities. As a result, we may face new and substantial competition from LCCs in the future, which could result in significant andlasting 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’sposition within Colombia, and better compete with low unbundled prices from LCCs. Although we intend to compete vigorously and maintain ourstrong competitive position in the industry, Avianca, LATAM and Viva Air represent a significant portion of the domestic market in Colombia andhave access to greater resources as a result of their larger size. Therefore, Copa faces stronger competition now than in recent years, and its prior resultsmay not be indicative of its future performance.We must constantly react to changes in prices and services offered by our competitors to remain competitive. The airline industry is highlysusceptible to price discounting, particularly because airlines incur very low marginal costs for providing service to passengers occupying otherwiseunsold seats. Carriers use discount fares to stimulate traffic during periods of lower demand to generate cash flow and to increase market share. Anylower fares offered by one airline are often matched by competing airlines, which often results in lower industry yields with little or no increase intraffic levels. Price competition among airlines in the future could lead to lower fares or passenger traffic on some or all of our routes, which couldnegatively impact our profitability. We cannot be certain that any of our competitors will not undercut our fares in the future or increase capacity onroutes in an effort to increase their respective market share. Although we intend to compete vigorously and to assert our rights against any predatoryconduct, such activity by other airlines could reduce the level of fares or passenger traffic on our routes to the point where profitable levels ofoperations cannot be maintained. Due to our smaller size and financial resources compared to several of our competitors, we may be less able towithstand 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 30.2% of operating expenses in 2018,27.3% of operating expenses in 2017 and 27.1% in 2016. 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. Both the cost and availability of fuel are subject to manyeconomic, political, weather, environmental and other factors and events occurring throughout the world that we can neither control nor accuratelypredict, including international political and economic circumstances such as the political instability in major oil-exporting countries in LatinAmerica, Africa and Asia. Any future fuel supply shortage (for example, as a result of production curtailments by the Organization of the PetroleumExporting Countries, or “OPEC”, a disruption of oil imports, supply disruptions resulting from severe weather or natural disasters, the continued unrestin the Middle East or otherwise could result in higher fuel prices or further reductions in scheduled airline services). We cannot ensure that we wouldbe able to offset any increases in the price of fuel by increasing our fares. 14 Table of ContentsAs of December 31, 2018, the Company was not a party to any outstanding fuel hedge contracts, and has adopted a new strategy of remainingunhedged, while regularly reviewing its policies based on market conditions and others factors. For 2019, although we have not hedged any part of ouranticipated fuel needs, we continue to evaluate various hedging strategies and may enter into additional hedging agreements in the future, as anysubstantial and prolonged increase in the price of jet fuel will likely materially and negatively affect our business, financial condition and results ofoperation.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 operatingand administrative personnel. The airline industry has, from time to time, experienced a shortage of qualified personnel. As is common with most of ourcompetitors, considerable turnover of employees may occur and may not always be predictable. When we experience higher turnover, our trainingcosts 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 terminatetheir contracts earlier than anticipated, we may be unable to successfully recoup the costs spent to train those pilots. We cannot be certain that we willbe able to recruit, train and retain the qualified employees that we need to continue our current operations to replace departing employees. A failure tohire, train and retain qualified employees at a reasonable cost could materially adversely affect our business, financial condition and results ofoperations.Under Panamanian law, there is a limit on the maximum number of non-Panamanian employees that we may employ. Our need for qualifiedpilots 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, or a change in Panamanianregulations, 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 torespond to shortfalls in expected revenue.The airline industry is characterized by low gross profit margins, high fixed costs and revenues that generally exhibit substantially greaterelasticity than costs. The operating costs of each flight do not vary significantly with the number of passengers flown and, therefore, a relatively smallchange in the number of passengers, fare pricing or traffic mix could have a significant effect on operating and financial results. These fixed costscannot be adjusted quickly to respond to changes in revenues, and a shortfall from expected revenue levels could have a material adverse effect on ournet income.Our business may be adversely affected by downturns in the airline industry caused by terrorist attacks, political unrest, war or outbreak ofdisease, 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 orsimilar public health threat, natural disasters, cyber security threats and other events. Any of these events could cause governmental authorities toimpose travel restrictions or otherwise cause a reduction in travel demand or changes in travel behavior in the markets in which we operate. Any ofthese events in our markets could have a material impact on our business, financial condition and results of operations. Furthermore, these types ofsituations 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, inparticular, a decrease in airline traffic in the United States and, to a lesser extent, in Latin America. Our revenues depend on the number of passengerstraveling on our flights. Therefore, any future terrorist attacks or threat of attacks, whether or not involving commercial aircraft, any increase inhostilities relating to reprisals against terrorist organizations, including an escalation of military involvement in the Middle East, or otherwise, and anyrelated economic impact could result in decreased passenger traffic and materially and negatively affect our business, financial condition and results ofoperations. 15 Table of ContentsIncreases 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, andinsurers could reduce their coverage or increase their premiums even further in the event of additional terrorist attacks, hijackings, airline crashes orother 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 aircraftlenders and lessors or applicable government regulations. While governments in other countries have agreed to indemnify airlines for liabilities thatthey might incur from terrorist attacks or provide low-cost insurance for terrorism risks, the Panamanian government has not indicated an intention toprovide similar benefits to us. Increases in the cost of insurance may result in higher fares, which could result in a decreased demand and materially andnegatively 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 thatmay be applicable to us in the future could increase our cost base and adversely affect our operations and financial results.For example, the ICAO has issued the first edition of the Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”) toaddress the increase in total CO2 emissions from international aviation. As Colombia and Panama are member states of ICAO, the Civil AviationAuthorities (“CAAs”) of Panama and Colombia are developing new regulations to implement CORSIA. They expect to make these regulations publicat the end of the first quarter of 2019. Under CORSIA, airplane operators must annually report the fuel consumption of their international commercialoperations and the corresponding CO2 emissions (domestic operations are excluded from these requirements). The first report must be presented nolater than May 2020. Copa Airlines and AeroRepública have already presented to their CAAs the Emission Monitoring Plan (“EMP”) required byCORSIA.In addition to encouraging CO2 emissions reductions, CORSIA will require airline operators to offset CO2 emissions through payments toauthorized carbon banks, which will invest in environmental projects to reduce the global carbon footprint. Copa Airlines and AeroRepública will notbe subject to the emissions offsetting requirements until 2027, because Panama and Colombia are not participating in the voluntary first phase ofCORSIA.Risks Relating to Panama and our RegionWe 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 orends in Panama. Furthermore, substantially all of Copa’s flights operate through our hub at Tocumen International Airport. As a result, we depend oneconomic and political conditions prevailing from time to time in Panama. Panama’s economic conditions in turn highly depend on the continuedprofitability and economic impact of the Panama Canal. Control of the Panama Canal and many other assets were transferred from the United States toPanama 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 thestate of affairs in Colombia has been steadily improving since 2002, the Colombian economy’s growth slowed during 2015. Any political unrest andinstability in Colombia could adversely affect Copa Colombia’s financial condition and results of operations.According to International Monetary Fund estimates, during 2019 the Panamanian and Colombian economies are expected to grow by 6.8% and3.5%, respectively, as measured by their GDP at constant prices. However, if either economy experiences a sustained recession, or significant politicaldisruptions, our business, financial condition or results of operations could be materially and negatively affected. 16 Table of ContentsAny increase in the taxes we or our shareholders pay in Panama or the other countries where we do business could adversely affect our financialperformance and results of operations.We cannot ensure that our current tax rates will not increase. Our income tax expenses were $34.5 million, $49.3 million and $38.3 million in theyears ended December 31, 2018, 2017 and 2016, respectively, which represented an effective income tax rate of 28.2%, 11.9% and 10.6%,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 taxationof 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 taxor 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 netmargin or by a presumed net margin set by the relevant tax legislation. The determination of our taxable income in certain countries is based on acombination of revenues sourced to each particular country and the allocation of expenses of our operations to that particular country. Themethodology for multinational transportation company sourcing of revenues and expenses is not always specifically prescribed in the relevant taxregulations, and therefore is subject to interpretation by both us and the respective taxing authorities. Additionally, in some countries, the applicabilityof certain regulations governing non-income taxes and the determination of our filing status are also subject to interpretation. We cannot estimate theamount, if any, of potential tax liabilities that might result if the allocations, interpretations and filing positions used by us in our tax returns werechallenged by the taxing authorities of one or more countries. If taxes were to increase, our financial performance and results of operations could bematerially and adversely affected. Due to the competitive revenue environment, many increases in fees and taxes have been absorbed by the airlineindustry 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 longercompete effectively as those increases may result in reduced customer demand for air travel with us and we may no longer compete effectively, therebyreducing 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 ofoperations.The Panamanian tax code for the airline industry states that tax is based on net income earned for passenger and cargo traffic with an origin orfinal 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 theportion attributable to foreign-sourced income. Additionally, a 7% value added tax is levied on tickets issued in Panama for travel commencing inPanama and going abroad, irrespective of where such tickets were ordered. If such taxes were to increase, our financial performance and results ofoperations 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 ourClass A shares.While geographic diversity helps reduce our exposure to risks in any one country, we operate primarily within Latin America and are thus subjectto 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 regulatoryrequirements. In Venezuela, for example, we and other airlines and foreign companies may only repatriate cash through specific governmentalprograms, which may effectively preclude us from repatriating cash for periods of time. In addition, Venezuela has experienced difficult politicalconditions and declines in the rate of economic growth in recent periods as well as governmental actions that have adversely impacted businesses thatoperate there. The Company cancelled flights between Panama and Venezuela during April 2018, as a result of a temporary suspension of diplomaticand commercial relations between the two countries. For the year ended December 31, 2018, revenue from the Company’s flights to Venezuela,including connecting traffic, represented about 5.8% of consolidated revenues and direct flights between Panama and Venezuela. During the sameperiod, sales in local currency in Venezuela represented 0.1% 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 Americagenerally may result in a reduction in passenger traffic, which could materially and negatively affect our financial condition, results of operations andthe market price of our Class A shares. 17 Table of ContentsRisks Relating to Our Class A SharesThe value of our Class A shares may be adversely affected by ownership restrictions on our capital stock and the power of our Board of Directorsto take remedial actions to preserve our operating license and international route rights by requiring sales of certain outstanding shares orissuing 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 toother countries, we are required to be “substantially owned” and “effectively controlled” by Panamanian nationals. Our failure to comply with suchrequirements could result in the loss of our Panamanian operating license and/or our right to fly to certain important countries. Our Articles ofIncorporation (Pacto Social) give special powers to our independent directors to take certain significant actions to attempt to ensure that the amount ofshares held in us by non-Panamanian nationals does not reach a level that could jeopardize our compliance with Panamanian and bilateral ownershipand control requirements. If our independent directors determine it is reasonably likely that we will be in violation of these ownership and controlrequirements and our Class B shares represent less than 10% of our total outstanding capital stock (excluding newly issued shares sold with theapproval of our independent director’s committee), our independent directors will have the power to issue additional Class B shares or Class C shareswith special voting rights solely to Panamanian nationals. See “Item 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 Cshares could have the effect of discouraging certain changes of control of Copa Holdings or may reduce any voting power that the Class A shares enjoyprior 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 Panamaniannationals. We cannot be certain that restrictions on ownership by non-Panamanian nationals will not impede the development of an active publictrading 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 marketsoutside 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 25.9% of the economic interest in Copa Holdings and 100% of the voting power of ourcapital stock, are owned by Corporación de Inversiones Aéreas, S.A., or “CIASA”, a Panamanian entity. CIASA is in turn controlled by a group ofPanamanian investors. In order to comply with the Panamanian Aviation Act, as amended and interpreted to date, we have amended our organizationaldocuments to modify our share capital so that CIASA will continue to exercise voting control of Copa Holdings. CIASA will not be able to transfer itsvoting control unless control of our Company will remain with Panamanian nationals. CIASA will maintain voting control of the Company so long asCIASA 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 director’s committee). Even if CIASA ceases to own the majority of thevoting power of our capital stock, CIASA may continue to control our Board of Directors indirectly through its control of our Nominating andCorporate 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, CIASAmay prevent change of control transactions that might otherwise provide an opportunity to dispose of or realize a premium on investments in ourClass 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 CopaHoldings, mergers, consolidations or spin-offs of Copa Holdings, changes of corporate purpose, voluntary delisting of the Class A shares from theNYSE, the approval of nominations of our independent directors and amendments to the foregoing provisions that adversely affect the rights andprivileges 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 othermatters 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 ourtotal capital stock (excluding newly issued shares sold with the approval of our independent director’s committee). See “Item 10B. Memorandum andArticles 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-Panamanianinvestors. In connection with our initial public offering in December 2005, Continental and CIASA reduced their ownership of our total capital stockfrom 49.0% to approximately 27.3% and from 51.0% to approximately 25.1%, respectively. In a follow-on 18 Table of Contentsoffering 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 releasedContinental from its standstill obligations and they sold down their remaining shares in the public market. CIASA holds registration rights with respectto a significant portion of its shares pursuant to a registration rights agreement entered into in connection with our initial public offering. In March2010, 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-registeredpublic offering. In the event CIASA seeks to reduce its ownership below 10% of our total share capital, our independent directors may decide to issuespecial 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 sella significant number of shares or if the market perceives that CIASA or other significant holders intend to sell their shares. As of December 31, 2018CIASA owned 25.9% of Copa Holdings’ total capital stock.Holders of our common stock are not entitled to preemptive rights, and as a result, shareholders may experience substantial dilution upon futureissuances 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 withrespect to future issuances of capital stock by us. Therefore, unlike companies organized under the laws of many other Latin American jurisdictions, weare 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 orother shares to persons other than our existing shareholders at a lower price than the shares already sold, and as a result, shareholders may experiencesubstantial 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 Ashares may not continue.Our Class A shares are listed on the NYSE. During the three months ended December 31, 2018, the average daily trading volume for our Class Ashares as reported by the NYSE was approximately 531,602 shares. Active, liquid trading markets generally result in lower price volatility and moreefficient execution of buy and sell orders for our investors. The liquidity of a securities market is often affected by the volume of shares publicly heldby 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 sharesWe currently offer passenger, cargo and mail transportation services to and from Cuba. For the year ended December 31, 2018, our transportedpassengers to and from Cuba represented approximately 4.5% of our total passengers. Our operating revenues from Cuban operations during the yearended December 31, 2018 represented approximately 2.3% of our total consolidated operating revenues for such year. Our assets located in Cuba arenot significant.The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions based onU.S. foreign policy against Cuba, and groups opposed to the Cuban regime may seek to use U.S. sanctions to exert pressure on companies doingbusiness in Cuba. Although Cuba has been removed from the U.S. Department of State’s list of state sponsors of terrorism, uncertainty remains over thefuture of U.S. economic sanctions against Cuba and the impact such sanctions will have on our operations, particularly if the United States imposeadditional relevant sanctions. Additionally, on March 4, 2019, the U.S. Department of State announced that the U.S. government would issue only alimited suspension of Title III of the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 (popularly known as the Helms-Burton Act) foran additional 30 days. Title III of Helms-Burton, which has been suspended since 1996, provides a cause of action for U.S. nationals to bring claimsagainst any person who traffics in property expropriated by the Cuban Government. Both the possibility that the U.S. government decides to no longersuspend Title III of Helms-Burton and the scope of any potential claims are uncertain. If Title III of Helms-Burton comes into force, companies such asours with commercial dealings in Cuba could face claims for damages.Certain U.S. states have enacted or may enact legislation regarding investments by state-owned investors, such as public employee pension fundsand state university endowments, in companies that have business activities with Cuba. As a result, such state-owned institutional investors may besubject to restrictions with respect to investments in companies such as ours, which could adversely affect the market for our shares. 19 Table of ContentsOur Board of Directors may, in its discretion, amend or repeal our dividend policy. Shareholders may not receive the level of dividends providedfor 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 to40% of the previous year’s annual consolidated underlying net income, to be distributed in equal quarterly installments subject to board ratificationeach quarter. Our Board of Directors may, in its sole discretion and for any reason, amend or repeal any aspect of this dividend policy. Our Board ofDirectors may decrease the level of dividends provided for in this dividend policy or entirely discontinue the payment of dividends. Future dividendswith respect to shares of our common stock, if any, will depend on, among other things, our results of operations, cash requirements, financialcondition, contractual restrictions, business opportunities, provisions of applicable law and other factors that our Board of Directors may deemrelevant. See “Item 8A. Consolidated Statements and Other Financial Information—Dividend Policy”.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 dividendpolicy. The aviation industry has cyclical characteristics, and many international airlines are currently experiencing difficulties meeting their liquidityneeds. Also, our business strategy contemplates growth over the next several years, and we expect such growth will require a great deal of liquidity. Tothe extent that we pay dividends in accordance with, or in excess of, our dividend policy, the money that we distribute to shareholders will not beavailable 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 tocontrol us and these restrictions operate to prevent any change of control or some transfers of ownership in order to comply with the Aviation Actand 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 theRepublic of Panama, Panamanian nationals must exercise “effective control” over the operations of the airline and must maintain “substantialownership”. Under certain of the bilateral agreements between Panama and other countries pursuant to which we have the right to fly to those othercountries and over their territories, we must also continue to have substantial Panamanian ownership and effective control by Panamanian nationals toretain these rights. On November 25, 2005, the Executive Branch of the Government of Panama promulgated a decree stating that the “substantialownership” and “effective control” requirements of the Aviation Act are met if a Panamanian citizen or a Panamanian company is the record holder ofshares 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, itdoes not supersede the Aviation Act, and it could be modified or superseded at any time by a future Executive Branch decree. Additionally, the decreehas no binding effect on regulatory authorities of other countries whose bilateral agreements impose Panamanian ownership and control limitations onus. 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 aPanamanian 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 ourvoting capital stock, are designed to ensure compliance with these ownership and control restrictions. See “Item 10B. Memorandum and Articles ofAssociation—Description of Capital Stock”. At the present time, CIASA is the record owner of 100% of our Class B voting shares, representingapproximately 25.9% of our total share capital and all of the voting power of our capital stock. These provisions of our Articles of Incorporation mayprevent change of control transactions that might otherwise provide an opportunity to realize a premium on investments in our Class A shares. Theyalso 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 bemore difficult to enforce.Under Panamanian law, the protections afforded to minority shareholders are different from, and much more limited than, those in the UnitedStates and some other Latin American countries. For example, the legal framework with respect to shareholder disputes is less developed underPanamanian law than under U.S. law and there are different procedural requirements for bringing shareholder lawsuits, including shareholder derivativesuits. As a result, it may be more difficult for our minority shareholders to enforce their rights against us or our directors or controlling shareholder thanit would be for shareholders of a U.S. company. In addition, Panamanian law does not afford minority shareholders as many protections for investorsthrough corporate governance mechanisms as in the United States and provides no mandatory tender offer or similar protective mechanisms forminority shareholders in the event of a change in control. While our Articles of Incorporation provide limited rights to holders of our Class A shares tosell their shares at the same price as CIASA 20 Table of Contentsin 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 ofcontrol 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 hadpreviously acquired Class B shares from CIASA, the sale of interests by another party in conjunction with a sale by CIASA, the sale by CIASA ofcontrol to more than one party, or the sale of controlling interests in CIASA itself. Item 4. Information on the CompanyA. History and Development of the CompanyGeneralCopa was established in 1947 by a group of Panamanian investors and Pan American World Airways, which provided technical and economicassistance as well as capital. Initially, Copa served three domestic destinations in Panama with a fleet of three Douglas C-47 aircraft. In the 1960s, Copabegan its international service with three weekly flights to cities in Costa Rica, Jamaica and Colombia using a small fleet of Avro 748s and Electra188s. 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. From1992 until 1998, Copa was a part of a commercial alliance with Grupo TACA’s network of Central American airline carriers. In 1997, together withGrupo TACA, Copa entered into a strategic alliance with American Airlines. After a year our alliance with American Airlines was terminated by mutualconsent.On May 6, 1998, Copa Holdings, S.A., the holding company for Copa and related companies was incorporated as a sociedad anónima under thelaws of Panama to facilitate the sale by CIASA of a 49% stake in Copa Holdings to Continental. In connection with Continental’s investment, weentered into an extensive alliance agreement with Continental providing for code-sharing, joint marketing, technical exchanges and other cooperativeinitiatives between the airlines. At the time of our initial public offering in December 2005, Continental reduced its ownership of our total capital stockfrom 49% to approximately 27.3%. In a follow-on offering in June 2006, Continental further reduced its ownership of our total capital stock from27.3% 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 ofDecember 31, 2018 held 25.9% 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 fleetfrom 13 aircraft to 105 aircraft at December 31, 2018. 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 ourlast Boeing 737-200. Since 2005, we have expanded from 24 destinations in 18 countries to 80 destinations in 32 countries. We plan to continue ourexpansion, which includes increasing our fleet, over the next several years. In 2018, we took delivery of our first four Boeing 737 MAX 9 aircraft.On April 22, 2005, we acquired an initial 85.6% equity ownership interest in AeroRepública, which was one of the largest domestic carriers inColombia in terms of passengers carried. Through subsequent acquisitions, we increased our total ownership interest in AeroRepública to 99.9% by theend of that year. We believe that Copa Airlines’ operational coordination with Copa Colombia creates additional passenger traffic in our existing routenetwork 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 flyerprogram, ConnectMiles. We have reached a scale where establishing our own direct relationship with our customers is warranted. Copa and UAL willremain 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 carriersin the markets. Wingo serves domestic flights in Colombia and some international cities to and from Colombia.In addition, on November 30, 2018, we disclosed that we have entered into a three-way joint business agreement (“JBA”) with UAL and Aviancathat is intended to cover our combined network between the United States and Latin America (except Brazil). We, UAL and Avianca intend to apply forregulatory approval of the JBA and an accompanying grant of antitrust immunity from the U.S. Department of Transportation and other relevantagencies. However, we can provide no assurances as to whether or when the parties will receive such approvals, and we do not plan to implement theJBA until we have received such approvals. 21 Table of ContentsOur registered office is located at Avenida Principal y Avenida de la Rotonda, Urbanización Costa del Este, Complejo Business Park, TorreNorte, 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 annualreport. Our agent for service of process in the United States is Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19715, and itstelephone number is +(302) 738-6680. Also, the SEC maintains an internet site (www.sec.gov) that contains reports, proxy and information statementsand other information about the Company that the Company has filed electronically with the SEC.Capital ExpendituresDuring 2018, our capital expenditures were $183.1 million, which consisted primarily of advance payments on aircraft purchase contracts, offsetby reimbursement of advance payments on aircraft purchase contracts. During 2017, our capital expenditures were $272.4 million, which consistedprimarily of advance payments on aircraft purchase contracts, offset by reimbursement of advance payments on aircraft purchase contracts. During2016, our capital expenditures were $106.7 million, which consisted primarily of the acquisition of property and equipment, offset by reimbursementof advance payments on aircraft purchase contracts.B. Business OverviewWe are a leading Latin American provider of airline passenger and cargo service through our two principal operating subsidiaries, Copa Airlinesand Copa Colombia. Copa Airlines operates from its strategically-located position in the Republic of Panama, and Copa Colombia flies from Colombiato Copa Airlines Hub of the Americas in Panama, and operates a low-cost business model within Colombia and various cities in the region. As ofDecember 31, 2018 we operate a fleet of 105 aircraft, 82 Boeing 737-Next Generation aircraft, 19 Embraer 190 aircraft and four Boeing 737 MAX 9aircraft to meet our growing capacity requirements. The Company had one purchase contract with Boeing which entails 67 firm orders of Boeing 737MAX aircraft, agreed to be delivered between 2019 and 2025.Copa currently offers approximately 363 daily scheduled flights among 80 destinations in 32 countries in North, Central and South America andthe Caribbean from its Panama City hub. Copa provides passengers with access to flights to more than 200 other destinations through code-sharearrangements with UAL and other airlines pursuant to which each airline places its name and flight designation code on the other’s flights. Through itsPanama 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. Thecombined carrier took the United Airlines name but uses the former Continental’s livery and logo. All of the service and alliance agreements we had inplace with Continental have been transferred to the combined UAL entity. We believe that Copa’s co-branding and joint marketing activities, whichcontinue with UAL, have enhanced its brand in Latin America, and that the relationship with UAL has afforded it cost-related benefits, such asimproved purchasing power in negotiations with aircraft vendors and insurers. We have reached a mutually beneficial arrangement with UAL andextended the term, and continue with, an updated alliance agreement from May 2016 forward. Due to the long-standing alliance relationship withContinental, and in order to ensure Copa remained fully aligned with Continental on a number of important joint initiatives, Copa officially joinedStar 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 2001to $2.7 billion in 2018 while our operating income also increased from $25.0 million to $145.0 million over the same period.Our StrengthsWe 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 centrallocation of Tocumen International Airport in Panama City, Panama provides convenient connections to our principal markets inNorth, Central and South America and the Caribbean, enabling us to consolidate traffic to serve several destinations that do notgenerate enough demand to justify point-to-point service. Flights from Panama operate with few service disruptions due to weather,contributing to high completion 22 Table of Contents factors and on-time performance. Tocumen International Airport’s sea-level altitude allows our aircraft to operate without theperformance restrictions they would be subject to in higher altitude airports. We believe that Copa’s hub in Panama allows us tobenefit from Panama City’s status as a center for financial services, shipping and commerce and from Panama’s stable, dollar-basedeconomy, 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 significantlyto our profitability. Our operating CASM, excluding costs for fuel was 6.54 ¢ in 2014, 6.45¢ in 2015, 6.48¢ in 2016, 6.37¢ in 2017and 6.84¢ in 2018. We believe that our cost per available seat mile reflects our modern fleet, efficient operations and thecompetitive cost of labor in Panama. • We operate a modern fleet. Our fleet consists of Boeing 737-MAX, Boeing 737 -Next Generation and Embraer 190 aircraftequipped with winglets and other modern cost-saving and safety features. Over the next several years, we intend to enhance ourmodern fleet through the addition of 67 Boeing 737 MAX aircraft to be delivered between 2019 and 2025. We believe that ourmodern fleet contributes to our on-time performance and high completion factor (percentage of scheduled flights not cancelled). • We believe Copa has a strong brand and a reputation for quality service. We believe that the Copa brand is associated with valueto passengers, providing world-class service and competitive pricing. For the year ended December 31, 2018, Copa’s statistic foron-time performance, according to DOT standard methodology of arrivals within 14 minutes of scheduled arrival time, was 89.8%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 thebrand. During 2018 we were recognized by OAG as the most on-time airline in the world, and by Flight Stats, for the sixthconsecutive 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 creatinga culture based on teamwork and focused on continuous improvement. Each of our employees has individual objectives based oncorporate 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 recognizeoutstanding performance of individual employees through company-wide recognition, one-time awards, special events and, in thecase of our senior management, grants of restricted stock and stock options. Our goal-oriented culture and incentive programs havecontributed to a motivated work force that is focused on satisfying customers, achieving efficiencies and growing profitability.Our StrategyOur goal is to continue to grow profitably and enhance our position as a leader in Latin American aviation by providing a combination ofsuperior customer service, convenient schedules and competitive fares, while maintaining competitive costs. The key elements of our business strategyinclude the following: • Expand our network by increasing frequencies and adding new destinations. We believe that demand for air travel in LatinAmerica is likely to expand in the next decade, and we intend to use our increasing fleet capacity to meet this growing demand. Weintend to focus on expanding our operations by increasing flight frequencies on our most profitable routes and initiating service tonew destinations. Copa’s Panama City hub allows us to consolidate traffic and provide non-stop or one-stop connecting service toover 2,000 city pairs, and we intend to focus on providing new or increased service to destinations that we believe best enhance theoverall 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 valuedby our customers as we execute our growth plans. Our goal is to maintain a modern fleet and to make effective use of our resourcesthrough efficient aircraft utilization and employee productivity. We intend to reduce our distribution costs by increasing directsales 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 earningtheir loyalty by providing a combination of superior service and competitive fares. We believe that continuing our operationalsuccess in keeping flights on time, reducing mishandled luggage and offering convenient schedules to attractive destinations willbe essential to achieving this goal. In January 2019, we were recognized by OAG as the most on-time airline in the world. Weintend 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 customerloyalty with, ConnectMiles awards, upgrades and access to our Copa Club lounges. 23 Table of ContentsIndustryIn Latin America, the scheduled passenger service market consists of three principal groups of travelers: strictly leisure, business and travelersvisiting friends and family. Leisure passengers and passengers visiting friends and family typically place a higher emphasis on lower fares, whereasbusiness passengers typically place a higher emphasis on flight frequency, on-time performance, breadth of network and service enhancements,including loyalty programs and airport lounges.According to data from the International Air Transport Association, or “IATA”, Latin America comprised approximately 7.0% of internationalworldwide passengers flown in 2017 or 286 million passengers.The Central American aviation market is dominated by international traffic. According to data from IATA, international revenue passengerkilometers, or “RPKs”, are concentrated between North America and Central America. This segment represented 78% of international RPKs flown toand from Central America in 2017, compared to 16.4% RPKs flown between Central America and South America and 5.9% for RPKs flown betweenCentral American countries. Total RPKs flown on international flights to and from Central America increased 7.1%, and load factors on internationalflights to and from Central America were 82% on average.The chart below details passenger traffic between regions in 2017: 2017 IATA Traffic Results Passenger Kms Flown Available Seat Kms Passenger Load Factor (Millions) Change (%) (Millions) Change (%) Load Factor Change (%) North America—Central America / Caribbean 156,285 6.7 188,888 6.7 82.7% 0.0 p.p. North America—South America 98,206 0.9 117,098 0.7 83.9% 0.1 p.p. Within South America 44,942 10.5 54,992 8.2 81.7% 1.7 p.p. Central America/Caribbean—South America 33,051 8.5 39,544 5.1 83.6% 2.6 p.p. Within Central America 11,855 8.1 15,304 0.6 77.5% 5.3 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 trafficmarkets in North, South and Central America experienced growth in their GDP in 2018. Preliminary figures indicate that real GDP increased by 4.60%in Panama and by 2.81% in Colombia, according to data of the World Economic and Financial Survey conducted by the International Monetary Fundor “IMF”. GDP (in US$ billions) GDP per Capita 2018 2018 2018 Current Prices(US$) Real GDP(% Growth) Current Prices(US$) Argentina 475 (2.6) 10,667 Brazil 1,909 1.4 9,127 Chile 300 4.0 16,143 Colombia 337 2.8 6,761 Mexico 1,199 2.2 9,614 Panama 66 4.6 15,877 USA 20,513 2.9 62,518 Source: International Monetary Fund, World Economic Outlook Database, October 2018 24 Table of ContentsPanama has benefited from a stable economy with moderate inflation and steady GDP growth. According to IMF estimates, from 2012 to 2018,Panama’s real GDP grew at an average annual rate of 6.1%, while inflation averaged 2.3% per year. The IMF currently estimates Panama’s populationto be approximately 4.16 million in 2018, with the majority of the population concentrated in Panama City, where our hub at Tocumen InternationalAirport is located. We believe the combination of a stable, service-oriented economy and steady population growth has helped drive our domesticorigin and destination passenger traffic.Domestic travel within Panama primarily consists of individuals visiting families as well as domestic and foreign tourists visiting thecountryside. Most of this travel is done via ground transportation, and its main flow is to and from Panama City, where most of the economic activityand population is concentrated. Demand for domestic air travel is growing and relates primarily to leisure travel from foreign and local tourists. SinceJanuary 2015, Copa has operated daily flights to the second-largest city in Panama, David in Chiriqui. The remaining market is served primarily by onelocal airline, Air Panama, which operates a fleet primarily consisting of turbo prop aircraft generally with less than 50 seats. This airline offers limitedinternational service and operates in the secondary Marcos Gelabert airport of Panama City, which is located 30 minutes by car from TocumenInternational Airport.Colombia is the third largest country in Latin America in terms of population, with a population of approximately 49.834 million in 2018according to the IMF, and has a land area of approximately 440,000 square miles. Colombia’s GDP is estimated to be $336.94 billion for 2018, and percapita income was approximately $6.8 thousand (current prices) according to the IMF. Colombia’s geography is marked by the Andean mountains andan inadequate road and rail infrastructure, making air travel a convenient and attractive transportation alternative. Colombia shares a border withPanama, and for historic, cultural and business reasons it represents a significant market for many Panamanian businesses.Route Network and SchedulesAs of December 31, 2018, Copa provided regularly-scheduled flights to 80 cities in North, Central and South America and the Caribbean. Themajority of Copa flights operate through our hub in Panama City which allows us to transport passengers and cargo among a large number ofdestinations 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 pairswe 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 thebilateral 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 ashort 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 hubinfrastructure 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. Inaddition 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, Azul, Tame, Cubana and Aeromexico.In addition to increasing the frequencies to destinations we already serve, Copa’s business strategy is also focused on adding new destinationsacross Latin America, the Caribbean and North America in order to increase the attractiveness of our Hub of the Americas at Tocumen InternationalAirport for intra-American traffic. We currently plan to introduce new destinations and to increase frequencies to many of the destinations that Copacurrently serves. Our Embraer 190 aircraft, together with the Boeing 737 aircraft, allow us to improve our service by increasing frequencies and serviceto 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 inthe 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 havedirect influence. Route rights are allocated through negotiations between the government of Panama and Colombia, and the governments of countriesto 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-allocatecapacity as appropriate. 25 Table of ContentsRevenue by RegionThe following table shows our revenue generated in each of our major operating regions. Year Ended December 31, Region 2018 2017 2016 2015 2014 North America (1) 26.4% 24.1% 28.8% 24.8% 20.5% South America 46.6% 48.6% 42.2% 45.7% 55.1% Central America (2) 21.8% 22.1% 23.1% 23.3% 19.7% Caribbean (3) 5.2% 5.2% 5.9% 6.2% 4.7% (1)Includes USA, Canada, Mexico(2)Includes Panama(3)Cuba, Dominican Republic, Haiti, Jamaica, Puerto Rico, Aruba, Curaçao, St. Maarten, Bahamas, Barbados, and Trinidad and TobagoAirline OperationsPassenger OperationsPassenger revenue accounted for approximately $2,587.4 million in 2018, $2,444.3 million in 2017, and $2,148.5 million in 2016, representing96.6%, 96.9%, and 96.8%, respectively, of Copa’s total revenues. Leisure traffic, which makes up close to half of Copa’s total traffic, tends to coincidewith holidays, school vacations and cultural events and peaks in July and August, and again in December and January. Despite these seasonalvariations, Copa’s overall traffic pattern is relatively stable due to the constant influx of business travelers. Approximately one third of Copa’spassengers regard Panama City as their destination or origination point, and most of the remaining passengers pass through Panama City in transit toother points on our route network.Cargo OperationsIn addition to our passenger service, we make efficient use of extra capacity in the belly of our aircraft by carrying cargo. Our cargo operationsconsist principally of freight service. Copa’s cargo business generated revenues of approximately $62.5 million in 2018, $55.3 million in 2017, and$54.0 million in 2016, representing 2.3%, 2.2%, and 2.4% respectively, of Copa’s operating revenues. We primarily move our cargo in the belly of ouraircraft; however, we also wet-lease and charter freighter capacity when necessary to meet our cargo customers’ needs.Pricing and Revenue ManagementCopa 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 alsomaintains revenue management policies and procedures that are intended to maximize total revenues, while remaining generally competitive withthose 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 passengerwould be willing to pay a premium. This represents strong value to Copa’s business customers, who need more flexibility with their flight plans. Thenumber 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 atdestinations 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 onthe characteristics of the markets served, to arrive at a strategy for achieving the best possible revenue per available seat mile, balancing the averagefare charged against the corresponding effect on our load factors.Relationship with UALIt is common practice in the commercial aviation industry for airlines to develop marketing and commercial alliances with other carriers in orderto 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. 26 Table of ContentsIn May 1998, Copa Airlines and Continental entered into a comprehensive alliance agreement package, encompassing a broad array of activitiessuch as Copa’s participation in Continental’s frequent flyer programs and VIP lounges; as well as agreements in other areas, such as trademarks. Theseagreements were initially signed for a period of ten years. In November 2005, Copa and Continental amended and restated these agreements andextended their term through the year 2016. In 2010, United Airlines merged with Continental Airlines, keeping the name United Airlines. In May 2016Copa and United Airlines amended and restated these agreements and extended their term through the year 2021.Copa Holdings is also a party to a supplemental agreement with CIASA and Continental entered into in connection with Continental’s May1998 offering of our shares. Pursuant to the supplemental agreement, Continental received the right to appoint a member of its senior management toour 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 previousalliance 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 existingantitrust 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 toJuly 2015 when we launched our own frequent flyer program, ConnectMiles, we adopted Continental’s OnePass (now UAL’s MileagePlus) frequentflyer program and rolled out a co-branded joint product in most of Latin America, which enabled Copa to develop brand loyalty among travelers. Theco-branding of the OnePass (now MileagePlus) loyalty program helped Copa to leverage the brand recognition that Continental already enjoyed acrossLatin America and has enabled Copa to compete more effectively against regional competitors such as Avianca and the Oneworld alliance representedby American Airlines and LATAM Airlines. We also have adopted several important information technology systems, such as the SHARES computerreservation 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 alliancerelationship with Continental, and in order to ensure Copa remained fully aligned with Continental on a number of important joint initiatives, Copaalso 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 withextensions as they feel appropriate and to work to maintain our antitrust immunity with the DOT. In order to support the code-sharing relationship, thealliance agreement also contains provisions mandating a continued frequent flyer relationship between the airlines, setting minimum levels of qualityof service for the airlines and encouraging cooperation in marketing and other operational initiatives. Other than by expiration as described above, theagreement is also terminable by either airline in cases of, among other things, uncured material breaches of the alliance agreement, bankruptcy,termination of the services agreement for breach, termination of the frequent flyer participation agreement without entering into a successor agreement,certain competitive activities, certain changes of control of either of the parties and certain significant operational service failures.Frequent Flyer Participation Agreement. In July 2015, we elected to cease co-branding the MileagePlus frequent flyer program in Latin Americaand launched our own frequent flyer program, ConnectMiles. We have reached a scale where establishing our own direct relationship with ourcustomers 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 issimilar 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 theagreement that allow us to more closely align our overall product with our strategic alliance partner. The trademark license agreement is coterminouswith 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 themarks 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. 27 Table of ContentsJoint Business AgreementCopa Airlines recently announced it has reached an agreement with UAL and Avianca for a JBA that, pending government approval, is expectedto provide substantial benefits for customers, communities and the marketplace for air travel between the United States and 19 countries in Central andSouth America.By integrating their complementary route networks into a collaborative revenue-sharing JBA, Copa, United and Avianca will offer customersmany benefits, including: • Integrated, seamless service in more than 12,000 city pairs. • New nonstop routes. • Additional flights on existing routes, and • Reduced travel times.The carriers expect the agreement to drive significant traffic growth at major gateway cities throughout Latin America, which the carriers believeshould help bring new investment and create more economic development opportunities for their communities. Further, the carriers anticipate the JBAwill provide customers with expanded codeshare flight options, competitive fares and a more streamlined travel experience.Additionally, allowing the three carriers to serve customers as if they were a single airline is expected to enable the companies to better aligntheir frequent flyer programs, coordinate flight schedules and look to improve the overall travel experience.To enable the deep coordination required to deliver these benefits to consumers, communities and the marketplace, Copa, United and Aviancaplan to apply for regulatory approval of the agreement and an accompanying grant of antitrust immunity from the DOT and other regulatory agencies.The parties plan to fully implement the JBA after receiving the necessary government approvals.The JBA currently includes cooperation between the U.S. and Central and South America, excluding Brazil. With the recently concluded OpenSkies agreement between the US and Brazil, the carriers are exploring the possibility of adding Brazil to the JBA. Once approved, the JBA will enable deep commercial and strategic cooperation that will apply exclusively in the itineraries between LatinAmerica and the U.S. contemplated in the agreement, but each of the three airlines will remain independent companies.Sales, Marketing and DistributionSales and Distribution. Approximately 65.3% of sales during 2018 were completed through travel agents, including OTAs and other airlineswhile approximately 34.7% were direct sales via our city ticket offices, or “CTOs”, call centers, airport counters or website. In recent years, travelagents’ base commissions have decreased significantly in most markets as more efficient back-end incentive programs have been implemented toreward 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 makereservations on flights from a large number of airlines. GDSs are also used by travel agents to make hotel and car rental reservations. Copa participatesactively in all major international GDSs, including SABRE, Amadeus, Galileo and Worldspan. In return for access to these systems, Copa paystransaction 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 inPanama 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 as24-hour-a-day, 7-days-a-week service, in three different languages.Advertising and Promotional Activities. 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. Although the majority of our efforts are currently focused ondigital channels, our advertising and promotional activities also include the use of television, print, radio and billboards, as well as targeted publicrelation events in the cities where we fly. We believe that the corporate traveler is an important part of our business, and we particularly promote ourservice to these customers by conveying the reliability, convenience and consistency of our service and offering value-added services such asconvention and conference travel arrangements. We also promote package deals for the destinations where we fly through combined efforts withselected hotels and travel agencies. 28 Table of ContentsCompetitionWe face considerable competition throughout our route network. Overall airline industry profit margins are relatively low and industry earningsare volatile. Airlines compete in the areas of pricing, scheduling (frequency and flight times), on-time performance, frequent flyer programs and otherservices. 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, DeltaAirlines, Spirit, JetBlue, Azul, Aeromexico, Viva Air, Volaris and LATAM, among others. In order to remain competitive, we must constantly react tochanges 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 andwill continue to alter the competitive landscape in the industry by resulting in the formation of airlines and alliances with increased financialresources, 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 topassengers occupying otherwise unsold seats. Carriers use discount fares to stimulate traffic during periods of lower demand to generate cash flow andto increase market share. Any lower fares offered by one airline are often matched by competing airlines, which frequently results in lower industryyields 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 ourroutes, 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 notprovided by the Panamanian government. The commencement of, or increase in, service on the routes we serve by existing or new carriers couldnegatively impact our operating results. Likewise, competitors’ service on routes that we are targeting for expansion may make those expansion plansless attractive. We must constantly react to changes in prices and services offered by our competitors to remain competitive.Traditional hub-and-spoke carriers in the United States and Europe have in recent years faced substantial and increasing competitive pressurefrom low-cost carriers offering discounted fares. The low-cost carriers’ operations are typically characterized by point-to-point route networks focusingon the highest demand city pairs, high aircraft utilization, single class service and fewer in-flight amenities. As evidenced by the operations ofcompetitors in South and Central American countries it is clear that low-cost carriers are gaining acceptance in the Latin American aviation industry.With respect to our cargo operations, we will continue to face competition from all of the major airfreight companies, most notably DHL, whichhas a cargo hub operation at Tocumen International Airport.AircraftAs of December 31, 2018, Copa operated a fleet consisting of 105 aircraft, including 14 Boeing 737-700 Next Generation aircraft, 68 Boeing737-800 Next Generation aircraft, four Boeing 737 MAX 9 aircraft and 19 Embraer 190 aircraft. Copa’s Boeing 737 MAX 9 aircraft have beentemporarily grounded, pending the investigation of the cause of the Ethiopian Airlines accident involving a Boeing 737 MAX 8 aircraft. As ofDecember 31, 2018, Copa had firm orders to purchase 67 Boeing 737 MAX aircraft to be delivered between 2019 and 2025. In October 2018 Copasigned a letter of intent with Azorra Aviation for the sale of up to six Embraer 190 aircraft, five of which are expected to exit the fleet in 2019. Inconnection with the transaction, Copa recognized an impairment charge in respect of its entire Embraer 190 fleet and related spare parts. 29 Table of ContentsThe current composition of the Copa fleet as of December 31, 2018 is fully described below: Number of Aircraft Remaining Average Age Seating Average Term of Lease Total Owned Leased (Years) (Years) Capacity Boeing 737 MAX 4 4 0 — 0.2 166 Boeing 737-700 14 12 2 2.3 16.6 124/142 Boeing 737-800 68 41 27 3.3 6.4 154/160 Embraer 190 19 19 0 — 11.7 94/100 Total 105 76 29 3.2 8.5 — 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 wecurrently have firm orders but not taking into account any aircraft for which we have purchase rights and options: Aircraft Type 2019 2020 2021 2022 2023 737-700(1) 14 16 14 14 14 737-800 68 65 61 56 50 737-MAX(2) 13 22 34 46 58 Embraer 190(3) 14 13 13 13 13 Total Fleet 109 116 122 129 135 (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 MAX family.(3)Include the sale of five E90 to Azorra Aviation.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.Our focus on profitable operations means that we periodically review our fleet composition. As a result, our fleet composition changes over timewhen we conclude that adding other types of aircraft will help us achieve this goal. Following our growth strategy, we placed an order for 71 Boeing737 MAX aircraft, four of which were delivered in 2018. 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 76 of our aircraft, including 19 Embraer 190s. In addition,we lease two of our Boeing 737-700s and 27 of our Boeing 737-800s under long-term operating lease agreements that have an average remaining termof 3.3 years. 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 doso. 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 ofthe lease. Currently, we do not have purchase options under any of our operating lease agreements. Under our operating lease agreements, we arerequired to make supplemental rent payments at the end of the lease that are calculated with reference to the aircraft’s maintenance schedule. In eithercase, 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 areresponsible 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 classservice features upgraded meal service, special check-in desks, bonus mileage for full-fare business class passengers and access to VIP lounges. In eachof our Boeing 737-700 aircraft, we offer 12 business class luxury seats with 38-inch pitch. Our Boeing 737-800 aircraft currently have two differentconfigurations, 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 our737-800s. In order to accommodate these luxury seats, a row from economy class was removed, decreasing the total number of seats in those aircraftfrom 160 to 154. On our Embraer 190s, we offer two different configurations, one with 12 business class seats in a four abreast configuration with40-inch pitch, and one with 10 business class seats in a three abreast configuration with 38-inch pitch. The Boeing 737 MAX 9 aircraft feature 16comfortable lie-flat seats in business class (Dreams) and a total of 166 seats. 30 Table of ContentsAlso, within the Copa Holdings fleet, there are four 737-700s dedicated to the operations of Wingo. These aircraft are equipped with 142economy 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 190aircraft is powered by two CF34-10 engines made by General Electric. Our Boeing 737 MAX 9 aircraft are powered by two CFM International Leap 1Bengines. We currently have 14 spare engines for service replacements and for periodic rotation through our fleet.MaintenanceThe maintenance performed on our aircraft can be divided into two general categories: line and heavy maintenance. Line maintenance consists ofroutine, scheduled maintenance checks on our aircraft, including pre-flight, service visits, “A-checks” and any diagnostics and routine repairs. Copa’sline 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 CopaColombia employees or third-party contractors. Heavy maintenance consists of more complex inspections and overhauls, including “C-checks”, andservicing of the aircraft that cannot be accomplished during an overnight visit. Maintenance checks are performed intermittently as determined by theaircraft manufacturer through Copa Airlines AAC approved maintenance program. These checks are based on the number of hours, departures orcalendar months flown. Historically we had contracted with certified outside maintenance providers, such as COOPESA. In October of 2010, Copadecided to begin performing a portion of the heavy maintenance work in-house. The hiring, training, facility and tooling setup, as well as enhancingcertain support shops, were completed during a ten-month period. Ultimately, Copa acquired the required certifications by the local authorities toperform 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 continuousline of C-Checks in-house for the entire year, and on January 20, 2017 we held the ground-breaking of our new maintenance facility at TocumenInternational Airport which allows us to perform up to three complete continuous lines of C-checks, as required. The new facility commencedoperations in January 2019. In 2018, 18 heavy maintenance checks were successfully performed in-house. When possible, Copa attempts to scheduleheavy maintenance during its lower-demand seasons in order to maximize productive use of its aircraft.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 traintechnicians 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 andwill be released as a mechanic into our work force. Presently, we have 95 students in the program.Copa Airlines and Copa Colombia employ, system-wide, around 500 maintenance professionals, who perform maintenance in accordance withmaintenance programs that are established by the manufacturers and approved and certified by international aviation authorities. Every mechanic istrained in factory procedures and goes through our own rigorous in-house training program. Every mechanic is licensed by the AAC and approximately34 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’ maintenancefacility at Tocumen International Airport has been certified by the FAA as an approved repair station, and once a year the FAA inspects this facility tovalidate and renew the certification. Copa’s aircraft are initially covered by warranties that have a term of four years, resulting in lower maintenanceexpenses during the period of coverage. All of Copa Airlines’ and Copa Colombia’s mechanics are trained to perform line maintenance on each of theBoeing 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 issuesInternational Organization for Standardization, or “ISO”, quality certificates. All of Copa Colombia’s maintenance personnel are licensed by theAeronáutica 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. 31 Table of ContentsSafetyWe place a high priority on providing safe and reliable air service. We are focused on continuously improving our safety performance byimplementing internationally recognized best practices such as Safety Management System, or “SMS”, Flight Data Analysis (FDA), internal andexternal 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 middlemeeting 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 properlymanaged.The SMS is supported by safety investigations and a comprehensive audit program. Investigations are initiated either by operational events oranalyses of relevant trend information, such as via our Flight Data Analysis program. These investigations are conducted by properly qualified andtrained internal safety professionals. Our audit program consists of three major components. The first serves as the aircraft maintenance qualityassurance program and is supported by six dedicated maintenance professionals. The second team consists of an internal team dedicated to conductingstandardized audits of airport, flight operations, and associated functions. The third component of our audit program is a biennial audit of alloperational components by the internationally recognized standard IOSA (IATA Operational Safety Audit). We are happy to report that in 2019 CopaAirlines and Copa Colombia successfully completed IOSA audits by external providers.Airport FacilitiesWe 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. • Tocumen is the only airport in Central America with two operational runways. Also, unlike some other regional airports, consistentmodernization and growth of our hub has kept pace with our needs. In 2012, Tocumen Airport completed Phase II of an expansionproject of the existing terminal. In 2013, Tocumen awarded the bid for the construction of a new south terminal, with an additional20 gates and eight remote positions. Currently, this second terminal is under construction and is expected to open in 2019. • Panama’s central and sea level location provides a very efficient base to operate our narrow body fleet, efficiently serving short andlong-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 policiesaccommodating in-transit passengers.Tocumen International Airport is operated by an independent corporate entity established by the government, where stakeholders have a say inthe operation and development of the airport. The law that created this entity also provided for a significant portion of revenues generated at Tocumento 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 Panamaniangovernment to ensure that we have access to the airport resources we need at prices that are reasonable.We provide most of our own ground services and handling of passengers and cargo at Tocumen International Airport. In addition, we provideservices to several of the main foreign airlines that operate at Tocumen. In most of the other airports where we operate, airport support services areprovided by external third parties.We use a variety of facilities at Tocumen, including our maintenance hangars and our operations facilities in the airport terminal. In January2019, we opened a new hangar next to our existing maintenance facility. This new hangar has an area of approximately 90,000 square feet and canaccommodate up to three narrow body aircraft simultaneously.Our Gold and higher PreferMember passengers have access to a Copa Club at the Tocumen International Airport in Panama. The capacity of thelounge is approximately 300 passengers and boasts a footprint of more than 13,000 square feet, offering, improved facilities and additional value toour passengers. 32 Table of ContentsThese passengers also have access to five other Copa Clubs in the region, which are strategically located in San José, Guatemala City, SantoDomingo, 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 135passengers 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 capacityof 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 acapacity in excess of 65 passengers and an area of almost 3,000 square feet. Additionally, the Copa Club in Medellin, located at Jose Maria CordovaInternational Airport, has an area close to 2,800 square feet and a capacity of more than 70 passengers. Lastly, our Copa Club in Bogota is located atthe Dorado International Airport. It seats 107 passengers and has an area close to 3,500 square feet.FuelFuel costs are extremely volatile, as they are subject to many global economic, geopolitical, weather, environmental and other factors that we canneither 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 increased significantly due to the strong U.S. dollar, the costs of refining jet fuel and the strength of the U.S. economy. Aircraft Fuel Data 2018 2017 2016 Average price per gallon of jet fuel into plane (excluding hedge) (in U.S. dollars) $2.32 $1.85 $1.53 Gallons consumed (in millions) 328.1 307.0 284.3 Available seat miles (in millions) 25,817 23,936 22,004 Gallons per ASM (in hundredths) 1.27 1.28 1.29 In 2018, the average price of West Texas Intermediate or “WTI” crude oil, a benchmark widely used for crude oil prices that is measured in barrelsand quoted in U.S. dollars, increased by 27.6% from $50.9 per barrel to $64.9 per barrel. In 2018, we did not hedge any of our fuel needs, and we havenot hedged any part of our fuel needs for 2019. Although we have not added hedge positions since August of 2015, we continue to evaluate varioushedging strategies and may enter into additional hedging agreements in the future, as any substantial and prolonged increase in the price of jet fuelwill likely materially and negatively affect our business, financial condition and results of operation. In the past, we have managed to offset some ofthe increases in fuel prices with higher load factors, fuel surcharges and fare increases. In addition, our relatively young, winglet-equipped fleet alsohelps 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 beforced to suspend flights until the fuel tanks can be refueled.InsuranceWe maintain passenger liability insurance in an amount consistent with industry practice, and we insure our aircraft against losses and damageson an “all risks” basis. We have obtained all insurance coverage required by the terms of our leases. We believe our insurance coverage is consistentwith 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 CopaAirlines insurance policies by leveraging the purchasing power of our alliance partner, UAL.EnvironmentalOur 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 ofaircraft and our aircraft comply with all environmental standards applicable to their operations as described in this annual report. Currently, wemaintain an Environmental Management and Adequacy Program (“PAMA”), in all our facilities, including our maintenance hangar and supportfacilities at the Tocumen International Airport, Administrative Offices in Costa del Este and Training Center in Clayton. This program was approved bythe Panamanian National Environmental Authority (“MiAmbiente”), in 2013, and includes actions such as a recycling program, better use of naturalresources and final disposition of the unfiltered water used for aircraft maintenance, among many others. Currently, the Copa Tocumen Airport’s PAMAfinal report is 33 Table of Contentspresented to MiAmbiente on an annual basis to monitor and report our environmental follow-up assessments. Copa Airlines is an active signatorycompany of the Global Compact of the United Nations with its local chapter of the Global Compact Network Panama, and have, thus, published ourCommunication on Progress (“COP”) since October 2001. This Global Compact agreement requires us to implement measures like maintaining ayoung fleet, incorporating new navigation technologies such as RNAV to reduce fuel consumption, installing latest generation winglets in our planesto reduce fuel consumption and recycling, among many others.From January to December 2018 we collected a total of 765.6 tons of recycling materials in Panama’s Copa facilities. In comparison to 2017, in2018 our recycling program was increased by more than 200%, resulting in a significant reduction of waste sent to the landfill. During the same period,we recycled vehicle oil and fuel drained from aircraft, for which we outsourced the collection of 10,120 gallons of hydrocarbons for use as alternativefuel for other industries. We also outsourced the collection of 339,550 gallons of oil and/or water from aircraft cleaning and painting operations, andalso from vehicle maintenance. The subsequent treatment of the collected water made it possible to recover 271,640 gallons of water which were thenreturned to nature. We have properly disposed of a total of 23,870 kilograms of chemical waste from Aircraft Maintenance operations. In comparison to2017, in 2018 our environmental management reduced the generation of chemical waste and optimized the use of water during our operations.RegulationPanamaAuthorizations and Certificates. Panamanian law requires airlines providing commercial services in Panama to hold an Operation Certificate andan Air Transportation License/Certificate issued by the AAC. The Air Transportation Certificate specifies the routes, equipment used, capacity, andfrequency of flights. This certificate must be updated every time Copa acquires new aircraft, or when routes and frequencies to a particular destinationare modified.Panamanian law also requires that the aircraft operated by Copa Airlines be registered with the Panamanian National Aviation Registrar kept bythe 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 haveprotected our operational position and route network, allowing us to have a significant hub in Panama to transport traffic within and between theAmericas and the Caribbean. All international fares are filed and, depending on the bilateral agreement, are technically subject to the approval of thePanamanian government. Historically, we have been able to modify ticket prices on a daily basis to respond to market conditions. Copa Airlines’ statusas 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 theroutes it currently serves, subject to bilateral agreements. We are also free to determine the frequency of service we offer across our route networkwithout 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 andinterpreted to date, is that Panamanian nationals must exercise “effective control” over the operations of the airline and must maintain “substantialownership”. These phrases are not defined in the Aviation Act itself and it is unclear how a Panamanian court would interpret them. The shareownership requirements and transfer restrictions contained in our Articles of Incorporation, as well as the structure of our capital stock described underthe caption “Description of Capital Stock”, are designed to ensure compliance with these ownership and control restrictions created by the AviationAct. While we believe that our ownership structure complies with the ownership and control restrictions of the Aviation Act as interpreted by a decreeby the Executive Branch, we cannot assure you that a Panamanian court would share our interpretation of the Aviation Act or the decree or that anysuch 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 fornegotiating 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. Suchrequirements 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 verticalanticompetitive practices and prohibits horizontal collusion. The Consumer Protection and Free Trade Authority is in charge of enforcement and mayimpose fines only after a competent court renders an adverse judgment. The law also provides for direct action by any affected market participant orconsumer, 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 to $1,000,000 for violations and $250,000for minor infractions of antitrust law. In October 2007, the antitrust legislation was amended again to include new regulations. 34 Table of ContentsColombiaEven though the Colombian aviation market continues to be regulated by the Colombian Civil Aviation Administration, Unidad EspecialAdministrativa 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 ofBolivia, Ecuador and Peru, open-skies agreements have been negotiated with Costa Rica, El Salvador, Panama and Dominican Republic. In theframework of liberalization between Colombia and Panama, any airline has the right to operate unlimited frequencies between any city pair of the twocountries. As a result, Copa offers scheduled services between eight main cities in Colombia and Panama. In November 2010, Colombia signed anopen-skies agreement with the United States, which took effect in January 2013. With respect to domestic aviation, airlines must present feasibilitystudies 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 validairworthiness certificates. While Aeronáutica Civil has historically regulated the competition on domestic routes, in December 2012 it revoked arestriction requiring a maximum number of competing airlines on each domestic route.In October 2011, Aeronáutica Civil announced its decision to liberalize air fares in Colombia starting April 1, 2012, including the elimination offuel surcharges. However, airlines are required to charge an administrative fee (tarifa administrativa) for each ticket sold on domestic routes withinColombia through an airline’s direct channels. Passengers in Colombia are also entitled by law to compensation in the event of delays in excess of fourhours, over-bookings and cancellations. Currently, the San Andrés, Bogotá, Pereira, Cali, Cartagena, Medellin, Bucaramanga, Cucuta, and Santa Martaairports, among others, are under private management arrangements. The government’s decision to privatize airport administration in order to financethe 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 certificateissued by the Aeronáutica Civil, which is automatically renewed every five years. Copa Colombia’s operation certificate was automatically renewed in2013.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 registeredunder the Colombian Laws and Regulations.Antitrust Regulations. In 2009, an antitrust law was issued by the Republic of Colombia; however, commercial aviation activities remain underthe 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 therendering of airport services. The ability to contest these charges is limited, but contractual negotiations with the concessionaries are possible.United StatesOperations 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, theFAA and the TSA exercise regulatory authority. The U.S. Department of Justice also has jurisdiction over airline competition matters under federalantitrust laws.Authorizations and Licenses. The DOT has jurisdiction over international aviation with respect to air transportation to and from the UnitedStates, including regulation of related route authorities, the granting of which are subject to review by the President of the United States. The DOTexercises its jurisdiction with respect to unfair practices and methods of competition by airlines and related consumer protection matters as to allairlines 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 Statesand beyond (via intermediate points in other countries). Copa Airlines holds the necessary authorizations from the DOT in the form of a foreign aircarrier permit, an exemption authority and statements of authorization to conduct our current operations to and from the United States. The exemptionauthority was granted by the DOT in 35 Table of ContentsFebruary 1998 and was due to expire in February 2000. However, the authority remains in effect by operation of law under the terms of theAdministrative Procedure Act pending final DOT action on the application we filed to renew the authority on January 3, 2000. There can be noassurance 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 aircraftmaintenance and operations, equipment, aircraft noise, ground facilities, dispatch, communications, personnel, training, weather observation, air trafficcontrol and other matters affecting air safety. The FAA requires each foreign air carrier serving the United States to obtain operational specificationspursuant to 14 CFR Part 129 of its regulations and to meet operational criteria associated with operating specified equipment on approvedinternational routes. We believe that we are in compliance in all material respects with all requirements necessary to maintain in good standing ouroperations specifications issued by the FAA. The FAA can amend, suspend, revoke or terminate those specifications, or can temporarily suspend orpermanently revoke our authority if we fail to comply with the regulations, and can assess civil penalties for such failure. A modification, suspension orrevocation of any of our DOT authorizations or FAA operating specifications could have a material adverse effect on our business. The FAA alsoconducts safety audits and has the power to impose fines and other sanctions for violations of airline safety regulations. We have not incurred anymaterial fines related to operations. The FAA also conducts safety International Aviation Safety Assessment, or “IASA”, as to Panama’s compliancewith ICAO safety standards. Panama is currently considered a Category 1 country that complies with ICAO international safety standards. As aCategory 1 country, no limitations are placed upon our operating rights to the Unites States. If the FAA should determine that Panama does not meetthe ICAO safety standards, the FAA and DOT would restrict our rights to expand operations to the United States.Security. On November 19, 2001, the U.S. Congress passed, and the President signed into law, the Aviation and Transportation Security Act orthe “Aviation Security Act”. This law federalized substantially all aspects of civil aviation security and created the TSA, an agency of the Departmentof Homeland Security, to which the security responsibilities previously held by the FAA were transitioned. The Aviation Security Act requires, amongother things, the implementation of certain security measures by airlines and airports, such as the requirement that all passengers, their bags and allcargo be screened for explosives and other security-related contraband. Funding for airline and airport security required under the Aviation SecurityAct 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 isconsidering increases to this fee as the TSA’s costs exceed the revenue it receives from these fees. Implementation of the requirements of the AviationSecurity Act has resulted in increased costs for airlines and their passengers. Since the events of September 11, 2001, the U.S. Congress has mandatedand 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 thesecharges is restricted by federal legislation, DOT regulations and judicial decisions. With certain exceptions, air carriers pass these charges on topassengers. However, our ability to pass through passenger facility charges to our customers is subject to various factors, including market conditionsand 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 orfour 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 InternationalAirport in New York, or “JFK”, were formerly designated by the FAA as “high density” traffic airports subject to arrival and departure slot restrictionsduring certain periods of the day. From time to time, the FAA has also issued temporary orders imposing slot restrictions at certain airports. Althoughslot restrictions at JFK were formally eliminated as of January 1, 2007, on January 15, 2008, the FAA issued an order limiting the number of scheduledflight operations at JFK during peak hours to address the over-scheduling, congestion and delays at JFK. The FAA is currently contemplating theimplementation of a long-term congestion management rule at LaGuardia Airport, JFK and Newark Liberty International Airport, which would replacethe 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 duringpeak 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 mustcomply with certain Stage 3 noise restrictions, which are currently the most stringent FAA operating noise requirements. All of our Copa aircraft meetthe Stage 3 requirement. 36 Table of ContentsOther Regulation. U.S. laws and regulations have been proposed from time to time that could significantly increase the cost of airline operationsby imposing additional requirements or restrictions on airlines. There can be no assurance that laws and regulations currently enacted or enacted in thefuture will not adversely affect our ability to maintain our current level of operating results.Other JurisdictionsWe are also subject to regulation by the aviation regulatory bodies that set standards and enforce national aviation legislation in each of thejurisdictions to which we fly. These regulators may have the power to set fares, enforce environmental and safety standards, levy fines, restrictoperations within their respective jurisdictions or any other powers associated with aviation regulation. We cannot predict how these variousregulatory 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 StructureThe following is an organizational chart showing Copa Holdings and its principal subsidiaries. *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, Southand Central America and the Caribbean. Copa Airlines Colombia is our operating subsidiary that provides air travel from Colombia to Copa AirlinesHub 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 equipmentHeadquartersOur headquarters are located six miles away from Tocumen International Airport. We have leased six floors consisting of approximately 121,686square feet of the building from Desarollo Inmobiliario Del Este, S.A., an entity controlled by the same group of investors that controls CIASA, under aten-year lease that began in January 2015 at a rate of $0.2 million per month. 37 Table of ContentsOther PropertyAt Tocumen International Airport, we lease a maintenance hangar, operations offices in the terminal, counter space, parking spaces and otheroperational properties from the entity that manages the airport. We pay approximately $164,386 per month for this leased property. Around PanamaCity, we also lease various office spaces, parking spaces and other properties from a variety of lessors, for which we pay approximately $104,949 permonth 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 forCTOs in 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 CommentsNone.Item 5. Operating and Financial Review and ProspectsA. Operating ResultsYou should read the following discussion in conjunction with our consolidated financial statements and the related notes and the otherfinancial 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 Airlinesand Copa Colombia. Copa Airlines operates from its strategically located position in the Republic of Panama, and Copa Colombia provides air travelfrom Colombia to Copa Airlines Hub of the Americas in Panama and operates a low-cost business model within Colombia and various cities in theregion.Copa currently offers approximately 363 daily scheduled flights among 80 destinations in 32 countries in North, Central, South America and theCaribbean from its Panama City hub. Copa provides passengers with access to flights to more than 200 other destinations through code-sharearrangements with our Star Alliance partners and other carriers including Air France, KLM, Iberia, Emirates, Gol, Azul, Tame, Cubana and Aeromexico.Through its Panama City hub, Copa Airlines is able to consolidate passenger traffic from multiple points to serve each destination effectively.As of December 31, 2018, Copa Airlines and Copa Colombia operate a modern fleet of 86 Boeing 737 aircraft and 19 Embraer 190 aircraft. Tomeet growing capacity requirements, we have firm orders, including purchase and lease commitments. The Company had one purchase contract withBoeing which entails 67 firm orders of Boeing 737 MAX aircraft, agreed to be delivered between 2019 and 2025.We began our strategic alliance with Continental, now UAL, in 1998. Since then, we have conducted joint marketing and code-sharingarrangements. We believe that Copa’s co-branding and joint marketing activities with UAL have enhanced our brand in Latin America, and that therelationship with UAL has afforded cost-related benefits, such as improved purchasing power in negotiations with aircraft vendors and insurers. In May2016, after mutually beneficial negotiations, we signed an updated alliance agreement with UAL that will continue to support the company’sperformance and strategic development. In addition, on November 30, 2018, we disclosed that we have entered into a three-way joint businessagreement (“JBA”) with UAL and Avianca that is intended to cover our combined network between the United States and Latin America (exceptBrazil). We, UAL and Avianca intend to apply for regulatory approval of the JBA and an accompanying grant of antitrust immunity from the DOT andother relevant agencies. However, we can provide no assurances as to whether or when the parties will receive such approvals, and we do not plan toimplement the JBA until we have received such approvals. 38 Table of ContentsFactors Affecting Our Results of OperationsFuelIn 2018, 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 27.6% from $50.9 per barrel to $64.9 per barrel. In 2018, we did not hedge any of our fuel needs. For 2019 although we have not hedgedany part of our anticipated fuel needs, we continue to evaluate various hedging strategies and may enter into additional hedging agreements in thefuture, as any substantial and prolonged increase in the price of jet fuel will likely materially and negatively affect our business, financial conditionand 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 fareincreases. In addition, our relatively young, winglet-equipped fleet also helps us mitigate the impact of higher fuel prices.Regional Economic EnvironmentOur historical financial results have been, and we expect them to continue to be, materially affected by the general level of economic activity andgrowth of per capita disposable income in North, South and Central America and the Caribbean, which have a material impact on discretionary andleisure travel (drivers of our passenger revenue) and the volume of trade between countries in the region (the principal driver of our cargo revenue). Asan example, passenger revenue totaled $2.6 billion in 2018, a 5.9% increase over passenger revenue of $2.4 billion in 2017 mainly driven by a 6.8%increase in passenger traffic compared to 2017. However, yield decreased 2.1% to 12.02 cents in 2018. This decrease was mainly driven by weakerLatin American currencies, specifically during the second half of the year.In Colombia, real GDP growth, at constant prices, was approximately 2.8% in 2018, which represented a faster growth rate than in 2017. Averageinflation of consumer prices in Colombia rose approximately 3.2% in 2017, according to the IMF.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 Venezuelanbolivars. According to data from the IMF, Venezuela’s GDP contracted by 18% in 2018. Exact data regarding inflation rates in Venezuela variessignificantly, depending on the source. In response to continued hyperinflation, the Venezuelan government introduced the Bolivar Soberano onAugust 20, 2018, replacing the Bolivar Fuerte at a rate of 1 to 100,000.Copa Airlines flights between Panama and Venezuela were cancelled during April 2018, as a result of a temporary suspension of diplomatic andcommercial relations between the two countries. For the year ended December 31, 2018, revenue from Copa Airlines’ flights to Venezuela, includingconnecting traffic, represented about 5.8% of consolidated revenues and direct flights revenue between Panama and Venezuela, excludingconnections, represented about 0.6% of consolidated revenues.According to data from The Preliminary Overview of the Economies of Latin America and the Caribbean, an annual United Nations publicationprepared by the Economic Development Division, the economy of Latin America (including the Caribbean) increased by 1.3% in 2017 and isestimated to increase by 1.2% in 2018. In recent years, the Panamanian economy has outpaced the economic growth of the United States and of LatinAmerica as a whole. According to the Comptroller General of the Republic of Panama Contraloría General de la República de Panamá, in 2018 thePanamanian economy grew by 3.7% (versus 5.4% in 2017). Headline inflation in Panama (as indicated by the consumer price index) rose by 2.0% in2018. Additionally, the Colombian economy has experienced relatively stable growth. The Colombian gross domestic product grew by 2.8% in 2018and is estimated to grow by 3.6% in 2019, while headline inflation (as indicated by the consumer price index) rose by 32% in 2018.RevenuesWe derive our revenues primarily from passenger transportation, which represented 96.6% of our revenues for the year ended December 31, 2018.In addition, 2.3% of our total revenues are derived from cargo and 1.0% from other revenues.We recognize passenger revenue from tickets when transportation is provided rather than when a ticket is sold. Passenger revenues reflect thecapacity of our aircraft on the routes we fly, load factor and yield. Our capacity is measured in terms of available seat miles, or “ASMs”, whichrepresents 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 actuallyused by paying customers, is calculated by dividing RPMs by ASMs. Yield is the 39 Table of Contentsaverage amount that one passenger pays to fly one mile. We use a combination of approaches, taking into account yields, flight load factors and effectson load factors of connecting traffic, depending on the characteristics of the markets served, to arrive at a strategy for achieving the best possiblerevenue 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 ticketssold 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, includingthe GDP of the countries we serve and the disposable income of the residents of those countries. Approximately 40% of our passengers travel at least inpart for business reasons, and the growth of intraregional trade greatly affects that portion of our business. The remaining 60% of our passengers aretourists or travelers visiting friends and family.The following table sets forth our capacity, load factor and yields for the periods indicated. 2018 2017 2016 2015 2014 Capacity (in available seat miles, in millions) 25,817 23,936 22,004 21,675 20,757 Load factor 83.4% 83.2% 80.4% 75.2% 76.7% Yield (in cents) 12.02 12.27 12.15 13.40 16.58 SeasonalityGenerally, our revenues from and the profitability of our flights peak during the northern hemisphere’s summer season in July and August andagain during the December and January holiday season. Given our high proportion of fixed costs, this seasonality is likely to cause our results ofoperations to vary from quarter to quarter.Operating ExpensesThe main components of our operating expenses are aircraft fuel, wages, salaries, benefits and other employees’ expenses, sales and distributionand 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.Fuel. The price we pay for aircraft fuel varies significantly from country to country primarily due to local taxes. While we purchase aircraft fuel atmost of the airports to which we fly, we attempt to negotiate fueling contracts with companies that have a multinational presence in order to benefitfrom volume purchases. During 2018, as a result of the location of its hub, Copa purchased 54% of its aircraft fuel in Panama. Copa has 22 suppliers ofaircraft 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. Ouraircraft fuel expenses are variable and fluctuate based on global oil prices. Aircraft Fuel Data 2018 2017 2016 Average price per gallon of jet fuel into plane (excluding hedge) (in U.S. dollars) $2.32 $1.85 $1.53 Gallons consumed (in millions) 328.1 307.0 284.3 Available seat miles (in millions) 25,817 23,936 22,004 Gallons per ASM (in hundredths) 1.27 1.28 1.29 Wages, salaries and other employees’ expenses. Salary and benefit expenses have historically increased at the rate of inflation and by the growthin 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 thecountries where these employees work. We do not increase salaries based on seniority. 40 Table of ContentsPassenger servicing. Our passenger servicing expenses consist of catering, in-flight entertainment and liability insurance among others. Theseexpenses are generally directly related to the number of passengers we carry or the number of flights we operate.Airport facilities and handling charges. Our airport facility and handling charges consist of take-off/landing charges, 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, and from payments to global distribution systems “GDS”, such as Amadeus and Sabre. Our commission expenses consistprimarily of payments for ticket sales made by travel agents and commissions paid to credit card companies. depending on the country. During the lastfew years we have reduced our commission expense per available seat mile as a result of an industry-wide trend of paying lower commissions to travelagencies and by increasing the proportion of our sales made through direct channels. We expect this trend to continue as more of our customersbecome accustomed to purchasing through our website at www.copaair.com, mobile app and call centers. While increasing direct sales may increasethe commissions we pay to credit card companies, we expect that the savings from the corresponding reduction in travel agency commissions will morethan offset this increase. In recent years, base commissions paid to travel agents have decreased significantly. At the same time, we have encouragedtravel agencies to move from standard base commissions to incentive compensation based on sales volume and fare types. In addition, the GDS orreservation systems tend to raise their rates periodically, but we expect that if we are successful in encouraging our customers to purchase ticketsthrough our direct sales channels, these costs will decrease as a percentage of our operating costs. A portion of our reservations and sales expenses isalso comprised of our licensing payments for the SHARES reservation and check-in management software we use, which is not expected to changesignificantly from period to period.Maintenance, materials and repairs. Our maintenance, materials and repairs expenses consist of aircraft repair expenses and charges related tothe line maintenance of our aircraft, including maintenance materials, and aircraft return costs. As the age of our fleet increases and our warrantiesexpire, our maintenance expenses will increase. We conduct line and heavy maintenance internally and outsource some of the heavy maintenance toindependent third-party contractors. In 2015, we restructured the original contract negotiated with GE Engine Services in 2003 for the repair andmaintenance of our CFM-56 engines which power our Boeing 737-Next Generation fleet. Our engine maintenance costs are also aided by the sea-levelelevation 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, thusputting less strain on the engines. In 2011, we negotiated a maintenance agreement with GE Engine Services for the repair and maintenance of ourCF-34 engines.Depreciation, amortization and impairment. These expenses correspond primarily to the depreciation of aircraft owned by the company, engines,maintenance components and other related flight equipment.Flight operations. These expenses are generally related to the charges that the countries which we overfly levy on our aircraft as overflightcharges. These fees are generally related to the number of flights we operate.Aircraft rentals and other rentals. Our aircraft rental expenses are generally fixed by the terms of our operating lease agreements. We currentlyhave 29 operating leases, 24 of which are operating leases with fixed rates not subject to fluctuations in interest rates; the remaining five operatingleases are tied to LIBOR. Our aircraft rent expense also includes rental payments related to any wet-leasing of freighter aircraft to supplement our cargooperations.Cargo and courier expenses. Cargo and courier expenses consist of expenses related to handling of cargo and courier and are driven by thevolume of cargo transported.Other operating and administrative expenses. Other expenses include mainly overhead expenditures and miscellaneous expenses.TaxesWe 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 notsubject 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 isthe Republic of Panama. The applicable tax rate is currently 25%. Dividends from our Panamanian subsidiaries, including Copa, are separately subjectto a 10% percent withholding tax on the portion attributable to Panamanian sourced income and a 5% withholding tax on the portion attributable toforeign 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. 41 Table of ContentsWe are also subject to local tax regulations in each of the other jurisdictions where we operate, the great majority of which are related to thetaxation 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 ofthose countries either because they do not have income taxes or due to treaties or other arrangements those countries have with Panama. In theremaining countries, we pay income tax at rates ranging from 22% to 34% of our income attributable to those countries. Different countries calculateour 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 netmargin 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 theallocation of expenses to that particular country. The methodology for multinational transportation company sourcing of revenue and expense is notalways specifically prescribed in the relevant tax regulations, and therefore is subject to interpretation by both ourselves and the respective taxauthorities. Additionally, in some countries, the applicability of certain regulations governing non-income taxes and the determination of our filingstatus 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 taxeswere to increase, our financial performance and results of operations could be materially and adversely affected. Due to the competitive revenueenvironment, many increases in fees and taxes have been absorbed by the airline industry rather than being passed on to the passenger. Any suchincreases 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. sourcetransportation income tax derived from the international operation of aircraft.Our income tax expense totaled approximately $34.5 million in 2018, $49.3 million in 2017 and $38.3 million in 2016.Critical Accounting Policies and EstimatesThe preparation of our consolidated financial statements in conformity with IFRS as issued by the IASB requires our management to adoptaccounting policies and make estimates and judgments to develop amounts reported in our consolidated financial statements and related notes. Westrive to maintain a process to review the application of our accounting policies and to evaluate the appropriateness of the estimates required for thepreparation of our consolidated financial statements. We believe that our estimates and judgments are reasonable; however, actual results and thetiming of recognition of such amounts could differ from those estimates. In addition, estimates routinely require adjustments based on changingcircumstances and the receipt of new or better information.Our critical accounting policies and estimates are described below as those that are reflective of significant judgments and uncertainties andpotentially result in materially different results under different assumptions and conditions. For a discussion of these and other accounting policies, seenotes 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 assetsacquired and liabilities assumed of the acquired subsidiary at the date of acquisition. After initial recognition, goodwill is measured at cost less anyaccumulated 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 orliabilities of the acquire are assigned to those units. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss isrecognized.The Company performed its annual impairment test in September 2018 and the recoverable amount was estimated at $5.2 billion, an amount farin 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 returncertain aircraft to their lessors in the agreed-upon condition. The methodology applied to calculate the provision requires management to makeassumptions, including the future maintenance costs, discount rate, related inflation rates and aircraft utilization. Any difference in the actualmaintenance 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. 42 Table of ContentsAccounting for Property and Equipment. Property and equipment, including rotable parts, are recorded at cost and are depreciated to estimatedresidual values over their estimated useful lives using the straight-line method.When a major maintenance inspection or overhaul cost is embedded in the initial purchase cost of an aircraft, the Company estimates thecarrying amount of the component. These initial built-in maintenance assets are depreciated over the estimated time period until the first maintenanceevent is performed. The cost of major maintenance events completed after the aircraft acquisition are capitalized and depreciated over the estimatedtime period until the next major maintenance event. The remaining value of the previously capitalized component, if any, is charged to expense uponcompletion of the subsequent maintenance event.Pre-delivery deposits refer to prepayments made based on the agreements entered into with the Boeing Company for the purchase of aircraft andinclude interest and other finance charges incurred during the manufacture of aircraft. Interest costs incurred on borrowings that fund progresspayments on assets under construction, including pre-delivery deposits to acquire new aircraft, are capitalized and included as part of the cost of theassets 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 adjustedprospectively 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 indicatepotential impairment may include, but are not limited to technological obsolescence, significant decreases in the market value of long-lived asset(s), asignificant change in physical condition or useful life of long-lived asset(s) and operating or cash flow losses associated with the use of long-livedasset(s). In 2018, we recognized a $188.6 million non-recurring impairment charge related to the Embraer fleet.Revenue recognition – Expired tickets. The Company recognizes estimated fare revenue for tickets that are expected to expire based ondeparture 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. The Company’s frequent flyer program objective, is to reward customer loyalty through the earning of miles wheneverthe program members make certain flights. The miles or points earned can be exchanged for flights on Copa or any of 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 tickets saleas revenue when the air transportation is provided and recognizes a deferred liability (Frequent flyer deferred revenue) for the portion of the ticket salerepresenting the value of the related miles as a separate performance obligation. To determine the amount of revenue to be deferred, the Companyestimates and allocates the fair value of the miles that were essentially sold along with the airfare, based on a weighted average ticket value, whichincorporates the expected redemption of miles including factors such as redemption pattern, cabin class, loyalty status and geographic region.A statistical model that estimates the percentages of points that will not be redeemed before expiration is used to estimate breakage. Thebreakage and the fair value of the miles are reviewed annually, and any adjustments are reflected on a prospective basis to passenger revenues.The Company calculates the short and long-term portion of the frequent flyer deferred revenue, using a model that includes estimates based onthe members´ redemption rates projected by management due to clients’ behavior.Currently, when a member of another carrier frequent flyer program redeems miles on Copa Airlines or Copa Colombia flights, those carriers payto 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, and isincluded in passenger revenues.In addition, the Company recognizes, in other operating revenues, the marketing component of mileage sales to co-branded card and otherpartners, in addition to other marketing related payments. 43 Table of ContentsThe Company sells miles to non-airline businesses with which it has marketing agreements. The main contracts to sell miles are related toco-branded credit card relationships with major banks in the region. The Company determined the selling prices of miles according to a method whichallocates consideration based upon the relative selling price of the deliverables. The relative selling price of the deliverables is determined based uponthe estimated standalone selling prices of each deliverable in the arrangement and is allocated between the miles sold to the passenger (as describedabove) and the marketing elements. Revenue allocated to the performance obligations, related to marketing components, is recorded in other operatingrevenue when miles are delivered.Lease accounting. The Company enters into lease contracts on some of the aircraft it operates. The Company assesses, based on the terms andconditions of the arrangements, whether or not substantially all risks and rewards of ownership of the aircraft it leases have been transferred/retained bythe 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 leasepayments. 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 ofthe liability; these are recognized as finance cost in the consolidated statement of profit or loss. Lease agreements that do not transfer the risks andbenefits to us are classified as operating leases. Operating leases are accounted as a rental and the minimum lease expense is recognized through thestraight line method.Lease accounting is critical for us because it requires an extensive analysis of the lease agreements in order to classify and measure thetransactions in our financial statements and significantly impacts our financial position and results of operations. Changes in the terms of ouroutstanding lease agreements and the terms of future lease agreements may impact the accounting for the lease transactions and our future financialposition and results of operations.Deferred taxes. Deferred taxes are recognized for tax losses, tax credits, and temporary differences between tax bases and carrying amounts forfinancial reporting purposes of our assets and liabilities. Recognition and measurement of deferred taxes is a critical accounting policy for us because itrequires a number of assumptions and is based on our best estimate of our projections related to future taxable profit. In addition, because thepreparation of our business plan is subject to a variety of market conditions, the results of our operations may vary significantly from our projectionsand as such, the amounts recorded as deferred tax assets may be impacted significantly in the future.Recently Issued Accounting PronouncementsThe standards and interpretations that are issued, but not yet effective, up to date of issuance of the Company’s financial statements are disclosedbelow. The Company intends to adopt these standards, if applicable, when they become effective. • IFRS 16, Leases • IFRS 17, Insurance Contracts • Amendment to IFRS 9, Financial instruments, on prepayment features with negative compensation • Amendment to IAS 28, Investments in Associates and Joint Ventures • Amendments to IAS 19 - Employee benefits’ on plan amendment, curtailment or settlement • Amendments to IFRS 3 - Definition of a business • Amendments to IAS 1 and IAS 8 - Definition of material • Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture • Annual Improvements Cycle 2015 - 2017For a discussion of these improvements to IFRS, see note 6 to our annual consolidated financial statements. 44 Table of ContentsResults of OperationThe 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 operatingrevenues for that period: 2018 2017 2016 Operating revenues: Passenger revenue 96.6% 96.9% 96.8% Cargo and mail revenue 2.3% 2.2% 2.4% Other operating revenue 1.0% 0.9% 0.8% Total operating revenues 100.0% 100.0% 100.0% Operating expenses: Fuel 28.6% 21.4% 23.8% Wages, salaries, benefits and other employees expenses 16.6% 16.5% 16.7% Passenger servicing 3.9% 3.9% 3.9% Airport facilities and handling charges 7.0% 6.8% 7.2% Sales and distribution 7.8% 7.9% 8.7% Maintenance, materials and repairs 4.2% 5.2% 5.5% Depreciation, amortization and impairment 13.4% 6.6% 7.6% Flight operations 4.0% 4.0% 4.0% Aircraft rentals and other rentals 4.9% 5.3% 6.3% Cargo and courier expenses 0.4% 0.3% 0.3% Other operating and administrative expenses 3.8% 3.8% 4.2% Total operating expenses 94.6% 83.2% 88.1% Operating income 5.4% 16.8% 11.9% Non-operating income (expense): Finance cost -1.3% -1.4% -1.7% Finance income 0.9% 0.7% 0.6% Gain (loss) on foreign currency fluctuations -0.4% 0.2% 0.6% Net change in fair value of derivatives 0.0% 0.1% 5.0% Other non-operating income (expense) 0.0% -0.1% -0.2% Total non-operating income (expense) -0.8% -0.4% 4.4% Income/(loss) before income taxes 0.0% 0.0% 0.0% Income taxes -4.6% -16.4% -16.3% Net profit (loss) 3.3% 14.4% 14.6% Year 2018 Compared to Year 2017Our consolidated net profit in 2018 totaled $88.1 million, a 75.8% decrease from net profit of $364.0 million in 2017. In addition, we hadconsolidated operating profit of $145.0 million in 2018, a 65.8% decrease over operating profit of $424.0 million in 2017. Our consolidated operatingmargin in 2018 was 5.4%, a decrease of 11.4 percentage points versus 2017. The 2018 results include a $188.6 million non-cash and non-recurrentimpairment charge related to the Embraer fleet.Operating revenueOur consolidated revenue totaled $2.7 billion in 2018, a 6.2% increase over operating revenue of $2.5 billion in 2017, mainly due to an increaseof 5.9% in passenger revenue. This was driven by a 6.8% increase in passenger traffic partially offset by a 2.1% decrease in passenger yield comparedto 2017.Passenger revenue. Passenger revenue totaled $2.6 billion in 2018, a 5.9% increase over passenger revenue of $2.4 billion in 2017. This wasdriven by a 6.8% increase in passenger traffic, partially offset by a decrease of 2.1% in passenger yield compared to 2017.Cargo and mail revenue. Cargo and mail revenue totaled $62.5 million in 2018, a 13.0% increase from cargo and mail revenue of $55.3 millionin 2017, driven by more capacity.Other operating revenue. Other operating revenue totaled $27.8 million in 2018, a 24.8% increase from other revenue of $22.2 million in 2017driven by an increase in revenues from services to other airlines. 45 Table of ContentsOperating expensesOur consolidated operating expenses totaled $2.5 billion in 2018, a 20.7% increase over operating expenses of $2.1 billion in 2017. Thisresulted mainly from an increase in fuel, labor, and depreciation expenses.An overview of the major variances on a consolidated basis follows:Fuel. Aircraft fuel totaled $765.8 million in 2018, an 33.7% increase from aircraft fuel of $572.7 million in 2017, mainly due to a 24.6% highereffective fuel price and a 6.0% increase in block hours.Wages, salaries and other employees’ expenses. Salaries and benefits totaled $443.3 million in 2018, a 6.8% increase over salaries and benefitsof $415.1 million in 2017, mainly driven by a headcount increase to support additional capacity and the full year effect of inflationary salaryadjustments.Passenger servicing. Passenger servicing totaled $104.3 million in 2018 compared to $99.4 million in 2017. This represented a 4.9% increasedriven by passenger traffic growth, partly offset by a lower effective rate per passenger.Airport facilities and handling charges. Airport facilities and handling charges totaled $186.4 million in 2018, a 9.0% increase over$171.0 million in 2017. This increase was driven mainly by a 4.4% departures increase and higher effective rates related to airport services andhandling charges in North America.Sales and Distribution. Sales and distribution totaled $210.2 million in 2018, a 4.9% increase compared to $200.3 million in 2017, due to 5.9%higher passenger revenue, offset by lower commission rates.Maintenance, materials and repairs. Maintenance, materials and repairs totaled $111.7 million in 2018, a 15.5% decrease over maintenance,materials and repairs of $132.1 million in 2017. This decrease was primarily a result of lower lease return expenses.Depreciation, amortization and impairment. Depreciation totaled $358.1 million in 2018, a 114.0% increase over $167.3 million in 2017,mainly due to a $188.6 million non-recurring impairment charge related to the Embraer fleet.Flight operations. Flight operations amounted to $108.4 million in 2018, a 6.7% increase compared to $101.6 million in 2017, mainly due to6.0% more block hours and higher overflight rates.Aircraft rentals and other rentals. Aircraft rental expense amounted to $132.5 million in 2018, a 1.5% decrease from $134.5 million reported in2017. This decrease was primarily a result of fewer leased aircraft, and lower lease rates.Cargo and courier expenses. Cargo and courier expenses amounted to $10.1 million in 2018, a 36.6% increase compared to $7.4 million in2017, mainly due to an increase in transported kilos.Other operating and administrative expenses. Other expenses totaled $101.8 million in 2018, a 6.0% increase from $96.1 million in 2017,mainly due to taxes and overhead expenses.Total Non-operating Income (Expense)Non-operating expense totaled $22.4 million in 2018, as compared to non-operating expense of $10.7 million in 2017 mainly due to atranslational loss in foreign exchange rates.Finance cost. Finance cost totaled $35.9 million in 2018, an 1.8% increase over finance cost of $35.2 million in 2017, as a result of a loweraverage debt balance with higher rates that were offset by lower factoring interest rate flows.Finance income. Finance income totaled $23.6 million in 2018, a 31.7% increase over finance income of $17.9 million in 2017 due to anincrease in investments and higher interest rates.Other non-operating income (expense). Other non-operating expense totaled $0.2 million in 2018, compared to $2.3 million in 2017 mainly dueto fix asset disposition. 46 Table of ContentsYear 2017 Compared to Year 2016Our consolidated net profit in 2017 totaled $364.0 million, a 12.6% increase from a net profit of $323.4 million in 2016. In addition, we hadconsolidated operating profit of $424.0 million in 2017, a 60.0% increase over operating profit of $265.0 million in 2016. Our consolidated operatingmargin in 2017 was 16.8%, an increase of 4.9 percentage points versus 2016.Operating revenueOur consolidated revenue totaled $2.5 billion in 2017, a 13.6% increase over operating revenue of $2.2 billion in 2016, due to an increase inpassenger revenue. This increase was driven by a 1.5% increase in passenger yield, and a 2.8 percentage point increase in load factor, compared to2016.Passenger revenue. Passenger revenue totaled $2.4 billion in 2017, a 13.8% increase over passenger revenue of $2.1 billion in 2016. Thisincrease 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 in2016, driven by an increase in courier services, compared to 2016.Other operating revenue. Other operating revenue totaled $22.2 million in 2017, a 33.2% increase from other operating revenue of $16.7 millionin 2016, driven by an increase in revenues from services to other airlines.Operating expensesOur consolidated operating expenses totaled $2.1 billion in 2017, a 7.3% increase over operating expenses of $2.0 billion in 2016. This resultedfrom 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, mainly due to an 8.0% higherfuel consumption.Wages, salaries and other employees’ expenses. Wages, salaries and benefits totaled $415.1 million in 2017, a 12.1% increase over salaries andbenefits of $370.2 million in 2016, mainly driven by variable compensation, full year effects on salary adjustments and headcount increases to supportadditional capacity.Passenger servicing. Passenger servicing totaled $99.4 million in 2017 compared to $86.3 million in 2016. This represented a 15.2% increasedriven mainly 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 over$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 $200.3 million in 2017, a 3.3% increase compared to $193.8 million in 2016 due to 14.3%higher passenger revenue, offset by lower commission rates.Maintenance, materials and repairs. Maintenance, materials and repairs totaled $132.1 million in 2017, an 8.5% 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% morehours flown, offset by fewer aircraft lease returns.Depreciation, amortization and impairment. Depreciation totaled $167.3 million in 2017, a 0.3% decrease over $167.9 million in 2016, mainlyas a result fewer 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 to8.1% more block hours and higher overflight rates. 47 Table of ContentsAircraft rentals and other rentals. Aircraft rentals and other rentals expenses amounted to $134.5 million in 2017, a 3.1% decrease from$138.9 million in 2016. This decrease was primarily a result of fewer leased aircraft.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 operating and administrative expenses totaled $96.1 million in 2017, a 4.2% increase from$92.2 million in 2016, mainly due to more expenses in legal fees, software and equipment.Total Non-operating Income (Expense)Non-operating expenses totaled $10.7 million in 2017, as compared to non-operating income of $96.7 million in 2016, mainly due to fewer markto 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 loweraverage 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% increase over finance income of $13.0 million in 2016, due to higherinvestments.Net Change in fair value derivatives. In 2017 the net change in fair value of derivatives decreased from $111.6 million in 2016 to $2.8 million in2017 as a result of fewer mark to market contracts.Other non-operating income (expense). Other non-operating expense totaled $2.3 million in 2017, compared to $4.0 million in 2016, mainly dueto less maintenance scrap during 2017.B. Liquidity and Capital ResourcesOur cash, cash equivalents, and short-term investments at December 31, 2018 decreased by $221.5 million, to $722.4 million. As part of ourfinancing policy, we expect to continue to finance our liquidity needs with cash from operations. We forecast our cash requirements weekly. As of thedate hereof, our current unrestricted cash exceeds our forecasted cash requirements to carry out operations, including payment of debt service for fiscalyear 2018.Our cash, cash equivalent and short-term investment position represented 27.0% of our revenues for the year ended December 31, 2018; 17.7% ofour total assets and 39.2% of our total equity as of December 31, 2018, 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, whichconsist primarily of aircraft purchases, are funded through a combination of our cash from operations and long-term financing. From time to time, wefinance pre-delivery payments related to our aircraft with short or medium-term financing in the form of commercial bank loans and/or bonds privatelyplaced with commercial banks. In our opinion, the Company’s working capital is sufficient for the Company’s present requirements.Copa Holdings, S.A., through its subsidiaries, has short term unsecured credit facilities with financial institutions in the aggregate amount of$212.3 million. These lines of credit have been put in place to finance aircraft delivery pre-delivery payments and for working capital purposes. As ofDecember 31, 2018, our outstanding borrowings under these credit lines were $140.0 million (2017: $127.8 million).Operating ActivitiesWe rely primarily on cash flows from operations to provide working capital for current and future operations. Net cash flows provided byoperating activities for the year ended December 31, 2018 were $436.8 million, a decrease of $290.6 million over the $727.3 million in 2017. Ourprincipal source of cash is receipts from ticket sales to customers, which for the year ended December 31, 2018 increased by $73.0 million over receiptsin the year 2017. 48 Table of ContentsNet cash flows provided by operating activities for the year ended December 31, 2017 were $727.3 million, an increase of $132.7 million over$594.6million in 2016. Our principal source of cash is receipts from ticket sales to customers, which for the year ended December 31, 2017 increasedby $334.4 million over receipts in the year 2016.Investing ActivitiesNet cash flow used in investing activities was $149.6 million in 2018 compared to a net cash flow used in investing activities of $578.2 millionin 2017 and net cash flow used in investing activities of $179.9 million in 2016. During 2018, we made capital expenditures of $33.7 million, whichconsisted of expenditures related to the net of acquisition of property and equipment and reimbursements of advance payments on aircraft purchasecontracts, compared to $81.1 million in 2017 and $50.9 million in 2016. In 2018, the Company used $63.7 million in acquiring investments comparedto $287.1 million in 2017 and $67.1 million from net proceeds on investments in 2016.Financing ActivitiesNet cash flow used in financing activities were $323.9 million in 2018 compared to net cash flows used in financing activities of $204.8 millionin 2017 and $248.6 million in 2016. During 2018, $225.0 million of proceeds from borrowings were offset by the repayment of $401.3 million in debtand $147.6 million in dividends paid. During 2017, $147.8 million of proceeds from financing were offset by the repayment of $246.3 million in debtand $106.8 million in dividends declared. During 2016, $164.4 million of proceeds from borrowing were offset by the repayment of $327.0 million indebt, $86.1 million in dividends paid.Over the years, we have financed the acquisition of 40 Boeing 737-Next Generation aircraft through syndicated loans provided by internationalfinancial institutions with the support of partial guarantees issued by the Export-Import Bank of the United States, or “Ex-Im”, with repayment profilesof 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 asecurity trustee on behalf of Ex-Im. The documentation for each loan follows standard market forms for this type of financing, including standardevents of default. Our Ex-Im supported financings amortize on a quarterly basis, are denominated in dollars and originally bear interest at a floatingrate linked to LIBOR. Our Ex-Im guarantee facilities typically offer an option to fix the applicable interest rate. We have exercised this option withrespect to $178.3 million as of December 31, 2018 at an average weighted interest rate of 3.15%, $119.5 million bears interest at a floating weightedaverage interest rate of 3.01% representing a spread of 20 bps over the 3 month LIBOR of December 31, 2018. At December 31, 2018, the total amountoutstanding under our Ex-Im-supported financings totaled $298 million.We have effectively extended the maturity of certain of our Boeing aircraft financing to 15 years through the use of a Stretched OverallAmortization and Repayment, or “SOAR”, structure which provides serial draw-downs calculated to result in a 100% loan accreting to a recourseballoon at the maturity of the Ex-Im guaranteed loan. The SOAR portions of our facilities require us to maintain certain financial covenants, includingan 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 morethan six times EBITDAR. Third, our cash, cash equivalents and short-term investment balance should be at least $50.0 million. We also pay acommitment fee on the unutilized portion of our SOAR loans.Since 2014, we have financed our aircraft through a mix of Japanese Operating Leases with Call Options, or “JOLCO”, and sale-leasebacks.JOLCO is a Japanese-sourced lease transaction that provides for 100% financing, and is typically used to finance new aircraft and has a minimumlease term of 10 years. In a JOLCO, the aircraft is purchased by a Japanese equity investor. The Japanese equity investor funds approximately 30% ofthe acquisition cost of the aircraft and becomes the owner of the aircraft via a Special Purpose Entity. An international bank with on-shore lendingcapabilities provides the balance of the aircraft purchase price via a senior secured mortgage loan. JOLCOs have a call option, which lessees oftenexpect the lessor to exercise. Under IFRS, these transactions are accounted for as financial leases. We have financed 19 Boeing 737 Next Generationand 737 MAX aircraft since 2014 through JOLCO financing. As of December 31, 2018 JOLCO financed debt outstanding was $776.8 million.Our Embraer aircraft have all been financed via commercial loans. As of December 31, 2018 the total amount outstanding is $57.6 million.We complied with all required covenants in 2018. 49 Table of ContentsCapital resources. We finance our aircraft through long-term debt and operating lease financings. Although we expect to finance future aircraftdeliveries with a combination of similar debt arrangements and financing leases, we may not be able to secure such financing on attractive terms. Tothe extent we cannot secure financing, we may be required to modify our aircraft acquisition plans or incur higher than anticipated financing costs. Weexpect to meet our operating obligations as they become due through available cash and internally generated funds, supplemented as necessary byshort-term or medium term credit lines.As of December 31, 2018, the Company had one purchase contract with Boeing which entails 67 firm orders of Boeing 737 MAX aircraft, agreedto be delivered between 2019 and 2025. The aircraft under this contract have an approximate value of $8.8 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-termborrowing facilities and/or vendor financing for deposits required between three years and six months prior to delivery.The Company maintained letters of credit with several banks with a value of $25.9 million as of December 31, 2018 ($25.5 million as ofDecember 31, 2017). 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 $262.3 million, in which it has committed lines of credit totaling $20.0 million, including one lineof 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 atotal 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 ofcredit 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 potentialcontingencies.As of December 31, 2018, the Company has a balance of outstanding lines of credit of $140.0 million. As of December 31, 2017, the Company’sbalance from lines of credit was $127.8 million.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 haveregistered the trademarks “Copa”, “Copa Airlines” and “Wingo” with the trademark offices in Panama, the United States, and the majority of thecountries in which we operate. We license certain brands, logos and trade uniforms under the trademark license agreement with UAL related to ouralliance. 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, revenuemanagement software and our cargo management system. Under our agreements with Boeing, we also use a large amount of Boeing’s proprietaryinformation to maintain our aircraft. The loss of these software systems or technical support information from our vendors could negatively affect ourbusiness.D. Trend InformationBeginning in the middle of 2018, we have experienced a soft yield environment driven primarily by weak macro-economic factors in the region,especially in Brazil and Argentina. We expect to continue seeing weak unit revenues in the first half of 2019 driven by low yields, particularly whencompared to a very strong first quarter in 2018. By the second half of 2019 we expect the environment to stabilize or even modestly recover.We intend to continue developing initiatives to improve our operational efficiency and performance, including a continued focus onmaintaining our industry leading on-time performance and completion factor.Wingo had a successful 2018 both operationally and financially. It achieved profitability in Colombia earlier than planned, and was recognizedas the Best Budget Carrier in Latin America according to Kayak users. In 2019, Wingo will significantly increase its capacity and expects to improveboth its unit costs and profitability. During 2019, Wingo’s four 737-700 aircraft will be transitioned to Copa Airlines livery and configuration, andCopa will send five 737-800 to Wingo. The fifth Wingo aircraft will most likely be based in Panama. 50 Table of ContentsE. Off-Balance Sheet ArrangementsOur only off-balance sheet arrangements are operating leases, which are summarized in the contractual obligations table in “F. Tabular disclosureof 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 ObligationsOur non-cancelable contractual obligations at December 31, 2018 included the following: At December 31, Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years (in thousands of dollars) Aircraft and engine purchase commitments 8,878,648 1,130,899 2,754,003 3,197,842 1,795,904 Aircraft operating leases 454,825 113,233 199,949 122,334 19,309 Other operating leases 109,247 15,222 45,835 30,027 18,163 Short-term debt and long-term debt(1) 1,287,248 311,965 240,311 188,392 546,580 Total 10,729,968 1,571,319 3,240,098 3,538,595 2,379,956 (1)Includes actual interest and estimated interest for floating-rate debt based on December 31, 2018 rates.Most contract leases include renewal options. Non-aircraft related leases have renewable terms of one year, and their respective amounts includedin the table above have been estimated through 2019, but we cannot estimate amounts with respect to those leases for later years. Our leases do notinclude residual value guarantees.G. Safe harborNot applicable.Item 6. Directors, senior management and employeesA. Directors and Senior ManagementCurrently, our Board of Directors is comprised of eleven members. The number of directors elected each year varies. Messrs. Stanley Motta, JoseCastañeda Velez, Jaime Arias and Josh Connor were re-elected as directors for two-year terms at our annual shareholders’ meeting held in 2017. Messrs.Pedro Heilbron, Ricardo A. Arias, Alvaro Heilbron, Carlos A. Motta, John Gebo, Roberto Artavia and Andrew Levy were each re-elected for two-yearterms at our annual shareholders’ meeting held in 2018.The following table sets forth the name, age and position of each member of our Board of Directors as of March 31, 2019. A brief biographicaldescription of each member of our Board of Directors follows the table: Name Position AgePedro Heilbron Chief Executive Officer and Director 61Stanley Motta Chairman and Director 74Alvaro Heilbron Director 54Jaime Arias Director 85Ricardo Alberto Arias Director 80Carlos A. Motta Director 47John Gebo Director 49Jose Castañeda Velez Director 75Roberto Artavia Loria Director 60Andrew Levy Director 50Josh Connor Director 45 51 Table of ContentsMr. 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 fatherof 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.Mr. Alvaro Heilbron was elected as director of Copa Holdings in 2012. Mr. Heilbron is the brother of Mr. Pedro Heilbron, our chief executiveofficer. 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 BusinessAdministration from George Washington University, and a Post-Graduate degree in Management from INCAE Business School. Mr. Heilbron alsoserved 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. Heis a founding partner of Galindo, Arias & Lopez. Mr. Arias holds a BA from Yale University, a JD from Tulane University and completed legal studiesat the University of Paris, Sorbonne. He serves on the boards of directors of Televisora Nacional, S.A., ASSA Compañía de Seguros, S.A., EmpresaGeneral 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 ininternational relations from Georgetown University, an LL.B. from the University of Puerto Rico and an LL.M. from Yale Law School. He serves on theboards 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 iscurrently 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, CopaHoldings, Motco Inc., Latamel SLU, Cable Onda, Fundación Alberto C. Motta, and IFF Panama (Panama Film Festival) among others. He is on theinternational advisory board of the IAE Business School, Universidad Austral in Buenos Aires, Argentina, and is a member of Young PresidentsOrganization (YPO) and Entrepreneurs Organization (EO). Mr. Motta received a bachelor’s degree in marketing from Boston College and an MBA fromThunderbird (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 hiscurrent position, Mr. Gebo was United’s Senior Vice President of Financial Planning and Analysis. Mr. Gebo joined United in 2000, and has heldpositions 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 administrationfrom 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 BankCorporation 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 NationalBank. 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 ofthe Fundacion Latinoamérica Posible in Panama and Costa Rica, Board Member and visiting professor of INCAE Business School, and Director ofMarViva Foundation in Panama. Mr. Artavia Loria is also an advisor to the governments of five countries in Latin America, and a strategic advisor toPurdy Motor, S.A., the Panama Canal Authority, Coyol Free Zone and Business Park, Grupo Nación and FUNDESA, among other organizations in theregion. Mr. Artavia Loria also serves on the board of directors of the World Resources Institute and the Foundation for Management Education inCentral America, both in Washington, Compañía Cervecera de Nicaragua, OBS Americas in Costa Rica, and the IDC of Guatemala. 52 Table of ContentsMr. Andrew Levy is one of the independent directors of Copa Holdings. Previously, he served as CFO of UAL. He also served as President, ChiefOperating Officer and a member of the Board of Directors of Allegiant Travel Company. He joined Allegiant in early 2001, and during his tenure, hisexecutive responsibilities included strategy, planning, finance, commercial, people and operations. Mr. Levy became President in 2009, served asChief Financial Officer from 2007 to 2010, and was its Treasurer from 2001 through 2010. Mr. Levy started his airline career in 1994 at ValuJetAirlines, Inc. and then joined Savoy Capital, an investment, banking and advisory firm specializing in the airline industry in 1996. He holds a JurisDoctor degree from Emory University School of Law and a BA degree in Economics from Washington University in St. Louis.Mr. Josh Connor is one of the independent directors of Copa Holdings. He is the founding partner of the investment firm Connor Capital SB. Hewas a Managing Director and the Head of the Industrials Banking Group at Barclays until July 2015, and was a member of the firm’s OperatingCommittee. 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 forthe Morgan Stanley Foundation. He has a BA degree in Economics from Williams College, is on the Board of Directors of Frontier Airlines, is astrategic 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, 2019. A brief biographical descriptionof each of our executive officers follows the table. Name Position AgePedro Heilbron Chief Executive Officer and Director 61José Montero Chief Financial Officer 49Daniel Gun Senior Vice-President of Operations 51Dennis Cary Senior Vice-President of Commercial and Planning 55Vidalia de Casado Vice-President of Human Resources 62Julio Toro Vice-President of Technology 45Ahmad Zamany Vice-President of Technical Operations 61Bolívar Domínguez Vice-President of Flight Operations 44Timothy Manoles Loyalty Vice-President 59Christophe Didier Vice-President of Sales 55Christopher Amenechi Vice-President of Pricing and Revenue Management 53Eduardo Lombana Chief Executive Officer of Copa Colombia 57Mr. Pedro Heilbron has been our Chief Executive Officer since 1988. He received an MBA from George Washington University and a BA fromCollege 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 varioustechnical, 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 Aeronautical University and an MBAfrom 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 ofCommercial and Planning and Vice-President of Planning and Alliances. Prior to joining Copa in 1999, he spent five years with American Airlinesholding positions in Finance, Real Estate and Alliances. Mr. Gunn received a BA in Business & Economics from Wheaton College and an MBA fromthe 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. Caryheld Senior Vice-President position in various industries, including aviation. Mr. Cary served as Senior Vice-President, Chief Marketing and CustomerOfficer at United Airlines, and several other top management positions in United Airlines and American Airlines. Mr. Cary graduated from CaliforniaState University, Northridge with a bachelor’s degree in Computer Sciences and holds an MBA from Duke University.Ms. Vidalia de Casado has been our Vice-President of Human Resources since January 2016. Prior to this, she was our Vice-President ofOn-Board Services. She joined Copa in 1989, serving as Passenger Services Manager from 1989 to 1995 and Vice-President of Passenger Services from1995 to 2010. Prior to joining Copa, she spent seven years as Human Resource and Service Director with Air Panama Internacional, S.A. Ms. de Casadoreceived a BS in Business from Universidad Latina and an MBA from the University of Louisville. 53 Table of ContentsMr. Julio Toro has been our Vice-President of Technology since October 2015. He joined Copa in May 2011 as Director of the ProjectManagement 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 MBAjointly issued by New York University Stern School of Business, London School of Economics and Political Science, and HEC Paris School ofManagement.Mr. Ahmad Zamany joined Copa Airlines in August of 2010 as Vice-President of Technical Operations, ultimately responsible for themaintenance, engineering and technical purchasing of the Company. Mr. Zamany started his aviation career with Pan Am and has held several keyroles with other carriers. He was previously with Atlas Air & Polar Air Cargo as Vice President of Technical Operations, and Gemini Air Cargo as SeniorVice President and Chief Operating Officer. Mr. Zamany graduated from Parks College of Saint Louis University with a bachelor’s degree inAeronautics 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 Airlinesin 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 Headof Training on the Embraer fleet, Director of System Operations Control Center (SOCC), and most recently Chief Pilot. Bolivar holds an AirlineTransport Pilot License, with Type Ratings on the Boeing 727, Embraer 190, and Boeing 737, and received a BS in Industrial Engineering fromUniversidad 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 forThe Lacek Group, a specialty loyalty marketing agency of Ogilvy and Mather. He has over 30 years of experience in loyalty marketing having ledengagements 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. Christophe Didier has been our Vice-President of Sales since September 2016. Prior to joining Copa Airlines, Mr. Didier held several salesand marketing positions in the airline industry since 1990, including Air France, Delta Air Lines and Etihad Airways, based in Europe and theAmericas. He served as Delta’s Vice-President for Latin America and the Caribbean during Delta’s significant expansion in the region, merger withNorthwest Airlines and Transatlantic joint venture implementation with Air France / KLM. Mr. Didier, a French and Brazilian National, holds a Masterin 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 Presidentof E-Commerce and Merchandising at United Airlines where he held several top management positions over a 20-year career. Mr. Amenechi graduatedfrom Embry Riddle Aeronautical University, Daytona Beach with a bachelor’s degree in Aeronautical Engineering and a Masters in AviationManagement.Mr. Eduardo Lombana joined the Company in May 2005 as Chief Operating Officer and was appointed as Chief Executive Officer of CopaColombia as of February 2012. He served three years at Avianca as Vice-President of Network, responsible for revenue management, network planningand revenue accounting during the company’s bankruptcy turn over. Prior to that, he served as VicePresident of Flight Operations for ACES before itmerged with Avianca. Mr. Lombana holds a BS in Aviation Technology and an AS in Aviation Maintenance Technology from Embry RiddleAeronautical University.The business address for all of our senior management is c/o Copa Airlines, Avenida Principal y Avenida de la Rotonda, Urbanización Costa delEste, Complejo Business Park, Torre Norte, Parque Lefevre Panama City, Panama.B. CompensationIn 2018, we paid an aggregate of approximately $6.1million in cash compensation to our executive officers. In addition, members of committeesof the Board of Directors receive additional compensation per committee meeting. All of the members of our Board of Directors and their spousesreceive benefits to travel on Copa flights as well. 54 Table of ContentsIncentive Compensation ProgramIn 2005, the Compensation Committee of our Board of Directors eliminated the then-existing Long Term Retention Plan and approved aone-time non-vested stock bonus award program for certain executive officers or the “Stock Incentive Plan”. Non-vested stock delivered under theStock Incentive Plan may be sourced from treasury stock or authorized un-issued shares. In accordance with this program, the CompensationCommittee of our Board of Directors had granted restricted stock awards to our senior management and to certain named executive officers and keyemployees. Normally, these shares vest over three to five years in yearly installments equal to one-third of the awarded stock on each anniversary of thegrant date, 100% of the awarded stock at the third anniversary of the grant date or in yearly installments equal to 15% of the awarded stock on each ofthe first three anniversaries of the grant date, 25% on the fourth anniversary and 30% on the fifth anniversary.The following table shows shares granted 2018 2017 2016Shares 43,355 36,229 291,872Fair value 135.81 $107.29 $59.94 to $63.3Contractual life 3 to 5 years 3 years 3 to 5 yearsThe Compensation Committee plans to make additional equity-based awards under the plan from time to time, including additional non-vestedstock and stock option awards. While the Compensation Committee will retain discretion to vary the exact terms of future awards, we anticipate thatfuture employee non-vested stock and stock option awards granted pursuant to the plan will generally vest over a three-year period and the stockoptions will carry a ten-year term.The total compensation cost recognized for non-vested stock and options awards amounts to $7.1 million, $7.4 million, and $7.5 million in2018, 2017, and 2016, respectively, and was recorded as a component of “Wages, salaries, benefits and other employees’ expenses” within operatingexpenses.During the first quarter of 2019, the Compensation Committee of the Company’s Board of Directors approved three awards. Awards under theseplans will grant approximately 30,412 shares of non-vested stock, which will vest over a period of three years. The Company estimates the fair value ofthese awards to be approximately $2.7 million and the 2019 compensation cost for these plans will be $1.4 million.Please also see “Item 6D. Employees” for a description of the bonus plan implemented by the Company.C. Board PracticesOur Board of Directors currently meets quarterly. Additionally, informal meetings with UAL are held on an ongoing basis, and are supported byannual formal meetings of an “Alliance Steering Committee”, which directs and reports on the progress of the Copa and UAL Alliance. Our Board ofDirectors is focused on providing our overall strategic direction and as a result is responsible for establishing our general business policies and forappointing 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. Stanley Motta, JoseCastañeda Velez, Jaime Arias and Josh Connor were re-elected as directors for two-year terms at our annual shareholders’ meeting held in 2017. Messrs.Pedro Heilbron, Ricardo A. Arias, Alvaro Heilbron, Carlos A. Motta, John Gebo, Roberto Artavia and Andrew Levy were each re-elected for two-yearterms at our annual shareholders’ meeting held in 2018.Pursuant to contractual arrangements with us and CIASA, UAL is entitled to designate one of our directors. Currently, Mr. John Gebo is theUAL-appointed director.None of our Directors has entered into any service contract with the Company or its subsidiaries. 55 Table of ContentsCommittees of the Board of DirectorsAudit Committee. The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities byreviewing: • 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, including cybersecurity and privacy risks and theCompany’s procedures and policies for assessing and managing such risks; • the effectiveness of our internal audit function, and the independent audit process including the appointment, retention, compensation, andsupervision 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 questionableaccounting or auditing matters.Messrs. Roberto Artavia, Jose Castañeda and Josh Connor, all independent non-executive directors under the applicable rules of the New YorkStock Exchange, are the current members of the committee, which is chaired by Mr. Roberto Artavia. All members are financially literate and have beendetermined 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 theevaluation of all executive officers (including the CEO), recommending the level of compensation and any associated bonus. The charter of ourCompensation Committee requires that all its members shall be non-executive directors, of which at least one member will be an independent directorunder the applicable rules of the New York Stock Exchange. Messrs. Stanley Motta, Jaime Arias and Jose Castañeda are the members of ourCompensation 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 andrecommending criteria for selecting new directors, overseeing evaluations of the Board of Directors, its members and committees of the Board ofDirectors and handling other matters that are specifically delegated to the Nominating and Corporate Governance Committee by the Board of Directorsfrom time to time. Our charter documents require that there be at least one independent member of the Nominating and Corporate GovernanceCommittee until the first shareholders’ meeting to elect directors after such time as the Class A shares are entitled to full voting rights. Messrs. RicardoArias, Carlos A. Motta, Alvaro Heilbron and Roberto Artavia are the members of our Nominating and Corporate Governance Committee, andMr. 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 anydirectors that the Board of Directors determines from time to time meet the independence requirements of the NYSE rules applicable to audit committeemembers 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 theClass B shares for purposes of determining whether the Class A shares should be converted to voting shares under our Articles ofIncorporation; and • the issuance of additional Class B shares or Class C shares to ensure Copa Airlines’ compliance with aviation laws and regulations. 56 Table of ContentsThe Independent Directors Committee shall also have any other powers expressly delegated by the Board of Directors. Under the Articles ofIncorporation, these powers can only be changed by the Board of Directors acting as a whole upon the written recommendation of the IndependentDirectors Committee. The Independent Directors Committee will only meet regularly until the first shareholders’ meeting at which the Class Ashareholders will be entitled to vote for the election of directors and afterwards at any time that Class C shares are outstanding. All decisions of theIndependent Directors Committee shall be made by a majority of the members of the committee. See “Item 10B. Memorandum and Articles ofAssociation—Description of Capital Stock”.Messrs. Josh Connor, Roberto Artavia, Jose Castañeda and Andrew Levy, all independent non-executive directors under the applicable rules ofthe New York Stock Exchange, are the current members of the committee.D. EmployeesWe 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 opencommunication 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 oursenior executives at each of our foreign stations. Our compensation strategy reinforces our determination to retain talented and highly motivatedemployees and is designed to align the interests of our employees with our shareholders through profit-sharing.Approximately 76.8% of the Company’s employees are located in Panama, while the remaining 23.2% are distributed among our foreignstations. Copa’s employees can be categorized as follows: December 31, 2018 2017 2016 Pilots 1,426 1,290 1,183 Flight attendants 2,358 2,204 2,043 Mechanics 440 512 477 Customer service agents, reservation agents, ramp and others 2,905 2,919 2,954 Management and clerical 2,321 2,120 2,076 Total employees 9,450 9,045 8,733 Our profit-sharing program reflects our belief that our employees will remain dedicated to our success if they have a stake in that success. Weidentify key performance drivers within each employee’s control as part of our annual objectives plan, or “Path to Success”. Typically, we pay bonusesin the first quarter of the year based on our performance during the preceding calendar year. For members of management, 75% of the bonus amount isbased on our performance as a whole and 25% is based on the achievement of individual goals. Bonuses for non-management employees are based onthe Company’s performance and payment is typically a multiple of the employee’s weekly salary. The bonus payments are approved by ourcompensation committee. We typically make accruals each month for the expected annual bonuses, which are reconciled to actual payments at theirdispersal 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. Inaddition, we provide recurrent customer service training to frontline staff, as well as leadership training for managers. We currently have four flightsimulators at our training facility in Panama’s City of Knowledge. In 2005, we leased a Level B flight simulator for Boeing 737-Next Generationtraining 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 FullFlight Simulator, or “FFS”, Level D. The Level D qualification is the highest certification provided by the Federal Aviation Administration (FAA) toany Flight Training Device. Another important acquisition in 2011 was the second B737 Virtual Procedure Trainer (VPT), which complements the newFFS training. In October 2012, the lease on our first B737 Next Generation simulator expired and we bought a new FFTX technology training deviceaccompanied by a new Virtual Procedure Trainer (VPT). In 2014, Copa bought a new Boeing 737-800 Full Flight Simulator (FFS-X) compliant withregulatory Qualification Level D, and two new B737-800 Cockpit Procedure Trainers (CPTs) compliant with regulatory Qualification FTD Level 4 toprovide 100% of our initial, recurrent, transition and upgrade training needs. We bought a new Boeing 737 MAX Full Flight Simulator compliant withregulatory qualification Level D to provide 100% of our training needs which is expected to be available for use in May of 2019. 57 Table of ContentsApproximately 63.2% of the Company’s 9,450 employees are unionized. Our employees currently belong to eight union organizations; fourcovering employees in Panama and four covering employees in Colombia, in addition to union organizations in other countries to which we fly. CopaAirlines has traditionally had good relations with its employees and all the unions, and expects to continue to enjoy good relations with its employeesand the unions in the future.The four unions covering employees in Panama include: the pilots’ union (UNPAC); the flight attendants’ union (SIPANAB); the mechanics’union (SITECMAP), and the industry union (SIELAS), which represents ground personnel, messengers, drivers, passenger service agents, counteragents 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 with the flight attendants’ union in third quarter of 2018. Collective bargaining agreements in Panama are typicallybetween 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 inColombia (SITRANAC), and the Mechanics Union in Colombia (ACMA).Copa entered into collective bargaining with ACDAC and ACAV in January 2018. ACDAC has not yet resolved and ACAV ended with anarbitration process and we have a new arbitration collective document for terms of two years until September 2020.Additionally, SINTRATAC and Copa entered into collective bargaining agreement in December 2017 for terms of four years until December2021. Negotiations with ACMA were resolved by arbitration on December 31, 2015, extending the validation every 6 months from this date, untilJune 30, 2018. ACMA has not presented a new bill of petition.Copa Colombia 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 allairline industry employees in the country, employees in Uruguay are covered by an industry union, and airport employees in Argentina are affiliatedwith an industry union (UPADEP).E. Share OwnershipThe 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. MajorShareholders”.For a description of stock options granted to our Board of Directors and our executive officers, see “—Compensation—Incentive CompensationProgram”.Item 7. Major Shareholders and Related Party TransactionsA. Major ShareholdersThe following table sets forth information relating to the beneficial ownership of our Class A shares as of December 31, 2018 by each personknown 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”. 58 Table of Contents Class A SharesBeneficially Owned Shares (%)(1) CIASA(2) 0 0.0% Executive officers and directors as a group (15 persons) 92,761 0.3% Others 31,164,925 99.7% Total 31,257,686 (1)Based on a total of 31,257,686 Class A shares outstanding.(2)CIASA owns 100% of the Class B shares of Copa Holdings representing 25.9% 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 itsremaining 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 iscontrolled by a group of Panamanian investors representing several prominent families in Panama. This group of investors has historically actedtogether 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 affiliatedcompanies 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 asa group, beneficially owned approximately 78% of CIASA’s shares, as of March 31, 2019. Such individual shareholders of CIASA have entered into ashareholders’ 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 andsold 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 25.9% of our capital stock. In the event CIASA seeks to reduce its ownership below 10% of our total share capital, ourindependent directors may decide to issue special voting shares solely to Panamanian nationals to maintain the ownership requirements mandated bythe Panamanian Aviation Act.The address of CIASA is Corporación de Inversiones Aéreas, S.A., c/o Copa Holdings, S.A., Boulevard Costa del Este, Avenida Principal yAvenida de la Rotonda, Urbanización Costa del Este, Complejo Business Park, Torre Oeste, 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, 2019, we had 337registered record holders of our Class A shares.B. Related Party TransactionsRegistration Rights AgreementUnder the registration rights agreement, as amended by the supplemental agreement, CIASA continues to have the right to make one demand on uswith respect to the registration and sale of our common stock held by them. The registration expenses incurred in connection with a demandregistration requested after the date hereof, which expenses exclude underwriting discounts and commissions, will be paid ratably by each securityholder 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 affiliatesOur directors and controlling shareholders have many other commercial interests within Panama and throughout Latin America. We havecommercial relationships with several of these affiliated parties from which we purchase goods or services, as described below. In each case we believeour transactions with these affiliated parties are consistent with market rates and terms. 59 Table of ContentsBanco General, S.A.We have a strong commercial banking relationship with Banco General, S.A., a Panamanian bank partially owned by our controllingshareholders. We have obtained financing from Banco General under short to medium-term financing arrangements for part of the commercial loantranche 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 $3.8 million, $3.0 million and $1.3 million in 2018, 2017, and 2016, respectively. There have notbeen any material interest payments for the last three years. There was no outstanding debt balance at December 31 2018, 2017, or 2016. Theseamounts 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 insurancecompany controlled by our controlling shareholders, to provide substantially all of our insurance. ASSA has, in turn, reinsured almost all of the risksunder those policies with insurance companies around the world. The payments to ASSA totaled $9.7 million in 2018, $8.5 million in 2017 and$7.1 million in 2016.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 onthe two-week average of the U.S. Gulf Coast Waterborne Mean index plus local taxes, certain third-party handling charges and a handling charge toPetróleos 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 acontrolling equity interest in Petróleos Delta, S.A., several of our directors are also board members of Petróleos Delta, S.A. Payments to Petróleos Deltatotaled $398.7 million in 2018, $290.2 million in 2017 and $229.9 million in 2016.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 ofapproximately 121,686 square feet of the building from Desarollo Inmobiliario Del Este, S.A., an entity controlled by the same group of investors thatcontrols CIASA. This lease was renewed in 2015 for 10 more years at a rate of approximately $0.2 million per month. Payments to DesarrolloInmobiliario Del Este, S.A. totaled $3.8 million, $3.6 million and $3.8 million in 2018, 2017 and 2016, respectively.Galindo, Arias & LopezMost 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 $0.5 million,$0.4 million and $0.3 million in 2018, 2017 and 2016, respectively.Cable Onda, S.A.The Company is responsible for providing television and internet broadcasting services in Panama. A member of the Company’s Board ofDirectors is shareholder of Cable Onda, S.A. Payments to Cable Onda, S.A. totaled $1.7 million. $1.4 million, and $1.6 million in 2018, 2017 and 2016,respectively.Panama Air Cargo TerminalProvides cargo and courier services in Panama, an entity controlled by the same group of investors that controls CIASA. Payments to Panama AirCargo Terminal totaled $5.8 million in 2018 and $4.9 million in 2017.Other TransactionsWe 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 pricesbased on price lists periodically submitted by those importers and comparisons to other options in the marketplace. We paid these entitiesapproximately $1.6 million in 2018, $1.7 million in 2017 and $1.7 million in 2016. 60 Table of ContentsC. Interests of Experts and CounselNot applicable. Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationSee “Item 3A. Key Information—Selected Financial Data” and “Item 18. Financial Statements”.Legal ProceedingsIn 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 havea material adverse effect on our financial position, results of operations and cash flows.Dividends and Dividend PolicyThe payment of dividends on our shares is subject to the discretion of our Board of Directors. Under Panamanian law, we may pay dividends onlyout 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 otherrestrictions on our ability to declare and pay dividends. Our Articles of Incorporation provide that all dividends declared by our Board of Directors willbe paid equally with respect to all of the Class A and Class B shares. See “Item 10B. Additional Information—Memorandum and Articles ofAssociation—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 to40% of the prior year’s annual consolidated underlying net income, to be distributed in equal quarterly installments subject to board ratification eachquarter. Our Board of Directors may, in its sole discretion and for any reason, amend or discontinue the dividend policy. Our Board of Directors maychange the level of dividends provided for in this dividend policy or entirely discontinue the payment of dividends. Future dividends with respect toshares of our common stock, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractualrestrictions, business opportunities, provisions of applicable law and other factors that our Board of Directors may deem relevant. Dividend for Payment Date Total Dividend Payment Cash Dividend perFiscal Year: (U.S. Dollars) Share2018 December 14, 2018 $37 million 0.872018 September 14, 2018 $37 million 0.872018 June 15, 2018 $37 million 0.872018 March 15, 2018 $37 million 0.872017 December 15, 2017 $32 million 0.752017 September 12, 2017 $32 million 0.752017 June 15, 2017 $22 million 0.512017 March 13, 2017 $22 million 0.512016 15-dic-16 $22 million 0.512016 13-sep-16 $22 million 0.512016 16-jun-16 $21 million 0.512016 16-mar-16 $21 million 0.512015 December 15, 2015 $37 million 0.842015 September 15, 2015 $37 million 0.842015 June 15, 2015 $37 million 0.842015 March 16, 2015 $37 million 0.84B. Significant ChangesNone 61 Table of ContentsItem 9. The Offer and ListingA. Offer and Listing DetailsOur Class A shares have been listed on the New York Stock Exchange, or NYSE, under the symbol “CPA” since December 14, 2005. Thefollowing table sets forth, for the periods indicated, the high and low prices for the Class A shares on the NYSE for the periods indicated. Low High 2014 Annual 87.00 162.83 2015 Annual 39.03 121.25 2016 Annual 42.61 97.00 2017 Annual 90.85 138.72 First Quarter 90.85 112.80 Second Quarter 107.90 125.78 Third Quarter 116.54 134.25 Fourth Quarter 120.22 138.72 2018 Annual 67.38 141.34 First Quarter 122.03 141.34 Second Quarter 91.75 130.94 Third Quarter 74.77 99.78 Fourth Quarter 67.38 88.15 October 67.38 85.09 November 68.50 85.27 December 72.00 88.15 2019 Annual 77.31 100.00 First Quarter 77.31 100.00 January 77.31 100.00 February 87.09 99.12 March 77.94 85.91 B. Plan of DistributionNot applicable.C. MarketsOur 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 anyexchange and are not publicly traded. We are subject to the NYSE corporate governance listing standards. The NYSE requires that corporations withshares listed on the exchange comply with certain corporate governance standards. As a foreign private issuer, we are only required to comply withcertain NYSE rules relating to audit committees and periodic certifications to the NYSE. The NYSE also requires that we provide a summary of thesignificant 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 applyto a U.S. domestic issuer under the NYSE corporate governance rules. 62 Table of ContentsD. Selling ShareholdersNot applicable.E. DilutionNot applicable.F. Expenses of the IssueNot applicable.Item 10. Additional InformationA. Share CapitalNot applicable.B. Memorandum and Articles of AssociationCopa Holdings was formed on May 6, 1998 as a corporation (sociedad anónima) duly incorporated under the laws of Panama with an indefiniteduration. The Registrant is registered under Public Document No. 3.989 of May 5, 1998 of the Notary Number Eight of the Circuit of Panama andrecorded in the Public Registry Office, Microfilm (Mercantile) Section, Microjacket 344962, Film Roll 59672, Frame 0023.Objects and PurposesCopa Holdings is principally engaged in the investment in airlines and aviation-related companies and ventures, although our Articles ofIncorporation grant us general powers to engage in any other lawful business, whether or not related to any of the specific purposes set forth in theArticles of Incorporation (See Article 2 of the Company’s Articles of Incorporation).Description of Capital StockThe following is a summary of the material terms of Copa Holding’s capital stock and a brief summary of certain significant provisions of CopaHolding’s Articles of Incorporation. This description contains all material information concerning the common stock but does not purport to becomplete. For additional information regarding the common stock, reference is made to the Articles of Incorporation, a copy of which has been filed asan exhibit to this Form 20-F.For purposes of this section only, reference to “our” or “the Company” shall refer only to Copa Holdings and references to “Panamanians” shallrefer to those entities or natural persons that are considered Panamanian nationals under the Panamanian Aviation Act, as it may be amended orinterpreted.Common StockOur authorized capital stock consists of 80 million shares of common stock without par value, divided into Class A shares, Class B shares andClass C shares. As of December 31, 2018, we had 33,816,276 Class A shares issued and 31,257,686 Class A shares outstanding; 10,938,125 Class Bshares issued and outstanding, and no Class C shares outstanding. Class A and Class B shares have the same economic rights and privileges, includingthe right to receive dividends, except as described in this section.Class A SharesThe 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; 63 Table of Contents • 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 GovernanceCommittee; 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 doso. 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 mustapprove a resolution authorizing the proposed action. For such purpose, every holder of our shares is entitled to one vote per share. See below under“—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 entitledto 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 IndependentDirectors Committee shall have determined that such additional voting rights of Class A shareholders would not cause a triggering event referred tobelow. In such event, the right of the Class A shareholders to vote on the specific matters described in the preceding paragraph will no longer beapplicable. The 10% threshold described in the first sentence of this paragraph will be calculated without giving effect to any newly issued shares soldwith 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. Atthe extraordinary shareholders’ meeting, the shareholders shall vote to elect all 11 members of the Board of Directors in a slate recommended by theNominating and Governance Committee. The terms of office of the directors that were serving prior to the extraordinary shareholders’ meeting shallterminate upon the election held at that meeting.Class B SharesEvery 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 beautomatically converted into Class A shares upon the registration of transfer of such shares to holders which are not Panamanian as described belowunder “—Restrictions on Transfer of Common Stock; Conversion of Class B Shares”.Class C SharesUpon the occurrence and during the continuance of a triggering event described below in “—Aviation Rights Protections”, the IndependentDirectors 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 Bholders 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 betransferable except to Class B holders, but will possess such voting rights as the Independent Directors Committee shall deem necessary to ensure theeffective control of the Company by Panamanians. The Class C shares will be redeemable by the Company at such time as the Independent DirectorsCommittee 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 othereconomic rights.Restrictions on Transfer of Common Stock; Conversion of Class B SharesThe 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 certifythat 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 uswritten 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 berequired 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 acertification as to Panamanian nationality and immediately after giving effect to such proposed transfer the outstanding Class B shares would representless than 10% of our outstanding stock (excluding newly issued shares sold with the approval of our Independent Directors Committee), the sellingshareholder must inform the Board of Directors at least ten days prior to such transfer. The Independent Directors Committee may determine to refuse toregister the transfer if the Committee reasonably concludes, on the basis of the advice of a reputable external aeronautical counsel, that such transferwould be reasonably likely to cause a triggering event as described below. After the first shareholders’ meeting at which the Class A shareholders areentitled to vote for the election of our directors, the role of the Independent Directors described in the preceding sentence shall be exercised by theentire Board of Directors acting as a whole. 64 Table of ContentsAlso, 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 RightsOur 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 priceper 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 thatwould, 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 theproposed 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 aprice per share equal to the price per share paid for the shares being sold by CIASA. While our Articles of Incorporation provide limited rights toholders 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 purchaserhaving 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 havethe right to participate, including the sale of interests by a party that had previously acquired Class B shares from CIASA, the sale of interests byanother 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 CIASAitself.Aviation Rights ProtectionsAs described in “Item 4. Information on the Company. Business Overview. Regulation—Panama”, the Panamanian Aviation Act, including therelated decrees and regulations, and the bilateral treaties between Panama and other countries that allow us to fly to those countries require thatPanamanians exercise “effective control” of Copa and maintain “significant ownership” of the airline. The Independent Directors Committee hascertain powers under our Articles of Incorporation to ensure that certain levels of ownership and control of Copa Holdings remain in the hands ofPanamanians 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 soldwith the approval of our Independent Directors Committee) and the Independent Directors Committee determines that it is reasonably likely thatCopa’s or Copa Holdings’ legal ability to engage in the aviation business or to exercise its international route rights will be revoked, suspended ormaterially 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: • authorize the issuance of additional Class B shares to Panamanians at a price determined by the Independent Directors to reflect thecurrent 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 Boardof Directors if applicable, deems necessary and with such other terms and conditions established by the Independent DirectorsCommittee that do not confer economic rights on the Class C shares.DividendsThe payment of dividends on our shares is subject to the discretion of our Board of Directors. Under Panamanian law, we may pay dividends onlyout of retained earnings and capital surplus. Our Articles of Incorporation provide that all dividends declared by our Board of Directors will be paidequally 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 ofequal 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 thelevel of dividends provided for in this dividend policy or entirely discontinue the payment of dividends. 65 Table of ContentsShareholder MeetingsOrdinary MeetingsOur Articles of Incorporation require us to hold an ordinary annual meeting of shareholders within the first five months of each fiscal year. Theordinary annual meeting of shareholders is the corporate body that elects the Board of Directors, approves the annual financial statements of CopaHoldings and approves any other matter that does not require an extraordinary shareholders’ meeting. Shareholders representing at least 5% of theissued and outstanding common stock entitled to vote may submit proposals to be included in such ordinary shareholders meeting, provided theproposal is submitted at least 45 days prior to the meeting.Extraordinary MeetingsExtraordinary meetings may be called by the Board of Directors when deemed appropriate. Ordinary and extraordinary meetings must be calledby the Board of Directors when requested by shareholders representing at least 5% of the issued shares entitled to vote at such meeting. Only mattersthat have been described in the notice of an extraordinary meeting may be dealt with at that extraordinary meeting.Vote requiredResolutions are passed at shareholders’ meetings by the affirmative vote of a majority of those shares entitled to vote at such meeting and presentor represented at the meeting.Notice and LocationNotice to convene the ordinary annual meeting or extraordinary meeting is given by publication in at least one national newspaper in Panamaand 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 officialnotices 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.QuorumGenerally, a quorum for a shareholders’ meeting is established by the presence, in person or by proxy, of shareholders representing a simplemajority 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 theoriginal 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.Proxy RepresentationOur 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 Ashares, grants a general proxy to the Chairman of our Board of Directors or any person designated by our Chairman to represent them and vote theirshares on their behalf at any shareholders’ meeting, provided that due notice was made of such meeting and that no specific proxy revoking orreplacing the general proxy has been received from such holder prior to the meeting in accordance with the instructions provided by the notice.Other Shareholder RightsAs a general principle, Panamanian law bars the majority of a corporation’s shareholders from imposing resolutions which violate its articles ofincorporation or the law, and grants any shareholder the right to challenge, within 30 days, any shareholders’ resolution that is illegal or that violatesits 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 andto 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 certainchanges of control. 66 Table of ContentsListingOur 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 exchangeunless 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 RegistrarThe transfer agent and registrar for our Class A shares is Computershare Inc. Until the Board of Directors otherwise provides, the transfer agent forour 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 Bshares 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 CorporationLaw and Delaware Corporation LawCopa Holdings is a Panamanian corporation (sociedad anónima). The Panamanian corporation law was originally modeled after the DelawareGeneral 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 ofdirectors, (3) provisions allowing shareholders to vote by proxy and (4) cumulative voting if provided for in the articles of incorporation. Thefollowing table highlights the most significant provisions that materially differ between Panamanian corporation law and Delaware corporation law. Panama DelawareDirectorsConflict of Interest Transactions. Transactions involving a Panamaniancorporation and an interested director or officer are initially subject to theapproval of the board of directors. Conflict of Interest Transactions. Transactions involving a Delawarecorporation and an interested director of that corporation are generallypermitted if:At the next shareholders’ meeting, shareholders will then have the right todisapprove the board of directors’ decision and to decide to take legalactions against the directors or officers who voted in favor of the transaction. (1) the material facts as to the interested director’s relationship orinterest are disclosed and a majority of disinterested directors approvethe transaction; (2) the material facts are disclosed as to the interested director’srelationship or interest and the stockholders approve the transaction;or (3) the transaction is fair to the corporation at the time it is authorizedby the board of directors, a committee of the board of directors or thestockholders.Terms. Panamanian law does not set limits on the length of the terms that adirector may serve. Staggered terms are allowed but not required. Terms. The Delaware General Corporation Law generally provides for aone-year term for directors. However, the directorships may be dividedinto up to three classes with up to three-year terms, with the years foreach class expiring in different years, if permitted by the articles ofincorporation, an initial by-law or a by-law adopted by theshareholders.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 onemember.Authority to Take Actions. In general, a simple majority of the board ofdirectors is necessary and sufficient to take any action on behalf of the boardof directors. Authority to Take Actions. The articles of incorporation or by-laws canestablish certain actions that require the approval of more than amajority of directors.Shareholder Meetings and Voting RightsQuorum. The quorum for shareholder meetings must be set by the articles ofincorporation or the by-laws. If the articles of incorporation and the noticefor a given meeting so provide, if a quorum is not met a new meeting can beimmediately called and a quorum shall consist of those present at such newmeeting. Quorum. For stock corporations, the articles of incorporation or bylawsmay specify the number to constitute a quorum but in no event shall aquorum consist of less than one-third of shares entitled to vote at ameeting. In the absence of such specifications, a majority of sharesentitled to vote shall constitute a quorum. 67 Table of ContentsPanama DelawareAction by Written Consent. Panamanian law does not permit shareholderaction without formally calling a meeting. Action by Written Consent. Unless otherwise provided in the articles ofincorporation, any action required or permitted to be taken at anyannual meeting or special meeting of stockholders of a corporationmay be taken without a meeting, without prior notice and without avote, if a consent or consents in writing, setting forth the action to beso taken, is signed by the holders of outstanding shares having not lessthan the minimum number of votes that would be necessary toauthorize or take such action at a meeting at which all shares entitledto vote thereon were present and noted.Other Shareholder RightsShareholder Proposals. Shareholders representing 5% of the issued andoutstanding capital of the corporation have the right to require a judge tocall a general shareholders’ meeting and to propose the matters for vote. Shareholder Proposals. Delaware law does not specifically grantshareholders the right to bring business before an annual or specialmeeting. If a Delaware corporation is subject to the SEC’s proxy rules,a shareholder who has continuously owned at least $2,000 in marketvalue, or 1% of the corporation’s securities entitled to vote for at leastone year, may propose a matter for a vote at an annual or specialmeeting in accordance with those rules.Appraisal Rights. Shareholders of a Panamanian corporation do not have theright to demand payment in cash of the judicially determined fair value oftheir shares in connection with a merger or consolidation involving thecorporation. Nevertheless, in a merger, the majority of shareholders couldapprove the total or partial distribution of cash, instead of shares, of thesurviving entity. Appraisal Rights. Delaware law affords shareholders in certain casesthe right to demand payment in cash of the judicially-determined fairvalue of their shares in connection with a merger or consolidationinvolving their corporation. However, no appraisal rights are availableif, among other things and subject to certain exceptions, such shareswere listed on a national securities exchange or such shares were heldof record by more than 2,000 holders.Shareholder Derivative Actions. Any shareholder, with the consent of themajority of the shareholders, can sue on behalf of the corporation, thedirectors of the corporation for a breach of their duties of care and loyalty tothe corporation or a violation of the law, the articles of incorporation or theby-laws. Shareholder Derivative Actions. Subject to certain requirements that ashareholder make prior demand on the board of directors or have anexcuse not to make such demand, a shareholder may bring a derivativeaction on behalf of the corporation to enforce the rights of thecorporation against officers, directors and third parties. An individualmay also commence a class action suit on behalf of himself and othersimilarly-situated stockholders if the requirements for maintaining aclass action under the Delaware General Corporation Law have beenmet. Subject to equitable principles, a three-year period of limitationsgenerally applies to such shareholder suits against officers anddirectors.Inspection of Corporate Records. Shareholders representing at least 5% ofthe issued and outstanding shares of the corporation have the right to requirea judge to appoint an independent auditor to examine the corporateaccounting books, the background of the Company’s incorporation or itsoperation. Inspection of Corporate Records. A shareholder may inspect or obtaincopies of a corporation’s shareholder list and its other books andrecords for any purpose reasonably related to a person’s interest as ashareholder.Anti-Takeover ProvisionsPanamanian corporations may include in their articles of incorporation orby-laws classified board and super-majority provisions. Delaware corporations may have a classified board, super-majorityvoting and shareholders’ rights plan.Panamanian corporation law’s anti-takeover provisions apply only tocompanies that are: (1) registered with the Superintendence of the Securities Market(Superintendencia del Mercado de Valores, or SMV) for a period of sixmonths before the public offering, (2) have over 3,000 shareholders, and (3) have a permanent office in Panama with full time employees andinvestments in the country for more than $1,000,000. Unless Delaware corporations specifically elect otherwise, Delawarecorporations may not enter into a “business combination”, includingmergers, sales and leases of assets, issuances of securities and similartransactions, with an “interested stockholder”, or one that beneficiallyowns 15% or more of a corporation’s voting stock, within three yearsof such person becoming an interested shareholder unless: (1) the transaction that will cause the person to become an interestedshareholder is approved by the board of directors of the target prior tothe transactions; 68 Table of ContentsPanama DelawareThese provisions are triggered when a buyer makes a public offer to acquire5% 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 accuratestatement that includes (1) the name of the Company, the number of the shares that the buyer intendsto acquire and the purchase price; (2) the identity and background of the person acquiring the shares; (3) the source and amount of the funds or other goods that will be used to paythe purchase price; (4) the plans or project the buyer has once it has acquired the control of theCompany; (5) the number of shares of the Company that the buyer already has or is abeneficiary of and those owned by any of its directors, officers, subsidiaries,or partners or the same, and any transactions made regarding the shares in thelast 60 days; (6) contracts, agreements, business relations or negotiations regardingsecurities issued by the Company in which the buyer is a party; (7) contracts, agreements, business relations or negotiations between thebuyer and any director, officer or beneficiary of the securities; and (8) any other significant information. This declaration will be accompaniedby, among other things, a copy of the buyer’s financial statements. (2) after the completion of the transaction in which the person becomesan interested shareholder, the interested shareholder holds at least 85%of the voting stock of the corporation not including shares owned bypersons who are directors and also officers of interested shareholdersand shares owned by specified employee benefit plans; or (3) after the person becomes an interested shareholder, the businesscombination is approved by the board of directors of the corporationand holders of at least 66.67% of the outstanding voting stock,excluding shares held by the interested shareholder.If the board of directors believes that the statement does not contain allrequired information or that the statement is inaccurate, the board of directorsmust send the statement to the SMV within 45 days from the buyer’s initialdelivery of the statement to the SMV. The SMV may then hold a publichearing to determine if the information is accurate and complete and if thebuyer has complied with the legal requirements. The SMV may also start aninquiry into the case, having the power to decide whether or not the offermay be made. Regardless of the above, the board of directors has the authority to submitthe offer to the consideration of the shareholders. The board should onlyconvene a shareholders’ meeting when it deems the statement delivered bythe 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 ofeach class of shares of the corporation with a right to vote must approve theoffer and the offer is to be executed within 60 days from the shareholders’approval. If the board decides not to convene the shareholders’ meetingwithin 15 days following the receipt of a complete and accurate statementfrom the offeror, shares may then be purchased. In all cases, the purchase ofshares can take place only if it is not prohibited by an administrative orjudicial order or injunction. 69 Table of ContentsPanama DelawareThe law also establishes some actions or recourses of the sellers against thebuyer in cases the offer is made in contravention of the law. Previously Acquired RightsIn no event can the vote of the majority shareholders deprive theshareholders of a corporation of previously-acquired rights. Panamanianjurisprudence and doctrine has established that the majority shareholderscannot amend the articles of incorporation and deprive minority shareholdersof previously-acquired rights nor impose upon them an agreement that iscontrary to those articles of incorporation. No comparable provisions exist under Delaware law.Once a share is issued, the shareholders become entitled to the rightsestablished in the articles of incorporation and such rights cannot be takenaway, diminished or extinguished without the express consent of theshareholders entitled to such rights. If by amending the articles ofincorporation, the rights granted to a class of shareholders is somehowaltered or modified to their disadvantage, those shareholders will need toapprove the amendment unanimously. C. Material Contracts1998 Aircraft General Terms Agreement between The Boeing Company and Copa AirlinesIn 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 andflight training programs, as well as operations engineering support. The agreement is still in effect and has been amended several times since then, mostrecently in March 2015.Purchase Agreement between Empresa Brasileira de Aeronautica, S.A. and Copa AirlinesIn 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.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. Mostmaintenance services are performed at a certain rate per engine flight hour incurred by our engines. These rates were set based on our predictedoperating parameters and will be adjusted in case of variation of those parameters. Unless terminated, the agreement with respect to the CF-34 engineswill continue through September 30, 2022 while the agreements with respect to the CFM-56 engines expire on December 31, 2021 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 ofthe 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 ofGE, trigger a cross-default of all our other contracts with GE. GE may also terminate this agreement if the number of engines covered decreases belowthe prescribed minimum. Upon early termination of the agreement for any reason, we shall pay GE for all services or work performed by GE up to thetime of such termination by means of reconciliation.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 January 2019.D. Exchange ControlsThere are currently no Panamanian restrictions on the export or import of capital, including foreign exchange controls, and no restrictions on thepayment of dividends or interest, nor are there limitations on the rights. 70 Table of ContentsE. TaxationUnited StatesThe following summary describes the material United States federal income tax consequences of the ownership and disposition of our Class Ashares as of the date hereof. The discussion set forth below is applicable to United States Holders (as defined below) that beneficially own our Class Ashares as capital assets for United States federal income tax purposes (generally, property held for investment). This summary does not represent adetailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the UnitedStates 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 stock (by vote of value); • a partnership or other pass-through entity (or investor therein) for United States federal income tax purposes; or • a person whose “functional currency” is not the United States dollar.The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings andjudicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in United States federalincome 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 theUnited States federal income tax consequences to you in light of your particular situation as well as any consequences arising under state or locallaw 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 underthe 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 havethe authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United StatesTreasury 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 activitiesof the partnership. An investor who is a partner of a partnership holding our Class A shares should consult its own tax advisor. 71 Table of ContentsTaxation of DividendsDistributions on the Class A shares (including amounts withheld to reflect Panamanian withholding taxes, if any) will be taxable as dividends tothe 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 byyou. Such dividends will not be eligible for the dividends received deduction allowed to corporations. Because we do not intend to keep earnings andprofits in accordance with United States federal income tax principles, you should expect that distributions on the Class A shares will generally betreated as dividends.With respect to non-corporate United States Holders, certain dividends received from a qualified foreign corporation may be subject to reducedrates of taxation. A foreign corporation generally is treated as a qualified foreign corporation with respect to dividends paid by that corporation onshares that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that ourClass A shares, which are listed on the NYSE, are currently readily tradable on an established securities market in the United States. There can be noassurance, however, that our Class A shares will be considered readily tradable on an established securities market at a later date. Non-corporate UnitedStates 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 treatthe dividend income as “investment income” pursuant to Section 163(d) (4) of the Code will not be eligible for the reduced rates of taxation regardlessof 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 tomake related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holdingperiod 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 creditagainst your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the Class A sharesgenerally will be treated as income from sources outside the United States and will generally constitute passive income. Further, in certaincircumstances, 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 related to the payments with respect to positions in substantially similar or related property,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 theforeign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particularcircumstances.Passive Foreign Investment CompanyWe do not believe that we were a passive foreign investment company (a “PFIC”) for United States federal income tax purposes for 2018, and weexpect to operate in such a manner so as not to become a PFIC in 2019 or the foreseeable future. If, however, we are or become a PFIC, you could besubject to additional United States federal income taxes on gain recognized with respect to the Class A shares and on certain distributions, plus aninterest charge on certain taxes treated as having been deferred under the PFIC rules. Further, non-corporate United States Holders will not be eligiblefor 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 precedingtaxable year.Taxation of Capital GainsFor 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 amountequal 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 becapital gain or loss. Capital gains of individuals derived with respect to capital assets held for more than one year generally are eligible for reducedrates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as UnitedStates source gain or loss.Information Reporting and Backup WithholdingIn general, information reporting will apply to dividends in respect of our Class A shares and the proceeds from the sale, exchange or redemptionof our Class A shares that are paid to you within the United States (and in certain cases, outside the United States), unless you establish that you are anexempt recipient such as a corporation. A backup withholding tax may apply to such payments unless you provide an accurate taxpayer identificationnumber and make any other required certification or otherwise establish an exemption.Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income taxliability provided the required information is timely furnished to the Internal Revenue Service. 72 Table of ContentsPanamaThe following is a discussion of the material Panamanian tax considerations to holders of Class A shares under Panamanian tax law, and is basedupon 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 statesmatters of Panamanian tax law or legal conclusions and subject to the qualifications herein, represents the opinion of Galindo, Arias & Lopez, ourPanamanian counsel.Taxation of DividendsDividends paid by a corporation duly licensed to do business in Panama, whether in the form of cash, stock or other property, are subject to a10% withholding tax on the portion attributable to Panamanian sourced income, and a 5% withholding tax on the portion attributable to foreignsourced income. Dividends paid by a holding company which correspond to dividends received from its subsidiaries for which the dividend tax waspreviously 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 todividends received from any of our subsidiaries for which the dividend tax was previously paid.Taxation of Capital GainsAs long as the Class A shares are registered with the SMV and are sold through an organized market, Panamanian taxes on capital gains will notapply either to Panamanians or other countries’ nationals. We have registered the Class A shares, with both the NYSE and the SMV.Other Panamanian TaxesThere are no estate, gift or other taxes imposed by the Panamanian government that would affect a holder of the Class A shares, whether suchholder were Panamanian or a national of another country.F. Dividends and Paying AgentsNot applicable.G. Statement by ExpertsNot applicable.H. Documents on DisplayWe 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 Form6-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 100F Street, N.W., Washington D.C. 20549, and copies of the materials may be obtained there at prescribed rates. The public may obtain information onthe operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. In addition, theCommission 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. Forexample, we are not required to prepare and issue quarterly reports. In 2016, the SEC approved a new rule and the NYSE published a new requirementfor 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 furnishinterim financials at least semi-annually. This new requirement will not affect us because we furnish our shareholders with annual reports containingfinancial statements audited by our independent auditors and make available to our shareholders quarterly reports containing unaudited financial datafor 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, andwe 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 fiscalyear.I. Subsidiary InformationNot applicable. 73 Table of ContentsItem 11. Quantitative and Qualitative Disclosures about Market RiskThe risks inherent in our business are the potential losses arising from adverse changes to the price of fuel, interest rates and the U.S. dollarexchange 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. The Company has not entered intonew fuel hedge contracts, and has adopted a new strategy of remaining unhedged, while regularly reviewing its policies based on market conditionsand others factors. As of December 31, 2018, the Company did not have any outstanding fuel hedge contracts. Market risk is estimated as ahypothetical 10% increase in the December 31, 2018 cost per gallon of fuel. Based on projected 2018 fuel consumption, such an increase would resultin an increase to aircraft fuel expense of approximately $58.0 million in 2019. There are no hedged contracts for 2019.Interest. Our earnings are affected by changes in interest rates due to the impact those changes have on interest expense from variable-rate debtinstruments and operating leases and on interest income generated from our cash and investment balances. If interest rates average 10% more in 2019than they did during 2018, our interest expense would increase by approximately $1.4 million and the fair value of the debt would decrease byapproximately $10.2 million. If interest rates average 10% less in 2019 than they did in 2018, our interest income from marketable securities woulddecrease by approximately $1.4 million and the fair value of our debt would increase by approximately $10.2 million. These amounts are determinedby considering the impact of the hypothetical interest rates on our variable-rate debt and marketable securities equivalent balances at December 31,2018.Foreign Currencies. The majority of our obligations are denominated in U.S. dollars. Since Panama uses the U.S. dollar as legal tender, themajority of our operating expenses are also denominated in U.S. dollars, approximately 44.7% of revenues and 55.3% of expenses are in U.S. dollars. Asignificant part of our revenue is denominated in foreign currencies, including the Brazilian real, Colombian peso, and Argentinian peso, whichrepresented 22.7%, 11.3%, and 7.2% of our revenue in 2018, respectively.On January 1, 2015, given the change in its business strategy focused on international markets, Copa Colombia concluded that the mostappropriate functional currency of the Company would be U.S. dollars. This reflects the fact that the majority of the airline’s business is influenced bypricing in international markets, with a dollar economic environment. In the same way, the major operating expenses such as fuel, leasing, airportservices and sales commissions are dollarized. Until December 31, 2014, the previous functional currency of the Company was the Colombian peso. 74 Table of ContentsThe following chart summarizes the Company’s exchange risk exposure (assets and liabilities denominated in foreign currency) at December 31,2018 and 2017: As ofDecember 31,2018 As ofDecember 31,2017 Assets Cash and cash equivalents $53,123 $25,189 Investments 2 277 Accounts receivables, net 68,171 75,769 Other assets 19,107 29,459 Total assets $140,403 $130,694 Liabilities Accounts payables suppliers and agencies $48,501 $37,186 Accumulated taxes and expenses payables 40,243 50,922 Other liabilities 20,771 25,471 Total liabilities $109,515 $113,579 Net position $30,888 $17,114 Item 12. Description of Securities Other than Equity SecuritiesNot applicable.A. Debt securitiesNot applicable.B. Warrants and rightsNot applicable.C. Other securitiesNot applicable.D. American depositary sharesNot applicable. 75 Table of ContentsPART IIItem 13. Defaults, Dividend Arrearages and DelinquenciesNone.Item 14. Material Modifications to the Rights of Security Holders and Use of ProceedsNone.Item 15. Controls and ProceduresA. Disclosure Controls and ProceduresDisclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports filed or submittedunder the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules andforms. We carried out an evaluation under the supervision of our Management, including our Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2018. There are inherent limitations to theeffectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of thecontrols and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving theircontrol objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under theExchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it isaccumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.B. Management’s Annual Report on Internal Control over Financial ReportingThe Management of Copa Holdings, S.A. or the “Company”, is responsible for establishing and maintaining effective internal control overfinancial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting isdesigned to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation ofpublished financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even thosesystems 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, 2018. In making thisassessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in InternalControl – Integrated Framework (2013).Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal controlover 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 withIFRS, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and 76 Table of Contents (iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets thatcould have a material effect on our financial statements.Based on this assessment, Management believes that, as of December 31, 2018, the Company’s internal control over financial reporting iseffective based on those criteria.C. Attestation Report of the Registered Public Accounting FirmThe effectiveness of our internal controls over financial reporting as of December 31, 2018 has been audited by Ernst &Young, the independentregistered public accounting firm who also audited the Company’s consolidated financial statements. Ernst & Young’s attestation report of theeffectiveness of the Company’s internal control over financial reporting is included herein.D. Changes in Internal Control over Financial ReportingDuring the last quarter of 2018, the Company migrated the its cargo activities into a new cargo system, and also initiated the phased implementationupgrade of the system supporting the sales and reservation program with the intention of automating internal procedures and controls, and increasingfunctionality to support operations. Our internal controls over financial reporting were adjusted to mitigate key risks regarding the quality ofinformation produced from our cargo services processes which includes our service organization reports. In preparation for the adoption of IFRS 16 inJanuary 2019, the Company designed an internal project to document, evaluate, design and implement changes to be produced thereinafter. A risk-based analysis was addressed and documented accordingly aligned with our internal control standards.In relation with the material weakness in our internal control over financial reporting in the year ended December 31, 2017 related to the Company’sflight equipment accounting treatment, we have remediated it by adjusting our policies accordingly and reflected the appropriate accounting treatmentin our 2018 consolidated financial statements. 77 Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and ShareholdersCOPA HOLDINGS, S.A. and SubsidiariesOpinion on Internal Control over Financial ReportingWe have audited Copa Holdings, S.A. and subsidiaries’ internal control over financial reporting as of December 31, 2018, based on criteria establishedin Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (theCOSO criteria). In our opinion, Copa Holdings, S.A. and subsidiaries (the Company) maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2018, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated statements of financial position of the Company as of December 31, 2018 and 2017 and the related consolidated statements of profit orloss, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2018, and the relatednotes, and our report dated April 24, 2019, expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of theeffectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We area 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 obtainreasonable 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, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards, as issued bythe 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 thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withInternational Financial Reporting Standards, as issued by the International Accounting Standards Board, 78 Table of Contentsand that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of thecompany’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.Ernst & Young Limited Corp.A member practice ofErnst & Young Global Limited/s/ Ernst & YoungPanama City, Republic of PanamaApril 24, 2019 79 Table of ContentsItem 16. ReservedItem 16A. Audit Committee Financial ExpertOur Board of Directors has determined that Messrs. Jose Castañeda, Roberto Artavia and Josh Connor qualify as an “audit committee financialexperts” as defined by current SEC rules and meet the independence requirements of the SEC and the NYSE listing standards. For a discussion of therole of our audit committee, see “Item 6C. Board Practices—Audit Committee”.Item 16B. Code of EthicsOur Board of Directors has adopted a Code of Business Conduct and Ethics applicable to our directors, officers, employees and consultants. TheCode of Business Conduct and Ethics can be found at www.copaair.com under the heading “Investor Relations—Corporate Governance”. Informationfound on this website is not incorporated by reference into this document.Item 16C. Principal Accountant Fees and ServicesThe following table sets forth by category of service the total fees for services performed by our independent registered public accounting firmErnst & Young and its affiliates during the fiscal years ended December 31, 2018, 2017 and 2016: 2018 2017 2016 Audit Fees $ 981,810 $ 1,025,000 $ 1,150,000 Audit-Related Fees — — — Tax Fees — — — All Other Fees — — — Total $981,810 $1,025,000 $1,150,000 Audit FeesAudit fees for 2018, 2017 and 2016 included the audit of our annual financial statements and internal controls, and the review of our quarterlyreports.Audit-Related FeesThere were no audit-related fees for 2018, 2017 or 2016.Tax FeesThere were no tax fees for 2018, 2017 or 2016.All Other FeesOther fees for 2018, 2017 and 2016 included amounts paid for permitted consulting services performed by Ernst & Young and pre-approved byour audit committee. There were no such fees in 2018, 2017 or 2016.Pre-Approval Policies and ProceduresOur 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 otherservices pursuant to a de minimis exception prior to the completion of an audit engagement. In 2018, none of the fees paid to Ernst & Young wereapproved pursuant to the de minimis exception. 80 Table of ContentsItem 16D. Exemptions from the Listing Standards for Audit CommitteesNoneItem 16E. Purchase of Equity Securities by the Issuer and Affiliated PurchasersThe following table provides information related to the share repurchase program executed by month: Period Total number of sharespurchased Average price paid pershare Total number of sharespurchased as part ofpublicly announcedprogram Maximum number ofshares that may be yet bepurchased under theprogram Program 2014(EOMR) December 2014 182,592 $101.84 182,592 2,274,440 January 2015 139,196 $104.13 321,788 2,084,941 February 2015 28,454 $109.65 350,242 1,951,529 ASR 2015 September 2015 500,000 850,242 December 2015 1,460,250 2,310,492 Total 2,310,492 In November 2014, the Board of Directors of the Company approved a $250 million share repurchase program. Purchases will be made from timeto 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 3months for a total amount of $100 million. On December 15, 2015, Citibank delivered 1,960,250 shares to the Company, recognized at the settlementprice of $51.01 per share.No transactions were made in 2016, 2017 or 2018.Item 16F. Changes in Registrant’s Certifying AccountantNoneItem 16G. Corporate GovernanceCompanies that are registered in Panama are required to disclose whether or not they comply with certain corporate governance guidelines andprinciples that are recommended by the Superintendence of the Securities Market (Superintendencia del Mercado de Valores, or SMV). Statementsbelow referring to Panamanian governance standards reflect these voluntary guidelines set by the SMV rather than legal requirements or standardnational practices. Our Class A shares are registered with the SMV, and we comply with the SMV’s disclosure requirements. NYSE Standards Our Corporate Governance PracticeDirector Independence.Majority of board of directors must be independent. §303A.01 Panamanian corporate governance standards recommend that one inevery five directors should be an independent director. The criteria fordetermining independence under the Panamanian corporategovernance standards differs from the NYSE rules. In Panama, adirector would be considered independent as long as the director doesnot directly or indirectly own 5% or more of the issued andoutstanding voting shares of the Company, is not involved in the dailymanagement of the Company and is not a spouse or related to thesecond degree by blood or marriage to the persons named above. 81 Table of ContentsNYSE Standards Our Corporate Governance Practice Our Articles of Incorporation require us to have three independentdirectors as defined under the NYSE rules.Executive Sessions. Non-management directors must meet regularly inexecutive sessions without management. Independent directors should meet alone in an executive session at leastonce a year. §303A.03 There are no mandatory requirements under Panamanian law that acompany should hold, and we currently do not hold, such executivesessions.Nominating/Corporate Governance Committee. Nominating/corporategovernance committee of independent directors is required. The committeemust have a charter specifying the purpose, duties and evaluation proceduresof the committee. §303A.04 Panamanian corporate governance standards recommend thatregistered companies have a nominating committee composed of threemembers of the board of directors, at least one of which should be anindependent director, plus the chief executive officer and the chieffinancial officer. In Panama, the majority of public corporations do nothave a nominating or corporate governance committee. Our Articles ofIncorporation require that we maintain a Nominating and CorporateGovernance Committee with at least one independent director untilthe first shareholders’ meeting to elect directors after such time as theClass A shares are entitled to full voting rights.Compensation Committee. Compensation committee of independentdirectors is required, which must approve or make a recommendation to theboard regarding executive officer compensation. The committee must have acharter specifying the purpose, duties and evaluation procedures of thecommittee. §303A.05 Panamanian corporate governance standards recommend that thecompensation of executives and directors be overseen by thenominating committee but do not otherwise address the need for acompensation committee. While we maintain a compensation committee that operates under acharter as described by the NYSE governance standards, currently onlyone of the members of that committee is independent.Equity Compensation Plans. Equity compensation plans require shareholderapproval, subject to limited exemptions. Under Panamanian law, shareholder approval is not required for equitycompensation plans.Code of Ethics. Corporate governance guidelines and a code of businessconduct and ethics is required, with disclosure of any waiver fordirectors orexecutive officers. §303A.10 Panamanian corporate governance standards do not require theadoption of specific guidelines as contemplated by the NYSEstandards, although they do require that companies disclosedifferences between their practices and a list of specified practicesrecommended by the SMV. We have not adopted a set of corporate governance guidelines ascontemplated by the NYSE, although we will be required to complywith the disclosure requirement of the SMV. Panamanian corporate governance standards recommend thatregistered companies adopt a code of ethics covering such topics as itsethical and moral principles, how to address conflicts of interest, theappropriate use of resources, obligations to inform of acts of corruptionand mechanism to enforce the compliance with established rules ofconduct.Item 16H. Mine Safety DisclosureNone 82 Table of ContentsPART IIIItem 17. Financial StatementsSee “Item 18. Financial Statements”Item 18. Financial StatementsSee our consolidated financial statements beginning on page F-1.Item 19. Exhibits 3.1** English translation of the Amended Articles of Incorporation (Pacto Social) of the Registrant 10.1**† Aircraft Lease Agreement, dated as of October 1, 1998, between First Security Bank – now Wells Fargo Bank Northwest, Nationalassociation—and Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, Serial No. 29047 10.1 (2008) 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. 10.2**† Letter Agreement dated as of November 6, 1998 amending Aircraft Lease Agreement, dated October 1, 1998, between First SecurityBank– now Wells Fargo Bank Northwest, National association—and Compañía Panameña de Aviación, S.A., in respect of OneBoeing Model 737-71Q Aircraft, Manufacturer’s Serial No. 29047 10.3**† Aircraft Lease Amendment Agreement dated as of May 21, 2003 to Aircraft Lease Agreement, dated October 1, 1998, betweenWells Fargo Bank Northwest and Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, SerialNo. 29047 10.4**† Aircraft Lease Agreement, dated as of October 1, 1998, between First Security Bank and Compañía Panameña de Aviación, S.A., inrespect of Boeing Model 737-71Q Aircraft, Serial No. 29048 10.5**† Letter Agreement dated as of November 6, 1998 amending Aircraft Lease Agreement, dated as of October 1, 1998, between FirstSecurity Bank and Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, Serial No. 29048 10.6**† Aircraft Lease Amendment Agreement dated as of May 21, 2003 to Aircraft Lease Agreement, dated October 1, 1998, betweenWells Fargo Bank Northwest and Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, SerialNo. 29048 10.7**† Aircraft Lease Agreement, dated as of November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña deAviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 28607 10.8**† Letter Agreement No. 1 dated as of November 18, 1998 to Aircraft Lease Agreement, dated November 18, 1998, between AviationFinancial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 28607 10.9**† Letter Agreement No. 2 dated as of March 8, 1999 to Aircraft Lease Agreement, dated November 18, 1998, between AviationFinancial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 28607 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, SerialNo. 28607 10.11**† Aircraft Lease Agreement, dated as of November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña deAviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 30049 Table of Contents 10.12**† Letter Agreement No. 1 dated as of November 18, 1998 to Aircraft Lease Agreement, dated November 18, 1998, between AviationFinancial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 30049 10.13**† Letter Agreement No. 2 dated as of March 8, 1999 to Aircraft Lease Agreement, dated November 18, 1998, between Aviation FinancialServices Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 30049 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, SerialNo. 30049 10.15**† Aircraft Lease Agreement, dated as of November 30, 2003, between International Lease Finance corporation and Compañía Panameñade Aviación, S.A., Boeing Model 737-700 or 800 Aircraft, Serial No. 30676 10.16**† Aircraft Lease Agreement, dated as of March 4, 2004, between International Lease Finance corporation and Compañía Panameña deAviación, S.A., Boeing Model 737-700 or 800 Aircraft, Serial No. 32800 10.17**† Aircraft Lease Agreement, dated as of December 23, 2004, between Wells Fargo Bank Noorthwest, N.A. and Compañía Panameña deAviación, S.A., Boeing Model 737- 800 Aircraft, Serial No. 29670 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. 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. 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. 10.21** Aircraft General Terms Agreement, dated November 25, 1998, between The Boeing Company and Copa Holdings, S.A. 10.22**† Purchase Agreement Number 2191, dated November 25, 1998, between The Boeing Company and Copa Holdings, S.A., Inc. relatingto Boeing Model 737-7V3 & 737-8V3 Aircraft 10.23**† Suplemental agreement No. 1 dated 2001 to Purchase Agreement Number 2191 between The Boeing Company and Copa Holdings,S.A. 10.24**† Supplemental Agreement No. 2 dated as of December 21, 2001 to Purchase Agreement Number 2191 between The Boeing Companyand Copa Holdings, S.A. 10.25**† Supplemental Agreement No. 3 dated as of June 14, 2002 to Purchase Agreement Number 2191 between The Boeing Company andCopa Holdings, S.A. 10.26**† Supplemental Agreement No. 4 dated as of December 20, 2002 to Purchase Agreement Number 2191 between The Boeing Companyand Copa Holdings, S.A. 10.27**† Supplemental Agreement No. 5 dated as of October 31, 2003 to Purchase Agreement Number 2191 between The Boeing Company andCopa Holdings, S.A. 10.28**† Supplemental Agreement No. 6 dated as of September 9, 2004 to Purchase Agreement Number 2191 between The Boeing Companyand Copa Holdings, S.A. 10.29**† Supplemental Agreement No. 7 dated as of December 9, 2004 to Purchase Agreement Number 2191 between The Boeing Companyand Copa Holdings, S.A. 10.30**† Supplemental Agreement No. 8 dated as of April 15, 2005 to Purchase Agreement Number 2191 between The Boeing Company andCopa Holdings, S.A. 10.31**† Maintenance Cost per Hour Engine Service Agreement, dated March 5, 2003, between G.E. Engine Services, Inc. and Copa Holdings,S.A. Table of Contents 10.32**† English translation of Aviation Fuel Supply Agreement, dated July 18, 2005, between Petróleos Delta, S.A. and CompañíaPanameña de Aviación, S.A. 10.33**† Form of Amended and Restated Alliance Agreement between Continental Airlines, Inc. and Compañía Panameña de Aviación,S.A. 10.34** Form of Amended and Restated Services Agreement between Continental Airlines, Inc. and Compañía Panameña de Aviación,S.A. 10.35** Form of Second Amended and Restated Shareholders’ Agreement among Copa Holdings, S.A., Corporación de InversionesAéreas, S.A. and Continental Airlines, Inc. 10.36** Form of Guaranteed Loan Agreement 10.37** Form of Amended and Restated Registration Rights Agreement among Copa Holdings, S.A., Corporación de InversionesAéreas, S.A. and Continental Airlines, Inc. 10.38** Form of Copa Holdings, S.A. 2005 Stock Incentive Plan 10.39** Form of Copa Holdings, S.A. Restricted Stock Award Agreement 10.40* Form of Indemnification Agreement with the Registrant’s directors 10.41** Form of Amended and Restated Trademark License Agreement between Continental Airlines, Inc. and Compañía Panameña deAviación, S.A. 10.42*† Embraer 190 Purchase Agreement COM 0028-06 dated February 2006 between Embraer—Empresa Brasileira de AeronáuticaS.A. and Copa Holdings, S.A. relating to Embraer 190LR aircraft 10.43*† Letter Agreement COM 0029-06 to the Embraer Agreement dated February 2006 between Embraer—Empresa Brasileira deAeronáutica S.A. and Copa Holdings, S.A. relating to Embraer 190LR aircraft 10.44*† Supplemental Agreement No. 9 dated as of March 16, 2006 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A. 10.44 (2006)† Supplemental Agreement No. 11 dated as of August 30, 2006 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A. 10.45*† Supplemental Agreement No. 10 dated as of May 8, 2006 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A. 10.45 (2006)† Supplemental Agreement No. 12 dated as of February 26, 2007 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A. 10.46 (2006)† Supplemental Agreement No. 13 dated as of April 23, 2007 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A. 10.47(2007)† Supplemental Agreement No. 14 dated as of August 31, 2007 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A. 10.48(2007)† Supplemental Agreement No. 15 dated as of February 21, 2008 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A. 10.49(2008)† Supplemental Agreement No. 16 dated as of June 30, 2008 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A. 10.50(2008)† Supplemental Agreement No. 17 dated as of December 15, 2008 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A. 10.51(2009)† Supplemental Agreement No. 18 dated as of July 15, 2009 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A 10.52(2009)† Supplemental Agreement No. 19 dated as of August 31, 2009 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A Table of Contents 10.53(2009)† Supplemental Agreement No. 20 dated as of November 19, 2009 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A 10.54(2010)† Supplemental Agreement No. 21 dated as of May 28, 2010 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A 10.55(2010)† Supplemental Agreement No. 22 dated as of September 24, 2010 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A 10.56(2010)† Supplemental Agreement No. 23 dated as of October, 2010 to the Boeing Purchase Agreement Number 2191 datedNovember 25, 1998 between the Boeing Company and Copa Holdings, S.A 10.57(2011)† On Pointsm Solutions Rate per Engine Flight Hour Service Agreement dated as of May 22, 2011 between GE EngineServices, LLC., Compañía Panameña de Aviación, S.A., and Lease Management Services, LLC. 10.58(2012)† On Pointsm Solutions Rate per Engine Flight Hour Service Agreement dated as of April 15, 2012 between GE EngineServices, LLC., Compañía Panameña de Aviación, S.A., and Lease Management Services, LLC. 10.62(2017) † Purchase Agreement No. PA-03774 dated June 27, 2012 between The Boeing Company and Copa Holdings S.A. relating toBoeing Model 737 MAX Aircraft. 12.1 Certification of the Chief Executive Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. 12.2 Certification of the Chief Financial Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. 13.1 Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 13.2 Certification of the Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 21.1** Subsidiaries of the Registrant101. INS XBRL Instance Document.101. SCH XBRL Taxonomy Extension Schema Document.101. CAL XBRL Taxonomy Extension Calculation Linkbase Document.101. LAB XBRL Taxonomy Extension Label Linkbase Document.101. PRE XBRL Taxonomy Extension Presentation Linkbase Document.101. DEF 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. 333-129967.2006 Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed July 2, 2007, FileNo.001-07956031.2007 Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed May 9, 2008, FileNo.001-08818238.2008 Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed May 6, 2009, FileNo. 001- 09801609.2009 Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed March 17, 2010, FileNo. 001- 10686910. Table of Contents2010 Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed May 17, 2011, asamended on December 22, 2011, File No. 001- 1112765552011 Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed April 16, 2012, FileNo. 001- 12762135.2012 Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed April 29, 2013, FileNo. 001- 13792566.2017 Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed April 18, 2017, FileNo. 001-32696† The Registrant was granted confidential treatment for portions of this exhibit. Table of ContentsSIGNATURESThe Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized theundersigned to sign this annual report on its behalf. COPA HOLDINGS, S.A.By: /s/ Pedro Heilbron Name: Pedro Heilbron Title: Chief Executive OfficerBy: /s/ Jose Montero Name: Jose Montero Title: Chief Financial OfficerDated: April 24, 2019 Table of ContentsConsolidated Financial StatementsCopa Holdings, S. A. and SubsidiariesYear ended December 31, 2018with Report of the Independent Registered Public Accounting Firm Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESContents Pages Report of the independent registered public accounting firm F-1 Consolidated statement of financial position F-2 Consolidated statement of profit or loss F-3 Consolidated statement of comprehensive income F-4 Consolidated statement of changes in equity F-5 Consolidated statement of cash flows F-6 1. Corporate information F-7 2. Basis of preparation F-8 3. Significant accounting policies F-8 (a) Basis of consolidation F-8 (b) Current versus non-current classification F-9 (c) Foreign currencies F-9 (d) Revenue recognition F-10 (e) Cash and cash equivalents F-12 (f) Financial instruments F-12 (g) Impariment no—financial assets F-17 (h) Expendable parts and supplies F-18 (i) Passenger traffic commissions F-18 (j) Property and equipment F-18 (k) Leases F-19 (l) Intangible assets F-21 (m) Taxes F-22 (n) Borrowing costs F-24 (o) Provisions F-24 (p) Employee benefits F-24 (q) Non-current assets held for sale and discontinued operations F-25 4. Significant accounting judgments, estimates and assumptions F-25 5. Changes in disclosures F-28 5.1 IFRS 15 Revenue from contracts with customers F-29 5.2 IFRS 9 Financial instruments F-33 6. New standards and interpretations not yet adopted F-34 7. Revenue from contract with customers F-39 F - i Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESContents 7.1 Revenue disaggregation F-39 7.2 Contract balances F-39 7.3 Segment reporting F-40 8. Cash and cash equivalents F-40 9. Investments F-41 10. Accounts receivable F-41 11. Expendable parts and supplies F-42 12. Prepaid expenses F-43 13. Property and equipment F-44 14. Leases F-46 15. Net pension assets F-47 16. Intangible assets F-51 17. Other assets F-53 18. Debt F-53 19. Trade, other payables and financial liabilities F-55 20. Accrued expenses payable F-55 21. Other long-term liabilities F-56 22. Income taxes F-57 23. Accounts and transactions with related parties F-59 24. Equity F-61 25. Share-based payments F-62 26. Earnings per share F-64 27. Commitments and contingencies F-65 28. Financial instruments—Risk management and fair value F-66 28.1 Fuel price risk F-66 28.2 Market risk F-67 28.3 Credit risk F-68 28.4 Interest rate and cash flow risk F-70 28.5 Liquidity risk F-70 28.6 Equity risk management F-71 28.7 Fair value measurement F-72 29. Subsequent events F-72 F - ii Table of ContentsReport of the Independent Registered Public Accounting FirmTo the Board of Directors and the Shareholders ofCopa Holdings, S.A. and subsidiariesOpinion on the Financial StatementsWe have audited the accompanying consolidated statements of financial position of Copa Holdings, S.A. and subsidiaries as of December 31, 2018 and2017, and the related consolidated statements of profit or loss, comprehensive income (loss), changes in equity and cash flows for each of the threeyears in the period ended December 31, 2018 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, 2018and 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, inconformity 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’sinternal control over financial reporting as December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 24, 2019 expressed an unqualifiedopinion thereon.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theCompany’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securitiesand 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 obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing proceduresthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluatingthe 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 Limited Corp.We have served as the Company’s auditor since 1999.Panama City, Republic of PanamaApril 24, 2019 F - 1 Table of ContentsCopa Holdings, S. A. and SubsidiariesConsolidated statement of financial positionAs of December, 31(In US$ thousands) Notes 2018 2017Restated* ASSETS Current assets Cash and cash equivalents 8 $156,158 $238,792 Investments 9 566,200 705,108 Accounts receivable 10,23 116,054 115,641 Expendable parts and supplies 11 86,530 81,825 Prepaid expenses 12 74,384 45,421 Prepaid income tax 10,357 — Other currents assets 13,17 54,386 11,701 1,064,069 1,198,488 Non-current assets Investments 9 138,846 65,953 Accounts receivable 10 1,177 2,444 Prepaid expenses 12 25,637 26,130 Property and equipment 13 2,701,322 2,617,407 Net pension asset 15 5,091 3,185 Intangible assets 16 101,168 81,115 Deferred tax assets 22 16,041 19,099 Other non-current assets 17 33,899 31,140 3,023,181 2,846,473 Total assets $4,087,250 $4,044,961 LIABILITIES AND EQUITY Current liabilities Current maturities of long-term debt 18 $311,965 $298,462 Trade, other payables and financial liabilities 19,23 141,030 130,590 Air traffic liability 7.2 471,676 477,168 Frequent flyer deferred revenue 7.2 30,342 17,197 Taxes and interest payable 44,749 70,077 Accrued expenses payable 20 47,390 60,321 Income tax payable — 3,700 1,047,152 1,057,515 Non-current liabilities Long-term debt 18 975,283 876,119 Frequent flyer deferred revenue 7.2 37,472 33,115 Other long-term liabilities 21 137,724 130,621 Deferred tax liabilities 22 48,940 52,465 1,199,419 1,092,320 Total liabilities 2,246,571 2,149,835 Equity 24 Issued capital Class A common stock -33,816,276 (2017 -33,776,480) shares issued, 31,257,686 (2017 - 31,185,641)outstanding 21,087 21,038 Class B common stock - 10,938,125 (2017 - 10,938,125) shares issued and outstanding, no parvalue 7,466 7,466 Additional paid in capital 80,041 72,945 Treasury stock (136,388) (136,388) Retained earnings 1,872,700 1,933,953 Accumulated other comprehensive loss (4,227) (3,888) Total equity 1,840,679 1,895,126 Commitments and contingencies 27 — — Total liabilities and equity $4,087,250 $ 4,044,961 *See in note 5.1The accompanying notes are an integral part of these consolidated financial statements. F - 2 Table of ContentsCopa Holdings, S. A. and SubsidiariesConsolidated statement of profit or lossFor the year ended December, 31(In US$ thousands) Notes 2018 2017Restated* 2016Restated* Operating revenue Passenger revenue $2,587,389 $2,444,251 $2,148,501 Cargo and mail revenue 62,483 55,290 53,989 Other operating revenue 27,755 22,245 16,696 7 2,677,627 2,521,786 2,219,186 Operating expenses Fuel 765,781 572,746 528,996 Wages, salaries, benefits and other employees’ expenses 443,287 415,147 370,190 Passenger servicing 104,346 99,447 86,329 Airport facilities and handling charges 186,422 171,040 159,771 Sales and distribution 210,158 200,256 193,837 Maintenance, materials and repairs 111,677 132,148 121,781 Depreciation and amortization 13,16 169,436 167,324 167,894 Impairment of non financial assets 13 188,624 — — Flight operations 108,437 101,647 88,188 Aircraft rentals and other rentals 132,534 134,539 138,885 Cargo and courier expenses 10,075 7,375 6,099 Other operating and administrative expenses 101,812 96,087 92,215 2,532,589 2,097,756 1,954,185 Operating profit 145,038 424,030 265,001 Non-operating (expense) income Finance cost 18 (35,850) (35,223) (37,024) Finance income 18 23,628 17,939 13,000 (Loss) Gain on foreign currency fluctuations (9,952) 6,145 13,043 Net change in fair value of derivatives — 2,801 111,642 Other non-operating expense (239) (2,337) (3,982) (22,413) (10,675) 96,679 Profit before taxes 122,625 413,355 361,680 Income tax expense 22 (34,530) (49,310) (38,271) Net profit $88,095 $364,045 $323,409 Earnings per share Basic and diluted 26 $2.07 $8.58 $7.63 *See in note 5.1The accompanying notes are an integral part of these consolidated financial statements. F - 3 Table of ContentsCopa Holdings, S. A. and SubsidiariesConsolidated statement of comprehensive incomeFor the year ended December, 31(In US$ thousands) 2018 2017Restated* 2016Restated* Net profit $88,095 $364,045 $323,409 Other comprehensive loss Other comprehensive loss not to be reclassified to profit or loss in subsequent periods - Remeasurement of actuarial loss, net of amortization (339) (2,016) (1,104) Total comprehensive income for the year $87,756 $362,029 $322,305 *See in note 5.1 F - 4 Table of ContentsCopa Holdings, S. A. and SubsidiariesConsolidated statement of changes in equityFor the year ended December, 31(In US$ thousands) Accumulated Common stock Additional other (Non - par value) Issued capital paid in Treasury Retained comprehensive Total Notes Class A Class B Class A Class B capital stock earnings income (loss) equity At January 1, 2016 31,017,102 10,938,125 $20,924 $7,466 $57,455 $(136,388) $1,441,831 $(768) $1,390,520 Effect of adoption of IFRS 15 5.1 — — — — — (2,354) — (2,354) At January 1, 2016 (restated) 31,017,102 10,938,125 20,924 7,466 57,455 (136,388) 1,439,477 (768) 1,388,166 Net profit — — — — — — 323,409 — 323,409 Other comprehensive loss — — — — — — — (1,104) (1,104) Issuance of stock for employee awards 94,208 — 64 — (64) — — — — Share-based compensation expense — — — — 7,539 — — — 7,539 Dividends paid — — — — — — (86,116) — (86,116) Other 1,046 — — — 56 — (70) — (14) At December 31, 2016 (restated) 31,112,356 10,938,125 $20,988 $7,466 $64,986 $(136,388) $1,676,700 $(1,872) $1,631,880 Net profit — — — — — — 364,045 — 364,045 Other comprehensive loss — — — — — — — (2,016) (2,016) Issuance of stock for employee awards 62,224 — 42 — (42) — — — — Share-based compensation expense 25 — — — — 7,422 — — — 7,422 Dividends paid 24 — — — — — — (106,792) — (106,792) Share options exercised 11,061 — 8 — 579 — — — 587 At December 31, 2017 (restated) 31,185,641 10,938,125 $21,038 $7,466 $72,945 $(136,388) $1,933,953 $(3,888) $1,895,126 Adjustment on initial application of IFRS9 5.2 — — — — — — (1,744) — (1,744) Net profit — — — — — — 88,095 — 88,095 Other comprehensive loss — — — — — — — (339) (339) Issuance of stock for employee awards 72,045 — 49 — (49) — — — — Share-based compensation expense 25 — — — — 7,145 — — — 7,145 Dividends paid 24 — — — — — — (147,604) — (147,604) At December 31, 2018 31,257,686 10,938,125 $21,087 $7,466 $80,041 $(136,388) $1,872,700 $(4,227) $1,840,679 The accompanying notes are an integral part of these consolidated financial statements. F - 5 Table of ContentsCopa Holdings, S. A. and SubsidiariesConsolidated statement of cash flowsFor the year ended December, 31(In US$ thousands) Notes 2018 2017Restated* 2016Restated* Operating activities Net profit $88,095 $364,045 $323,409 Adjustments for: Income tax expense 34,530 49,310 38,271 Finance cost 18 35,850 35,223 37,024 Finance income 18 (23,628) (17,939) (13,000) Depreciation and amortization 13,16 169,436 167,324 167,810 Impairment of non finacial assets 188,624 — — Disposal of assets 3,746 3,316 4,743 Impairment of financial assets 10 1,409 879 1,511 Allowance for obsolescence of expendable parts and supplies 159 182 87 Derivative instruments mark to market — (2,801) (111,642) Share-based compensation expense 25 7,145 7,422 7,539 Net foreign exchange differences 43,090 26,654 35,525 Change in: Accounts receivable (3,150) (3,534) (9,967) Accounts receivable from related parties 10 95 181 143 Other current assets (50,531) 25,770 (14,745) Restricted cash — — 64,228 Other assets (5,669) (1,012) 10,202 Accounts payable 8,820 20,943 16,387 Accounts payable from related parties 19 2,584 4,199 3,076 Air traffic liability (5,492) 77,372 45,551 Frequent flyer deferred revenue 17,502 13,630 17,579 Other liability (23,548) 28,322 30,117 Cash from operating activities 489,067 799,486 653,848 Income tax paid (38,698) (51,077) (33,364) Interest paid (35,147) (35,312) (37,420) Interest received 21,537 14,235 11,526 Net cash from operating activities 436,759 727,332 594,590 Investing activities Acquisition of investments (711,840) (854,119) (553,037) Proceeds from redemption of investments 775,504 567,007 485,944 Advance payments on aircraft purchase contracts and other (216,732) (191,315) (47,479) Reimbursement of advance payments on aircraft purchase contracts 152,651 28,888 29,150 Acquisition of property and equipment (118,997) (109,945) (88,345) Proceeds from sale of property and equipment — 6 8,332 Acquisition of intangible assets 16 (30,182) (18,681) (14,474) Net cash used in investing activities (149,596) (578,159) (179,909) Financing activities Proceeds from new borrowings 18 225,000 147,798 164,400 Payments on loans, borrowings and finance leases 18 (401,333) (246,349) (326,965) Dividends paid (147,604) (106,792) (86,116) Proceeds from exercise of share options — 587 56 Net cash used in financing activities (323,937) (204,756) (248,625) Net (decrease) increase in cash and cash equivalents (36,774) (55,583) 166,056 Cash and cash equivalents at January 1 238,792 331,687 204,715 Effect of exchange rate change on cash (45,860) (37,312) (39,084) Cash and cash equivalents at December 31 $156,158 $238,792 $331,687 *See note 5.1The accompanying notes are an integral part of these consolidated financial statements. F - 6 Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 1.Corporate informationCopa 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 itsregistered office is Boulevard Costa del Este, Avenida Principal y Avenida de la Rotonda, Urbanización Costa del Este, Complejo Business Park, TorreNorte, 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”), OvalFinancial 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 internationalair 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 andinternational air transportation for passengers, cargo, and mail.In October 2016, Copa Colombia officially launched “Wingo” a new low-cost business model. Wingo operates administratively andfunctionally 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 inSouth and 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 beneficialinterest in the majority of the Company’s fleet, which is leased to either Copa Airlines or Copa Colombia.The Company currently offers approximately 363 daily scheduled flights to 80 destinations in 32 countries in North, Central and South America andthe Caribbean, mainly from its Panama City Hub. Additionally, the Company provides passengers with access to flights to more than 200 internationaldestinations 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 anotherfive years. This Alliance includes an extensive and expanding code-sharing and technology cooperation. The Company participated in United’sMileage 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 andprovide exclusive attention. The program maintains the mile accumulation and redemption model that Copa Airlines’s passengers have enjoyed inrecent years in United’s Mileage Plus frequent flyer loyalty program. ConnectMiles members are eligible to earn and redeem miles to any of StarAlliance’s 1,317 (unaudited) destinations in 193 countries within 28 airlines members (unaudited).As of December 31, 2018, the Company operates a fleet of 105 aircraft with an average age of 8.50 years, and consists of 68 Boeing 737-800 NextGeneration aircraft, 14 Boeing 737-700 Next Generation aircraft, 4 Boeing 737 MAX-9 aircraft and 19 Embraer E190 aircraft.The consolidated financial statements for the year ended December 31, 2018 have been authorized for issuance by the Company’s Chief ExecutiveOfficer and Chief Financial Officer on April 24, 2019. F - 7 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 2.Basis of preparationStatement of complianceThe 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 CopaHoldings, S. A. and, unless the context indicates otherwise, its consolidated subsidiaries.Basis of measurementThe consolidated financial statements have been prepared on a historical cost basis, except for the following: • certain financial assets, 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 currencyThese consolidated financial statements are presented in United States dollars (U.S. dollars “$”), which is the Company’s functional currency andthe 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 aslegal 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 consolidationThese consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Control is achieved whenthe Company is exposed to, or has right to, variable returns from its involvement with the investee and has the ability to affect those returnsthrough 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 ofthe three elements of control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases whenthe Company loses control of the subsidiary. F - 8 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accountingpolicies. All intercompany balances, transactions, and dividends are eliminated in full.The following are the significant subsidiaries included in these financial statements: Country ofIncorporation Ownershipinterest Name 2018 2017 Copa Airlines Panama 99% 99% Copa Colombia Colombia 99% 99% Oval British Virgin Islands 100% 100% (b)Current versus non-current classificationThe 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 currenciesThe Company’s consolidated financial statements are presented in U.S. dollars, which is the Company’s functional currency. The Companydetermines the functional currency for each entity, and the items included in the financial statements of each entity are measured using thatfunctional currency.Transactions and balancesTransactions in foreign currencies are initially recorded by the Company at the respective functional currency spot rates on the date whenthe transaction first qualifies for recognition.Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot exchange rate at thereporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchangerates at the dates of the initial transactions. F - 9 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes 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 theyear. (d)Revenue recognitionRevenue is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration towhich the Company expects to be entitled in exchange for those goods or services. The consideration received or receivable is measuredtaking into account contractually defined terms of payment and excluding taxes or duties. The following specific recognition criteria mustalso be met before revenue is recognized:Passenger revenuePassenger revenue is primarily composed of passenger ticket sales, frequent flyer miles and ancillaries revenues performed in conjunctionwith a passenger’s flight. • Passenger ticketsPassenger revenue from tickets is recognized when transportation is provided rather than when a ticket is sold. The amount ofpassenger ticket sales, to not yet recognized as revenue, is reflected under “Air traffic liability” in the consolidated statement offinancial position. Refundable and nonrefundable tickets expire after one year from the date of issuance.The Company performs amonthly liability evaluation uses its historical experience with refundable and nonrefundable expired tickets and other facts, and aprovision is recognized for tickets that are expected not to be used or redeemed. A year after the sales is made, all unredeemed salesare transferred from “Air Traffic liability” and recognized as revenue, and the provision is reversed.The Company sells certain tickets with connecting flights with one or more segments operated by its other airline partners. Forsegments operated by other airline partners, the Company has determined that it is acting as an agent on behalf of the other airlinesas they are responsible for their portion of the contract. The Company, as the agent, reduce from “Air traffic liability” whenconsideration is remitted to those airlines, and recognizes revenue for the net amount representing commission to be retained by theCompany for any segments flown by other airlines. • Ticket TaxesThe 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 certain governmentally imposed airport arrival and departure taxes. These taxes and fees arelegal assessments on the customer. Since the Company has a legal obligation to act as a collection agent with respect to these taxesand fees, we do not include such amounts in passenger revenue. The Company records a liability when these amounts are collectedand derecognizes the liability when payments are made to the applicable government agency or operating carrier. F - 10 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements • Frequent flyer programPassenger revenue include income generated by the frequent flyer program. The Company’s frequent flyer program objective, is toreward customer loyalty through the earning of miles whenever the programs members make certain flights. The miles or pointsearned can be exchanged for flights on Copa or any of 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 thetickets 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 separate performance obligation. To determine theamount of revenue to be deferred, the Company estimates and allocates the fair value of the miles that were essentially sold alongwith the airfare, based on a weighted average ticket value, which incorporates the expected redemption of miles including factorssuch as redemption pattern, cabin class, loyalty status and geographic region.A statistical model that estimates the percentages of points that will not be redeemed before expiration is used to estimatebreakage. The breakage and the fair value of the miles are reviewed annually, and any adjustments are reflected on a prospectivebasis to passenger revenues.The Company calculates the short and long-term portion of the frequent flyer deferred revenue, using a model that includesestimates 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 theavailability of the reward and is included in passenger revenues. • Ancillaries revenuesAre primarily composed of services performed in conjunction with a passenger’s flight, including administrative fees (such as ticketchange fees), baggage fees, and other ticket-related fees. These ancillary fees are part of the travel performance obligation and, assuch, are recognized as passenger revenue when the travel occurs.Cargo and mail revenueCargo and mail revenue is recognized when the Company provides and completes the shipping services as requested by the client and therisks on the merchandise and goods are transferred.Other operating revenueOther revenue includes revenue associated with the frequent flyer program, which is comprised principally of the marketing component ofmileage sales to co-branded card and other partners and other marketing related payments.The Company sells miles to non-airline businesses with which it has marketing agreements. The main contracts to sell miles are related toco-branded credit card relationships with major banks in the region. The Company determined the selling prices of miles according to amethod which allocates consideration based upon the relative selling price of the deliverables. The relative selling F - 11 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements price of the deliverables is determined based upon the estimated standalone selling prices of each deliverable in the arrangement and isallocated between the miles sold to the passenger (as described above) and the marketing elements. Revenue allocated to the performanceobligations related to, marketing components, is recorded in other operating revenue when miles are delivered.The remaining amounts included within other revenue relate lease income, advertising and vacation-related services. (e)Cash and cash equivalentsCash and cash equivalents in the statement of financial position, comprise cash on hand and in banks, money market accounts, and timedeposits 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, ifany. The Company has elected to present the statement of cash flows using the indirect method. (f)Financial instrumentsA financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument ofanother entity.Financial assetsThe Company’s financial assets include cash and cash equivalents, short and long-term investments and accounts receivable. (i)Initial recognition and measurementFinancial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensiveincome (OCI), and fair value through profit or loss.The classification of financial assets at initial recognition depends on the financial assets contractual cash flow characteristics and theCompany’s business model for managing them. With the exception of trade receivables that do not contain a significant financingcomponent or for which the Company has applied the practical expedient, the Company initially measures a financial asset at its fair valueplus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain asignificant financing component or for which the Company has applied the practical expedient are measured at the transaction price.In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flowsthat are ‘solely payments of principal and interest’ (SPPI) on the principal amount outstanding. This assessment is referred to as the SPPItest and is performed at an instrument level.The Company’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows.The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.All financial assets are recognized on the trade date, which is the date on which the Company becomes a party to the contractual provisionsof an instrument. F - 12 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements (ii)Subsequent measurement (policy applicable from January 1, 2018)For purposes of subsequent measurement, financial assets are classified in four categories: • Financial assets at amortized cost (debt instruments) • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equityinstruments) • Financial assets at fair value through profit or lossFinancial assets at amortized costThis category is the most relevant to the Company. The Company measures financial assets at amortized cost if both of the followingconditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cashflows; and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal andinterest on the principal amount outstanding.Financial assets at amortized cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment.Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.The Company’s financial assets at amortized cost included the Company’s investments and its receivables.The Company invests in short-term deposits and bonds with original maturities of more than three months but less than one year, andinvests in long-term deposits and bonds with maturities greater than one year. These investments are classified as short and long-terminvestments, respectively, in the accompanying consolidated statement of financial position.Accounts receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Thesefinancial instruments are initially recognized and carried at the original invoice amount since recognition of interest under the amortizedcost would be immaterial less a provision for impairment.Financial assets at fair value through OCIThe Company measures debt instruments at fair value through OCI if both of the following conditions are met: • The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and selling;and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal andinterest on the principal amount outstanding F - 13 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals arerecognized in the statement of profit or loss and computed in the same manner as for financial assets measured at amortized cost. Theremaining fair value changes are recognized in OCI. Upon derecognition, the cumulative fair value change recognized in OCI is recycledto profit or loss.The Company currently does not have assets classified under this category.Financial assets designated at fair value through OCIUpon initial recognition, the Company may elect to classify irrevocably its equity investments as equity instruments designated at fairvalue through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading.The classification is determined on an instrument-by-instrument basis.Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in the statement ofprofit or loss when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of partof the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI arenot subject to impairment assessment.The Company currently does not have assets classified under this category.Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initialrecognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets areclassified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, includingseparated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments.Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value throughprofit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortized cost or atfair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition ifdoing so eliminates, or significantly reduces, an accounting mismatch.Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fairvalue recognized in the statement of profit or loss.The Company currently does not have assets classified under this category. (iii)DerecognitionA 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 cashflows in full without material delay to a third party under a “pass-through” arrangement, and either (a) the Company has transferredsubstantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risksand rewards of the asset, but has transferred control of the asset. F - 14 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, itevaluates, if and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantiallyall the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuinginvolvement in the asset. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liabilityare measured on a basis that reflects the rights and obligations that the Company has retained. (iv)Impairment of financial assetsThe Company recognizes an allowance for expected credit losses (ECLs) on financial asset measured at amortized cost. Loss allowance forfinancial assets are deducted from the gross carrying amount on the assets.ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that theCompany expects to receive, discounted at an approximation of the original effective interest rate.ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initialrecognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-monthECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance isrequired for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).Both, lifetime ECLs and 12-month ECLs, are calculated on either an individual basis or a collective basis, depending on the nature of theunderlying portfolio of financial instruments.The Company has established a policy to perform an assessment, at the end of each quarterly reporting period, of whether a financialinstrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring overthe remaining life of the financial instrument.For trade receivables the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes incredit risk, but instead recognizes a loss allowance based on lifetime ECLs at each quarterly reporting date.The Company has established a provision matrix to measure ECLs. Loss rates are calculated using a ‘roll rate’ method based on theprobability of a receivable progressing through successive stages of delinquency to write-off. To measure the ECLs, trade receivables havebeen grouped based on shared credit risk characteristics and the day past due.Loss rates are based on actual credit loss experience over the last 12 months and adjusted for forward-looking factors specific to the debtorsand the economic environment over the expected life of the receivables.A financial assets is written off when there is a no reasonable expectation of recovering the contractual cash flows. The Company considersthat there are no realistic prospects of recovery of the asset if any of the following indicators are present: • the debtor is in a state of permanent disability F - 15 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements • 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 debtLosses arising from impairment are recognized under “Other operating and administrative expenses” in the consolidated statement of profitor loss.Financial liabilities (i)Initial recognition and measurementFinancial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings,payables, or derivatives designated as hedging instruments in an effective hedge, as appropriate.All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directlyattributable transaction costs.The Company’s financial liabilities include trade and other payables and loans and borrowings including bank overdrafts. (ii)Subsequent measurementThe measurement of financial liabilities depends on their classification as described below: • DebtSubsequent to initial recognition, all borrowings and loans are measured at amortized cost using the EIR method. Gains and losses arerecognized in the consolidated statement of profit or loss when the liabilities are derecognized as well as through the EIR amortizationprocess.Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of theEIR. The EIR amortization is included under finance cost in the consolidated statement of profit or loss. (iii)DerecognitionFinancial liabilities are derecognized when the obligation under the liability is discharged, cancelled, or expire. When an existingfinancial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability aresubstantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a newliability, and the difference in the respective carrying amounts is recognized in the consolidated statement of profit or loss.Offsetting of financial instrumentsFinancial assets and financial liabilities are offset and the net amount presented in the consolidated 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 netbasis or to realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future eventsand must be enforceable in the ordinary course of business and in the event of default, insolvency or bankruptcy of the Company or thecounterparty. F - 16 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Derivative financial instruments and hedging activitiesDerivative instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequentlyremeasured 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 fairvalue results in an obligation. The accounting for changes in value depends on whether the derivative is designated as a hedginginstrument, and if so, the classification of the hedge.For hedge accounting purposes, hedges are classified into: • Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firmcommitment • Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associatedwith a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firmcommitment • hedges of a net investment in a foreign operation.At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which it wishes toapply hedge accounting and the risk management objective and strategy for undertaking the hedge.The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how theCompany will assess whether the hedging relationship meets the hedge effectiveness requirements. A hedging relationship qualifies forhedge accounting if it meets all of the following effectiveness requirements: • There is ‘an economic relationship’ between the hedged item and the hedging instrument. • The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship. • The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Companyactually hedges and the quantity of the hedging instrument that the Company actually uses to hedge that quantity of hedged item.As of December 31, 2018 and 2017, the Company does not have financial instruments designated under hedge accounting. (g)Impariment no—financial assetsThe Company assesses at each reporting date whether there is an indication that an asset or its cash-generating unit (CGU) may beimpaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s orCGU’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 independentof those from other assets or group of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset isconsidered impaired and is written down to its recoverable amount. F - 17 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows havenot been adjusted.Impairment losses of continuing operations, including impairment on inventories, are recognized in the consolidated statement of profit orloss 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 previouslyrecognized impairment losses no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s or CGU’srecoverable amount.A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’srecoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does notexceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairmentloss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss. (h)Expendable parts and suppliesExpendable parts and supplies for flight equipment are carried at the lower of the average acquisition cost or replacement cost, and areexpensed when used in operations. The replacement cost is the estimated purchase price in the ordinary course of business. (i)Passenger traffic commissionsPassenger traffic commissions are recognized as expense when transportation is provided and the related revenue is recognized. Passengertraffic commissions paid but not yet recognized as expense are included under “Prepaid expenses” in the accompanying consolidatedstatement of financial position. (j)Property and equipmentProperty and equipment comprise mainly airframe, engines, and other related flight equipment. All property and equipment is stated atcost, net of accumulated depreciation and accumulated impairment losses, if any.When a major maintenance inspection or overhaul cost is embedded in the initial purchase cost of an aircraft, the Company estimates thecarrying amount of the component. These initial built-in maintenance assets are depreciated over the estimated time period until the firstmaintenance event is performed. The cost of major maintenance events completed after the aircraft acquisition are capitalized anddepreciated over the estimated time period until the next major maintenance event. The remaining value of the previously capitalizedcomponent if any, is charged to expense upon completion of the subsequent maintenance event. F - 18 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The Company recognizes the depreciation on a straight-line basis over the estimated useful lives of the assets. Depreciation is recognizedin the consolidated statement of profit or loss from the date the property, and equipment is installed and ready for use. Property and equipment Estimate usefullife (years) ResidualValue Flight equipment - Airframe and engines 27 15% Major maintenance events 3-16 — Ramp and miscellaneous - Ground equipment 10 — Furniture, fixture, equipment and other 5-10 — Leasehold improvements Lesser of remaining lease term and estimateduseful life of the leasehold improvement — An item of property and equipment and any significant part initially recognized is derecognized upon disposal or when no futureeconomic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the differencebetween the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset isderecognized.The costs of major maintenance events for leased aircraft (including operating leases) are capitalized and depreciated over the shorter of thescheduled usage period to the next major inspection event or the remaining life of lease term (as appropriate). The value of majormaintenance inspection or overhaul embedded in the aircraft operating leases is not recognized as a separated component under IAS 17Leases.The residual values, useful life, and methods of depreciation of property and equipment are reviewed at each financial year-end andadjusted prospectively, if appropriate.The land owned by the Company is recognized at cost less any accumulated impairment. (k)LeasesThe determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at the inception date. Thearrangement is assessed for whether the fulfillment of the agreement is dependent on the use of a specific asset or assets or the arrangementconveys a right to use the asset, even if that right is not explicitly specified in the arrangement.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 leaseterm; • 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 thereassessment. When a renewal option is exercised or extension granted, lease accounting shall commence or cease at the date of renewal orextension. F - 19 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The Company as lessor (i)Operating leasesWhen assets are leased under operating leases, the asset is included in the consolidated statement of financial position according toits 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 ofthe 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 leasesLeases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are classified asoperating leases.Operating lease payments are recognized as an expense in the consolidated statement of profit or loss on a straight-line basis overthe lease term. (iii)Finance leasesLeases where the lessor substantially transfers all the risks and benefits of ownership of the leased item are classified as financeleases.The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimumlease payments. Minimum lease payments made under finance leases are apportioned between the finance cost and the reduction ofthe 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 theremaining balance of the liability; these are recognized as finance costs in the consolidated statement of profit or loss.Sale and leaseback transactionsThe Company enters into transactions whereby aircraft are sold and subsequently leased back. The Company has not entered into sale andleaseback 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 orloss is recognized immediately. If the sale price is below fair value any profit is recognized immediately. If the transaction is not at fairvalue, any resulting loss that is compensated for by future lease payments at below market rate is deferred and amortized over the leaseterm. F - 20 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements (l)Intangible assetsGoodwillGoodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred over the net identifiable assetsacquired 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 thatare 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 togoodwill cannot be reversed in future periods.Other intangible assetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a businesscombination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less anyaccumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized developmentcosts, are not capitalized and the expenditure is reflected in the consolidated statement of profit or loss in the year in which the expenditureis 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 indicationthat the intangible asset may be impaired. The amortization period and amortization method for an intangible asset with a finite useful lifeare reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption offuture economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treatedas changes in accounting estimates. The amortization expense on intangible assets with finite life is recognized in the consolidatedstatement 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 theCGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. Ifnot, the change in useful life from indefinite to finite is made on a prospective basis.Gains and losses arising from the derecognition of an intangible asset are measured as the difference between the net disposal proceeds andthe carrying amount of the asset and are recognized in the consolidated statement of profit or loss when the asset is derecognized. F - 21 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The Company’s intangible assets and the policies applied are summarized as follows: • Licenses and software rightsAcquired 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 aredirectly associated with the production of identifiable and unique software products controlled by the Company and that are estimated togenerate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Direct costs include the softwaredevelopment employee costs and an appropriate portion of relevant overheads. These costs are amortized using the straight-line methodover 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, whichrange 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 ofthe contract and the amortization is recognized in the consolidated statement of profit or loss. (m)TaxesIncome tax expenseIncome tax expense comprises current and deferred tax. It is recognized in profit or loss except when related to the items recognizeddirectly in equity or in other comprehensive income (“OCI”).Current income taxThe Company pays taxes in the Republic of Panama and in other countries in which it operates, based on regulations in effect in eachrespective country.Revenue arise principally from foreign operations, and according to the Panamanian Tax Code, these foreign operations are not subject toincome tax in Panama.The Panamanian tax code for the airline industry states that tax is based on net income earned for passenger traffic with origin or finaldestination in the Republic of Panama. The applicable tax rate is currently 25.0%. Dividends from the Panamanian subsidiaries, areseparately subject to a 10% withholding tax on the portion attributable to Panamanian sourced income and a 5% withholding tax on theportion 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 arerelated 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 taxlaws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where theCompany operates and generates taxable income. F - 22 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations aresubject to interpretation and establishes provisions when appropriate.Deferred taxDeferred tax is calculated using the liability method on temporary differences between the tax bases of assets and liabilities and theircarrying 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 deductibletemporary 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 atransaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profitor 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 foreseeablefuture 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 thatsufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets arereassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow thedeferred 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 abusiness 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 willnot 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 theliability settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized incorrelation to the underlying transaction either in other comprehensive income or directly in equity. F - 23 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against currentincome tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. (n)Borrowing costsBorrowing costs directly attributable to the acquisition, construction, or production of any qualifying asset, that necessarily takes asubstantial 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 entityincurs in connection with the borrowing of funds. (o)ProvisionsProvisions 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 aprovision 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 consolidatedstatement of profit or loss under “Maintenance, materials and repairs”. These costs are reviewed annually and adjusted as appropriate. (p)Employee benefitsDefined benefit planThe 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 costmethod (PUC).Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets and the effect ofthe asset ceiling (if any), are recognized immediately in other comprehensive income. The Company determines the net interest byapplying the discount rate to the net defined benefit liability or asset. The Company recognizes the following changes in the net definedbenefit obligation in the consolidated statement of profit or loss.Share-based paymentsEmployees (including senior executives) of the Company receive compensation in the form of share-based payment transactions, wherebyemployees render services as consideration for equity instruments (equity-settled transactions). F - 24 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The cost of equity-settled transactions is recognized, together with a corresponding increase in additional paid in capital in equity, overthe period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settledtransactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s bestestimate of the number of equity instruments that will ultimately vest. Expense or credit for a period represents the movement incumulative expense recognized as of the beginning and end of that period and is recognized under “Wages, salaries, benefits and otheremployees’ expenses” expense in the consolidated statement of profit or loss (note 25).Termination benefitsTermination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever anemployee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits when it isdemonstrably committed to either terminating the employment of current employees according to a detailed formal plan without realisticpossibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy. (q)Non-current assets held for sale and discontinued operationsThe Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principallythrough a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale aremeasured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable tothe disposal of an asset (disposal group), excluding finance costs and income tax expense.The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group isavailable for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely thatsignificant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan tosell the asset and the sale expected to be completed within one year from the date of the classification.Property and equipment and intangible assets are not depreciated or amortized once classified as held for sale.All the financial statements include amounts for continuing operations. Additional disclosures about assets held for sale are provided inNote 13. 4.Significant accounting judgments, estimates and assumptionsThe preparation of the Company’s consolidated financial statements requires management to make judgments, estimates, and assumptions that affectthe 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 orliabilities in future periods. F - 25 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements JudgmentsIn the process of applying the Company’s accounting policies, management has made judgments, which have the most significant effect on theamounts recognized in the consolidated financial statements in the following area: • LeasesThe Company enters into lease contracts on some of the aircraft it operates. The Company assesses, based on the terms and conditions of thearrangements, whether or not substantially all risks and rewards of ownership of the aircraft it leases have been transferred/retained by the lessor todetermine the appropriate accounting classification of the contracts as an operating or finance leases.Estimates and assumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causinga material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existingcircumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond theCompany’s control. Such changes are reflected in the assumptions when they occur. • Impairment of financial assetsThe loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Company uses judgement inmaking these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history, existing market conditions aswell as forward looking estimates at the end of each quarterly reporting period. • Impairment of non-financial assetsImpairment 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 selland 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 discountedcash 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 notyet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is mostsensitive to the discount rate used for the discounted cash flow model as well as the expected future cash-inflows and the growth rate used forextrapolation purposes (see note 16). • Property and equipmentThe Company’s management has determined that the residual value of the airframe, engines, and components (rotable parts) owned is 15% of the costof the asset, so the depreciation of flight equipment is made accordingly. Annually, management reviews the useful life and residual value of each ofthese assets (see note 13). • Provision for return conditionThe 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 maintenancecosts, discount rate, related inflation rates and aircraft utilization. F - 26 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Any difference in the actual maintenance cost incurred and the amount of the provision is recorded in maintenance expenses in the period. The effectof any changes in estimates, including those mentioned above, is also recognized in maintenance expenses for the period (see note 21). • Revenue recognition – expired ticketsThe Company recognizes estimated fare revenue for tickets that are expected to expire based on departure date (unused tickets), based on historicaldata and experience. Estimating the expected expiration rate requires management’s judgment, among other things, the historical data and experienceis an indication of the future customer behavior. • Multiple deliverable revenue arrangements—Frequent flyer programThe frequent flyer program includes two major of transactions that are considered revenue arrangements with multiple performance obligations:(i) mileage credits earned with travel and (ii) mileage credits sold to co-branded credit card partner and other partners. The Company estimates the fairvalue of the miles in those transactions using a blended calculation of rates charged when miles are sold to other partners and the average value of amile flown by a customer. Also, the Company estimates and reduces the liability for the value of miles earned but expected to expire unused, based onhistorical experience. • TaxesThe Company believes that taken tax positions, including transfer pricing between entities, are reasonable. However, in the event of an audit by the taxauthorities, 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 aslapsing of applicable statutes of limitations, conclusion of tax audits, additional exposures based on identification of new issues, or court decisionsaffecting a particular tax issue. Actual results may differ from estimates (see note 22). • Fair value measurementThe Company measures financial instruments such as derivatives at fair value at the date of each statement of financial position. Fair values offinancial 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 themeasurement 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. F - 27 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 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 inits 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)Level 1—Quoted (unadjusted) market prices in active markets for identical assets or liabilities. ii)Level 2—Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectlyobservable. iii)Level 3—Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. The inputs tothese models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fairvalues. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factorscould 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 occurredbetween levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as awhole) at the end of each reporting period. 5.Changes in disclosuresAdoption of new and amended standards and interpretationsThe Company applied for the first time the following standards and amendment, which are effective for annual periods beginning on or after January 1,2018: • IFRS 9 Financial instruments • IFRS 15 Revenue from contracts with customers • Amendment to IFRS 15 Revenue from contracts with customersThe following amendments effective for annual periods beginning on or after January 1, 2018, had no impact on the company’s financial statements:Amendments to IFRS 2 Share based paymentsAmendments to IFRS 4 Insurance contractsAmendments to IAS 40 Investment propertyAnnual Improvements Cycle—2014-2016: IFRS 1 Adoption for the first time of international financial reporting standards and IAS 28Investments in associates and joint ventures.IFRIC 22 Foreign currency transactions and advance consideration F - 28 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The Company has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective. 5.1IFRS 15 Revenue from contracts with customersThe new standard provides a framework that replaces existing revenue recognition guidance in IFRS and establishes a five-step model to account forrevenue arising from contracts with customers and requires that revenue be recognized at an amount that reflects the consideration to which an entityexpects to be entitled in exchange for transferring goods or services to a customer.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 towhich 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 adopted IFRS 15 using the full retrospective method of adoption, using the following practical expedients: • The effect of the transition on the current period has not been disclosed. • Not restate contracts that begin and end within the same annual reporting period. • Not disclose the amount of the remaining performance obligations for contracts since the original expected duration of the contacts are lessor equal to one year. • The costs to obtain a contract are recognized as expense because the amortization period is one year or less. F - 29 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The effect of adopting IFRS 15 is, as follows:Impact on statement of profit or loss 2017 IFRS 15 2017Restated Operating revenue Passenger revenue $ 2,462,419 $ (18,168) $ 2,444,251 Cargo and mail revenue 55,290 — 55,290 Other operating revenue 9,847 12,398 22,245 2,527,556 (5,770) 2,521,786 Operating expenses Other operating expenses 1,897,500 — 1,897,500 Sales and distribution 200,413 (157) 200,256 2,097,913 (157) 2,097,756 Operating profit 429,643 (5,613) 424,030 Non—operating (expense) income (10,675) — (10,675) Profit before taxes 418,968 (5,613) 413,355 Income tax expense (49,310) — (49,310) Net profit 369,658 (5,613) 364,045 Earnings per share Basic and diluted $8.71 $(0.13) $8.58 2016 IFRS 15 2016Restated Operating revenue Passenger revenue $ 2,155,167 $ (6,666) $ 2,148,501 Cargo and mail revenue 53,989 — 53,989 Other operating revenue 12,696 4,000 16,696 2,221,852 (2,666) 2,219,186 Operating expenses Other operating expenses 1,760,348 — 1,760,348 Sales and distribution 193,984 (147) 193,837 1,954,332 (147) 1,954,185 Operating profit 267,520 (2,519) 265,001 Non—operating (expense) income 96,679 — 96,679 Profit before taxes 364,199 (2,519) 361,680 Income tax expense (38,271) — (38,271) Net profit 325,928 (2,519) 323,409 Earnings per share Basic and diluted $7.69 $(0.06) $7.63 The nature of these adjustments are described below: • Ancillary services: considerations about these contracts are at what level and when revenues take place. This was evaluated under theperformance obligations criteria, including services such as excess baggage fees, exchange fees, upgrades fees and other fees. The mainchange is the recognition of revenue from the sales date to the departure date, the moment when the performance obligations are fulfilled. F - 30 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Under the new standard these deliverables are considered a single performance obligation, which will not exist without the mainperformance obligation, the travel service that is fulfilled at departure date.The Company recognized a decrease of $2.6 million and $1.4 million for the year ended as of December 2017 and 2016, respectively, inPassenger 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. • Denied board compensation: considerations about whether this performance obligation should be recognized as an operational expense orbe allocated against the revenue. This impact consists in the reclassification of this type of performance obligation from the operationalexpense to contra revenue.The Company recognized a decrease of $0.2 million in each year ended as of December 2017 and 2016 in Passenger revenue, due thereclassification of denied board compensation from the Sales and distribution operating expenses. • Classification of revenue streams: certain revenues that was presented as passenger revenue has been reclassified to other revenue. Thisrevenue has been reclassified between passenger revenue, other revenue and operational expenses for the adoption. This reclassificationoccurred due to the analysis and classification of each contract according to each associated performance obligations. Some of theseconcepts include charter flights, publicity and fees related to cobrand agreements.The Company recognized a decrease of $15.4 million and $5.1 million for the year ended as of December 2017 and 2016 due to thereclassification from Passenger revenue to Other operating revenue of the revenue related to the sale and transfer of miles and cobrandagreements from our frequent flyer program, the sale of advertising space, and charter flight. • Loyalty program contract: considerations about loyalty point valuations, related to co-brand contracts. Multiple deliverable in thiscontract relate to points earn by the passenger and marketing related to the credit card with the financial entities were changed from aresidual method to a method which allocates consideration based upon the relative selling price of the deliverables. The relative sellingprice of the deliverables is determined based upon the estimated standalone selling prices of each deliverable in the arrangement. Due tothis assessment, the value applied to miles earned under the co-brand agreements have been be adjusted, changing the amount of revenuerecognized from the inceptions of these contracts.The Company recognized a decrease of $2.7 million and $1.1 million for the year ended as of December 2017 and 2016, respectively, inother operating revenue due to the change in the amount deferred for mileages credits due to sales from co-brand partner agreementsresulting from the change from the residual method to the relative selling price method. F - 31 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Impact on the consolidated statement of financial position 2017 IFRS 15 2017Restated ASSETS $ 4,044,961 — 4,044,961 LIABILITIES AND EQUITY Current liabilities Air traffic liability 470,693 6,475 477,168 Frequent flyer deferred revenue 13,186 4,011 17,197 Other current liabilities 563,150 — 563,150 1,047,029 10,486 1,057,515 Non—current liabilities 1,092,320 — 1,092,320 Total liabilities 2,139,349 10,486 2,149,835 Equity Retained earnings 1,574,781 (4,873) 1,569,908 Net income 369,658 (5,613) 364,045 Equity (38,827) — (38,827) Total equity 1,905,612 (10,486) 1,895,126 Total liabilities and equity $4,044,961 — 4,044,961 2016 IFRS 15 2016Restated ASSETS $3,640,595 — 3,640,595 LIABILITIES AND EQUITY Current liabilities Air traffic liability 396,237 3,559 399,796 Frequent flyer deferred revenue 9,044 1,314 10,358 Other current liabilities 457,401 — 457,401 862,682 4,873 867,555 Non—current liabilities 1,141,160 — 1,141,160 Total liabilities 2,003,842 4,873 2,008,715 Equity Retained earnings 1,355,645 (2,354) 1,353,291 Net income 325,928 (2,519) 323,409 Equity (44,820) — (44,820) Total equity 1,636,753 (4,873) 1,631,880 Total liabilities and equity $ 3,640,595 — 3,640,595 The nature of these adjustments are described below: • An increase of $6.4 million and $3.6 million as of December 31, 2017 and 2016, respectively, due to the change in the timing of revenuerecognition related to exchange fee and other ancillary, from the sales date, to the departure date • An increase of $4.0 and $1.3 million as of December 31, 2017 and 2016, respectively, in Frequent flyer deferred revenue, due the change inthe amount deferred for mileages credits due to sales from co-brand partner agreements resulting from the change from the residual methodto the relative selling price method product. F - 32 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements • A decrease of $4.9 million in retained earnings due to the impacts of the 2016 period. 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 thedeparture date; and $0.2 million due to the change in the amount deferred for mileages credits due to sales from co-brand partneragreements resulting from the change from the residual method to the relative selling price method. This effect is the product of the impactof the 2015 period.The change did not have a material impact on OCI for the period. The impact on the statement of cash flows for the year ended 31 December 2017 and2016, only relates to the changes in the net profit. There was no impact on the net cash flows from operating activities. The cash flows from investingand financing activities were not affected. 5.2IFRS 9 Financial instrumentsIFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or afterJanuary 1, 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; andhedge accounting.The Company adopted the new standard without restating comparative information. The adjustments arising from the new impairment rules aretherefore recognized in the opening balance on January, 1, 2018. The adoption of IFRS 9 resulted in changes in accounting policies set out in note 3(f). • Classification and measurementThe classification and measurement requirements of IFRS 9 did not have an impact on the Company. Trade receivables and investments are held tocollect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Companyanalyzed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortized cost measurement underIFRS 9 therefore; reclassification for these instruments is not required.There was not impact on the Company’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilitiesthat are designated at fair value through profit or loss and the Company as of January 1, 2018 did not have any such liabilities. • Impairment of financial assetsThe adoption of IFRS 9 has fundamentally changed the Company’s accounting for impairment losses for financial assets by replacing IAS 39’sincurred loss approach with a forward-looking ECL approach. IFRS 9 requires the Company to recognize an allowance for ECLs for all financial assetsnot held at fair value through profit or loss. F - 33 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Set out below is the reconciliation of the ending impairment allowances in accordance with IAS 39 to the opening loss allowances determined inaccordance with IFRS 9: Allowance forimpairment under IAS39 as at31 December 2017 Remeasurement ECL under IFRS9 as at1 January 2018 Investment $— $ (1,120) $ (1,120) Account receivables (3,673) (624) (4,297) (3,673) (1,744) (5,417) • Investments at amortized costAre considered to be low risk, and therefore the impairment provision is determined at 12-month ECLs using the general approach as prescribed byIFRS 9. Applying the expected credit risk model results in the recognition of a loss allowance of $1.1 million on January 1, 2018 and further increaseof $0.1 million in the current period. • Accounts receivablesFor accounts receivables, the Company applies the simplified approach, which requires the use of the lifetime expected loss provision for all tradereceivables. Applying the simplified approach results in the recognition of a loss allowance of $0.6 million on January 1, 2018 and further increase of$1.3 million in the current period.Further disclosures are provided in note 28.3. • Hedge accountingAt the date of initial application, January 1, 2018, the Company does not have financial instruments designated under hedge accounting. 6.New standards and interpretations not yet adoptedThe standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosedbelow. The Company intends to adopt these standards, if applicable, when they become effective.IFRS 16 LeasesThis standard was issued in January 2016 and sets out the principles for the recognition, measurement, presentation and disclosure of leases for bothparties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 eliminates the classification of leases as either operating leases orfinance 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”) ortogether 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 recognize the interest expense on the lease liability and the depreciation expense on the ROU. IFRS 16 does notrequire 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. F - 34 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases usingthe same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.Transition to IFRS 16The Company plans to adopt IFRS 16 retrospectively to each prior reporting period presented.The Company will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of thedate of initial application, and lease contracts for which the underlying asset is of low value. The Company has leases of certain office equipment (i.e.,personal computers, printing and photocopying machines) that are considered of low value.The Company has set up a project team which has reviewed all of the Company’s leasing arrangements over the last year in light of the new leaseaccounting rules in IFRS 16. The standard will affect primarily the accounting for the Company’s operating leases (see note 14). Also, the Companyhas actively participated in a specialized airline industry accounting group, which is comprise of by various airline members, accounting firms and thestaff of the International Air Transport Association (IATA). The objective of this group is to discuss the nature and volume of implementation questionsto adopt uniform accounting policies about these new standards within the airline industry.The Company’s activities as a lessor are not material and the Company does not expect any significant impact on the financial statements. However,some additional disclosures will be required from next year.During 2018, the Company has assessed the estimated impact that initial application of IFRS 16 will have on its consolidated financial statements. TheCompany expect that the adoption of this standard will result in the recognition of additional liabilities in a range of approximately $390.0 million to$430.0 million, this calculation excluded the impact that would occur if the lease return conditions are included in the ROU asset and lease liability forwhich the Company have not yet completed the evaluation.The actual impacts of adopting the standard on January 1, 2019 may change because the new accounting policies are subject to change until theCompany presents its first financial statements that include the date of initial application.IFRS 17 Insurance ContractsIn May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts covering recognitionand measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts that was issued in 2005. IFRS 17applies 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 wellas 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 23 Uncertainty over income tax treatmentsThis IFRIC was issue in June, 2017 and clarifies how the recognition and measurement requirements of IAS 12 Income taxes, are applied where there isuncertainty over income tax treatments. F - 35 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The IFRIC had clarified previously that IAS 12, not IAS 37 Provisions, contingent liabilities and contingent assets, applies to accounting for uncertainincome tax treatments. IFRIC 23 explains how to recognize and measure deferred and current income tax assets and liabilities where there isuncertainty 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 taxauthority. 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 uncertaintax treatment if its acceptability is uncertain under tax law. IFRIC 23 applies to all aspects of income tax accounting where there is an uncertaintyregarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates.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 initialapplication. In this approach, comparative information is not restated.Since the Company does not have any uncertainty over income tax treatments, the amendments will not have an impact on its consolidated financialstatements.Amendment to IAS 28—Investments in Associates and Joint VenturesThis amendment was issue in October, 2017 and clarify that companies account for long-term interests in an associate or joint venture to which theequity method is not applied using IFRS 9.The amendment is mandatory for annual reporting periods beginning on or after January 1, 2019. Since the Company does not have such long-terminterests in its associate and joint venture, the amendments will not have an impact on its consolidated financial statements.Amendment to IFRS 9 – Prepayment features with negative compensationThis amendment was issue in October 2017 and clarify that a financial asset passes the SPPI criterion regardless of the event or circumstance that causesthe early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract.The IASB also clarified in the Basis for Conclusions to the Amendment that, under IFRS 9, gains and losses arising on modifications of financialliabilities that do not result in derecognition should be recognised in profit or loss.The amendments should be applied retrospectively and are effective from 1 January 2019, with earlier application permitted. These amendments haveno impact on the consolidated financial statements of the Company.Amendments to IAS 19—Employee benefits’ on plan amendment, curtailment or settlementThe amendments to IAS 19 was issue in February 2018 and address the accounting when a plan amendment, curtailment or settlement occurs during areporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entityis required to: • Determine current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarialassumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets afterthat event. F - 36 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements • Determine net interest for the remainder of the period after the plan amendment, curtailment or settlement using: the net defined benefitliability (asset) reflecting the benefits offered under the plan and the plan assets after that event; and the discount rate used to remeasurethat net defined benefit liability (asset).The amendments also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of theasset ceiling. This amount is recognised in profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailmentor settlement. Any change in that effect, excluding amounts included in the net interest, is recognised in other comprehensive income.The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period thatbegins on or after January 1, 2019, with early application permitted. These Amendments will apply only to any future plan amendments, curtailments,or settlements of the Company.Amendments to IFRS 3 – Definition of a businessThis amendment was issue in October 2018 and revises the definition of a business. According to the new guidance to be considered a business, anacquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs.The amendment is effective for reporting periods beginning on or after January 1, 2020 and the Company does not expect that those amendments havea material impact on its consolidated financial statements.Amendments to IAS 1 and IAS 8—Definition of materialThe amendments to IAS 1 Presentation of financial statements, and IAS 8 Accounting policies, changes in accounting estimates and errors andconsequential amendments to other IFRSs, were issue in October 2018 and revises: i)the use of a consistent definition of materiality throughout IFRSs and the Conceptual Framework for Financial Reporting; ii)clarify the explanation of the definition of material; and iii)incorporate some of the guidance in IAS 1 about immaterial information.These amendments should be applied for annual periods beginning on or after 1 January 2020. Earlier application is permitted. The Company does notexpect that those amendments have a material impact on its consolidated financial statements.Amendments to IFRS 10 and IAS 28—Sale or Contribution of Assets between an Investor and its Associate or Joint VentureThe amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to anassociate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, asdefined in IFRS 3, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contributionof assets that do not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture.The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply themprospectively. These amendments are not applicable to the Company. F - 37 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Annual Improvements Cycle 2015–2017These improvements include: • IFRS 3 Business combinations, a company remeasures its previously held interest in a joint operation when it obtains control of thebusiness.An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annualreporting period beginning on or after 1 January 2019, with early application permitted. These amendments are currently not applicable tothe Company. • IFRS 11 Joint arrangements, a company does not remeasure its previously held interest in a joint operation when it obtains joint control ofthe business.An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reportingperiod beginning on or after 1 January 2019, with early application permitted. These amendments are currently not applicable to theCompany • IAS 12 Income taxes, all income tax consequences of dividends (including payments on financial instruments classified as equity) arerecognized consistently with the transactions that generated the distributable profits.An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application is permitted.When an entity first applies those amendments, it applies them to the income tax consequences of dividends recognized on or after thebeginning of the earliest comparative period. The Company is evaluating these amendments and plans to adopt it on the required effectivedate. • IAS 23 Borrowing costs, a company treats as part of general borrowings any borrowing originally made to develop an asset when the assetis ready for its intended use or sale.An entity applies those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which theentity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after 1 January2019, with early application permitted. The Company is evaluating these amendments and plans to adopt it on the required effective date.The Company does not expect that those amendments have a material impact on its consolidated financial statements. F - 38 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 7.Revenue from contract with customers 7.1Revenue disaggregationOperating revenues are comprised of passenger revenues, cargo and mail, and other operating revenues. The following table shows disaggregatedoperating revenues for the years ended as December 31, 2018, 2017 and 2016. 2018 2017 2016 Passenger revenue Passenger revenue $2,567,316 $2,434,820 $2,142,804 Miles redeemed 20,073 9,431 5,697 2,587,389 2,444,251 2,148,501 Cargo and mail revenue 62,483 55,290 53,989 62,483 55,290 53,989 Other operating revenue Frequent flyer program—marketing services 16,291 13,332 5,378 Other operating revenue 11,464 8,913 11,318 27,755 22,245 16,696 Total revenue $2,677,627 $2,521,786 $2,219,186 7.2Contract balancesThe significant contract liabilities are comprises of ticket sales for transportation that has not yet been provided, record as “Air traffic liability” andoutstanding loyalty program miles that may be redeemed for future travel, record as “Frequent flyer deferred revenue”.The table below presents the changes in air traffic liability: 2018 2017 2016 Balance at beginning of year $477,168 $399,796 $352,110 Deferred of revenue 2,537,772 2,511,970 2,164,165 Recognition of revenue (2,543,264) (2,434,598) (2,116,479) Balance at end of year $471,676 $477,168 $399,796 The contract duration of passenger tickets is one year. Accordingly, any revenue associated with ticket sold for future travel dates will be recognizedwithin twelve months. F - 39 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The table below presents the activity of the current and non-current frequent flyer liability:Frequent flyer liability 2018 2017 2016 Balance at beginning of year $50,312 $36,682 $18,884 Deferred of revenue 37,575 23,061 23,495 Recognition of revenue (20,073) (9,431) (5,697) Balance at end of year $67,814 $50,312 36,682 Current 30,342 17,197 10,358 Non-current 37,472 33,115 26,324 $67,814 $50,312 $36,682 Contract assets are reflected as account receivable. See note 10. 7.3Segment reportingThe Company’s business activities are conducted as one operating segment – Air transportation, the reporting results of which are regularly reviewedby management for purposes of analyzing its performance and making decisions about resource allocations. Information concerning operating revenueby geographic area for the period ended December 31 is as follows (in millions): 2018 2017 2016 North America $707.2 $610.0 $638.9 Panama 432.6 407.7 369.0 Central America and the Caribbean 289.2 275.3 273.6 Brazil 319.5 363.7 245.4 Argentina 266.3 241.4 178.6 Colombia 214.4 197.9 146.1 Others South America 448.4 425.8 367.6 $2,677.6 $2,521.8 $2,219.2 The Company attributes revenue to the geographic areas based on point of sales. Our tangible assets and capital expenditures consist primarily of flightand related ground support equipment, which is mobile across geographic markets and, therefore, has not been allocated. 8.Cash and cash equivalents 2018 2017 Checking and saving accounts $121,799 $208,440 Time deposits of no more than ninety days 34,000 30,000 Cash on hand 359 352 $156,158 $238,792 As of December 31, 2018 and 2017, the Company’s cash and cash equivalents are free of restriction or charges that could limit its availability. F - 40 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Time deposits earned interest based on rates determined by the banks in which the instruments are held, ranging between 2.45% and 2.90% for U.S.dollars investments until December 2018 (2017: between 1.49% and 1.58% for U.S. dollars investments). 9.Investments 2018 2017 Current Non Current Total Current Non Current Total Time deposits $531,002 $65,000 $596,002 $705,108 $65,953 $771,061 Bonds 35,895 74,367 110,262 — — — 566,897 139,367 706,264 705,108 65,953 771,061 Allowance for expected credit losses (697) (521) (1,218) — — — $566,200 $138,846 $705,046 $705,108 $65,953 $771,061 Time deposits earned interest based on rates determined by the banks in which the instruments are held. The use of these instruments depends on thecash requirements of the Company. Time deposits denominated with a contractual maturity of less than 365 days, bear interest at rates ranging between2.62% and 3.75% (2017: between 1.37% and 3.75%), and with a contractual maturity of more than 365 rate ranging between 3.35% and 4.38% (2017:between 3.20% and 3.75%).During 2018, the Company acquired bonds with semiannual interest payment, the interest rates of these investments ranging between 2.53% and3.32%.All of the investment at amortized cost are denominated on U.S. dollar, as a result, there is no exposure to foreign currency risk. There is also noexposure to price risk as the investments will be held to maturity.The information about the expected credit loss over these financial assets are disclosed in note 28.3. 10.Accounts receivable 2018 2017 Credit cards $56,446 $64,420 Travel agencies and airlines clearing house 32,978 36,640 Cargo and other travel agencies 11,766 6,798 Government 6,342 6,216 Trade receivables from related parties 223 318 Other 14,533 7,366 122,288 121,758 Allowance for expected credit losses (5,057) (3,673) $117,231 $118,085 Current 116,054 115,641 Non-current 1,177 2,444 $117,231 $118,085 Trade receivable are non-interest bearing and are generally on term of 30 to 90 days.See detail of trade receivables from related parties in note 23. F - 41 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements As of December 31, 2018, the Company maintained a non-current account receivable with a government institution in the amount of $2.2 million(2017: $2.4 million).The category “Other” mainly includes $10.9 million of receivables from miles partners and $1.0 million of employees accounts (2017: $3.6 millionand $1.1 million respectively).The movement in the allowance for impairment in respect of account receivables during the year was as follows. Comparative amounts for 2017represent the allowance account for impairment losses under IAS 39. 2018 2017 2016 Balance at beginning of year $(3,673) $(3,739) $(2,997) Adjustment on initial application of IFRS 9 (624) — — Balance at beginning of year under IFRS 9 (4,297) (3,739) (2,997) Additions (1,311) (879) (1,511) Write-offs 551 945 769 Balance at end of year $(5,057) $(3,673) $(3,739) The information about the credit exposures are disclosed in Note 28.3. 11.Expendable parts and supplies 2018 2017 Material for repair and maintenance $93,654 $79,424 Other inventories 3,315 3,058 96,969 82,482 Allowance for obsolescence (10,439) (657) $86,530 $81,825 Expendable parts and supplies recognized as an expense in the accompanying consolidated statement of profit or loss under “Maintenance, materialsand repairs” amount to $31.9 million, $28.1 million and $24.7 million, for the years ended December 31, 2018, 2017 and 2016, respectively.During 2018, due the recognition of impairment over the Embraer 190 fleet (see note 13), the Company estimated the amount of inventory that is notexpected to be consumed during the next 5 year, resulted in a loss of $9.6 million recognize as “Impairment of non financial assets” in theaccompanying consolidated statement of profit or loss. F - 42 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 12.Prepaid expenses 2018 2017 Prepaid taxes $40,504 $38,672 Prepaid commissions 4,694 5,297 Prepaid rent 6,849 7,479 Prepaid insurance 2,304 207 Prepaid to supplier 45,670 19,896 $100,021 $71,551 Current 74,384 45,421 Non-current 25,637 26,130 $100,021 $71,551 Prepaid taxes include $14.9 million of tax advance of VAT and withholdings taxes (2017: $12.5 million). The non-current portion of prepaid expensescorresponds to $11.2 million (2017: $12.9 million) of advance payments of taxes which are credited to future payments from tax dividends in Panamaand $14.4 million in tax credits (2017: $13.2 million).Prepaid to supplier mainly includes operating expenses related to management of fuel and maintenance services. As of December 31, 2018, includes$24.0 million (2017: $4.0 million) paid in advance to GE Engines Services, LLC, for the purpose of future maintenance services related to aircraftengines. F - 43 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 13.Property and equipment Land Flightequipment Purchasedeposits for flightequipment Ramp andmiscellaneous Furniture,fixtures,equipment aand other Leaseholdimprovements Constructionin progress Total Cost - Balance at January 1, 2016 $6,301 $3,030,361 $243,070 $43,037 $25,947 $35,866 $10,054 $3,394,636 Transfer of pre-delivery payments — 27,585 (27,585) — — — — — Additions — 94,348 34,680 3,026 1,878 73 7,435 141,440 Disposals — (36,812) — (604) (1,226) (98) — (38,740) Adjustments 100 — — 2,363 — — 2,463 Reclassifications — (340) — (289) 645 9,140 (10,896) (1,740) Balance at December 31, 2016 $6,301 $3,115,242 $250,165 $45,170 $29,607 $44,981 $6,593 $3,498,059 Transfer of pre-delivery payments — 28,674 (28,674) — — — — — Additions — 158,557 192,196 1,461 3,392 1,614 5,246 362,466 Disposals — (54,114) (54) (228) (711) — — (55,107) Reclassifications — 3,870 — 1,950 (4,764) 3448 (6,061) (1,557) Balance at December 31, 2017 $6,301 $3,252,229 $413,633 $48,353 $27,524 $50,043 $5,778 $3,803,861 Transfer of pre-delivery payments — 156,305 (156,305) — — — — — Additions — 228,302 216,732 5,434 3,773 3,388 10,795 468,424 Disposals — (20,737) — (128) (393) (6,246) (10) (27,514) Assets held for sale — (164,201) — — — — — (164,201) Reclassifications — (2,371) — 77 14 2,219 (2,310) (2,371) Balance at December 31, 2018 $6,301 $3,449,527 $474,060 $53,736 $30,918 $49,404 $14,253 $4,078,199 Accumulated depreciation - Balance at January 1, 2016 $— $(868,326) $— $(28,549) $(21,891) $(22,119) $— $(940,885) Depreciation for the year — (141,418) — (3,724) (2,284) (4,246) — (151,672) Disposals — 13,587 — 524 1,220 12 — 15,343 Adjustments — (14) — — (2,667) — — (2,681) Reclassifications (99) — (116) 41 174 — — Balance at December 31, 2016 $— $(996,270) $— $(31,865) $(25,581) $(26,179) $— $(1,079,895) Depreciation for the year — (148,188) — (3,811) (2,192) (4,505) — (158,696) Disposals — 51,233 — 200 704 — — 52,137 Reclassifications — (1,335) — (1,540) 4,110 (1,235) — — Balance at December 31, 2017 $— $(1,094,560) $— $(37,016) $(22,959) $(31,919) $— $(1,186,454) Depreciation for the year — (147,980) — (3,783) (2,506) (5,038) — (159,307) Disposals — 16,876 — 118 379 6,396 — 23,769 Assets held for sale — 75,556 — — — — — 75,556 Reclassifications — 268 — — — — — 268 Impairment (130,709) (130,709) Balance at December 31, 2018 $— $(1,280,549) $— $(40,681) $(25,086) $(30,561) $— $(1,376,877) Carrying amounts - — At December 31, 2016 $6,301 $2,118,972 $250,165 $13,305 $4,026 $18,802 $6,593 $2,418,164 At December 31, 2017 $6,301 $2,157,669 $413,633 $11,337 $4,565 $18,124 $5,778 $2,617,407 At December 31, 2018 $6,301 $2,168,978 $474,060 $13,055 $5,832 $18,843 $14,253 $2,701,322 F - 44 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Flight equipment comprises aircraft, engines, aircraft components and major maintenance.The amount of $216.7 million corresponds to the advance payments on aircraft purchase contracts during 2018 (2017: $192.2 million), which include$1.4 million of borrowing costs capitalized during the year ended December 31, 2018 (2017: $1.8 million and 2016: Nil). The rate used to determinethe amount of borrowing costs eligible for capitalization was 3.54%, which is the interest rate of the specific borrowing (see note 18).As of December 31, 2018, the carrying amount of the assets acquired under finance leases is $691.7 million (2017: $535.5 million).During 2018, 6 new aircraft were capitalized, 2 Boeing 737-800 and 4 Boeing 737 MAX 9.Aircraft with a carrying value of $1.3 billion are pledged as collateral for the obligation of the special purpose entities as of December 31, 2018 and2017.As of December 31, 2018 and 2017 construction in progress mainly comprises remodeling projects for airport facilities and offices, and theconstruction of the new hangar.Impairment of property and equipmentDuring 2018 the Company reassessed the Embraer 190 assets given it updated fleet plan and other consdiderations, as consequence the expected usefullife of the Embraer 190 fleet was shortened to 5 years from the year 2019. This review over the useful live triggered an evaluation of the recoverableamount of the Embraer 190 fleet, as the higher of the aircraft’s fair value less costs to sell and its value in use. The value in use was determined usingcash flow projections from financial budgets approved by senior management covering a five year period. The pre-tax discount rate applied to cashflow projections was 13.5%. As a result of this analysis, the Company determined the book value was in excess of its recoverable amount andrecognized an impairment of $179.0 million over to the Embraer 190 fleet, and it was written down to its fair value less cost to sell, which include theamount listed below for the 5 Embrear 190 that are held for sale as of December 31, 2018.The fair value of the Embraer 190 fleet was determine considering specific circumstances of the fleet such as aircraft age, maintenance requirements andcondition and therefore classifies as Level 2 in the fair value hierarchy. The Company reassessed the Embraer 190 assets and adjusted the depreciablelife and salvage value to align with the expected transition dates. The effect of theses change on the expected depreciation expense of this fleetamounts to $0.3 million per year.On November 2018, the shareholders of the Company approved the plan to sell five aircraft Embraer 190. Efforts to sell the aircraft have started and thesale is expected to be completed within a year from the reporting date.Asset held for sale are included under “Other current assests” in the accompanying consolidated statement of financial position (see note 17) F - 45 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 14.LeasesFinance leasesThe Company entered into finance leases of aircraft through Japanese Operating Leases with Call Option (JOLCO) arrangements. These arrangementsestablish semi-annual payments of obligations, and have a minimum lease term of 10 years, with a minimal purchase option at the end of the lease.As of December 31, 2018, the scheduled future minimum lease payments required under finance leases are as follows: Future minimumlease payments Interest Present valueof minimumlease payments Up to one year $67,743 $23,707 $66,548 One to five years 280,126 82,233 254,811 Over five years 577,164 42,371 456,661 Total minimum lease payments $925,033 $148,311 $778,020 As of December 31, 2017, the scheduled future minimum lease payments required under finance leases are as follows: Future minimumlease payments Interest Present valueof minimumlease payments Up to one year $46,274 $16,180 $45,416 One to five years 186,344 54,830 169,383 Over five years 388,005 26,924 310,388 Total minimum lease payments $620,623 $97,934 $525,187 Assets acquired under finance leases are classified under property and equipment, and the finance leases are classified as long-term debt (see note 18).Operating leasesAs of December 31, 2018, the scheduled future minimum lease payments required under aircraft and non-aircraft operating leases that have initialnon-cancellable lease terms in excess of one year are as follows: Aircraft Others Up to one year $113,233 $15,222 One to five years 322,283 75,862 More than five years 19,309 18,163 Total minimum lease payments $454,825 $109,247 Total lease expense amount to $132.5 million for the year ended December, 31 2018 (2017: $134.5 million and 2016: $138.8 million) included under“Aircraft rentals and other rentals” in the accompanying consolidated statement of profit or loss.The Company leases some aircraft under long-term lease agreements with an average duration of 10 years. Aircraft under operating leases may berenewed in accordance with management’s business plan. F - 46 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Other leased assets include real estate, airport and terminal facilities, sales offices, maintenance facilities, and general offices. Most lease agreementsinclude 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 notincluded in the determination of lease expenses until the leases are renewed. Leasehold improvements are amortized over the contractually committedlease 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 tothe 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$30.7 million (2017: $32.6 million).Total lease income amounts to $3.5 million for the year ended December 31, 2018 (2017: $3.5 million and 2016: $3.5 million), included under “Otheroperating revenue” in the accompanying consolidated statement of profit or loss.As of December 31, 2018, future minimum lease receivables under non-cancellable leases are as follows: 2018 2017 Up to one year $3,480 $3,480 One to five years 1,595 5,075 Total minimum lease rental payments $5,075 $8,555 15.Net pension assets 2018 2017 Pension assets $28,339 $23,794 Post-employment benefits (22,568) (19,997) Other employee benefits (680) (612) Total employee benefits liability $(23,248) $(20,609) Net pension asset $5,091 $3,185 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 theirbenefit 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 earningsaccumulated 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 IAS19R. These actuarial projections do not constitute a legal obligation for the Company. F - 47 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The following table summarizes the components of net benefit expense included under “Wages, salaries, benefits and other employees ‘expenses” inthe accompanying consolidated statement of profit or loss: Year ended December 31, 2018 Defined benefitobligation Fair value ofassets Defined benefitassets (liability) Current service cost (2,105) — (2,105) Interest cost on net benefit obligation (642) 666 24 Net benefit expense $(2,747) $666 $(2,081) Year ended December 31, 2017 Defined benefitobligation Fair value ofassets Defined benefitassets (liability) Current service cost (1,767) — (1,767) Interest cost on net benefit obligation (568) 778 210 Net benefit expense $(2,335) $778 $(1,557) Year ended December 31, 2016 Defined benefitobligation Fair value ofassets Defined benefitassets (liability) Current service cost (1,724) — (1,724) Interest cost on net benefit obligation (516) 689 173 Net benefit expense $(2,240) $689 $(1,551) F - 48 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes 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: Defined benefitobligation Fair value ofassets Other employeebenefits liability Defined benefitassets (liability) At January 1, 2016 $(14,468) $22,273 $(1,755) $6,050 Current service cost (1,724) — — (1,724) Interest cost (516) 689 — 173 Return on plan assets greater (less) than discountrate — 518 518 Experience (gain) loss (1,052) — — (1,052) Invesment return — 27 — 27 Assumption changes (67) — — (67) Employer contributions — 3,970 — 3,970 Benefits paid 1,329 (1,531) (75) (277) Adjustments — — 1,208 1,208 At December 31, 2016 $(16,498) $25,946 $(622) $8,826 Current service cost (1,767) — — (1,767) Interest (cost) income (568) 778 — 210 Return on plan assets greater (less) than discountrate — (21) — (21) Experience gain (loss) (2,033) — — (2,033) Invesment return — 88 — 88 Assumption changes (226) — — (226) Employer contributions — (1,677) — (1,677) Benefits paid 1,095 (1,320) — (225) Adjustments — — 10 10 As of December 31, 2017 $(19,997) $23,794 $(612) $3,185 Current service cost (2,105) — — (2,105) Interest (cost) income (642) 666 — 24 Return on plan assets greater (less) than discountrate — 483 — 483 Experience gain (loss) (1,943) — — (1,943) Invesment return — 67 — 67 Assumption changes 877 — — 877 Employer contributions 1,242 4,780 — 6,022 Benefits paid — (1,451) — (1,451) Adjustments — — (68) (68) As of December 31, 2018 $(22,568) $28,339 $(680) $5,091 As of December 31, 2018 and 2017, 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, 2018 actuarial loss of $0.3 million (2017: $2.0 million and 2016: $1.1 million) where recognized in othercomprehensive income. F - 49 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The following were the principal actuarial assumptions at the reporting date: 2018 2017 2016 Economic assumptions - Discount rate 3.91% 3.15% 3.37% Compensation—salary increase 4% 4% 4% Demographic assumptions - Mortality RP - 2000 no collar Termination 13% all ages Retirement Males 62 years Females 57 years Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would haveaffected the defined benefit obligation by the amount shown below: December, 31 2018 December, 31 2017 December, 31 2016 Increase Decrease Increase Decrease Increase Decrease Discount rate (0.5% movement) $(538) $569 $(506) $537 $(410) $434 Salary rate (0.5% movement) 103 (93) 99 (89) 122 (117) The following payments are expected contributions to the defined benefit plan in future years: 2018 2017 Up to one year $4,163 $3,424 One to five years 12,293 10,794 Over five years 13,076 11,401 Total expected payments $29,532 $25,619 F - 50 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 16.Intangible assets Other intangibles assets Goodwill License andsoftware rights Intangiblein process Total Cost - Balance at January 1, 2016 $20,380 $63,809 $17,681 $101,870 Additions — 73 14,401 14,474 Disposals — (1,546) — (1,546) Impairment loss — — (5,931) (5,931) Reclassifications — 11,813 (10,073) 1,740 Balance at December 31, 2016 20,380 74,149 16,078 110,607 Additions — 1,783 16,898 18,681 Disposals — (4,891) — (4,891) Reclassifications — 3,642 (2,085) 1,557 Balance at December 31, 2017 20,380 74,683 30,891 125,954 Additions — 2,711 27,471 30,182 Reclassifications — 16,730 (16,730) — Balance at December 31, 2018 20,380 94,124 41,632 156,136 Amortization - Balance at January 1, 2016 $— $(32,444) $— $(32,444) Amortization for the year — (10,207) — (10,207) Disposals — 1,546 — 1,546 Balance at December 31, 2016 — (41,105) — (41,105) Amortization for the year — (8,628) — (8,628) Disposals — 4,894 — 4,894 Balance at December 31, 2017 — (44,839) — (44,839) Amortization for the year — (10,129) — (10,129) Balance at December 31, 2018 — (54,968) — (54,968) Carrying amounts - At December 31, 2016 $20,380 $33,044 $16,078 $69,502 At December 31, 2017 $20,380 $29,844 $30,891 $81,115 At December 31, 2018 $20,380 $39,156 $41,632 $101,168 GoodwillThe Company performed its annual impairment test in September 2018 and 2107 and the recoverable amount was estimated at $5.2 billion (2017: $4.4billion), 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 3.0% growth rate. It was concluded that no impairment charge is necessary sincethe estimated recoverable amount of the CGU exceed its carrying value by approximately 51%. F - 51 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Key assumptions used in value in use calculationsThe 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 aboutfuture 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 estimatingthe cash flows for use in the residual value calculation, it is essential to clearly define the normalized cash flows level, the appropriatediscount rate for the degree of risk inherent in that return stream, and a constant future growth rate for the related cash flows. To estimate thevalue, the Gordon Growth Model was used. • Discount rates – The selected pre-tax rate of 13.5% represents the current market assessment of the risks specific to the CGU, taking intoconsideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flowestimates. The discount rate calculation is based on the specific circumstances of the Company and its operating segment and is derivedfrom its pre-tax weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity isderived from the expected return on investment by the Company’s investors. The cost of debt is based on the interest-bearing borrowingsthe Company is obliged to service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are evaluatedannually based on publicly available market data.Sensitivity to changes in assumptions • The Company estimated that a reduction to 12.5% or an increase to 14.5% in the discount rate would not cause the carrying amounts toexceed the recoverable amount.Other intangible assetsIntangible assets in processIntangible assets in process as of December 31, 2018 and 2017 mainly comprise improvements to the tickets reservation system, and other operationalsystem.During 2018, the Company capitalized a $16.7 million of a new internet booking engine, renew aircraft maintenance systems and other programs.During 2016, the Company evaluated the recoverability of the development cost generated in a project in process related to some systems; as a resultof this evaluation, the Company recognized an impairment of $5.9 million of incurred cost that will no longer generate probable future economicbenefits.During 2016, the Company capitalized an $11.8 million of a new operating and administrative systems and other program for ConnectMiles. F - 52 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 17.Other assets 2018 2017 Current - Asset held for sale $40,330 $— Interest receivable 12,534 10,443 Other 1,522 1,258 54,386 11,701 Non-current - Guarantee deposits 20,015 14,568 Deposits for litigation 10,672 12,390 Other 3,212 4,182 33,899 31,140 $88,285 $42,841 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 2018 Duethrough Effective ratesranged CarryingAmount Long-term fixed rate debt 2028 1.58% to 4.90% 779,592 Long-term variable rate debt 2028 2.67% to 3.91% 367,656 Loans payables 2019 3.41% to 3.71% 140,000 1,287,248 Current maturities (311,965) Long-term debt $975,283 2017 Duethrough Effective ratesranged CarryingAmount Long-term fixed rate debt 2025 1.81% to 5.58% $626,150 Long-term variable rate debt 2027 1.54% to 3.04% 420,634 Loans payables 2018 2.33% to 2.58% 127,797 1,174,581 Current maturities (298,462) Long-term debt $876,119 F - 53 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Maturities of long-term debt for the next five years are as follows: Year ending December 31, 2019 311,965 2020 128,842 2021 111,469 2022 104,893 2023 83,499 Thereafter 546,580 $1,287,248 As of December 31, 2018, long-term fixed rate debt included $601.3 million (2017: $394.2 million) and long-term variable debt included$175.5 million corresponding to finance leases using a JOLCO structure (2017: $128.4 million) (see note 14).As of December 31, 2018 the Company had $297.8 million (2017: $372.0 million) of outstanding indebtedness that is owed to financial institutionsunder financing arrangements guaranteed by the Export-Import Bank of the United States. The Export-Import Bank guarantees support 80% of the netpurchase 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 bearinterest at a floating rate linked to LIBOR. The Export-Import Bank guaranteed facilities typically offer an option to fix the applicable interestrate. The Company has exercised this option with respect to $178.3 million as of December 31, 2018 (2017: $231.9 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 Amortizationand Repayment” (SOAR), structure which provides serial draw-downs, calculated to result in a 100% loan accreting to a recourse balloon at thematurity of the Export-Import Bank guaranteed loan. The Company currently has 4 aircraft finance under SOAR structure which had an outstandingbalance of $15.0 million as of December 31, 2018 (2017: $28.3 million).As of December 31, 2018, the loan payable in the amount of $140.0 million (2017: $127.8 million) resulted from the use of the lines of credits (seenote 27 for information regarding financial covenants related to the Company’s financial agreement). F - 54 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The detail of finance cost and income is as follows: 2018 2017 2016 Finance income - Interest income on short-term bank deposits $1,670 $1,499 $675 Interest income on investment 21,958 16,440 12,325 $23,628 $17,939 $13,000 Finance cost - Interests expense on bank loans $(34,687) $(32,599) $(32,647) Interest on factoring (1,163) (2,624) (4,377) $(35,850) $(35,223) $(37,024) Changes in liabilities arising from financing activities: 2017 Cash flows New debt Non-cashtransactions 2018 Debt Obligations under finance leases $522,690 $(34,899) $— $289,000 $776,791 Debt 651,891 (366,434) 225,000 — 510,457 Total liabilities from financing activities $1,174,581 $(401,333) $225,000 $289,000 $1,287,248 During 2018, the Company’s non-cash investing and financing transactions are comprised of $289.0 million related to the acquisition of new aircraftthat are financed using the JOLCO structure (see note 14). 19.Trade, other payables and financial liabilities 2018 2017 Account payables $124,962 $116,554 Account payables to related parties 15,464 12,880 140,426 129,434 Others 604 1,156 $141,030 $130,590 See details of the account due to related parties in note 23. 20.Accrued expenses payable 2018 2017 Accruals and estimations $4,500 $9,059 Labor related provisions 36,953 44,188 Liability for social security contributions 4,955 6,432 Other 982 642 $47,390 $60,321 As of December 31, 2018, accruals and estimations include the estimated balance of the current portion of the provision for maintenance of$4.5 million (2017: 4.2 million) (see note 21). F - 55 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 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.Labor related provisions include a profit-sharing program for both management and non-management staff. For members of management, profit-sharingis based on a combination of the Company’s performance as a whole and the achievement of individual goals. Profit-sharing for non-managementemployees is based solely on the Company’s performance. The accrual at year-end represents the amount expensed for the current year, which isexpected to be settled within 12 months. 21.Other long-term liabilities Provisionfor litigations Provision forreturn condition Other long-termliabilities Total Balance at January 1, 2018 $ 15,152 $92,974 $ 31,554 $ 139,680 Increases 302 17,067 364 17,733 Used (753) (6,540) (4,568) (11,861) Reclassification — — (1,506) (1,506) Effect of movements in exchange rates (1,822) — — (1,822) Balance at December 31, 2018 $12,879 $ 103,501 $25,844 $142,224 Current — — 4,500 4,500 Non-current 12,879 103,501 21,344 137,724 $12,879 $103,501 $25,844 $142,224 Provision for litigationProvisions 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 airportoperator, the legality of the Additional Airport Tariffs (Adicional das Tarifas Aeroportuárias, or ATAERO), which is a 50% surcharge imposed on allairlines which fly to Brazil. Similar suits have been filed against INFRAERO by other major airline carriers. In this case, the court of first instance ruledin favor of INFRAERO and the Company has appealed the judgment. While the litigation is still pending, the Company continues to pay the ATAEROamounts due into an escrow account and as of December 31, 2018, the aggregate amount in such account totaled $10.6 million (2017: $12.4 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 ableto recover such amounts. The Company does not, however, expect the release of such amounts to have a material impact on its financial results sincethese amounts already had been expensed.Provision for return conditionFor operating leases, the Company is contractually obliged to return aircraft in an agreed-upon condition. The Company accrues for restitution costsrelated to aircraft held under operating leases throughout the duration of the lease. The Company has been not have planned aircrafts return on 2019.As of December 31, 2017, the Company presented the estimated balance of the current portion of this provision as “Accrued expenses payable” in theconsolidated statement of financial position (see note 20). F - 56 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Other long-term liabilitiesOther long-term liabilities include principally the provision for maintenance which mainly include the accrual of formal agreements with third partiesfor operational maintenance events. The cost of these agreements are billed by power by the hour and charged to the consolidated statement of profit orloss. As of December 31, 2018, the provision for maintenance amount to $22.9 million (2017: $28.9 million) and the Company has presented theestimated balance of the current portion of this provision as “Accrued expenses payable” in the consolidated statement of financial position (see note20).Other long-term liabilities also include the provision for the non-compete agreement created for payment to senior management related to covenantsnot to compete with the Company in the future (relative to the $2.6 million trust fund). This provision is accounted for as “Other long-term employeebenefits” under IAS 19R Employee benefits. The accrued amount is revalued annually using the projected benefit method as required by IAS 19R. 22.Income taxes 2018 2017 2016 Current taxes expense - Current period $(35,258) $(43,034) $(31,666) Adjustment for prior period 261 455 (127) $(34,997) $(42,579) $(31,793) Deferred taxes expenses - Origination and reversal of temporary differences 467 (6,731) (6,478) Total income tax expense $(34,530) $(49,310) $(38,271) During the year 2018, the deferred tax balances have been re-measured as a result of the change in Colombia’s income tax rate, 33%, 32%, 31% and30% for the taxable year 2019, 2020, 2021 and 2022, respectively according to the law N°1943 published on December 28, 2018. Deferred taxexpected to reverse in the year 2019, has been measured using the effective rate that will apply in Colombia for the period (33%). F - 57 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The balances of deferred taxes are as follows: Statementof financial position Statement ofprofit or loss 2018 2017 2018 2017 2016 Deferred tax liabilities Maintenance deposits $(29,863) $(26,586) $3,277 $2,796 $2,286 Prepaid dividend tax (8,859) (14,103) (5,244) 1,671 5,300 Property and equipment (7,396) (9,532) (2,136) 2,107 (1,599) Other (4,691) (4,050) 641 (1,962) (10,147) Set off tax 1,869 1,806 (63) 2,879 16,269 $(48,940) $(52,465) $(3,525) $7,491 $12,109 Deferred tax assets Provision for return conditions $7,136 $7,859 $723 $(253) $4,417 Air traffic liability 1,792 1,281 (511) (266) 305 Fuel derivative — — — 107 4,403 Other provisions 4,687 4,416 (271) (272) (3,059) Tax loss 4,295 7,349 3,054 2,803 4,572 Set off tax (1,869) (1,806) 63 (2,879) (16,269) $16,041 $19,099 $3,058 $(760) $(5,631) $(32,899) $(33,366) $(467) $6,731 $6,478 At December 31, 2018 the deferred tax assets include an amount of $4.3 million ($7.3 million at December, 2017) which relates to carried forward taxlosses of Copa Colombia. During 2018, the subsidiary generated a tax profit. The Company has concluded that the deferred assets will be recoverableusing the estimated future taxable income based on the approved business plans for the subsidiary. The Company expects to use the remaining taxlosses 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 $453.8 million as of December 31, 2018 (2017: $397.9 million).Reconciliation of the effective tax rate is as follows: Tax rate 2018 Tax rate 2017 Tax rate 2016 Net income $88,095 $364,045 $323,409 Total income tax expense 34,530 49,310 38,271 Profit excluding income tax 122,625 413,355 361,680 Income taxes at Panamanian statutory rates 25.0% 30,656 25.0% 103,339 25.0% 90,420 Stations - Taxable/Panama (19.6%) (23,986) (7.8%) (32,043) (5.5%) (20,150) Stations - Taxable/Non Panama 9.2% 11,319 1.7% 6,856 0.9% 3,383 Stations - Non Taxable/Non panama 3.4% 4,106 (9.4%) (38,684) (9.8%) (35,509) Dividend tax 10.4% 12,696 2.5% 10,297 0.0% — (Over) under provided in prior periods (0.2%) (261) (0.1%) (455) 0.04% 127 Provision for income taxes 28.2% $34,530 11.9% $49,310 10.6% $38,271 F - 58 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 23.Accounts and transactions with related parties 2018 2017 Account receivable - Panama Air Cargo Terminal $102 $254 Banco General, S.A. 102 12 Petroleos Delta, S.A. 10 19 Editora del Caribe, S.A. 8 32 Lubricantes Delta, S.A. 1 — Assa Compañía de Seguros, S.A. — 1 $223 $318 Account payable - Petróleos Delta, S.A. $12,150 $10,371 Assa Compañía de Seguros, S.A. 2,224 1,431 Desarrollos Inmobiliarios del Este, S.A. 811 650 Banco General, S.A. 135 — Panama Air Cargo Terminal 53 200 Galindo, Arias & López 43 31 Motta International, S.A. 48 81 Cable Onda, S.A. — 112 Global Brands, S.A. — 4 $15,464 $12,880 Transactions with related parties for the year ended December 31 are as follows: Related party Transaction Amount oftransaction2018 Amount oftransaction2017 Amount oftransaction2016 Petróleos Delta, S.A. Purchase of jet fuel 398,733 290,172 229,899 ASSA Compañía de Seguros, S.A. Insurance 9,735 8,527 7,128 Panama Air Cargo Terminal Handling 5,849 4,869 — Profuturo Administradora de Fondos de Pensión y Cesantía Payments 4,716 2,386 3,238 Desarrollo Inmobiliario del Este, S.A. Property leasing 3,838 3,625 3,795 Motta International Purchase 1,585 1,632 1,646 Cable Onda, S.A. Communications 1,687 1,448 1,625 Galindo, Arias & López Legal services 490 373 341 GBM International, Inc. Technological support 231 273 272 Global Brands, S.A. Purchase 55 79 67 Lubricantes Delta, S.A. Fuel accesories — — 63 Editora del Caribe, S.A. Advertising — 4 (162) Banco General, S.A. Interest income $(3,781) $(2,986) $(1,284) 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 isthe 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.Also the Company has interest receivable by $1.8 million (2017: $2.3 million) due to short and long term time deposits in this financial institution. F - 59 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 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 fouryears, and the last contract subscribed was on June, 2016.As of December 31, 2018, the Company maintained guarantee deposits with Petróleos Delta, S.A. in the amount of $16.1 million (2017: $11.8 million),recorded as “Other non-current assets” in the consolidated statement of financial position. While the Company’s controlling shareholders do not hold acontrolling 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 theCompany’s insurance policies.Desarrollo Inmobiliario del Este, S. A.: The Company leases six floors consisting of approximately 121,686 square feet of the building from DesarrolloInmobiliario, 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 MottaInternacional, 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 ofthe 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 Boardof Directors.Editora del Caribe, S.A.: this Panamanian publisher is responsible for publishing the official journal of Copa Airlines “Panorama of the Americas”. Amember 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’sBoard 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 personnelKey management personnel compensation is as follows: 2018 2017 2016 Short-term employee benefits $6,104 $5,133 $3,763 Post-employment pension 117 99 72 Share-based payments 5,092 5,524 5,799 $11,313 $10,756 $9,634 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 - 60 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 24.EquityCommon stockThe authorized capital stock consists of 80 million shares of common stock without par value, divided into Class A shares, Class B shares, and Class Cshares. As of December 31, 2018, the Company had 33,816,276 Class A shares issued (2017: 33,776,480) and 31,257,686 shares outstanding (2017:31,185,641), 10,938,125 Class B shares issued and outstanding (2017: 10,938,125) and no Class C shares outstanding. Class A and Class B shareshave the same economic rights and privileges, including the right to receive dividends. • Class A sharesThe holders of the Class A shares are not entitled to vote at our shareholders’ meetings, except in connection with the following specific matters: (i) atransformation of the Company into another corporate type; (ii) a merger, consolidation, or spin-off of the Company, (iii) a change of corporatepurpose; (iv) voluntarily delisting Class A shares from the NYSE; (v) and any amendment to the foregoing special voting provisions adverselyaffecting the rights and privileges of the Class A shares. • Class B sharesEvery 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 onlybe 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 Bshare 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 toregistering the transfer to them of Class B shares. • Class C sharesThe Independent Directors Committee of the Board of Directors, or the Board of Directors as a whole if applicable, is authorized to issue Class C sharesto 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 valueand will not be transferable except to Class B holders, but will possess such voting rights as the Independent Directors Committee shall deem necessaryto 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 eventshall 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 unlessthe 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.DividendsThe payment of dividends on shares is subject to the discretion of the Board of Directors. Under Panamanian law, the Company may pay dividendsonly out of retained earnings and capital surplus. The Articles of Incorporation provides that all dividends declared by the Board of Directors will bepaid equally with respect to all of the Class A and Class B shares. F - 61 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes 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 yearlydividends to shareholders in an amount of up to 40% of the prior year’s annual consolidated underlying net income, distributed in equal quarterlyinstallments upon board ratifications.In 2018, the Company paid quarterly dividends in the amount of $0.87 per share (2017: $0.51 per share for the first and second quarters and $0.75 pershare for the third and fourth quarter).Treasury stockWhen shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable cost net of any taxeffects, 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 anddiluted 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 totime, 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 threemonths for a total amount of $100 million. On December 15, 2015, the Bank delivered to the Company 1,960,250 shares, recognized at the settlementprice of $51.01 per share. 25.Share-based paymentsThe Company has established equity compensation plans under which it administers restricted stock, stock options, and certain other equity-basedawards to attract, retain, and motivate executive officers, certain key employees, and non-employee directors to compensate them for theircontributions to the growth and profitability of the Company. Shares delivered under this award program may be sourced from treasury stock, orauthorized unissued shares.The Company’s equity compensation plans are accounted for under IFRS 2 Share-Based Payment (“IFRS 2”). IFRS 2 requires companies to measurethe 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 ofthe award at each reporting date, depending on the type of award granted. The resulting cost is recognized over the period during which an employee isrequired 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 $7.1 million, $7.4 million, and $7.5 million in 2018,2017, and 2016, respectively, and was recorded as a component of “Wages, salaries, benefits and other employees’ expenses” within operatingexpenses.Non-vested StockThe Company approved a non-vested stock bonus award for certain executive officers of the Company. F - 62 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes 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 Numberof instruments Vesting conditions Contractuallife February, 2015 13,709 One-third every anniversary 3 yearsApril, 2015 4,915 15% first three anniversaries 5 years 25% fourth anniversary30% fifth anniversary June, 2015 10,920 One-third every anniversary 3 yearsJune, 2015 4,912 Third anniversary 3 yearsJune, 2015 6,750 15% first three anniversaries 5 years 25% fourth anniversary30% fifth anniversary December, 2015 429 Third anniversary 3 yearsFebruary, 2016 19,012 One-third every anniversary 3 yearsFebruary, 2016 147,000 15% first three anniversaries 5 years 25% fourth anniversary30% fifth anniversary February, 2016 63,000 Fifth anniversary 5 yearsMay, 2016 7,899 15% first three anniversaries 5 years 25% fourth anniversary30% fifth anniversary May, 2016 4,739 One-third every anniversary 3 yearsJune, 2016 25,280 One-third every anniversary 3 yearsJune, 2016 7,925 Third anniversary 3 yearsSeptember, 2016 6,668 Third anniversary 3 yearsSeptember, 2016 5,005 One-third every anniversary 3 yearsFebruary, 2017 22,012 One-third every anniversary 3 yearsJune, 2017 11,980 One-third every anniversary 3 yearsJune, 2017 2,237 Third anniversary 3 yearsFebruary, 2018 21,556 7% first month31% first three anniversaries 3 yearsFebruary, 2018 14,379 33% first three anniversaries 3 yearsFebruary, 2018 1,316 15% first three anniversaries 5 years 25% fourth30% fifth anniversary July, 2018 6,104 Third anniversary 3 yearsNon-vested stock awards were measured at their fair value on the grant date. For the 2018 grants, the fair value of these non-vested stock awardsamounts to $135.81 per share (2017: $107.29). F - 63 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements A summary of the non-vested stock award activity under the plan as of December 31, 2018 and 2017 with changes during these years is as follows (innumber of shares): 2018 2017 2016 Non-vested as of January 1 304,153 333,183 139,962 Granted 43,355 36,229 291,872 Vested (72,045) (62,224) (94,208) Forfeited (3,559) (3,035) (4,443) Non-vested as of December 31 271,904 304,153 333,183 The Company uses the accelerated attribution method to recognize the compensation cost for awards with graded vesting periods. The Companyestimates that the remaining compensation cost, not yet recognized for the non-vested stock awards, amounts to $9.8 million (2017: $9.3 million), witha weighted average remaining contractual life of 2.3 years (2017: 2.1 years). Additionally, the Company estimates that the 2019 compensation costrelated to these plans amounts to $4.77 million.The Company plans to make additional equity-based awards under the plan from time to time, including additional non-vested stock and stock optionawards. The Company anticipates that future employee non-vested stock and stock option awards granted pursuant to the plan will generally vest overa three to five year period and the stock options will carry a ten-year term. 26.Earnings per shareBasic earnings per share amounts are calculated by dividing the net profit (loss) for the year attributable to ordinary equity holders of the parent by theweighted average number of shares outstanding during the year, increased by the number of non-vested dividend participating share-based paymentawards 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 weightedaverage number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued onconversion of all the dilutive potential ordinary shares into ordinary shares, when the effect of their inclusion is dilutive (decreases earnings per shareor increases loss per share).The computation of the income and share data used in the basic and diluted earnings per share is as follows: 2018 2017 2016 Basic earnings per share - Net income $88,095 $364,045 $323,409 Weighted-average shares outstanding 42,182 42,111 42,036 Non-vested dividend participating awards 274 308 322 42,456 42,419 42,358 2.07 8.58 7.63 F - 64 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 2018 2017 2016 Diluted earnings per share - Net income $88,095 $364,045 $323,409 Weighted-average shares outstanding used for basic earnings per share 42,456 42,419 42,358 Share options on issue — — 5 $42,456 $42,419 $42,363 2.07 8.58 7.63 27.Commitments and contingenciesPurchase contractsAs of December 31, 2018, the Company has subscribed a purchase contract with Boeing consisting of sixty seven (67) Boeing 737 MAX aircraft, whichwill be delivered between 2019 and 2025.The firm orders have an approximate value of $8.8 billion based on aircraft list prices, including estimated amounts for contractual price escalation andpre-delivery deposits.Covenants As a result of the various aircraft financing contracts entered into by the Company, the Company is required to comply with certain financialcovenants. These covenants, among other things, require the Company to maintain earnings before income taxes, depreciation, amortization, andrestructuring, or rent cost (“EBITDAR”) to a fixed charge ratio of at least 2.5 times, a minimum tangible net worth of $16.0 million, an EBITDAR to afinance 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 inavailable cash, cash equivalents, and short-term investments. Breaches in meeting the financial covenants would permit the bank to immediately callloans and borrowings.As of December 31, 2018, the total of aircraft financing contracts with covenants were paid. As of December 21, 2017, the Company was in compliancewith all required covenants.Labor unions Approximately 63.2% of the Company’s 9,450 employees are unionized. There are currently eight (8) union organizations, four (4) coveringemployees in Panama and four (4) covering employees in Colombia. The Company traditionally had good relations with its employees and with all theunions and expects to continue to enjoy good relations with its employees and the unions in the future.The four (4) unions covering employees in Panama include the pilots’ union (UNPAC); the flight attendants’ union (SIPANAB); the mechanics’ union(SITECMAP), and the industry union (SIELAS), which represents ground personnel, messengers, drivers, passenger service agents, counter agents, andother 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 inJune 2018 and the flight attendants’ union in October 2018. F - 65 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 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. ACDAC has not yet resolved and ACAV ended with an arbitrationprocess and we have a new arbitration collective document for terms of two years until September 2020. Additionally, SINTRATAC and Copa enteredinto collective bargaining agreement in December 2017 for terms of four years until December 2021. Negotiations with ACMA were resolved byarbitration on December 31, 2015, extending the validation every 6 months from this date, until June 30, 2018. ACMA has not presented a new bill ofpetition.Typically, collective bargaining agreements in Colombia have terms of two to three years. Although Copa Colombia usually settles many of itscollective 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 airlineindustry employees in the country; employees in Uruguay are covered by an industry union, and airport employees in Argentina are affiliated to anindustry union (UPADEP).Lines of credit for working capital and letters of creditThe Company maintained letters of credit with several banks with a value of $25.9 million as of December 31, 2018 (2017: $25.5 million). Theseletters of credit are pledged mainly for operating lessors, maintenance providers and airport operators.The Company, has short term unsecured credit facilities with financial institutions in the aggregate amount of $212.3 million. These lines of credithave been put in place to pre-delivery payments and for working capital purposes. As of December 31, 2018, our outstanding borrowings under thesecredit lines were $140.0 million (2017: $127.8 million).Tax auditIn March 2016, the Company received notifications from the tax authorities in Colombia. The Company, along with its tax advisors, has concludedthat it is not probable that an outflow of resources embodying economic benefits will be required to settle them, especially considering that theCompany 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 valueIn the normal course of its operations, the Company is exposed to a variety of financial risks: market risk (especially cash flow, currency, commodityprices and interest rate risk), credit risks and liquidity risk. The Company has established risk management policies to minimize potential adverseeffects on the Company’s financial performance: 28.1Fuel price riskThe Company has risks that are common in its industry, related to the price level of aircraft fuel, which can significantly affect its operations, financialposition and liquidity.In the past the Company has entered into financial derivative contracts in an effort to mitigate this risk, but with inconsistent results. The Company hasnot entered into new fuel hedge contracts, and has adopted a new strategy of remaining unhedged, while regularly reviewing its policies based onmarket conditions and others factors. As of December 31, 2018, The Company did not have any outstanding fuel hedge contracts. F - 66 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The Company’s derivative in 2017 contracts did not qualify as hedges for financial reporting purposes. Accordingly, changes in fair value of suchderivative contracts, which amounted to gains of in 2017 of $2.8 million and loss of $111.6 million in 2016, were recorded as a component of “Netchange in fair value of derivatives” in the accompanying consolidated statement of profit or loss.The Company’s derivative contracts matured in December 2017, the fair value of derivative was recorded in “Trade, other payables and financialliabilities” in 2017 in the consolidated statement of financial position. The Company’s purchases of jet fuel are made primarily from one supplier (seenote 19).Fuel price risk is estimated as a hypothetical 10% increase in the December 31, 2018 cost per gallon of fuel. Based on projected 2019 fuelconsumption, such an increase would result in an increase to aircraft fuel expense of approximately $58.0 million in 2019 (unaudited). 28.2Market riskForeign currency riskForeign exchange risk is originated when the Company performs transactions and maintains monetary assets and liabilities in currencies that aredifferent from the functional currency of the Company. Assets and liabilities in foreign currency are translated using with the exchange rates at the endof 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 andmaintained 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 ofprofit 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’soperating expenses are also denominated in U.S. dollars, approximately 44.7% of revenues and 55.3% of expenses, respectively. A significant part ofour revenue is denominated in foreign currencies, including the Brazilian real, Colombian peso and Argentinian peso, which represented 22.7%, 11.3%and 7.2%, respectively (2017: 16.5%, 11.4% and 7.8% 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 totwo 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 torepatriate funds. To reduce the cash exposure in Venezuela, the Company processes its passenger tickets mainly in U.S. dollars, constantly monitorssales and adjusts capacity.On July 25, 2018, the Venezuelan government published the official gazette No. 41,460 where is indicated the unit of the monetary system of theBolivarian Republic of Venezuela has been restated. The Banco Central de Venezuela have introduced their new Bolivar Soberano since August 20,2018. The new currency replaced the “Bolivar Fuerte”, the older currency that was being used, and consists in the elimination of five zeros from it. F - 67 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The following chart summarizes the Company’s foreign currency risk exposure (assets and liabilities denominated in foreign currency) as ofDecember 31: 2018 2017 Assets Cash and cash equivalents $53,123 $25,189 Investments 2 277 Accounts receivable, net 68,171 75,769 Other assets 19,107 29,459 Total assets $140,403 $130,694 Liabilities Accounts payable 48,501 37,186 Taxes payable 40,243 50,922 Other liabilities 20,771 25,471 Total liabilities $109,515 $113,579 Net position $30,888 $17,114 From time to time the, Company enters into factoring agreements on receivables outstanding on credit card sales in certain countries. 28.3Credit riskCredit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. TheCompany is exposed to credit risk from its financing activities, including deposits with banks and investments in financial instruments and from itsaccount receivables.The carrying amounts of financial assets represent the maximum credit risk.Short and long-term investmentsTo mitigate the credit risk arising from deposits in bank and investments in financial instruments, the Company only conducts business with financialinstitutions that have an investment grade above BBB-from Standard & Poor’s, with strength and liquidity indicators aligning with or above themarket average.The Company has established a policy to perform an assessment, at the end of each quarterly reporting period, of whether a financial instrument’scredit risk has increased significantly since initial recognition, by monitors changes in credit risk ratings published by Standard & Poor’s.As the financial instruments are considered to be low risk, the impairment provision is determined at 12-month ECLs using the general approach asprescribed by IFRS 9.The movement in the allowance for impairment for short and long-term investments at amortized cost during the year was as follows. F - 68 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 2018 Balance at beginning of year (under IAS 39) $— Adjustment on initial application of IFRS 9 (1,120) Balance at beginning of year under IFRS 9 (1,120) Additions (98) Balance at end of year $(1,218) Account receivablesRegarding credit risk originating from commercial accounts receivable, the Company does not consider it significant since most of the accountsreceivable can be easily converted into cash, usually in periods no longer than one month. The risk is managed by each business unit subject to theCompany’s established policy, procedures and control relating to customer credit risk management. Specific credit limits and payment terms have beenestablished 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 generallyshort-term and usually collected before revenue is recognized. The Company considers that the credit risk associated with these accounts receivable iscontrollable based on the industry’s trends and strong policies and procedures established and followed by the Company.As result of the previously explained, the Company evaluates the concentration of risk with respect to trade receivables as low.An impairment analysis is performed at each quarterly reporting date using a provision matrix to measure expected credit losses. Loss rates arecalculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to write-off. Tomeasure the ECLs, trade receivables have been grouped based on shared credit risk characteristics and the day past due.Loss rates are based on actual credit loss experience over the last 12 months and adjusted for forward-looking factors specific to the debtors and theeconomic environment over the expected life of the receivables.The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions andoperate in largely independent markets.Set out below is the information about the credit risk exposure on the Company’s trade receivables using a provision matrix at December 31, 2018: Account receivables Days past due Total Current <30 30-60 60-90 >90 Expected credit loss rate 0.1% 16.8% 26.8% 48.1% 59.8% Gross carrying amount $122,288 $112,394 $1,799 $533 $312 $7,250 Expected credit loss $5,057 $124 $303 $143 $150 $4,337 F - 69 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements The information as of December 31, 2017 under IAS 39 is as follows: 2017 Neither past due nor impaired $115,685 Past due 1 to 30 days 1,286 Past due 31 to 60 days 617 More than 60 days 497 118,085 Impaired 3,673 Total accounts receivable $121,758 28.4Interest rate and cash flow riskThe income and operating cash flows of the Company are substantially independent of changes in interest rates, because the Company does not havesignificant 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 debt related to aircraft financing. These long-term lease payments at variable interest rates exposethe Company to cash flow risk. The Company mitigates this risk by entering into fixed rate financing agreements in at least half of its outstanding debt.As of December 31, 2018 and 2017, fixed interest rates range from 1.58% to 4.90%, 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 debtinstruments and operating leases, and on interest income generated from cash and investment balances. If the interest rate average is 10% more in 2019than in 2018, the interest expense would increase by approximately $1.4 million and the fair value of the debt would decrease by approximately$10.2 million. If interest rates average 10% less in 2019 than in 2018, the interest income from marketable securities would decrease by approximately$1.4 million and the fair value of the debt would increase by approximately $10.2 million. These amounts are determined by considering the impact ofthe hypothetical interest rates on the variable-rate debt and marketable securities equivalent balances at December 31, 2018. 28.5Liquidity riskThe Company’s policy requires having sufficient cash to fulfill its obligations. The Company maintains sufficient cash on hand and in banks or cashequivalents that are highly liquid. The Company also has credit lines in financial institutions that allow it to withstand potential cash shortages tofulfill 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 contractualundiscounted cash flows. Balances due within twelve months equal their carrying balances as the impact of discounting is not significant. F - 70 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements December 31, 2018 Note Carryingamount Contractualcash flow Less thantwelve months Between 1and 4 years More than4 years Non-derivative financial liabilities Debt 18 $1,287,248 $1,465,223 $348,654 $529,624 $586,945 Account payable 19 124,962 124,962 124,962 — — Account payable to related parties 19 15,464 15,464 15,464 — — $1,427,674 $1,605,649 $489,080 $529,624 $586,945 December 31, 2017 Note Carryingamount Contractualcash flow Less thantwelve months Between 1and 4 years More than4 years Non-derivative financial liabilities Debt 18 $1,174,581 $1,313,191 $329,284 $549,726 $434,181 Account payable 19 116,554 116,554 116,554 — — Account payable to related parties 19 12,880 12,880 12,880 — — $1,304,015 $1,442,625 $458,718 $549,726 $434,181 28.6Equity risk managementThe Company’s objectives when managing equity are to safeguard the Company’s ability to continue as a going concern in order to provide returns forshareholders 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 bytotal equity. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated statement offinancial position), less cash and cash equivalents and short-term investments. Total capitalization is calculated as equity as shown in the consolidatedstatement of financial position plus net debt.The Company’s gearing ratio (unaudited) is a follows: 2018 2017 Total debt (note 18) $1,287,248 $1,174,581 Less: non-restricted cash and cash equivalents and short-term investments (722,358) (943,900) Net debt 564,890 230,681 Total equity 1,840,679 1,895,126 Total capitalization 2,405,569 2,125,807 Gearing ratio 23.5% 10.9% F - 71 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements 28.7Fair value measurementThe following table shows the carrying amount and fair values of financial assets and financial liabilities as of December 31: Carrying amount Fair Value Note 2018 2017 2018 2017 Financial assets Cash and cash equivalents 8 $156,158 $238,792 $156,158 $238,792 Short-term investments 9 566,200 705,108 566,200 705,108 Account receivable 10 117,231 118,085 117,231 118,085 Long-term investments 9 138,846 65,953 138,349 65,953 Financial liabilities Debt 18 1,287,248 1,174,581 1,147,248 1,053,070 Account payable 19 140,426 129,434 140,426 129,434 The fair value of the financial assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willingparties, 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 theseinstruments. • Long-term investments in bonds are based on published price quotations in an active market at the reporting date. • Accounts receivable are evaluated by the Company based on parameters such as interest rates, and risk characteristics. Based on thisevaluation, 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 currentincremental borrowing for a similar liability. 29.Subsequent eventsStock GrantsDuring the first quarter of 2019, the Compensation Committee of the Company’s Board of Directors approved three awards. Awards under these planswill grant approximately 30,412 shares of non-vested stock, which will vest over a period of three years. The Company estimates the fair value of theseawards to be approximately $2.7 million and the 2019 compensation cost for these plans will be $1.4 million.Sale of aircrafDuring the first quarter of 2019, the Company delivered the two first Embraer 190 aircraft classified as “Other current asset” in the consolidatedstatement of financial position (see note 13). F - 72 (Continued) Table of ContentsCOPA HOLDINGS, S. A. AND SUBSIDIARIESNotes to the consolidated financial statements Suspension of operations Max 9During the first quarter of 2019, the Company temporarily suspended operations of its Boeing 737 MAX 9 aircraft during the investigation into thecause of the accident of Ethiopian Airlines involving a Boeing 737 MAX 8 aircraft. Regulatory authorities around the world grounded the aircraft. TheCompany estimates this suspension would increase the maintenance expenses and could cause flight cancellations and other interruptions in theservices. F - 73 (Continued) EXHIBIT 12.1CertificationI, Pedro Heilbron, certify that: 1.I have reviewed this annual report on Form 20-F of Copa Holdings, S.A.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-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 oursupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us byothers 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 underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor 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 theeffectiveness 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 coveredby the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financialreporting; and 5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalentfunctions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably 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 internalcontrol over financial reporting.Date: April 24, 2019 /s/ Pedro HeilbronPedro HeilbronChief Executive Officer (Section 302 CEO Certification) EXHIBIT 12.2CertificationI, Jose Montero, certify that: 1.I have reviewed this annual report on Form 20-F of Copa Holdings, S.A.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-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 oursupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us byothers 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 underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor 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 theeffectiveness 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 coveredby the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financialreporting; and 5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalentfunctions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably 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 internalcontrol over financial reporting.Date: April 24, 2019 /s/ Jose MonteroJose MonteroChief Financial Officer (Section 302 CFO Certification) EXHIBIT 13.1CertificationPursuant 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)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, 2018 of the Company fully complies with the requirements of section 13(a) orsection 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financialcondition and results of operations of the Company.Dated: April 24, 2019 /s/ Pedro HeilbronPedro HeilbronChief Executive Officer (Section 906 CEO Certification) EXHIBIT 13.2CertificationPursuant 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)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, 2018 of the Company fully complies with the requirements of section 13(a) orsection 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financialcondition and results of operations of the Company.Dated: April 24, 2019 /s/ Jose MonteroJose MonteroChief Financial Officer (Section 906 CFO Certification)

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