Table of Contents
As filed with the Securities and Exchange Commission on March 24, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 001-32696
COPA HOLDINGS, S.A.
(Exact name of Registrant as Specified in Its Charter)
Not Applicable
(Translation of Registrant’s Name Into English)
Republic of Panama
(Jurisdiction of Incorporation or Organization)
Avenida Principal y Avenida de la Rotonda, Costa del Este
Complejo Business Park, Torre Norte
Parque Lefevre, Panama City
Panama 0816-06819
(Address of Principal Executive Offices)
Daniel Tapia
Complejo Business Park, Torre Norte
Parque Lefevre, Panama City, Panama
+507 304 2774 (Telephone)
+507 304 2696 (Facsimile)
(Registrant’s Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act
Title of Each Class:
Class A Common Stock, without par value
Trading Symbol(s)
CPA
Name of Each Exchange On Which Registered
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered
by the annual report: At December 31, 2022, there were outstanding 39,415,829 shares of common stock, without par value, of which 28,477,704
were Class A shares and 10,938,125 were Class B shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging
growth company. 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 has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐
International Financial Reporting Standards as issued
by the International Accounting Standards Board
☒
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant
has elected to follow:
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). ☐ Yes ☒ No
Table of Contents
Table of Contents
Introduction
Market Data
Presentation of Financial and Statistical Data
Special Note About Forward-Looking Statements
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on the Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, senior management and employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other than Equity Securities
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. Reserved
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
i
1
1
1
2
3
3
3
3
24
40
40
48
55
58
59
59
63
64
66
66
66
66
70
73
73
73
Table of Contents
Introduction
In this annual report on Form 20-F, unless the context otherwise requires, references to “Copa Airlines” are to Compañía Panameña de Aviación,
S.A., the consolidated operating entity, “Wingo” refers to the low-cost business model offered by AeroRepública and La Nueva Aerolínea, S.A., and
references to “Copa”, “Copa Holdings”, “we”, “us” or the “Company” are to Copa Holdings, S.A. and its consolidated subsidiaries. References to
“Class A shares” refer to Class A shares of Copa Holdings, S.A.
This annual report contains terms relating to operating performance that are commonly used within the airline industry and are defined as
follows:
•
•
•
•
•
•
•
•
•
•
•
•
“Aircraft utilization” represents the average number of block hours operated per day per aircraft for the total aircraft fleet.
“Available seat miles” or “ASMs” represents the aircraft seating capacity multiplied by the number of miles the seats are
flown.
“Average stage length” represents the average number of miles flown per flight segment.
“Block hours” refers to the elapsed time between an aircraft leaving an airport gate and arriving at an airport gate.
“Load factor” represents the percentage of aircraft seating capacity that is actually utilized (calculated by dividing revenue
passenger miles by available seat miles).
“Operating expense per available seat mile” represents operating expenses divided by available seat miles.
“Operating revenue per available seat mile” represents operating revenues divided by available seat miles.
“Passenger revenue per available seat mile” represents passenger revenues divided by available seat miles.
“Revenue passenger miles” represents the number of miles flown by revenue passengers.
“Revenue passenger kilometers” represents the number of kilometers flown by revenue passengers.
“Revenue passengers” represents the total number of paying passengers (including all passengers redeeming frequent flyer
miles and other travel awards) flown on all flight segments (with each connecting segment being considered a separate
flight segment).
“Yield” represents the average amount one passenger pays to fly one mile.
Market Data
This annual report contains certain statistical data regarding our airline routes, our competitive position, market share and the market size
of the Latin American airline industry. This information has been derived from a variety of sources, including the International Air Transport
Association, the U.S. Federal Aviation Administration, the International Monetary Fund and other third-party sources, governmental agencies or
industry or general publications. Information for which no source is cited has been prepared by us on the basis of our knowledge of Latin American
airline markets and other information available to us. The methodology and terminology used by different sources are not always consistent, and data
from different sources are not readily comparable. In addition, sources other than us use methodologies that are not identical to ours and may produce
results that differ from our own estimates. Although we have not independently verified the information concerning our competitive position, market
share, market size, market growth or other similar data provided by third-party sources or by industry or general publications, we believe these sources
and publications are generally accurate and reliable.
Presentation of Financial and Statistical Data
Included in this annual report are our audited consolidated statement of financial position as of December 31, 2022 and 2021, and the
related audited consolidated statements of profit or loss, comprehensive income or loss, changes in equity and cash flows for the years ended
December 31, 2022, 2021 and 2020.
The details of the changes in accounting policies or presentation are disclosed in note 5 of our annual consolidated financial statements.
1
Table of Contents
The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards or
“IFRS,” as issued by the International Accounting Standards Board, or “IASB.”
Unless otherwise indicated, all references in the annual report to “$” or “dollars” refer to U.S. dollars.
Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables
may not be an arithmetic aggregation of the figures that precede them.
Special Note About Forward-Looking Statements
This annual report includes forward-looking statements, principally under the captions “Risk Factors,” “Business Overview” and
“Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current beliefs, expectations and
projections about future events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this
annual report, could cause our actual results to differ substantially from those anticipated in our forward- looking statements, including, among other
things:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
general economic, political and business conditions in Panama and Latin America and particularly in the geographic
markets we serve;
the continued effect of the coronavirus (“COVID-19”) pandemic on our business and the markets in which we operate;
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 3.
The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to
identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations,
business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the
effects of competition. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to
revise any forward-looking statements after the date of this annual report because of new information, future events or other factors. In light of the risks
and uncertainties described above, the forward- looking events and circumstances discussed in this annual report might not occur and are not guarantees
of future performance.
Considering these limitations, you should not place undue reliance on forward-looking statements contained in this annual report.
2
Table of Contents
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
PART I
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A.
Selected Financial Data
Not applicable.
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Risks Relating to our Company
The COVID-19 pandemic has had and is expected to continue to have a material adverse impact on our business.
The spread of COVID-19 and the global pandemic had a significant adverse impact on all aspects of our business. In response to the
pandemic, many governments around the world implemented a variety of aggressive measures to reduce the spread of the virus, including travel
restrictions, bans and vaccination requirements. As a result, we and the broader air travel industry have suffered unprecedented reductions in demand,
which has significantly affected our business, financial condition and operating results. This adverse effect may continue after the virus is contained
even if the effects are more limited, particularly if economic conditions, as well as government regulation and consumer attitudes toward air travel
change in a lasting way that reduces the effectiveness of our hub-and-spoke or low-cost business models.
As a result of the travel restrictions imposed by the governments of the countries in which we operate, including the Panamanian
authorities’ suspension of commercial operations to and from Panama, we suspended all commercial flights on March 22, 2020. On August 14, 2020,
the Company restarted limited scheduled commercial operations, subject to Panama’s health control restrictions on the number of flights and on entry
for non-citizens and non-residents to Panama. These restrictions were subsequently lifted on October 11, 2020. The Company has been gradually
increasing capacity since then. As of June 15, 2021, we resumed service at our six-bank hub at Tocumen International Airport. Our operations have
grown steadily since this time. During 2022, we operated at 97% of our 2019 capacity. However, we continue to evaluate demand levels, the easing or
lifting of travel restrictions, and advisories and changes of health conditions in markets we serve. Reduction of demand levels and new restrictions
imposed by governments could require us to reduce flight frequencies and destinations, and consequently, to re-evaluate the size of our fleet, our
network and our workforce levels going forward.
Laws, regulations, orders, or other government actions that require employees or passengers to be vaccinated in the countries in which we
operate could materially adversely affect the Company’s operations. Vaccination requirements for international travelers could negatively impact
demand in certain of our markets. For example, the Argentine, Canadian, Chilean and United States governments have required international passengers
traveling into each country to be vaccinated or comply with certain quarantine and testing requirements. Additionally, to the extent that our employees
or third-party vendors and service providers are subject to vaccination regulations, the Company’s operations could be materially adversely affected
should these individuals be unable or unwilling to comply with the applicable requirements.
3
Table of Contents
The COVID-19 pandemic has had, and may continue to have, an adverse impact on the Company’s operations. The extent of the future
impact of COVID-19 on the Company’s operational and financial performance will depend on future developments, including, but not limited to, the
scope and severity of the pandemic related travel advisories and restrictions, the availability and effectiveness of vaccines, the effectiveness of available
vaccines against variants of the virus, the duration and severity of the impact of COVID-19 on overall demand for air travel, and its economic impact, all
of which are highly uncertain and cannot be predicted. Pilots, flight attendants and other employees testing positive for COVID has resulted and may
result in flight cancellations or may require us to otherwise scale back services. If the Company’s operations were to shut down or significantly reduced
levels for an extended period, or if governments implement permanent travel restrictions, including enhanced COVID-19-related screening measures
that may apply to our personnel and/or the traveling public, our results of operations would be materially adversely affected, and we may have to take
additional actions to preserve our long- term sustainability.
In addition, an outbreak of another disease or similar public health threat, or fear of such an event, including a resurgence of COVID-19
and its variations, that affects travel demand, travel behavior or travel restrictions could have a material adverse impact on the Company’s business,
financial condition and operating results. Outbreaks of other diseases could also result in increased government restrictions and regulation, such as those
actions described above or otherwise, which could adversely affect our operations.
Failure to successfully implement our business strategy may adversely affect our results of operations and harm the market value of our
Class A shares.
We intend to continue expanding our service to new markets as well as increasing the frequency of flights to the markets we currently
serve. Achieving these goals allows our business to benefit from cost efficiencies resulting from economies of scale. We expect to have substantial cash
needs as we expand, including cash required to fund aircraft acquisitions or aircraft deposits as we add to our fleet. If we do not have enough cash to
fund such projects, we may not be able to successfully expand our route system, therefore, our future revenue and earnings growth would be limited.
As we restart routes, add new frequencies to existing routes, or add new routes, our advertising and other promotional costs generally
increase, which may result in initial losses that could have a negative impact on our results of operations as well as require substantial amounts of cash.
We also periodically run special promotional fare campaigns. Promotional fares can have the effect of increasing load factors while reducing our yield
on such routes during the period that they are in effect. The number of markets we serve and flight frequencies depend on available demand and on our
ability to identify the appropriate geographic markets upon which to focus and to gain suitable airport access in addition to route approval in the
aforementioned markets. There can be no assurance that the markets we enter will yield passenger traffic at the expected fares that will be sufficient to
make our operations in those new markets profitable. Any condition that would prevent or delay our access to key airports or routes, including
limitations on the ability to process more passengers, the imposition of flight capacity restrictions, the inability to secure additional route rights or renew
existing route rights that we ceased to use during the pandemic, under bilateral agreements or the inability to maintain our existing slots, flight banks and
obtain additional slots, could constrain the expansion of our operations.
Our business also requires skilled personnel, equipment and facilities. The inability to hire, train and/or retain pilots and other personnel or
secure the required equipment and facilities efficiently, cost-effectively, and on a timely basis, could adversely affect our ability to execute our plans. It
also could strain our existing management resources and operational, financial and management information systems to the point where they may no
longer be adequate to support our operations, requiring us to make significant expenditures in these areas. Difficulties obtaining necessary equipment
could also affect our business. Considering these factors, we cannot ensure that we will be able to successfully establish new markets or expand our
existing markets, and our failure to do so could have an impact on our business and results of operations, as well as the value of our Class A shares.
Our performance is heavily dependent on economic and political conditions in the countries in which we do business.
Travel expenditures are sensitive to personal and business discretionary spending levels and grow more slowly or decline during economic
downturns. A substantial portion of our assets are located in Panama and a significant portion of our passengers’ trips either originate or end in Panama.
Furthermore, a large majority of Copa’s flights operate through our hub at Tocumen International Airport. As a result, we depend on economic and
political conditions prevailing from time to time in Panama. We also derive a substantial portion of our revenues from Colombia, Brazil, the United
States, and other countries in Latin America. We have been negatively impacted by poor economic performance in certain emerging market countries in
which we operate, as well as by weaker Latin American currencies, including as a result of the COVID-19 pandemic.
4
Table of Contents
In addition, Venezuela has experienced difficult political conditions and declines in the rate of economic growth in recent periods as well
as governmental actions that have adversely impacted businesses that operate there. In December 2020, the Company cancelled flights between Panama
and Venezuela, due to the Venezuelan government’s air travel restrictions intended to contain the COVID-19 pandemic. The Company resumed service
between Panama and Venezuela in January 2021 after the Venezuelan government lifted the passenger flight restrictions. Also, on May 15, 2019 the
Homeland Security Department of the United States announced a suspension of all commercial passenger and cargo flights between the United States
and Venezuela. The U.S. Department of Transportation (DOT) concurred with this determination and issued an order suspending all foreign air
transportation for passengers or cargo to or from any airport in Venezuela.
Any of the following developments (or a continuation or worsening of any of the following currently in existence) in the countries in
which we operate could adversely affect our business, financial condition, liquidity and results of operations:
•
•
•
changes in economic or other governmental policies, including exchange controls;
changes in regulatory, legal or administrative practices; or
other political or economic developments over which we have no control.
Additionally, a significant portion of our revenues are derived from discretionary and leisure travel, which are especially sensitive to
economic downturns and political conditions. An adverse economic and/or political environment, whether global, regional or in a specific country, could
result in a reduction in passenger traffic, and leisure travel in particular, as well as a reduction in our cargo business, and could also impact our ability to
raise fares, which in turn would materially and negatively affect our financial condition and results of operations.
The cost of financing our aircraft may increase, or the availability of financing could be limited, 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, as well as financial and operating leases. Given the state of the industry as a result of the COVID-19 pandemic, aviation financing has
become much harder and more expensive to obtain. Therefore, we cannot ensure that we will be able to continue to raise financing from past sources, or
from other sources, on terms comparable to our existing financing or at all. Additionally, there has been a significant increase in recent periods in
interest rates and the overall cost of funding, in particular for financing denominated in U.S. dollars, as a result of central bank responses to inflation and
global macroeconomic trends. If the cost of such financing increases or we are unable to obtain such financing, we may be forced to incur higher than
anticipated financing costs, which could have an adverse impact on our business, including the execution of our growth strategy. We have also been able
to obtain financing through Japanese Operating Leases with Call Options (“JOLCOs”), which are a form of tax financial leases obtained from Japanese
lenders. If the JOLCO market were to substantially decrease or become unavailable, this could also limit options for financing and negatively impact our
overall business.
We have historically operated using a hub-and-spoke model and are vulnerable to competitors offering direct flights between destinations we
serve 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
aggregates passengers by operating flights from a number of “spoke” origins to a central hub through which they are transported to their final
destinations. In recent years, many traditional hub-and-spoke operators have faced significant and increasing competitive pressure from low-cost,
point-to-point carriers on routes with sufficient demand to sustain point-to-point service. A point-to-point structure enables airlines to focus on the most
profitable, high-demand routes and to offer greater convenience and, in many instances, lower fares. As demand for air travel in Latin America
increases, some of our competitors have initiated non-stop service between destinations that we currently serve through our hub in Panama.
Additionally, newer aircraft models, such as Boeing 737 MAX and Airbus 320-NEO, allow nonstop flights in certain city pairs that could not be served
with prior generation narrow-body aircraft and may bypass our hub. Airbus will also launch the A321 XLR: a new model of the Airbus 320 family that
will extend the range of the current Airbus 320 NEO allowing competitors to explore new competitive routes overflying our Hub. It is expected to be
released in 2024. Competitors are also opening new international hubs, especially in Brazil. Competitive services, which bypass our hub in Panama, may
be more convenient and possibly less expensive than our services and could significantly decrease demand for our service to those destinations. In
December 2016, we launched a low-cost business model, Wingo, to diversify our offerings and to better compete with other low-cost carriers, or
“LCCs,” in the market. However, our traditional hub-and-spoke model remains our primary operational model and we believe that competition from
point-to-point carriers will be directed towards the largest markets that we serve and is likely to continue at this level or intensify in the future. As a
result, the effect of competition on us could be significant and could have a material adverse effect on our business, financial condition and results of
operations.
5
Table of Contents
We may not realize benefits from Wingo, our low-cost business model.
Wingo is our low-cost business model, which is operated by AeroRepública, S.A. During the third quarter of 2021, we incorporated a new
operator, La Nueva Aerolínea S.A., which is based in Panama and will initially operate under the Wingo brand. As of December 31, 2022, Wingo
operated nine of our Boeing 737-800s, each configured with 186 seats in a single class cabin.
During recent years, we have successfully operated our Wingo low-cost business model, with better results than initially expected. As a
result, we decided to change the Boeing 737-700s fleet to Boeing 737-800s, with a greater seat density and lower unit costs, which should make our
competitive position stronger. Even though we have gained knowledge regarding the low-cost business model over recent years, we have limited
experience operating it, and we may not be able to accurately predict its impact on our main line services. In particular, if demand for Wingo flights is
not substantial, or cannibalizes Copa´s mainline flights, if our pricing strategy does not adequately align with our cost structure, or if Wingo does not
meet customer expectations, Wingo’s operations could have a negative impact on our reputation or our operating results.
Currently, the Wingo passenger service is provided through a Colombian Air Operator Certificate (“AOC”) and serves mostly the
Colombian domestic and international markets; therefore, the local economic and competitive environment could affect its operating results.
We may not realize benefits from our strategic alliances and other commercial relationships, including from our announced joint business
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 August 2021. In addition, on
November 30, 2018, we announced a three-way joint business agreement (“JBA”) with UAL and Avianca that would cover our combined network
between the United States and Latin America (except Brazil). We, UAL and Avianca would apply for regulatory approval of the JBA and an
accompanying grant of antitrust immunity from the U.S. Department of Transportation and other relevant agencies. However, we can provide 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 have received such
approvals. The parties to the JBA recently agreed to an amendment that provides, among other terms, that they will negotiate mutually acceptable
amendments to the JBA for a period of up to two years after the confirmation of a plan of reorganization in Avianca’s United States Code title 11
bankruptcy proceeding with the U.S. Bankruptcy Court (“Chapter 11”). Avianca completed its Chapter 11 proceeding on December 1, 2021. The parties
also agreed that any party may terminate the JBA without liability or compensation after the completion of such a two-year “discussion period” by
delivering notice to the other parties within 60 days. Therefore, we can provide no assurances that the JBA will be completed.
The purpose of these alliances and relationships is to increase revenues by enhancing our network and offering our customers services that
we could not otherwise offer. However, the intended benefits may not be realized, or may not outweigh the technological and other costs associated with
any alliance or relationship. In addition, if any of our strategic alliances or commercial relationships deteriorate, or is terminated, our business, financial
condition and operational results could be adversely affected.
Our business is subject to extensive regulation which may restrict our growth, 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 to
which we fly fail to maintain the required foreign and domestic governmental authorizations necessary for our operations. In order to maintain the
necessary authorizations issued by the Panamanian Civil Aviation Authority (the Autoridad Aeronáutica Civil, or the “AAC”), the Colombian Civil
Aviation Administration (the Unidad Administrativa Especial de Aeronáutica Civil, or the “UAEAC”), and other corresponding foreign authorities, we
must continue to comply with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be
adopted in the future. In addition, Panama is a member state of the International Civil Aviation Organization, or “ICAO,” a United Nations specialized
agency. ICAO coordinates with its member states and various industry groups to establish and maintain international civil aviation standards and
recommended practices and policies, which are then used by ICAO member states to ensure that their local civil aviation operations and regulations
conform to global standards. We cannot predict or control any actions that the AAC, the UAEAC, the ICAO or other foreign aviation regulators may
take in the future, which could include restricting our operations or imposing new and costly regulations or policies. Also, our fares are subject to review
by the AAC, the UAEAC, and the regulators of certain other countries to which we fly, any of which may in the future impose restrictions on our fares.
6
Table of Contents
We are also subject to international bilateral air transport agreements that provide for the exchange of air traffic rights between each of
Panama and Colombia, and various other countries, and we must obtain permission from the applicable foreign governments to provide service to
foreign destinations. There can be no assurance that existing bilateral agreements between the countries in which our airline operating companies are
based and foreign governments will continue, or that we will be able to obtain more route rights under those agreements to accommodate our future
expansion plans. Any modification, suspension or revocation of one or more bilateral agreements could have a material adverse effect on our business,
financial condition and results of operations. The suspension of our permits to operate in certain airports or destinations, the cancellation of any of our
provisional routes, the inability for us to obtain favorable take-off and landing rights at certain high-density airports or the imposition of other sanctions
could also have a negative impact on our business. We cannot be certain that a change in a foreign government’s administration of current laws and
regulations or the adoption of new laws and regulations will not have a material adverse effect on our business, financial condition and results of
operations.
The most active government regulator among the countries to which we fly is the U.S. Federal Aviation Administration, or “FAA”. The
FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures.
FAA requirements cover, among other things, security measures, collision avoidance systems, airborne wind shear avoidance systems, noise abatement
and other environmental issues, and increased inspections and maintenance procedures to be conducted on older aircraft. For example, following the
Ethiopian Airlines accident involving a Boeing 737 MAX 8 aircraft on March 10, 2019, we suspended operations of our six Boeing 737 MAX 9 aircraft,
after authorities in Panama and other countries grounded the 737 MAX fleet worldwide, during the investigation into the cause of the accident. We
partially covered our operation with other aircraft in our fleet, with significant cancellations and delays. On November 18, 2020, the FAA rescinded its
grounding order, issued an airworthiness directive, and published training requirements enabling the Company to begin modifying certain operating
procedures, implementing enhanced pilot training requirements, installing FAA-approved flight control software updates and completing other required
maintenance tasks specific to the MAX aircraft. In January 2021, we resumed operations of our Boeing 737 MAX fleet after the authorization of the
AAC. See “—If we fail to successfully operate new aircraft, in particular our new Boeing 737 MAX aircraft, our business could be harmed.” If the FAA
or the U.S. Transportation Security Administration, or “TSA”, were to issue additional regulations on aircraft, our ability to carry out regular operations
could be negatively impacted. As we expand our presence on routes to and from the United States, we expect to continue incurring expenses to comply
with the FAA’s and TSA’s regulations, and any increase in the cost of compliance could have an adverse effect on our financial condition and results of
operations.
Copa Airlines is authorized by the DOT to engage in scheduled and charter air transportation services, including the transportation of
persons, property (cargo) and mail, or combinations thereof, between points in Panama and points in the United States and beyond (via intermediate
points in other countries). Copa Airlines holds the necessary authorizations from the DOT in the form of a foreign air carrier permit, an exemption
authority and statements of authorization to conduct our current operations to and from the United States. The exemption authority was granted by the
DOT in February 1998 and was due to expire in February 2000. However, the authority remains in effect by operation of law under the terms of the
Administrative Procedure Act pending final DOT action on the application we filed to renew the authority on January 3, 2000. There can be no
assurance that the DOT will grant the application. Our foreign air carrier permit has no expiration date. A modification, suspension or revocation of any
of our DOT authorizations or FAA operating specifications could have a material adverse effect on our business.
The growth of our operations to the United States and the benefits of our code-sharing arrangements with UAL are dependent on Panama’s
continued favorable safety assessment.
The FAA periodically audits the aviation regulatory authorities of other countries. As a result of this inspection, each country is given an
International Aviation Safety Assessment, or “IASA,” rating. As of 2018, Panama was rated a Category 1 country under the IASA program, which
means that Panama complies with the safety requirements set forth by ICAO. Furthermore in 2022, Copa Airlines and Copa Colombia successfully
completed IOSA audits by external providers. We cannot guarantee that the government of Panama and the AAC in particular, will continue to meet
international safety standards, and we have no direct control over their compliance with IASA guidelines. If Panama’s IASA rating were to be
downgraded in the future, it could prevent us from 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
either depart from or arrive at our hub. Our operations and business strategy is therefore dependent on its facilities and infrastructure, including the
success of its multi-phase expansion projects, certain of which have been completed while others are underway. Terminal 2 started operating a few gates
during the early part of 2019. On June 22, 2022, we moved our ticket counter and baggage claim operations to Terminal 2 and began using 20 fully
equipped gates in this new terminal. We also opened a new 20,720 square feet Copa Club in the new terminal.
7
Table of Contents
In addition, the hub-and-spoke structure of our operations is particularly dependent on the on-time arrival of tightly coordinated groupings of
flights (or banks) to ensure that passengers can make timely connections to continuing flights. Like other airlines, we are subject to delays caused by
factors beyond our control, including air traffic congestion at airports, adverse weather conditions, power outages and increased security/health
measures. Delays affect passengers, reduce aircraft utilization and increase costs, all of which in turn negatively affect our profitability.
Tocumen International Airport is operated by a corporation that is owned and controlled by the government of the Republic of Panama. We
depend on our good working relationship with the quasi-governmental corporation that operates the airport to ensure that we have adequate access to
aircraft parking positions, landing rights and gate assignments for our aircraft to accommodate our current operations and future plans for expansion.
The corporation that operates Tocumen International Airport does not enter into any formal, written leases or other agreements with airlines to govern
rights to use the airport’s jet ways or aircraft parking spaces. Therefore, we would not have contractual recourse if the airport authority assigned new
capacity to competing airlines, reassigned our resources to other aircraft operators, raised fees or discontinued investments in the airport’s maintenance
and expansion. Any of these events could result in significant new competition for our routes or could otherwise have a material adverse effect on our
current operations or capacity for future growth.
We are exposed to increases in airport charges, taxes and various other fees and cannot be assured access to adequate facilities and landing
rights necessary to achieve our business strategy.
We must pay fees to airport operators for the use of their facilities. Any additional fees or substantial increase in current airport charges,
including at Tocumen International Airport, could have a material adverse impact on our results of operations. Passenger taxes and airport charges have
increased in recent years, sometimes substantially, particularly since the beginning of the pandemic. For example, in 2020 the industry experienced
materially higher effective rates related to airport services in North America. Certain important airports that we use may be privatized in the near future,
which is likely to result in significant cost increases to the airlines that use these airports. We cannot ensure that the airports used by us will not impose,
or further increase, passenger taxes and airport charges in the future, and any such increases could have an adverse effect on our financial condition and
results of operations.
Certain airports that we serve (or that we plan to serve in the future) are subject to capacity constraints and impose various restrictions,
including slot restrictions during certain periods of the day, limits on aircraft noise levels, limits on the number of average daily departures and curfews
on runway use. We cannot be certain that we will be able to obtain a sufficient number of slots, gates and other facilities at airports to expand our
services in line with our growth strategy. It is also possible that airports not currently subject to capacity constraints may become so in the future. In
addition, an airline must use its slots on a regular and timely basis or risk having those slots re-allocated to others. Where slots or other airport resources
are not available or their availability is restricted in some way, we may have to amend our schedules, change routes or reduce aircraft utilization. Any of
these alternatives could have an adverse financial impact on us. In addition, we cannot ensure that airports at which there are no such restrictions may
not implement restrictions in the future or that, where such restrictions exist, they may not become more onerous. Such restrictions may limit our ability
to continue to provide or to increase services at such airports.
We have significant fixed financing costs and expect to incur additional fixed costs as we expand our fleet.
The airline business is characterized by high leverage. We have significant fixed expenditures in connection with our operating leases and
facility rental costs, and a significant portion of our property and equipment is pledged to secure indebtedness. For the year ended December 31, 2022,
our finance cost totaled $87.6 million. As of December 31, 2022, approximately 83.8% of our total indebtedness bore interest at fixed rates and the
remainder was determined with reference to LIBOR. Most of our aircraft lease obligations bear interest at fixed rates. Given worldwide increases in
interest rates and benchmark rates, we expect our financing cost to increase in future periods.
As of December 31, 2022, the Company had firm orders to purchase 66 Boeing 737 MAX aircraft to be delivered between 2023 and 2028.
The aircraft under this contract have an approximate value of $3.0 billion based on contractual obligations net of discounts and pre-delivery payments,
including estimated amounts for contractual price escalation. We will require substantial capital from external sources to meet our future financial
commitments. In addition, the acquisition and financing of these aircraft will likely result in a substantial increase in our leverage and fixed financing
costs. A high degree of leverage and fixed payment obligations could:
•
•
•
limit our ability in the future to obtain additional financing for working capital or other important needs;
impair our liquidity by diverting substantial cash from our operating needs to service fixed financing obligations; or
limit our ability to plan for or react to changes in our business, in the airline industry or in general economic conditions.
8
Table of Contents
Any one of these factors could have a material adverse effect on our business, financial condition and results of operations.
The phase out of the London Interbank offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may adversely
affect interest rates.
In March 2021, the ICE Benchmark Administration (the Financial Conduct Authority-regulated and authorized administrator of LIBOR)
announced that it would cease the publication of the one-week and two-month U.S. dollar LIBOR after December 31, 2021, and the publication of all
remaining U.S. dollar LIBOR tenors after June 30, 2023.
The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee (the “ARRC”), a steering committee comprised
of large U.S. financial institutions, has proposed a new index calculated by short term repurchase agreements, backed by U.S. Treasury securities, called
the Secured Overnight Financing Rate (“SOFR”) as an alternative to LIBOR for use in contracts that are currently indexed to U.S. dollar LIBOR and has
proposed a paced market transition plan to SOFR. On July 29, 2021, the ARRC formally recommended SOFR as its preferred alternative replacement
rate for U.S. dollar LIBOR.
Although many of our LIBOR-based obligations provide for alternative methods of calculating the interest rate payable if LIBOR is not
reported, the extent and manner of any future changes with respect to methods of calculating LIBOR or replacing LIBOR with another benchmark are
unknown and impossible to predict at this time and, as such, may result in interest rates that are materially higher than current interest rates. The
Company is currently in the process of implementing appropriate fallback provisions for all U.S. dollar LIBOR referenced exposures. Nevertheless, this
could materially and adversely affect our results of operations, cash flows and liquidity.
If we are unable to successfully operate new aircraft due to safety concerns, in particular our new Boeing 737 MAX aircraft, our business
could be harmed.
We fly and rely on Boeing aircraft. As of December 31, 2022, we operated a fleet of 97 Boeing aircraft. In 2023, we expect to take
delivery of twelve 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
implementation of our business strategy. Acquisition of new aircraft involves a variety of risks relating to their ability to be successfully placed into
service including:
•
•
•
manufacturer’s delays in meeting the agreed upon aircraft delivery schedule;
difficulties in obtaining financing on acceptable terms to complete our purchase of all of the aircraft we have committed to
purchase; and
the inability of new aircraft and their components to comply with agreed upon specifications and performance standards.
In addition, we cannot predict the reliability of our new fleet as the aircraft matures. In particular, we cannot predict the reliability of the
Boeing 737 MAX aircraft, powered by LEAP 1B engines, which first entered commercial service in May 2017. The LEAP 1B engine was developed by
Safran Aircraft Engines and GE through their joint company, CFM International, to power the next generation of single-aisle commercial jets. The
LEAP 1B has been selected by Boeing as the exclusive power plant for the new 737 MAX single-aisle jetliner.
Following the Ethiopian Airlines accident involving a Boeing 737 MAX 8 aircraft on March 10, 2019, we suspended operations of our six
Boeing 737 MAX 9 aircraft, after authorities in Panama and other countries grounded the 737 MAX fleet worldwide. On November 18, 2020, the FAA
rescinded its grounding order, issued an airworthiness directive, and published various new requirements and operating procedures specific to the MAX
aircraft. In January 2021, we resumed operations of our Boeing 737 MAX fleet after the authorization of the AAC.
In 2020, Boeing announced that it will compensate all airlines impacted by the worldwide suspension of the Boeing MAX fleet operations.
During the first quarter of 2021, the Company reached an agreement with Boeing regarding compensation related to the Boeing 737 MAX grounding.
As part of the agreement, the Company received compensation in the form of certain credits concurrent with specified aircraft deliveries and other
considerations, including a revised delivery stream. However, this compensation only covered financial impact caused by the suspension of Boeing
MAX operations. We cannot estimate any reputational and commercial impact that we may have suffered due to the grounding of Boeing MAX aircraft.
Any technical issues with our aircraft would increase our maintenance expenses and could cause flight cancellations and other disruptions in our
services.
9
Table of Contents
If we were to determine that our aircraft, rotable parts or inventory were impaired, it would have a significant adverse effect on our operating
results.
If there is objective evidence that an impairment loss on long-lived assets carried at amortized cost has been incurred, the amount of the
impairment loss is measured as the difference between the asset’s carrying amount and the higher of its fair value less cost to sell and its value in use,
defined as the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the asset’s
risk adjusted interest rate. The carrying amount of the asset is reduced and the loss is recorded in the consolidated statement of profit or loss. In addition
to the fact that the value of our fleet declines as it ages, any potential excess capacity in the airline industry, airline bankruptcies and other factors
beyond our control may further contribute to the decline of the fair market value of our aircraft and related rotable parts and inventory. When these
impairments occur, we are required under IFRS to write down these assets through a charge to earnings. A significant charge to earnings would
adversely affect our financial condition and operating results. In addition, the interest rates on and the availability of certain of our aircraft financing
loans are tied to the value of the aircraft securing the loans. If those values were to decrease substantially, our interest rates may rise or the lenders under
those loans may cease extending credit to us, either of which could have an adverse impact on our financial condition and results of operations.
During 2020, we announced the sale of our B737-700 fleet, which resulted in a non-cash impairment charge of $191.2 million. In 2021,
we sold three B737-700 aircraft, and due to an increase in demand in the region, the Board of Directors approved continuing to operate the remaining
nine Boeing 737-700 aircraft for a period of three years. The Company reclassified these aircraft to property plant and equipment since the classification
of assets held for sale is no longer met. This reclassification resulted in a reversal of impairment losses of $5.4 million.
During 2022, the Company sold two B737-700 airframes that were under a lease agreement to a third party, and no significant additional
gain or loss was recognized on the sale.
We rely on information and other aviation technology systems to operate our businesses and any failure or disruption of these systems may
have an impact on our 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
for flight operations, maintenance, reservations, check-in boarding, revenue management, baggage handling accounting and cargo distribution. Other
systems are designed to decrease distribution costs through internet reservations and to maximize cargo distributions, crew utilization and flight
scheduling. These systems may not deliver their anticipated benefits.
In the ordinary course of business, we may upgrade or replace our systems or otherwise modify and refine our existing systems to address
changing business requirements. In particular, our digital channels rely on advanced technology and, as this technology is updated, older technology
may become obsolete. Our operations and competitive position could be adversely affected if we are unable to upgrade or replace our systems in a
timely and effective manner once they become outdated, and any inability to upgrade or replace our systems could negatively impact our financial
results.
Any transition to new systems may result in a loss of data or service interruption that could harm our business. Information systems could
also suffer disruptions due to events beyond our control, including natural disasters, power failures, terrorist attacks, cyber-attacks, data theft, equipment
or software failures, computer viruses or telecommunications failures. We cannot ensure that our security measures or disaster recovery plans are
adequate to prevent failures or disruptions. Substantial or repeated website, reservations systems or telecommunication system failures or disruptions,
including failures or disruptions related to our integration of technology systems, could reduce the attractiveness of our Company versus our
competitors, materially impair our ability to market our services and operate flights, result in the unauthorized release of confidential or otherwise
protected information, and result in increased costs, lost revenue, or the loss or compromise of important data.
10
Table of Contents
Our reputation and business may be harmed and we may be subject to legal claims if there is a loss, unlawful disclosure or misappropriation
of, or unsanctioned access to, our customers’, employees’, business partners’ or our own information, or any other breaches of our
information security.
We make extensive use of online services and centralized data processing, including through third-party service providers. The secure
maintenance and transmission of customer and employee information is a critical element of our operations. Our information technology and other
systems, or those of service providers or business partners that maintain and transmit customer information, may be compromised by a malicious third-
party penetration of our security measures or of a third-party service provider or business partner, or impacted by deliberate or inadvertent actions or
inactions by our employees or those of a third-party service provider or business partner. As a result, personal information may be lost, disclosed,
accessed or taken without consent.
We transmit confidential credit card information throughout secure private retail networks and rely on encryption and authentication
technology licensed from third parties to provide the security and authentication necessary to effectively 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
were compromised in any way, it could have a material adverse effect on the reputation, business, operating results and financial condition of the
Company and could result in a loss of customers. Additionally, any material failure by the Company to achieve or maintain compliance with the
Payment Card Industry security requirements or rectify a security issue may result in fines and the imposition of restrictions on the Company’s ability to
accept credit cards as a form of payment.
As a result of these types of risks, we regularly review and update procedures and processes to prevent and protect against unauthorized
access to our systems and information and inadvertent misuse of data.
However, it is difficult or impossible to defend against every risk being posed by changing technologies as well as acts of cyber-crime.
Increasing sophistication of cyber criminals and terrorists make keeping up with new threats difficult and controls employed by our information
technology department and cloud vendors could prove inadequate. As a result, we cannot be certain that we will not be the target of attacks on our
networks and intrusions into our data, particularly given continuous advances in the technical capabilities of potential attackers, and increased financial
and political motivations to carry out cyber-attacks on physical systems, gain unauthorized access to information, make information unavailable for use
through, for example, ransomware or denial-of-service attacks, and otherwise exploit new and existing vulnerabilities in our infrastructure. Such a
cyber-attack could lead to significant costs or other material financing impacts, which may not be covered by or may exceed the coverage limits of, our
cyber insurance, and such costs and impacts may have material adverse effect on our business, reputation, financial condition, cash flows and operating
results. The risk of a data security incident or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign
governments, criminal organizations and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions
from around the world have increased. Also, the COVID-19 pandemic increased the reliance on employees working remotely, which has increased the
risk of malicious actors exploiting vulnerabilities in their devices.
Furthermore, in response to data security threats and to data privacy concerns, there has been heightened legislative and regulatory focus
on attacks on critical infrastructures, including those in the transportation sector, and on data security and privacy in Panama, Brazil, the United States
and other countries where we operate, including requirements for varying levels of data usage consent and data subject notification in the event of a data
security incident.
Any such loss, disclosure or misappropriation of, or access to, customers’, employees’ or business partners’ information or other breach of
our information security could result in legal claims or legal proceedings, including regulatory investigations and actions, may have a negative impact
on our reputation and may materially adversely affect our business, operating results and financial condition. Furthermore, the loss, disclosure or
misappropriation of our business information may materially adversely affect our business, operating results and financial condition.
Our liquidity could be adversely impacted in the event one or more of our credit card processors were to impose material reserve requirements
for payments due to us from credit card transactions.
We currently have agreements with organizations that process credit card transactions arising from purchases of air travel tickets by our
customers. Credit card processors have financial risk associated with tickets purchased for travel that can occur several weeks after the purchase. Our
credit card processing agreements provide for reserves to be deposited with the processor in certain circumstances. We do not currently have reserves
posted for our credit card processors. If circumstances were to occur requiring us to deposit reserves, the negative impact on our liquidity could be
significant, which could materially adversely affect our business.
The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other
services. Under certain of the Company’s credit card processing agreements, the financial institutions in certain circumstances have the right to require
that the Company maintain a reserve equal to a portion of advance ticket sales that has been processed by that financial institution, but for which the
11
Table of Contents
Company has not yet provided the air transportation. Such financial institutions may require additional cash or other collateral reserves to be established
or additional withholding of payments related to receivables collected if the Company does not maintain certain minimum levels of unrestricted cash,
cash equivalents and short-term investments (collectively, “Unrestricted Liquidity”). Refunds lower our liquidity and put us at risk of triggering liquidity
covenants in these credit card processing agreements and, in doing so, could force us to post cash collateral with the credit card companies for advance
ticket sales.
Our quarterly results could fluctuate substantially, and the trading price of our Class A shares may be affected by such variations.
The airline industry is by nature cyclical and seasonal, and our operating results may vary from quarter to quarter. In general, demand for
air travel is higher in the third and fourth quarters, particularly in international markets, because of the increase in vacation travel during these periods
relative to the remainder of the year. We tend to experience the highest levels of traffic and revenue in July and August, with a smaller peak in traffic in
December and January. We generally experience our lowest levels of passenger traffic in April and May. Given our high proportion of fixed costs,
seasonality can affect our profitability from quarter to quarter. Demand for air travel is also affected by factors such as disease outbreaks, economic
conditions, capacity additions 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 be good indicators of our future performance. In addition, it is possible that in any quarter our operating results could be below the expectations of
investors and any published reports or analyses regarding our Company. In that event, the price of our Class A shares could decline, perhaps
substantially.
Our reputation and financial results could be harmed in the event of an accident or incident involving our aircraft or the type of aircraft that
we operate.
An accident or incident involving one of our aircraft could involve significant claims by injured passengers and others, as well as
significant costs related to the repair or replacement of a damaged aircraft and its temporary or permanent loss from service. We are required by our
creditors and the lessors of our aircraft under our operating lease agreements to carry liability insurance, but the amount of such liability insurance
coverage may not be adequate and we may be forced to bear substantial losses in the event of an accident. Our insurance premiums may also increase, or
we may lose our eligibility for insurance, due to an accident or incident affecting one of our aircraft. Substantial claims resulting from an accident in
excess of our related insurance coverage or increased premiums would harm our business and financial results.
Moreover, any aircraft accident or incident, even if fully insured, could cause the public to perceive us as less safe or reliable than other
airlines, which could harm our business and results of operations. The Copa brand name and our corporate reputation are important and valuable assets.
Adverse publicity (whether or not justified) could tarnish our reputation and reduce the value of our brand. Adverse perceptions of the types of aircraft
that we operate arising from safety concerns or other problems, whether real or perceived, or in the event of an accident involving those types of aircraft,
could significantly harm our business as the public may avoid flying on our aircraft. See “—If we fail to successfully operate new aircraft, in particular
our new Boeing 737 MAX aircraft, our business could be harmed.”
On September 25, 2022, one of our aircraft was involved in an accident where it veered off the runway in Panama City, Panama after its
landing. None of the passengers or flight crew members were injured in the accident.
Fluctuations in foreign exchange rates could negatively affect our net income.
In 2022, approximately 63.3% of revenues and 77.3% of expenses were denominated in U.S. dollars (for 2021, U.S. dollar-denominated
revenues and expenses were 65.8% and 80.4%, respectively). A significant part of our revenue is denominated in foreign currencies, including the
Colombian peso, Brazilian real, Argentinian peso and Chilean peso, which represented 12.1%, 8.0%, 4.6% and 3.2%, respectively (for 2021, these
foreign currencies-denominated revenues were 13.6%, 8.1%, 2.0% and 1.79%, respectively). If any of these currencies decline in value against the U.S.
dollar, our revenues, expressed in U.S. dollars, and our operating margin would be adversely affected. We may not be able to adjust our fares
denominated in other currencies to offset any increases in U.S. dollar-denominated expenses, increases in interest expense or exchange losses on fixed
obligations or indebtedness denominated in foreign currency.
12
Table of Contents
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
between the times we are paid in local currencies and the time we are able to repatriate the revenues in U.S. dollars. Typically, this process takes
between one and two weeks in most countries to which we fly.
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
new financial accounting and reporting standards under which we prepare our consolidated financial statements. These changes can materially affect the
way we present our financial condition and results of operations. We may also be required to retroactively apply new or revised standards, which would
require us to restate previous financial statements.
Our maintenance costs will increase as our fleet ages.
The average age of our fleet was approximately 9.5 years as of December 31, 2022. Historically, we have incurred low levels of
maintenance expenses relative to the size of our fleet because most of the parts on our aircraft are covered under multi-year warranties. As our fleet ages,
these warranties expire and the time flown by each aircraft increases, and our maintenance costs will increase, both on an absolute basis and as a
percentage of our operating expenses.
If we enter into a prolonged dispute with any of our employees, many of whom are represented by unions, or if we are required to substantially
increase the salaries or benefits of our employees, it may have an adverse impact on our operations and financial condition.
Approximately 65.4% of our 7,265 employees are unionized. There are currently five unions covering our employees based in Panama: the
pilots’ union, the flight attendants’ union, the mechanics’ union, the passenger service agents’ union, and an industry union, which represents ground
personnel, messengers, drivers, passenger service agents, counter agents and other non-executive administrative staff. Copa entered into collective
bargaining agreements with the pilot’s union in February 2023, the industry union in March 2022, the mechanics’ union in May 2022 and the flight
attendants’ union in March 2023. We do not have a collective bargain agreement with UGETRACAS, an aviation industry union in Panama, because
they do not have the required number of employees. Collective bargaining agreements in Panama typically have four-year terms. In addition to unions in
Panama, there are unions in Colombia, Brazil and Argentina that cover our employees in these countries. In Colombia there are four unions covering
employees. In Brazil, all airline industry employees in the country are covered by the industry union agreements. In Argentina airport employees are
affiliated with an industry union (UPADEP).
A strike, work interruption, stoppage or any prolonged dispute with our employees who are represented by any of these unions could have
an adverse impact on our operations. These risks are typically exacerbated during periods of renegotiation with the unions, which typically occurs every
two to four years depending on the jurisdiction and the union. Any renegotiated collective bargaining agreement could feature significant wage increases
and a consequent increase in our operating expenses. Any failure to reach an agreement during negotiations with unions may require us to enter into
arbitration proceedings, use financial and management resources and potentially agree to terms that are less favorable to us than our existing
agreements. Employees who are not currently members of unions may also form new unions that may seek further wage increases or benefits.
Our business is labor-intensive. We expect salaries, wages, benefits and other employee expenses to increase on a gross basis, and these
costs could increase as a percentage of our overall costs. If we are unable to hire, train and retain qualified pilots and other employees at a reasonable
cost, our business could be harmed and we may be unable to complete our expansion plans.
Our revenues depend on our relationship with travel agents and tour operators and we must manage the costs, rights and functionality of
these third-party distribution channels effectively.
In 2022, a significant portion of our revenues were derived from tickets sold through third-party distribution channels, including those
provided by conventional travel agents, online travel agents (“OTAs”) or tour operators. We cannot assure that we will be able to maintain favorable
relationships with these ticket sellers. Our revenues could be adversely impacted if travel agents or tour operators elect to favor other airlines or to
disfavor us. Our relationship with travel agents and tour operators may be affected by:
•
•
•
the size of commissions offered by other airlines;
changes in our arrangements with other distributors of airline tickets; and
the introduction and growth of new methods of selling tickets.
13
Table of Contents
These third-party distribution channels, along with global distribution systems (“GDSs”) that travel agents, OTAs and tour operators use to
obtain airline travel information and issue airline tickets, are more expensive than those we operate ourselves, such as our website. Certain of these
distribution channels also effectively restrict the manner in which we distribute our products generally. To remain competitive, we need to successfully
manage our distribution costs and rights, increase our distribution flexibility and improve the functionality of third-party distribution channels, while
maintaining an industry-competitive cost structure. These initiatives may affect our relationships with our third-party distribution channels. Any inability
to manage our third-party distribution costs, rights and functionality at a competitive level or any material diminishment or disruption in the distribution
of our tickets could have a material adverse effect on our business, results of operations and financial condition.
In September 2022, Copa implemented a channel differentiation strategy (“Copa Connect”) with the objective of shifting sales to more
cost-efficient channels. This strategy adds a distribution surcharge to the fare for tickets purchased through the traditional travel agency GDS channel in
order to partially offset the higher cost of this channel. For travel agencies, and their customers, who want to avoid the GDS distribution surcharge, we
have offered alternatives leveraging the IATA “New Distribution Capability” (NDC) standard. Agency adoption rates are uncertain because Copa
Connect requires process and/or technology changes for travel agencies. Moreover, GDS suppliers, in some cases, also provide agencies with financial
incentives based on the volume of bookings or tickets issued via the GDS so agencies may have a financial incentive to continue using the traditional
channels. No distribution surcharge is included in tickets sold through copa.com.
We rely on third parties to provide our customers and us with services that are integral to our business.
We have several agreements with third-party contractors to provide certain services primarily outside of Panama. Maintenance services
include aircraft heavy checks, engine maintenance, overhaul, component repairs and line maintenance activities. In addition to call center services, third-
party contractors also provide us with airport services. At airports other than Tocumen International Airport, most of our aircraft services are performed
by third-party contractors. Substantially all of our agreements with third-party contractors are subject to termination on short notice. The loss or
expiration of these agreements or our inability to renew these agreements or to negotiate new agreements with other providers at comparable rates could
negatively impact our business and results of operations. Further, our reliance on third parties to provide reliable equipment or essential services on our
behalf could lead us to have less control over the costs, efficiency, timeliness and quality of our service. A contractor’s negligence could compromise
our aircraft or endanger passengers and crew. This could also have a material adverse effect on our business. We expect to be dependent on such
agreements for the foreseeable future and if we enter any new market, we will need to have similar agreements in place.
We depend on a limited number of suppliers.
We are subject to the risks of having a limited number of suppliers for our aircraft and engines. One of the elements of our business
strategy is to save costs by operating a simplified fleet. Copa currently operates a fleet of Boeing 737-800/700 Next Generation aircraft powered by
CFM 56-7B engines from CFM International and Boeing 737MAX 9, powered by Leap 1B engines, from CFM International. If any of Boeing, CFM
International or General Electric are unable to perform their contractual obligations, or if we are unable to acquire or lease new aircraft or engines from
aircraft or engine manufacturers or lessors on acceptable terms, we would have to find another supplier for a similar type of aircraft or engine.
If we have to lease or purchase aircraft from another supplier, we could lose the benefits we derive from our current fleet composition. We
cannot ensure that any replacement aircraft would have the same operating advantages as the Boeing 737-800 Next Generation or Boeing 737-MAX 9
that would be replaced or that Copa could lease or purchase engines that would be as reliable and efficient as the CFM 56-7B and Leap 1B. We may also
incur substantial transition costs, including costs associated with acquiring spare parts for different aircraft models, retraining our employees, replacing
our manuals and adapting our facilities. Our operations could also be harmed by the failure or inability of Boeing, 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
operate were discovered that would ground any of our aircraft while the defect or problem was being addressed, assuming it could be corrected at all.
The use of our aircraft could be suspended or restricted by regulatory authorities in the event of any actual or perceived mechanical or design issues. For
example, following the Ethiopian Airlines accident involving a Boeing 737 MAX 8 aircraft, the FAA and other regulatory bodies around the world
grounded the aircraft, and on November 18, 2020 the FAA rescinded this order. Our business would also be negatively impacted if the public began to
avoid flying with us due to an adverse perception of the types of aircraft that we operate stemming from safety concerns or other problems, whether real
or perceived, or in the event of an accident involving those types of aircraft or components.
14
Table of Contents
We also depend on a limited number of suppliers with respect to supplies obtained locally, such as our fuel. These local suppliers may not
be able to maintain the pace of our growth and our requirements may exceed their capabilities, which may adversely affect our ability to execute our
day-to-day operations and our growth strategy.
Our business financial condition and results of operations could be materially affected by the loss of key personnel.
To a significant extent, our success depends on the ability of our senior management team and key personnel to operate and manage our
business effectively. Most of our employment agreements with key personnel do not contain any non-competition provisions applicable upon
termination. Competition for highly qualified personnel is intense. If we lose any executive officer, senior manager or other key employee and are not
able to obtain an adequate replacement, or if we are unable to attract and retain new qualified personnel, our business, financial condition and results of
operations could be materially adversely affected.
Risks Relating to the Airline Industry
An outbreak of disease or similar public health threat, such as the COVID-19 pandemic, could have a material adverse impact on the
Company’s business, operating results and financial condition.
An outbreak of disease or similar public health threat, or fear of such an event, that affects travel demand or travel behavior could have a
material adverse impact on the Company’s business, financial condition and operating results. In addition, outbreaks of disease could result in travel
bans or restrictions, increased government restrictions and regulation, including quarantines of our personnel or an inability to access facilities or our
aircraft, which could adversely affect our operations. The global COVID-19 pandemic has caused travel restrictions that have had a significant impact
on the airline industry. See “Risks Relating to our Company.”
The airline industry is highly competitive.
We face intense competition throughout our route network. Overall airline industry profit margins are low and industry earnings are
volatile. Airlines compete in the areas of pricing, scheduling (frequency and flight times), frequent flyer programs, on-time performance, and other
services. Some of our competitors have larger customer bases and greater brand recognition in the markets we serve outside Panama, and some of our
competitors have significantly greater financial and marketing resources than we have. Airlines based in other countries may also receive subsidies, tax
incentives or other state aid from their respective governments, which are not provided by the Panamanian government. In addition, the commencement
of or increase in service on the routes we serve by existing or new carriers could negatively impact our operating results. Likewise, competitors’ service
on routes that we are targeting for expansion may make those expansion plans less attractive.
We compete with a number of other airlines that currently serve some of the routes on which we operate, including Avianca, American
Airlines, Delta Air Lines, Aeromexico, and LATAM Group among others. Strategic alliances, bankruptcy restructurings and industry consolidations
characterize the airline industry and tend to intensify competition. In the past, several air carriers have merged and/or reorganized, including certain of
our competitors, such as LAN-TAM, Avianca-Taca, American-US Airways and Delta-Northwest. Furthermore, some of our competitors have received,
or may receive, government subsidies due to the COVID-19 pandemic, including from the U.S. government. As a result, they have benefited from lower
operating costs and fare discounting in order to maintain cash flows and to enhance continued customer loyalty. It is uncertain how the implementation
of the restructuring plans of Avianca, LATAM Group and Aeromexico following their emergence from Chapter 11 will affect future competition in our
markets.
Traditional hub-and-spoke carriers in the United States and Europe continue to face substantial and increasing competitive pressure from
LCCs offering discounted fares. The LCC business model is gaining acceptance in the Latin American aviation industry. The LCCs’ operations are
typically characterized by point-to-point route networks focusing on the highest demand city pairs, high aircraft utilization, single class service and
fewer in-flight amenities. As a result, we may face new and substantial competition from LCCs in the future, which could result in significant and
lasting downward pressure on the fares we charge for flights on our routes. Current LCCs such as Volaris, Spirit, JetBlue, Azul and Gol are adding
pressure to our fares and are also exploring new competitive routes overflying our Hub. We also expect more competition in the market from newer
players such as JetSmart, Sky and Arajet.
In December 2016, Copa’s subsidiary in Colombia, AeroRepública, launched Wingo, a low-cost business model to serve domestic
destinations and some point-to-point international leisure markets, to improve Copa’s position within Colombia and better compete with low unbundled
prices from LCCs. Although we intend to compete vigorously and maintain our strong competitive position in the industry, Avianca, LATAM and Viva
Air represent a significant portion of the domestic market in Colombia and have access to greater resources as a result of their larger size. Therefore,
Copa faces stronger competition now than in recent years, and its prior results may not be indicative of its future performance.
15
Table of Contents
We must constantly react to changes in prices and services offered by our competitors to remain competitive. The airline industry is highly
susceptible to price discounting, particularly because airlines incur very low marginal costs for providing service to passengers occupying otherwise
unsold seats. Carriers use discount fares to stimulate traffic during periods of lower demand to generate cash flow and to increase market share. Any
lower fares offered by one airline are often matched by competing airlines, which tend to result in lower industry yields with little or no increase in
traffic levels. Price competition among airlines in the future could lead to lower fares or passenger traffic on some or all of our routes, which could
negatively impact our profitability. We cannot be certain that any of our competitors will not undercut our fares in the future or increase capacity on
routes in an effort to increase their respective market share. Although we intend to compete vigorously and to assert our rights against any predatory
conduct, such activity by other airlines could reduce the level of fares or passenger traffic on our routes to the point where profitable levels of operations
cannot be maintained. Due to our smaller size and lesser financial resources compared to several of our competitors, we may be less able to withstand
aggressive marketing tactics or fare wars engaged in by our competitors should such events occur.
Significant changes or extended periods of high fuel costs or fuel supply disruptions could materially affect our operating results.
Fuel costs constitute a significant portion of our total operating expenses, representing approximately 41.9% of operating expenses in
2022, 28.2% of operating expenses in 2021 and 13.2% in 2020. Jet fuel costs have been subject to wide fluctuations as a result of fluctuations 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
many economic, political, weather, environmental and other factors and events occurring throughout the world that we can neither control nor accurately
predict, including international political and economic circumstances such as the political instability in major oil-exporting countries in Latin America,
Africa and Asia. For example, the conflict between Russia and Ukraine beginning in February 2022 led to an increase in fuel costs. Due to the evolving
nature of the conflict, we can neither predict the duration of the increasing fuel costs nor the extent of its impact on our business operations. Any future
fuel supply shortage (for example, as a result of production curtailments by the Organization of the Petroleum Exporting Countries, or “OPEC,” a
disruption of oil imports, supply disruptions resulting from severe weather or natural disasters, the continued unrest in the Middle East or otherwise
could result in higher fuel prices or further reductions in scheduled airline services). We cannot ensure that we would be able to offset any increases in
the price of fuel by increasing our fares.
As of December 31, 2022, the Company was not a party to any outstanding fuel hedge contracts and has adopted a strategy of remaining
unhedged, while regularly reviewing its policies based on market conditions and other factors. For 2023, although we have not hedged any part of our
anticipated fuel needs, we continue to evaluate various hedging strategies and may enter into hedging agreements in the future, as any substantial and
prolonged increase in the price of jet fuel will likely materially and negatively affect our business, financial condition and results of operation.
We may experience difficulty recruiting, training and retaining pilots and other employees.
The airline industry is a labor-intensive business. We employ a large number of flight attendants, maintenance technicians and other
operating and administrative personnel. The airline industry has, from time to time, experienced a shortage of qualified personnel. As is common with
most of our competitors, considerable turnover of employees may occur and may not always be predictable. When we experience higher turnover, our
training costs may be higher due to the significant amount of time required to train each new employee and, in particular, each new pilot. If our pilots
terminate their contracts earlier than anticipated, we may be unable to successfully recoup the costs spent to train those pilots. We cannot be certain that
we will be able to recruit, train and retain the qualified employees that we need to continue our current operations to replace departing employees. A
failure to hire, train and retain qualified employees at a reasonable cost could materially adversely affect our business, financial condition and results of
operations.
Under Panamanian law, there is a limit on the maximum number of non-Panamanian employees that we may employ. Our need for
qualified pilots has at times exceeded the domestic supply and as such, we have had to hire a substantial number of non-Panamanian national pilots.
However, we cannot ensure that we will continue to attract Panamanian and foreign pilots. The inability to attract and retain pilots, or a change in
Panamanian regulations, may adversely affect our growth strategy by limiting our ability to add new routes or increase the frequency of existing routes.
16
Table of Contents
Because the airline industry is characterized by high fixed costs and relatively elastic revenues, airlines cannot quickly reduce their costs to
respond to shortfalls in expected revenue.
The airline industry is characterized by low gross profit margins, high fixed costs and revenues that generally exhibit substantially greater
elasticity than costs. The operating costs of each flight do not vary significantly with the number of passengers flown and, therefore, a relatively small
change in the number of passengers, fare pricing or traffic mix could have a significant effect on operating and financial results. These fixed costs cannot
be adjusted quickly to respond to changes in revenues, and a shortfall from expected revenue levels could have a material adverse effect on our net
income.
Our business may be adversely affected by downturns in the airline industry caused by terrorist attacks, political unrest, war or outbreak of
disease, which may alter travel behavior or increase costs.
Demand for air transportation may be adversely affected by terrorist attacks, war or political and social instability, an outbreak of a disease
or similar public health threat, natural disasters, cyber security threats and other events. Any of these events could cause governmental authorities to
impose travel restrictions or otherwise cause a reduction in travel demand or changes in travel behavior in the markets in which we operate. Any of these
events in our markets could have a material impact on our business, financial condition and results of operations. Furthermore, these types of situations
could have a prolonged effect on air transportation demand and on certain cost items, such as security and insurance costs.
The terrorist attacks in the United States on September 11, 2001, for example, had a severe and lasting adverse impact on the airline
industry, in particular, a decrease in airline traffic in the United States and, to a lesser extent, in Latin America. Our revenues depend on the number of
passengers traveling on our flights. Therefore, any future terrorist attacks or threat of attacks, whether or not involving commercial aircraft, any increase
in hostilities relating to reprisals against terrorist organizations, including an escalation of military involvement in the Middle East, or otherwise, and any
related economic impact could result in decreased passenger traffic and materially and negatively affect our business, financial condition and results of
operations.
Increases in insurance costs and/or significant reductions in coverage would harm our business, financial condition and results of operations.
Following the 2001 terrorist attacks, premiums for insurance against aircraft damage and liability to third parties increased substantially,
and insurers could reduce their coverage or increase their premiums even further in the event of additional terrorist attacks, hijackings, airline crashes or
other events adversely affecting the airline industry abroad or in Latin America. In the future, certain aviation insurance could become unaffordable,
unavailable, or available only for reduced amounts of coverage that are insufficient to comply with the levels of insurance coverage required by aircraft
lenders and lessors or applicable government regulations. While governments in other countries have agreed to indemnify airlines for liabilities that they
might incur from terrorist attacks or provide low-cost insurance for terrorism risks, the Panamanian government has not indicated an intention to provide
similar benefits to us. Increases in the cost of insurance may result in higher fares, which could result in a decreased demand and materially and
negatively affect our business, financial condition and results of operations.
Failure to comply with applicable environmental regulations could adversely affect our business.
Our operations are covered by various local, national and international environmental regulations. These regulations cover, among other
things, emissions to the atmosphere, disposal of solid waste and aqueous effluents, aircraft noise and other activities that result from the operation of
aircraft. Future operations and financial results may vary as a result of such regulations. Compliance with these regulations and new or existing
regulations that may be applicable to us in the future could increase our cost base and adversely affect our operations and financial results.
Combatting climate change has been the focus of regulators from regional to international governing bodies. For example, in 2018, the
ICAO council adopted “SARPs” (Standards and Recommended Practices) laying out the criteria for Carbon Offsetting and Reduction Scheme for
International Aviation (“CORSIA”) and issuing the first edition of the CORSIA to address the increase in total CO2 emissions from international
aviation. As Colombia and Panama are member states of ICAO, the Civil Aviation Authorities (“CAAs”) of Panama and Colombia have developed new
regulations to implement CORSIA. Under CORSIA, airplane operators must annually report the fuel consumption of their international commercial
operations and the corresponding CO2 emissions (domestic operations are excluded from these requirements and need to be managed according to the
local regulatory entity requirements). Although, the impact of CORSIA cannot be fully predicted, it is still expected to result in increased operating costs
for airlines that operate internationally, including COPA. The first annual emissions reports corresponding to Copa Airlines and AeroRepública’s 2019
operations were presented in October 2020, the 2020 emissions reports were presented in May 2021 and the 2021 operation’s emissions reports were
presented in May 2022. Copa Airlines and AeroRepública presented the Emission Monitoring Plan (“EMP”) required by CORSIA to their respective
CAAs.
17
Table of Contents
Carbon emissions by the airline industry and their impact on climate change have become a particular focus in the international
community, including in the jurisdictions where we operate. There are various regulations currently in place in the jurisdictions where we operate, and
we would expect additional regulations in this area in the future. Other than as described in this annual report, to date those regulations have neither
applied to nor had a material effect on our operations. However, our operations may become subject to additional regulation in any of the jurisdictions
where we operate, which could lead to an impact on our operations and result in increased costs, which could be material. We expect to continue to
monitor and evaluate the potential impact of any additional regulation regarding climate change.
In addition to encouraging CO2 emissions reductions, CORSIA will require airline operators to offset CO2 emissions through payments to
authorized carbon banks, which will invest in environmental projects to reduce the global carbon footprint. Copa Airlines and AeroRepública will not be
subject to the emissions offsetting requirements until 2027, because Panama and Colombia are not participating in the voluntary first phase of CORSIA.
However, it is possible that various national and regional regulators will enforce their own varying emission restrictions due to concerns over climate
change, and even individual airports could adopt climate-related goals around greenhouse gas emission.
In January 2021, the U.S. Environmental Protection Agency (EPA) adopted greenhouse gas emission standards for new aircraft engines
designed to implement the ICAO standard, aligned with the 2017 ICAO airplane engine GHG emission standards. The final EPA standards would not
apply to engines on in-service aircraft. States and environmental groups have challenged the standards. The outcome of the legal challenge cannot be
predicted. On September 9, 2021, the U.S. Department of Energy, the U.S. Department of Transportation, and the U.S. Department of Agriculture
launched the Sustainable Aviation Fuel Grand Challenge to scale up the production of sustainable aviation fuel, reduce greenhouse gas emissions from
aviation, and replace all traditional aviation fuel with sustainable aviation fuel by 2050.
We are subject to risks associated with climate change, including increased regulation of our carbon emissions, changing consumer
preferences and the potential increased impacts of severe weather events on our operations and infrastructure.
As customers become more aware of the risks of climate change, their preferences around flying may also change, which can pose a risk to
our results of operations. For example, customers may choose to fly less in order to decrease their negative impact to the environment and climate.
Customers may also decide to choose airlines they perceive to be operating and conducting business in a more environmentally sustainable manner
based on the airline’s reputation. Additionally, customers may opt to take a high-speed rail instead of a flight or opt out of traveling entirely by engaging
in virtual meetings instead. Debt and equity investors may also make investment decisions based on environmental, social and governance
considerations, which could increase our cost of capital, to the extent we do not comply with certain criteria.
In addition, climate change may cause severe weather such as increased storms and flooding, rising sea level, and excessive heat. These
conditions could negatively impact our operations and infrastructure. The operational impact can include flight cancelations, flight delays, increased fuel
prices, among others. Climate change may even make destinations less attractive for visitors if the destination becomes more prone to extreme weather
events. All of these factors could result in loss of revenue. We are not able to predict accurately the materiality of any potential losses or costs associated
with the physical effects of climate change.
All the countries that are party to the Paris Agreement have agreed to limit the average increase in global temperature to 2 degrees Celsius
compared to pre-industrial levels, to maximize efforts not to exceed an increase of 1.5 degrees by the end of this century and to achieve climate
neutrality in 2050. We are subject to various environmental regulations in the markets where we operate and may become subject to further new
regulations in the future. See “—Failure to comply with applicable environmental regulations could adversely affect our business.” Even though future
requirements resulting from climate change-related regulation are unknown, it is likely that they will adversely affect the business resulting in emission
reduction requirements, the need to purchase new Sustainable Aviation Fuels (SAF) or new equipment or technologies, and other increases to operating
costs.
The deployment of new 5G wireless communications systems by major telecommunications service providers could result in a disruption to or
otherwise adversely affect our operations.
The deployment of new 5G systems could cause, among other consequences, operational and security issues, interference with critical
aircraft instruments and adverse impact to low-visibility operations. This could potentially result in flight cancellations, diversions and delays, or could
result in damage to our aircraft and other equipment and a diminished margin of safety in airline operations. On January 18, 2022, major U.S.
telecommunications companies agreed to delay the implementation of 5G near airports until July 5, 2022 while working with the FAA to develop long-
term mitigations to support safe aviation operations. On June 17, 2022, the FAA announced that the major U.S. telecommunications companies have
18
Table of Contents
agreed to continue to keep 5G mitigations beyond July 5, 2022, but simultaneously announced their expectation that the U.S. mainline commercial fleet
to have radio altimeter retrofits or other enhancements in place by July 2023. Boeing has indicated that it is highly unlikely that all of their aircraft will
make the July 2023 deadline due to supply chain and other issues. To date, neither Panama nor other countries where we operate have announced similar
arrangements.
The FAA is working with the Federal Communications Commission, major telecommunications providers and airlines to reduce effects of
this potential disruption. There is, however, a high level of uncertainty regarding the timing of extent of any requirements or restrictions imposed on
airlines by the FAA, the FCC or other government agencies. Any sustained impact to our operations due to the deployment of 5G wireless
communications system or as a result of requirements or restrictions by governmental authorities as a result thereof could adversely affect our business,
results of operations and financial condition.
Risks Relating to Panama and our Region
We are highly dependent on conditions in Panama and, to a lesser extent, in Colombia.
A substantial portion of our assets are located in the Republic of Panama and a significant proportion of our passengers’ trips either
originate or end in Panama. Furthermore, substantially all of Copa’s flights operate through our hub at Tocumen International Airport. As a result, we
depend on economic and political conditions prevailing from time to time in Panama. Panama’s economic conditions in turn highly depend on the
continued profitability and economic impact of the Panama Canal. Control of the Panama Canal and many other assets were transferred from the United
States to Panama in 1999 after nearly a century of U.S. control. Political events in Panama may significantly affect our operations.
Wingo’s results of operations are also highly sensitive to macroeconomic and political conditions prevailing in Colombia and any political
unrest and instability in Colombia could adversely affect Wingo’s financial condition and results of operations.
Panama and Colombia have experienced significant economic growth over the last several years. However, like other countries in the
region and around the world, the economies of Panama and Colombia have been adversely affected by the COVID-19 pandemic. According to
International Monetary Fund estimates, during 2023 the Panamanian and Colombian economies are expected to grow 4.0% and 2.2% respectively, as
measured by their GDP at constant prices, even with preliminary figures indicating that real GDP increased by 7.5% in Panama and by 7.6% in
Colombia in 2022. However, if either economy experiences a sustained recession, or significant political disruptions, our business, financial condition or
results of operations could be materially and negatively affected.
Any increase in the taxes we or our shareholders pay in Panama or the other countries where we do business could adversely affect our
financial performance and results of operations.
We cannot ensure that our current tax rates will not increase. Our income tax expenses (credit) were $40.2 million, $10.5 million and
($23.7 million) in the years ended December 31, 2022, 2021 and 2020, respectively, which represented an effective income tax rate of 10.4%, 19.3% and
(3.8%), respectively. We are subject to local tax regulations in each of the jurisdictions where we operate, the great majority of which are related to the
taxation of income. In some of the countries to which we fly, we are not subject to income taxes, either because those countries do not have income tax
or because of treaties or other arrangements those countries have with Panama. In the remaining countries, we pay income tax at rates ranging from 7%
to 35% of income.
Different countries calculate income in different ways, but they are typically derived from sales in the applicable country multiplied by our
net margin or by a presumed net margin set by the relevant tax legislation. The determination of our taxable income in certain countries is based on a
combination of revenues sourced to each particular country and the allocation of expenses of our operations to that particular country. The methodology
for multinational transportation company sourcing of revenues and expenses is not always specifically prescribed in the relevant tax regulations, and
therefore is subject to interpretation by both us and the respective taxing authorities. Additionally, in some countries, the applicability of certain
regulations governing non-income taxes and the determination of our filing status are also subject to interpretation. We cannot estimate the amount, if
any, of potential tax liabilities that might result if the allocations, interpretations and filing positions used by us in our tax returns were challenged by the
taxing authorities of one or more countries. If taxes were to increase, our financial performance and results of operations could be materially and
adversely affected. Due to the competitive revenue environment, many increases in fees and taxes have been absorbed by the airline industry rather than
being passed on to the passenger. If we were to pass any of these increases in fees and taxes onto passengers, we may no longer compete effectively as
those increases may result in reduced customer demand for air travel with us, thereby reducing our revenues. If we were to absorb any increases in fees
and taxes, the additional costs could have a material adverse effect on our results of operations.
19
Table of Contents
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 or final destination in the Republic of Panama. The applicable tax rate is currently 25%. Dividends from our Panamanian subsidiaries, including
Copa, are separately subject to a 10% percent withholding tax on the portion attributable to Panamanian-sourced income and a 5% withholding tax on
the portion attributable to foreign-sourced income. Additionally, a 7% value added tax is levied on tickets issued in Panama for travel commencing in
Panama and going abroad, irrespective of where such tickets were ordered. If such taxes were to increase, our financial performance and results of
operations could be materially and adversely affected. In February 2020, the Company received two notifications from the tax authority in Panama
related to a tax audit process that began in 2019. The notifications include adjustments to the reported dividend tax for the years 2012 to 2016 and
income tax 2016. The Company has filed an administrative appeal, which is the first legal stage under Panamanian laws. The Company, along with its
tax advisors, has concluded that it is not probable that an outflow of resources embodying economic benefits will be required to settle these notices.
According to Panamanian laws, the statute of limitations is three and 15 years for income tax and dividend tax, respectively. If our tax position does not
prevail after going through the appeal process, we could have to issue a significant disbursement to the tax authorities.
We may face increased taxes in future periods as a result of the global minimum tax. On October 8, 2021, 136 countries, including
Panama, reached an agreement for a two-pillar approach to international tax reform. Among other things, Pillar One proposes a reallocation of a
proportion of taxes to market jurisdictions, while the Pillar Two Global anti-Base Erosion rules (“GloBE Rules”) propose four new taxing mechanisms
under which multinational enterprises (“MNEs”) would pay a minimum level of tax (“Minimum Tax”). The Subject to Tax Rule is a tax treaty-based
rule that generally proposes a Minimum Tax on certain cross-border intercompany transactions that otherwise are not subject to a minimum level of tax.
The Income Inclusion Rule (IIR), the Under Taxed Payments Rule (UTPR), and the Qualified Domestic Minimum Top-up Tax (QDMT) generally
propose a Minimum Tax of 15% on the income arising in each jurisdiction in which an MNE operates. We expect to implement these new rules by 2024.
As of December 31, 2022, the Company did not have sufficient information to determine the potential quantitative impact. As of that date,
none of the jurisdictions in which the Company operates had enacted or substantively enacted the tax legislation related to the top-up tax. The impact of
changes in corporate tax rates on the measurement of tax assets and liabilities depends on the nature and timing of the legislative changes in each
country.
Political unrest and instability in Latin American countries in which we operate may adversely affect our business and the market price of our
Class A shares.
While geographic diversity helps reduce our exposure to risks in any one country, we operate primarily within Latin America and are thus
subject to a full range of risks associated with our operations in these regions. These risks may include unstable political or economic conditions, lack of
well-established or reliable legal systems, exchange controls and other limits on our ability to repatriate earnings and changeable legal and regulatory
requirements. In Venezuela, for example, we and other airlines and foreign companies may only repatriate cash through specific governmental
programs, which may effectively preclude us from repatriating cash for periods of time. In addition, Venezuela has experienced difficult political
conditions and declines in the rate of economic growth in recent periods as well as governmental actions that have adversely impacted businesses that
operate there. For the year ended December 31, 2022, revenue from the Company’s flights to Venezuela, including connecting traffic, represented about
6.5% of consolidated revenues and direct flights between Panama and Venezuela. Inflation, any decline in GDP or other future economic, social and
political developments in Latin America may adversely affect our financial condition or results of operations.
Although conditions throughout Latin America vary from country to country, our customers’ reactions to developments in Latin America
generally may result in a reduction in passenger traffic, which could materially and negatively affect our financial condition, results of operations and
the market price of our Class A shares.
Risks Relating to Our Class A Shares
The value of our Class A shares may be adversely affected by ownership restrictions on our capital stock and the power of our Board of
Directors to take remedial actions to preserve our operating license and international route rights by requiring sales of certain outstanding
shares or issuing new stock.
Pursuant to the Panamanian Aviation Act, as amended and interpreted to date, and certain of the bilateral treaties affording us the right to
fly to other countries, we are required to be “substantially owned” and “effectively controlled” by Panamanian nationals. Our failure to comply with
such requirements could result in the loss of our Panamanian operating license and/or our right to fly to certain important countries. Our Articles of
Incorporation (Pacto Social) give special powers to our independent directors to take certain significant actions to attempt to ensure that the amount
20
Table of Contents
of shares held in us by non-Panamanian nationals does not reach a level that could jeopardize our compliance with Panamanian and bilateral ownership
and control requirements. If our independent directors determine it is reasonably likely that we will be in violation of these ownership and control
requirements and our Class B shares represent less than 10% of our total outstanding capital stock (excluding newly issued shares sold with the approval
of our independent director’s committee), our independent directors will have the power to issue additional Class B shares or Class C shares with special
voting rights solely to Panamanian nationals. See “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 C shares could have the effect of discouraging certain changes of control of Copa Holdings or may reduce any voting power that the Class A
shares enjoy prior to the Class C share issuance. There can be no assurance that we would be able to complete an issuance of Class B shares to
Panamanian nationals. We cannot be certain that restrictions on ownership by non-Panamanian nationals will not impede the development of an active
public trading market for the Class A shares, adversely affect the market price of the Class A shares or materially limit our ability to raise capital in
markets outside of Panama in the future.
Our controlling shareholder has the ability to direct our business and affairs, and its interests could conflict with those of other shareholders.
All of our Class B shares, representing approximately 27.8% of the economic interest in Copa Holdings and 100% of the voting power of
our capital stock, are owned by Corporación de Inversiones Aéreas, S.A., or “CIASA,” a Panamanian entity. CIASA is in turn controlled by a group of
Panamanian investors. In order to comply with the Panamanian Aviation Act, as amended and interpreted to date, we have amended our organizational
documents to modify our share capital so that CIASA will continue to exercise voting control of Copa Holdings. CIASA will not be able to transfer its
voting control unless control of our Company will remain with Panamanian nationals. CIASA will maintain voting control of the Company so long as
CIASA continues to own a majority of our Class B shares and the Class B shares continue to represent more than 10% of our total share capital
(excluding newly issued shares sold with the approval of our independent director’s committee). Even if CIASA ceases to own the majority of the
voting power of our capital stock, CIASA may continue to control our Board of Directors indirectly through its control of our Nominating and Corporate
Governance Committee. As the controlling shareholder, CIASA may direct us to take actions that could be contrary to other shareholders’ interests and
under certain circumstances CIASA will be able to prevent other shareholders, including you, from blocking these actions. Also, CIASA may prevent
change of control transactions that might otherwise provide an opportunity to dispose of or realize a premium on investments in our Class A shares.
The Class A shares will only be permitted to vote in very limited circumstances and may never have full voting rights.
The holders of Class A shares have no right to vote at our shareholders’ meetings except with respect to corporate transformations of Copa
Holdings, mergers, consolidations or spin-offs of Copa Holdings, changes of corporate purpose, voluntary delisting of the Class A shares from the
NYSE, the approval of nominations of our independent directors and amendments to the foregoing provisions that adversely affect the rights and
privileges of any Class A shares. The holders of Class B shares have the power to elect the Board of Directors and to determine the outcome of all other
matters to be decided by a vote of shareholders. Class A shares will not have full voting rights unless the Class B shares represent less than 10% of our
total capital stock (excluding newly issued shares sold with the approval of our independent director’s committee). See “Item 10B. Memorandum and
Articles of Association—Description of Capital Stock.” We cannot assure that the Class A shares will ever carry full voting rights.
Substantial future sales of our Class A shares by CIASA could cause the price of the Class A shares to decrease.
CIASA owns all of our Class B shares, and those Class B shares will be converted into Class A shares if they are sold to non-Panamanian
investors. In connection with our initial public offering in December 2005, Continental and CIASA reduced their ownership of our total capital stock
from 49.0% to approximately 27.3% and from 51.0% to approximately 25.1%, respectively. In a follow-on offering in June 2006, Continental further
reduced its ownership of our total capital stock from 27.3% to 10.0%. In May 2008, we and CIASA released Continental from its standstill obligations
and they sold down their remaining shares in the public market. CIASA holds registration rights with respect to a significant portion of its shares
pursuant to a registration rights agreement entered into in connection with our initial public offering. In March 2010, CIASA converted a portion of its
Class B shares into 1.6 million non-voting Class A shares and sold such Class A shares in an SEC-registered public offering. In the event CIASA seeks
to reduce its ownership below 10% of our total share capital, our independent directors may decide to issue special voting shares solely to Panamanian
nationals to maintain the ownership requirements mandated by the Panamanian Aviation Act. As a result, the market price of our Class A shares could
drop significantly if CIASA further reduces its investment in us, other significant holders of our shares sell a significant number of shares or if the
market perceives that CIASA or other significant holders intend to sell their shares. As of December 31, 2022 CIASA owned 27.8% of Copa Holdings’
total capital stock.
21
Table of Contents
Holders of our common stock are not entitled to preemptive rights, and as a result, shareholders may experience substantial dilution upon
future issuances of stock by us.
Under Panamanian corporate law and our organizational documents, holders of our Class A shares are not entitled to any preemptive rights
with respect to future issuances of capital stock by us. Therefore, unlike companies organized under the laws of many other Latin American
jurisdictions, we are free to issue new shares of stock to other parties without first offering them to our existing Class A shareholders. In the future we
may sell Class A or other shares to persons other than our existing shareholders at a lower price than the shares already sold, and as a result,
shareholders may experience substantial dilution of their interest in us.
Shareholders may not be able to sell our Class A shares at the price or at the time desired because an active or liquid market for the Class A
shares may not continue.
Our Class A shares are listed on the NYSE. During the three months ended December 31, 2022, the average daily trading volume for our
Class A shares as reported by the NYSE was approximately 282,027 shares. Active, liquid trading markets generally result in lower price volatility and
more efficient execution of buy and sell orders for our investors. The liquidity of a securities market is often affected by the volume of shares publicly
held by unrelated parties. We cannot predict whether an active liquid public trading market for our Class A shares will be sustained.
Our operations in Cuba may adversely affect the market price of our Class A shares.
We currently offer passenger, cargo and mail transportation services to and from Cuba. For the year ended December 31, 2022, our
transported passengers to and from Cuba represented approximately 2.4% of our total passengers. Our operating revenues from Cuban operations during
the year ended December 31, 2022 represented approximately 0.5% of our total consolidated operating revenues for the year. Our assets located in Cuba
are not significant.
The United States administers and enforces broad economic and trade sanctions and restrictions against Cuba, and groups opposed to the
Cuban regime may seek to exert pressure on companies doing business in Cuba. U.S. policy towards Cuba has been in flux in recent years and
uncertainty remains over the future of U.S. economic sanctions against Cuba and the impact such sanctions will have on our operations, particularly if
the United States imposes additional relevant sanctions. While we believe our operations in Cuba are in compliance with all applicable laws, any
violations of U.S. sanctions could result in the imposition of civil and/or criminal penalties and have an adverse effect on our business and reputation.
Additionally, Title III of the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 (the Helms-Burton Act) provides a cause of action for U.S.
nationals to bring claims against any person who traffics in property expropriated by the Cuban Government. The scope of any potential claims under
the Helms-Burton Act are uncertain and companies with commercial dealings in Cuba have faced claims for damages; we could face such claims in the
future.
Certain U.S. states have enacted or may enact legislation regarding investments by state-owned investors, such as public employee pension
funds and state university endowments, in companies that have business activities with Cuba. As a result, such state-owned institutional investors may
be subject to restrictions with respect to investments in companies such as ours, which could adversely affect the market for our shares.
Our Board of Directors may, in its discretion, amend or repeal our dividend policy. Shareholders may not receive the level of dividends
provided for in the dividend policy or any dividends at all.
In February 2016, the Board of Directors approved a change to the dividend policy to limit aggregate annual dividends to an amount equal
to 40% of the previous year’s annual consolidated underlying net income, to be distributed in equal quarterly installments subject to board ratification
each 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 of
Directors may decrease the level of dividends provided for in this dividend policy or entirely discontinue the payment of dividends. Future dividends
with respect to shares of our common stock, if any, will depend on, among other things, our results of operations, cash requirements, financial condition,
contractual restrictions, business opportunities, provisions of applicable law and other factors that our Board of Directors may deem relevant. See “Item
8A. Consolidated Statements and Other Financial Information—Dividend Policy.” On April 26, 2020, given the challenges presented by the COVID-19
pandemic, the Board decided to postpone payment of dividends for the remainder of 2020. No dividends were paid in 2022.
22
Table of Contents
To the extent we pay dividends to our shareholders, we will have less capital available to meet our future liquidity needs.
Our Board of Directors has reserved the right to amend the dividend policy or pay dividends in excess of the level circumscribed in the
dividend policy. The aviation industry has cyclical characteristics, and many international airlines are currently experiencing difficulties meeting their
liquidity needs. Also, our business strategy contemplates growth over the next several years, and we expect such growth will require a great deal of
liquidity. To the extent that we pay dividends in accordance with, or in excess of, our dividend policy, the money that we distribute to shareholders will
not be available to us to fund future growth and meet our other liquidity needs.
Our Articles of Incorporation impose ownership and control restrictions on our Company that ensure that Panamanian nationals will
continue to control us and these restrictions operate to prevent any change of control or some transfers of ownership in order to comply with
the Aviation Act and other bilateral restrictions.
Under Law No. 21 of January 29, 2003, as amended and interpreted to date, or the “Aviation Act”, which regulates the aviation industry in
the Republic of Panama, Panamanian nationals must exercise “effective control” over the operations of the airline and must maintain “substantial
ownership”. Under certain of the bilateral agreements between Panama and other countries pursuant to which we have the right to fly to those other
countries and over their territories, we must also continue to have substantial Panamanian ownership and effective control by Panamanian nationals to
retain these rights. On November 25, 2005, the Executive Branch of the Government of Panama promulgated a decree stating that the “substantial
ownership” and “effective control” requirements of the Aviation Act are met if a Panamanian citizen or a Panamanian company is the record holder of
shares representing 51% or more of the voting power of the Company. Although the decree has the force of law for so long as it remains in effect, it does
not supersede the Aviation Act, and it could be modified or superseded at any time by a future Executive Branch decree. Additionally, the decree has no
binding effect on regulatory authorities of other countries whose bilateral agreements impose Panamanian ownership and control limitations on us.
These phrases are not defined in the Aviation Act itself or in the bilateral agreements to which Panama is a party, and it is unclear how a Panamanian
court or, in the case of the bilateral agreements, foreign regulatory authorities, would interpret them.
The share ownership requirements and transfer restrictions contained in our Articles of Incorporation, as well as the dual-class structure of
our voting capital stock, are designed to ensure compliance with these ownership and control restrictions. See “Item 10B. Memorandum and Articles of
Association—Description of Capital Stock”. At the present time, CIASA is the record owner of 100% of our Class B voting shares, representing
approximately 27.8% of our total share capital and all of the voting power of our capital stock. These provisions of our Articles of Incorporation may
prevent change of control transactions that might otherwise provide an opportunity to realize a premium on investments in our Class A shares. They also
ensure that Panamanians will continue to control all the decisions of our Company for the foreseeable future.
The protections afforded to minority shareholders in Panama are different from and more limited than those in the United States and may be
more difficult to enforce.
Under Panamanian law, the protections afforded to minority shareholders are different from, and much more limited than, those in the
United States and some other Latin American countries. For example, the legal framework with respect to shareholder disputes is less developed under
Panamanian law than under U.S. law and there are different procedural requirements for bringing shareholder lawsuits, including shareholder derivative
suits. As a result, it may be more difficult for our minority shareholders to enforce their rights against us or our directors or controlling shareholder than
it would be for shareholders of a U.S. company. In addition, Panamanian law does not afford minority shareholders as many protections for investors
through corporate governance mechanisms as in the United States and provides no mandatory tender offer or similar protective mechanisms for minority
shareholders in the event of a change in control. While our Articles of Incorporation provide limited rights to holders of our Class A shares to sell their
shares at the same price as CIASA in the event that a sale of Class B shares by CIASA results in the purchaser having the right to elect a majority of our
board, there are other change of control transactions in which holders of our Class A shares would not have the right to participate, including the sale of
interests by a party that had previously acquired Class B shares from CIASA, the sale of interests by another party in conjunction with a sale by CIASA,
the sale by CIASA of control to more than one party, or the sale of controlling interests in CIASA itself.
23
Table of Contents
Item 4. Information on the Company
A. History and Development of the Company
General
Copa was established in 1947 by a group of Panamanian investors and Pan American World Airways, which provided technical and
economic assistance as well as capital. Initially, Copa served three domestic destinations in Panama with a fleet of three Douglas C- 47 aircraft. In the
1960s, Copa began its international service with three weekly flights to cities in Costa Rica, Jamaica and Colombia using a small fleet of Avro 748s and
Electra 188s. In 1971, Pan American World Airways sold its stake in Copa to a group of Panamanian investors who retained control of the airline until
1986. During the 1980s, Copa suspended its domestic service to focus on international flights.
In 1986, CIASA purchased 99% of Copa, which was controlled by the group of Panamanian shareholders who currently control CIASA.
From 1992 until 1998, Copa was a part of a commercial alliance with Grupo TACA’s network of Central American airline carriers. In 1997, together
with Grupo TACA, Copa entered into a strategic alliance with American Airlines. After a year our alliance with American Airlines was terminated by
mutual consent.
On May 6, 1998, Copa Holdings, S.A., the holding company for Copa and related companies was incorporated as a sociedad anónima
under the laws of Panama to facilitate the sale by CIASA of a 49% stake in Copa Holdings to Continental. In connection with Continental’s investment,
we entered into an extensive alliance agreement with Continental providing for code-sharing, joint marketing, technical exchanges and other cooperative
initiatives between the airlines. At the time of our initial public offering in December 2005, Continental reduced its ownership of our total capital stock
from 49% to approximately 27.3%. In a follow-on offering in June 2006, Continental further reduced its ownership of our total capital stock from 27.3%
to 10.0%. In May 2008, Continental sold its remaining shares in the public market. In March 2010, CIASA sold 4.2% of its interest and as of
December 31, 2022 held 27.8% of our total capital stock.
Since 1998, we have grown and modernized our fleet while improving customer service and reliability. Our operational fleet has grown
from 13 aircraft in 1998 to 97 aircraft as of January 1, 2023. In 1999, we received our first Boeing 737-700s, followed by our first Boeing 737-800 in
2003 and our first Embraer 190 in 2005. We discontinued the use of our last Boeing 737-200 in 2005. In 2018, we took delivery of our first four Boeing
737 MAX 9 aircraft. In addition, continuing our fleet optimization and efficiency efforts, in 2020, we signed an aircraft sale and purchase agreement for
the remaining Embraer 190 fleet. In 2021, we sold three B737-700 aircraft. During 2022, we sold two B737-700 airframes, restored capacity to
pre-pandemic levels and expanded our network with new frequencies and routes.
On April 22, 2005, we acquired an initial 85.6% equity ownership interest in AeroRepública, which was one of the largest domestic
carriers in Colombia in terms of passengers carried. Through subsequent acquisitions, we increased our total ownership interest in AeroRepública to
99.9% by the end of that year. In December 2016, we launched a low-cost business model, Wingo, to diversify our offerings and to better compete with
other low-cost carriers in the markets. We believe that Copa Airlines creates additional passenger traffic in our existing route network by providing
Colombian passengers more convenient access to the international destinations served through our Panama hub and by offering direct domestic and
international service through our low-cost business model, Wingo. In 2021 we incorporated a new Wingo operator, La Nueva Aerolínea S.A., based in
Panama, which is expected to start operating one 737-800 aircraft during 2023.
In July 2015, we elected to cease co-branding the MileagePlus frequent flyer program in Latin America and launched our own frequent
flyer program, ConnectMiles. We believe that establishing our own direct relationship with our customers is essential to better serve them. Copa and
UAL will remain strong loyalty partners through our participation in Star Alliance.
In addition, on November 30, 2018, we disclosed that we had entered into a three-way joint business agreement (“JBA”) with UAL and
Avianca that would cover our combined network between the United States and Latin America (except Brazil). We, UAL and Avianca would apply for
regulatory approval of the JBA and an accompanying grant of antitrust immunity from the U.S. Department of Transportation and other relevant
agencies. However, the parties have agreed to allow for amendments to the JBA for a period of time following Avianca’s emergence from Chapter 11
proceedings and for the parties to have the right to exit the JBA in certain circumstances.
Our registered office is located at Avenida Principal y Avenida de la Rotonda, Urbanización Costa del Este, Complejo Business Park,
Torre Norte, Parque Lefevre, Panama City, Panama and our telephone number is +507 304-2774. The website of Copa Airlines is www.copaair.com.
Information contained on, or accessible through, this website is not incorporated by reference herein and shall not be considered part of this annual
report. Our agent for service of process in the United States is Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19715, and its
telephone number is +(302) 738-6680. Also, the SEC maintains an internet site (www.sec.gov) that contains reports, proxy and information statements
and other information about the Company that the Company has filed electronically with the SEC.
24
Table of Contents
Capital Expenditures
During 2022, our capital expenditures were $526.9 million, which consisted of advance payments and reimbursements on aircraft purchase
contracts and acquisition of property and equipment, that correspond mainly to 7 aircraft that arrived during 2022, compared to capital expenditures of
$412.9 million in 2021 and $44.1 million in 2020.
B. Business Overview
We are a leading Latin American provider of airline passenger and cargo service through our two principal operating subsidiaries, Copa
Airlines and AeroRepública. Copa Airlines operates from its strategically located position in the Republic of Panama, and AeroRepública operates a
low-cost business model, Wingo, within Colombia and various cities in the region. As of December 31, 2022, we operate a fleet of 97 aircraft, 77
Boeing 737-Next Generation aircraft, 20 Boeing 737 MAX 9 aircraft and one Boeing 737-800 BCF (Boeing Converted Freighter). As of December 31,
2022, the Company has firm orders to purchase 66 Boeing 737 MAX aircraft to be delivered between 2023 and 2028.
Copa currently offers approximately 327 daily scheduled flights among 78 destinations in 32 countries in North, Central and South
America and the Caribbean from its Panama City hub. Copa provides passengers with access to flights to more than 180 other destinations through
code-share arrangements with UAL and other airlines pursuant to which each airline places its name and flight designation code on the other’s flights.
Through its Panama City hub, Copa is able to consolidate passenger traffic from multiple points to serve each destination effectively.
Copa has a strategic alliance with United Airlines, or “UAL” or “United,” that encompass joint marketing strategies and code-sharing
arrangements, among other things. We have been a member of Star Alliance since June 2012.
Our Strengths
We believe our primary business strengths that have allowed us to compete successfully in the airline industry include the following:
•
•
•
•
Our “Hub of the Americas” airport is strategically located. We believe that Copa’s base of operations at the geographically
central location of Tocumen International Airport in Panama City, Panama provides convenient connections to our principal
markets in North, Central and South America and the Caribbean, enabling us to consolidate traffic to serve several
destinations that do not generate enough demand to justify point-to-point service. Flights from Panama operate with few
service disruptions due to weather, contributing to high completion factors and on-time performance. Tocumen
International Airport’s sea-level altitude allows our aircraft to operate without the performance restrictions they would be
subject to in higher altitude airports. We believe that Copa’s hub in Panama allows us to benefit from Panama City’s status
as a center for financial services, shipping and commerce and from Panama’s stable, dollar-based economy, free-trade zone
and growing tourism.
We focus on keeping our operating costs low. In recent years, our low operating costs and efficiency have contributed
significantly to our profitability. Our operating CASM, excluding costs for fuel, was 5.98¢ in 2022. We believe that our cost
per available seat mile reflects our modern fleet, efficient operations and the competitive cost of labor in Panama.
We operate a modern fleet. Our fleet consists of Boeing 737-MAX and Boeing 737-Next Generation aircraft equipped with
winglets and other modern cost-saving and safety features. Over the next several years, we intend to enhance our modern
fleet through the addition of 66 Boeing 737 MAX aircraft to be delivered between 2023 and 2028. We believe that our
modern 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
value to passengers, providing world-class service and competitive pricing. For the year ended December 31, 2022, Copa’s
statistic for on-time performance, according to DOT standard methodology of arrivals within 14 minutes of scheduled
arrival time, was and its completion factor was 87.5%. We believe our focus on customer service has helped to build
passenger loyalty. In addition, the excellent response to our new loyalty program, ConnectMiles, demonstrates the strong
affinity Copa customers have for the brand. In January 2023, we were recognized by OAG as the most on-time airline in
Latin America in 2022.
•
Our management fosters a culture of teamwork and continuous improvement. Our management team has been successful at
creating a culture based on teamwork and focused on continuous improvement. Each of our employees has individual
objectives based on corporate goals that serve as a basis for measuring performance.
25
Table of Contents
Our Strategy
When corporate operational and financial targets are met, employees are eligible to receive bonuses according to our profit-
sharing program. See “Item 6D. Employees”. We also recognize outstanding performance of individual employees through
company-wide recognition, one-time awards, special events and, in the case of our senior management, grants of restricted
stock and stock options. Our goal-oriented culture and incentive programs have contributed to a motivated work force that is
focused on satisfying customers, achieving efficiencies and growing profitability.
Our goal is to continue to grow profitably and enhance our position as a leader in Latin American aviation by providing a combination of
superior customer service, convenient schedules and competitive fares, while maintaining competitive costs. The key elements of our business strategy
include the following:
•
•
Expand our network by increasing frequencies and adding new destinations. We believe that demand for air travel in Latin
America is likely to expand in the next decade, and we intend to use our increasing fleet capacity to meet this growing
demand. We intend to focus on expanding our operations by increasing flight frequencies on our most profitable routes and
initiating service to new destinations. Copa’s Panama City hub allows us to consolidate traffic and provide non-stop or
one-stop connecting service to over 4,000 city pairs, and we intend to focus on providing new or increased service to
destinations that we believe best enhance the overall connectivity and profitability of our network.
Continue to focus on keeping our costs low. We seek to reduce our cost per available seat mile without sacrificing services
valued by our customers as we execute our growth plans. Our goal is to maintain a modern fleet and to make effective use
of our resources through efficient aircraft utilization and employee productivity. We intend to reduce our distribution costs
by increasing direct sales as well as improving efficiency through technology and automated processes.
•
Emphasize superior service and value to our customers. We intend to continue to focus on satisfying our customers and
earning their loyalty by providing a combination of superior service and competitive fares. We believe that continuing our
operational success in keeping flights on time, reducing mishandled luggage and offering convenient schedules to attractive
destinations will be essential to achieving this goal. In January 2023, we were recognized by OAG as the most on-time
airline in Latin America in 2022. We intend to continue to incentivize our employees to improve or maintain operating and
service metrics relating to our customers’ satisfaction by continuing our profit-sharing plan and employee recognition
programs. We will continue to reward our customer loyalty with, ConnectMiles awards, upgrades and access to our Copa
Club lounges.
Industry
In Latin America, the scheduled passenger service market consists of three principal groups of travelers: strictly leisure, business and
travelers visiting friends and family. Leisure passengers and passengers visiting friends and family typically place a higher emphasis on lower fares,
whereas business passengers typically place a higher emphasis on flight frequency, on-time performance, breadth of network and service enhancements,
including loyalty programs and airport lounges.
According to data from the International Air Transport Association, or “IATA”, Latin America comprised approximately 8.1% of
international worldwide passengers flown in 2021 or 187 million passengers.
The Central American aviation market is dominated by international traffic. According to data from IATA, international revenue passenger
kilometers, or “RPKs”, are concentrated between North America and Central America. This segment represented 84% of international RPKs flown to
and from Central America in 2021, compared to 11.5% RPKs flown between Central America and South America and 4.6% for RPKs flown between
Central American countries. Total RPKs flown on international flights to and from Central America increased 62.6%, and load factors on international
flights to and from Central America were 70% on average.
26
Table of Contents
The chart below details passenger traffic between regions in 2021:
North America - Central America / Caribbean
North America - South America
Within South America
Central America/Caribbean - South America
Within Central America
(Million)
2021 IATA Traffic Results
Available Seat Kms
Change
(%)
Passenger Load Factor
Passenger Kms Flown
Change
(%)
73.1 157,899 67.8 71.3% 2.2 p.p.
54.3 87,646 64.4 64.9% (4.3 p.p.)
7,240 (44.5) 67.7% (7.6 p.p.)
(50.1)
51.1 21,650 60.2 71.6% (4.3 p.p.)
8,627 69.9 72.3% 1.9 p.p.
74.4
(Million)
112,540
56,885
4,902
15,500
6,236
Change
(%)
Load
Factor
During 2020-2022, due to the COVID pandemic, some countries in Latin America declared a suspension of operations for several months.
Operations resumed for most airlines in Latin America in the fourth quarter of 2020, and capacity has been gradually restored to pre-pandemic levels.
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. Preliminary figures indicate
that real GDP increased by 7.5% in Panama and by 7.6% in Colombia, according to data of the World Economic and Financial Survey conducted by the
International Monetary Fund (“IMF”).
Argentina
Brazil
Chile
Colombia
Mexico
Panama
USA
GDP (in US$ billions)
2022
Current Prices
(US$)
631
1,895
311
343
1,425
71
25,035
2022
Real GDP
(% Growth)
4.0
2.8
2.0
7.6
2.1
7.5
1.6
GDP per Capita
2022
Current Prices
(US$)
13,622
8,857
15,604
6,644
10,948
16,173
75,180
Source: International Monetary Fund, World Economic Outlook Database, October 2022.
Prior to the COVID-19 pandemic, Panama had benefited from a stable economy with moderate inflation and steady GDP growth.
According to IMF estimates, from 2015 to 2022, Panama’s real GDP grew at an average annual rate of 3.5%, while inflation averaged 0.8% per year.
The IMF currently estimates Panama’s population to be approximately 4.4 million in 2022, with the majority of the population concentrated in Panama
City, where our hub at Tocumen International Airport is located. We believe the combination of a stable, service-oriented economy and steady
population growth has helped drive our domestic origin and destination passenger traffic.
Domestic travel within Panama primarily consists of individuals visiting families as well as domestic and foreign tourists visiting the
countryside. Most of this travel is done via ground transportation, and its main flow is to and from Panama City, where most of the economic activity
and population is concentrated. Demand for domestic air travel is growing and relates primarily to leisure travel from foreign and local tourists. Since
January 2015, Copa has operated daily flights to the second-largest city in Panama, David in the province of Chiriqui. The remaining market is served
primarily by one local airline, Air Panama, which operates a fleet consisting of mainly turbo prop aircraft generally with less than 50 seats. This airline
offers limited international service and operates in the secondary Marcos Gelabert airport of Panama City, which is located 30 minutes by car from
Tocumen International Airport.
27
Table of Contents
Colombia is the third largest country in Latin America in terms of population, with a population of approximately 51.6 million in 2022
according to the IMF and has a land area of approximately 440,000 square miles. Colombia’s GDP is estimated to be $342.9 billion for 2022, and per
capita income was approximately $6.6 thousand (current prices) according to the IMF. Colombia’s geography is marked by the Andean mountains and
an inadequate road and rail infrastructure, making air travel a convenient and attractive transportation alternative. Colombia shares a border with
Panama, and for historic, cultural and business reasons it represents a significant market for many Panamanian businesses.
Route Network and Schedules
As of December 31, 2022, Copa provided regularly scheduled flights to 78 cities in North, Central and South America and the Caribbean.
These destinations represent 98% the number of cities served in 2019. The reduction in the number of cities served is due to the effects of the
COVID-19 pandemic on the economies in the region. The majority of Copa flights operate through our hub in Panama City which allows us to transport
passengers and cargo among a large number of destinations with service that is more frequent than if each route were served directly.
We believe our hub-and-spoke model is the most efficient way for us to operate our business since most of the origination/destination city
pairs we serve do not generate sufficient traffic to justify point-to-point service. Also, since we serve many countries, it would be very difficult to obtain
the bilateral route rights necessary to operate a competitive network-wide point-to-point system.
Copa schedules its hub flights using a “connecting bank” structure, where flights arrive at the hub at approximately the same time and
depart a short time later. In June 2011, we increased our banks of flights from four to six a day. This allowed us to increase efficiency in the use of hub
infrastructure in addition to providing more time-of-day choices to passengers.
In addition to increasing the frequencies to destinations we already serve, Copa’s business strategy is also focused on adding new
destinations across Latin America, the Caribbean and North America in order to increase the attractiveness of our Hub of the Americas at Tocumen
International Airport for intra-American traffic. We currently plan to introduce new destinations and to increase frequencies to many of the destinations
that Copa currently serves. Our fleet allows us to improve our service by increasing frequencies and service to new destinations with the right-sized
aircraft.
As a part of our strategic relationship with UAL, Copa provides flights through code-sharing arrangements to over 120 other destinations.
In addition to codeshares provided with our Star Alliance partners, Copa also has code-sharing arrangements in place with several other carriers,
including Air France, KLM, Iberia, Air Europa, Emirates, Gol, Azul and Cubana.
In December 2016, we launched a low-cost business model, Wingo, to diversify our offerings and to better compete with other low-cost
carriers in the markets. Wingo serves domestic flights in Colombia and some international cities to and from Colombia. In 2021 we incorporated a new
Wingo operator, La Nueva Aerolínea S.A., based in Panama and it is expected to start operating one 737-800 aircraft during 2023.
Revenue by Region
The following table shows our revenue generated in each of our major operating regions.
Region
North America (1)
South America
Central America (2)
Caribbean (3)
Year Ended
December 31,
2021
28.9%
37.6%
32.0%
1.5%
2022
32.7%
37.4%
28.0%
1.9%
2020
29.8%
36.0%
31.6%
2.7%
(1)
(2)
(3)
Includes USA, Canada and Mexico
Includes Panama
Includes Cuba, Dominican Republic, Haiti, Jamaica, Puerto Rico, Aruba, Curaçao, St. Maarten, Bahamas, Barbados and Trinidad and Tobago
28
Table of Contents
Airline Operations
Passenger Operations
Passenger revenue accounted for approximately $2.8 billion in 2022, $1.4 billion in 2021, and $760.6 million in 2020, representing 95.3%,
93.5%, and 95.0%, respectively, of Copa’s total revenues. Leisure traffic, which makes up close to half of Copa’s total traffic, tends to coincide with
holidays, school vacations and cultural events and peaks in July and August, and again in December and January. Approximately one third of Copa’s
passengers regard Panama City as their destination or origination point, and most of the remaining passengers pass through Panama City in transit to
other points on our route network.
Cargo Operations
In addition to our passenger service, we make efficient use of extra capacity in the belly of our aircraft by carrying cargo. Our cargo
operations consist principally of freight service. Copa’s cargo business generated revenues of approximately $101.8 million in 2022, $71.6 million in
2021, and $21.0 million in 2020, representing 3.4%, 4.7%, and 2.6% respectively, of Copa’s operating revenues. We primarily move our cargo in the
belly of our aircraft; however, we also wet-lease and charter freighter capacity when necessary to meet our cargo customers’ needs. In 2021, we
converted a Boeing 737-800 passenger aircraft into a cargo aircraft. In March 2022, the newly converted freighter aircraft, the Boeing 737-800 BCF
with a capacity of 21.7 tons per flight, began operations.
Pricing and Revenue Management
Copa has designed its fare structure to balance its load factors and yields in a way that it believes will maximize profits on its flights. Copa
also maintains revenue management policies and procedures that are intended to maximize total revenues, while remaining generally competitive with
those of our major competitors. In 2020, Copa implemented the PROS Revenue Management system, replacing the system formerly used by the
company.
Copa charges higher fares for tickets sold on higher-demand routes, tickets purchased on short notice and other itineraries suggesting a
passenger would be willing to pay a premium. This represents strong value to Copa’s business customers, who need more flexibility with their flight
plans. The number of seats Copa offers at each fare level in each market results from a continual process of analysis and forecasting. Past booking
history, seasonality, the effects of competition and current booking trends are used to forecast demand. Current fares and knowledge of upcoming events
at destinations that will affect traffic volumes are included in Copa’s forecasting model to arrive at optimal seat allocations for its fares on specific
routes. Copa uses a combination of approaches, taking into account yields, load factors and other factors, depending on the characteristics of the markets
served, to arrive at a strategy for achieving the best possible revenue per available seat mile, balancing the average fare charged against the
corresponding effect on our load factors.
Relationship with UAL
In May 1998, Copa Airlines and Continental Airlines entered into a comprehensive alliance agreement to offer a more complete and
seamless travel experience to passengers. The agreement encompassed a broad array of activities, including Copa’s participation in Continental’s
frequent flyer programs and VIP lounges, codesharing, other joint business activities, as well as trademark agreements. Continental became a subsidiary
of UAL after its merger with United Airlines in 2010, and UAL has continued its longstanding cooperation with Copa Airlines through a series of
renewed agreements.
As a result of our alliance, we have benefited from Continental’s and UAL’s expertise and experience over the years. For example, prior to
July 2015 when we launched our own frequent flyer program, ConnectMiles, we adopted Continental’s OnePass (now UAL’s MileagePlus) frequent
flyer program and rolled out a co-branded joint product in most of Latin America, which enabled Copa to develop brand loyalty among travelers. The
co-branding of the OnePass (now MileagePlus) loyalty program helped Copa to leverage the brand recognition that Continental already enjoyed across
Latin America and has enabled Copa to compete more effectively against regional airlines. We also have adopted several important information
technology systems, such as the SHARES computer reservation system in an effort to maintain commonality with UAL.
Our alliance relationship with UAL enjoys a grant of antitrust immunity from the U.S. Department of Transportation, or “DOT”. The
alliance agreement expires in 2026, and is 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.
29
Table of Contents
Trademark License Agreement. Under our trademark license agreement with UAL, we have the right to use a logo incorporating a design
that is similar to the design of the UAL logo. We also have the right to use UAL’s trade dress, aircraft livery and certain other UAL marks under the
agreement that allow us to more closely align our overall product with our strategic alliance partner. The trademark license agreement is coterminous
with the alliance agreement and can also be terminated for breach. In most cases, we have a period of five years after termination to cease to use the
marks on our aircraft, with less time provided for signage and other uses of the marks or in cases where the agreement is terminated for a breach by us.
Joint Business Agreement
In November 2018, Copa Airlines announced it has reached an agreement with UAL and Avianca for a JBA that, pending governmental
approval, is expected to provide substantial benefits for customers, communities and the marketplace for air travel between the United States and 19
countries in Central and South America. In October 2021, the parties to the JBA agreed to an amendment to the JBA that provides, among other terms,
that they will negotiate mutually accepted amendments to the JBA for a period of up to two years after the confirmation of a plan of reorganization in
Avianca’s United States Code title 11 bankruptcy proceeding with the U.S. Bankruptcy Court (“Chapter 11”). The parties also agreed that any party may
terminate the JBA without liability or compensation after the completion of such a two-year “discussion period” by delivering notice to the other parties
within 60 days. Avianca completed its Chapter 11 proceeding on December 1, 2021.
Sales, Marketing and Distribution
Sales and Distribution. A significant portion of our sales were completed through travel agents, including OTAs and other airlines while
the rest came from direct sales via our city ticket offices, or “CTOs,” call centers, airport counters or website. In recent years, travel agents’ base
commissions have decreased significantly in most markets as more efficient back-end incentive programs have been implemented to reward selected
travel agencies that exceed their sales targets.
Travel agents obtain airline travel information and issue airline tickets through a direct connection program that we launched on
September 1, 2022 using the New Distribution Capability (NDC) Level 4 standard and through the traditional GDSs that enable them to make
reservations on flights from a large number of airlines. GDSs are also used by travel agents to make hotel and car rental reservations. Copa participates
actively in major international GDSs, including SABRE, Amadeus and Travelport. In return for access to these GDS systems, Copa pays transaction
fees that are generally based on the number of segments booked through each system.
Copa has a sales and marketing network consisting of 32 ticket offices, including city ticket offices located in Panama, Colombia and other
countries, in addition to the airports where we operate.
In September 2022, Copa implemented a channel differentiation strategy (“Copa Connect”) with the objective of shifting sales to more
cost-efficient channels. This strategy adds a distribution surcharge to the fare for tickets purchased through the traditional travel agency GDS channel
(known as EDIFACT) in order to partially offset the higher cost of this channel. For travel agencies, and their customers, who want to avoid the GDS
distribution surcharge, we have offered alternatives leveraging the IATA “New Distribution Capability” (NDC) standard. Agency adoption rates are
uncertain because Copa Connect can require process and technology changes for travel agencies. Moreover, GDS suppliers, in some cases, also provide
agencies with financial incentives based on the volume of bookings or tickets issued via the GDS so agencies may have a financial incentive to continue
using the traditional channels. No distribution surcharge is included for tickets sold through copa.com, call center, or other direct Copa channels.
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 on digital channels, our advertising and promotional activities also include the use of television, print, radio and billboards, as well as targeted
public relation events in the cities where we fly. We believe that the corporate traveler is an important part of our business, and we particularly promote
our service to these customers by conveying the reliability, convenience and consistency of our service and offering value-added services such as
convention and conference travel arrangements. We also promote package deals for the destinations where we fly through combined efforts with
selected hotels and travel agencies.
30
Table of Contents
Competition
We face considerable competition throughout our route network. Overall airline industry profit margins are relatively low and industry
earnings are volatile. Airlines compete in the areas of pricing, scheduling (frequency and flight times), on-time performance, frequent flyer programs
and other services. Strategic alliances, bankruptcy restructurings and industry consolidations characterize the airline industry and tend to intensify
competition.
Copa competes with a number of other airlines that currently serve the routes on which we operate, including Avianca, American Airlines,
Delta Air Lines, Spirit, JetBlue, Azul, Aeromexico, Gol, Volaris, Viva Air and LATAM, among others. In order to remain competitive, we must
constantly react to changes in prices and services offered by our competitors.
The airline industry continues to experience increased consolidation and changes in international alliances, both of which have altered and
will continue to alter the competitive landscape in the industry by resulting in the formation of airlines and alliances with increased financial resources,
more extensive global networks and altered cost structures.
The airline industry is highly susceptible to price discounting, particularly because airlines incur very low marginal costs for providing
service to passengers occupying otherwise unsold seats. Carriers use discount fares to stimulate traffic during periods of lower demand to generate cash
flow and to increase market share. Any lower fares offered by one airline are often matched by competing airlines, which frequently results in lower
industry yields with little or no increase in traffic levels. Price competition among airlines could lead to lower fares or passenger traffic on some or all of
our routes, which could negatively impact our profitability.
Airlines based in other countries may also receive subsidies, tax incentives or other state aid from their respective governments, which are
not provided by the Panamanian government. The commencement of, or increase in, service on the routes we serve by existing or new carriers could
negatively impact our operating results. Likewise, competitors’ service on routes that we are targeting for expansion may make those expansion plans
less attractive. We must constantly react to changes in prices and services offered by our competitors to remain competitive.
Traditional hub-and-spoke carriers in the United States and Europe have in recent years faced substantial and increasing competitive
pressure from low-cost carriers offering discounted fares. The low-cost carriers’ operations are typically characterized by point-to-point route networks
focusing on the highest demand city pairs, high aircraft utilization, single class service and fewer in-flight amenities. As evidenced by the operations of
competitors in 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,
which has a cargo hub operation at Tocumen International Airport.
Aircraft
As of December 31, 2022, Copa operates a fleet consisting of 97 aircraft. As of December 31, 2022, Copa has firm orders to purchase 66
Boeing 737 MAX aircraft to be delivered between 2023 and 2028. In October 2018, Copa signed an aircraft sale and purchase agreement with Azorra
Aviation for the sale of five Embraer 190 aircraft in 2019. In 2020, we signed an aircraft sale and purchase agreement for the remaining Embraer 190
aircraft and announced the sale of the B737-700 fleet. In 2021, the deliveries of the Embraer 190 aircraft were completed by June 2021, and three
B737-700 aircraft were sold. Due to an increase in demand in the region, the Board of Directors approved continuing to operate the remaining nine
Boeing 737-700 aircraft for a period of three years. During 2022, the Company sold two B737-700 airframes that were under a lease agreement to a
third party.
The current composition of the Copa fleet as of December 31, 2022 is fully described below:
Average Term of Lease
Boeing 737 MAX
Boeing 737-700
Boeing 737-800
Total
Number of Aircraft
Owned
Total
17
20
9
9
41
68
67
97
Leased
3
0
27
30
Remaining
(Years)
Average Age
(Years)
Seating
Capacity
7.8
0.0
2.4
2.9
2.1
19.2
10.4
9.5
166/174
124/126
154/160/166/186
—
31
Table of Contents
The table below describes the expected size of our fleet at the end of each year set forth below, assuming delivery of all aircraft for which
we currently have firm orders but not taking into account any aircraft for which we have purchase rights and options:
Aircraft Type
737-700
737-800
737-MAX(1)
Total Fleet
9
9
9
2023 2024 2025 2026 2027 2028 2029
0
68 57 47 43 43 41 41
32 50 59 70 79 86 86
109 116 115 119 127 127 127
6
5
0
(1) We have the flexibility to choose between the different members of the 737 MAX family. The delivery schedule above reflects contractual
commitments.
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 time when we conclude that adding other types of aircraft will help us achieve this goal. Following our strategy, as of December 31, 2022, we have
firm orders to purchase 66 Boeing 737 MAX aircraft to be delivered between 2023 and 2028. The 737 MAX provides additional benefits to the current
fleet such as fuel efficiency, longer range and additional capacity compared to the current Copa seat configuration. Following the Ethiopian Airlines
accident involving a Boeing 737 MAX 8 aircraft, we suspended operations of our six Boeing 737 MAX 9 aircraft as regulatory authorities around the
world grounded the aircraft. On November 18, 2020 the FAA rescinded its grounding order, issued an airworthiness directive, and published training
requirements enabling the Company to begin modifying certain operating procedures, implementing enhanced pilot training requirements, installing
FAA-approved flight control software updates, and completing other required maintenance tasks specific to the MAX aircraft. On January 2021, we
resumed operations of our Boeing 737 MAX fleet after the authorization of the Autoridad Aeronáutica Civil de Panama.
Through several special purpose vehicles, we currently have beneficial ownership of 67 of our aircraft. In addition, we lease 30 of our
aircraft under long-term lease agreements that have an average remaining term of 2.9 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 do so. We make monthly rental payments, some of which are based on
floating rates, but we are not required to make termination payments at the end of the lease. Currently, we do not have purchase options under any of our
operating lease agreements. Under our operating lease agreements, we are required to make supplemental rent payments at the end of the lease that are
calculated with reference to the aircraft’s maintenance schedule. In either case, we must return the aircraft in the agreed-upon condition at the end of the
lease term. Title to the aircraft remains with the lessor. We are responsible for the maintenance, servicing, insurance, repair and overhaul of the aircraft
during the term of the lease.
To better serve our business travelers, we offer a business class (Clase Ejecutiva) configuration in our fleet. Our business class service
features upgraded meal service, special check-in desks, bonus mileage for full-fare business class passengers and access to VIP lounges. Our Boeing
737-800 aircraft currently have three different configurations: one with 16 business class seats with 38-inch pitch and a total of 160 seats, a second with
16 business class seats with 48-inch pitch seats and a total of 154 seats and a third with 16 business class seats and a total of 166 seats. Our Boeing 737
MAX 9 aircraft feature two configurations: one with 16 full lie-flat seats in business class (Dreams) and a total of 166 seats and another configuration
with twelve full lie-flat seats in business class (Dreams) and a total of 174 seats. Our Boeing 737-700 aircraft have 12 business class seats and a total of
124 seats.
Also, within the Copa Holdings fleet, there are nine 737-800s dedicated to the operations of Wingo. These aircraft are equipped with 186
economy class seats.
32
Table of Contents
Each of our Boeing 737-Next Generation aircraft is powered by two CFM International Model CFM 56-7B engines. Our Boeing 737
MAX 9 aircraft are powered by two CFM International Leap 1B engines. We currently have ten spare engines for service replacements and for periodic
rotation through our fleet.
Maintenance
The maintenance performed on our aircraft can be divided into two general categories: line and heavy maintenance. Line maintenance
consists of routine, scheduled maintenance checks on our aircraft, including pre-flight, service visits, “A-checks” and any diagnostics and routine
repairs. Copa’s line maintenance is performed by Copa’s own technicians at our main base in Panama and/or at the out stations by Copa Airlines and/or
AeroRepública employees or third-party contractors. Heavy maintenance consists of more complex inspections and overhauls, including “C-checks,”
and servicing of the aircraft that cannot be accomplished during an overnight visit. Maintenance checks are performed intermittently as determined by
the aircraft manufacturer through Copa Airlines AAC approved maintenance program. These checks are based on the number of hours, departures or
calendar months flown. Historically we had contracted with certified outside maintenance providers, such as COOPESA. In October of 2010, Copa
decided to begin performing a portion of the heavy maintenance work in-house. The hiring, training, facility and tooling setup, as well as enhancing
certain support shops, were completed during a ten-month period. Ultimately, Copa acquired the required certifications by the local authorities to
perform the first in-house C-Check in August 2011, followed by its second C-check in October of the same year. Today we are performing a continuous
line of C-Checks in-house for the entire year, and on January 20, 2017 we held the ground-breaking of our new maintenance facility at Tocumen
International Airport which allows us to perform up to three complete continuous lines of C-checks, as required. The new facility commenced
operations in January 2019. In 2022, 16 heavy maintenance checks were successfully performed in-house. When possible, Copa attempts to schedule
heavy maintenance during its lower-demand seasons in order to maximize productive use of its aircraft.
Copa has exclusive long-term contracts with GE Engines whereby they perform maintenance on all of our CFM-56 engines.
In October of 2014, Copa Airlines established its own maintenance technician training academy. Through this program, we recruit and
train technicians through on-the-job training and formal classes. These future technicians stay in the program for four years total. After the first two
years, each trainee receives their airframe license and becomes a mechanic. After the next two years, each trainee receives their power plant license and
is released as a mechanic into our work force.
Copa Airlines and AeroRepública employ, system-wide, around 610 maintenance professionals, who perform maintenance in accordance
with maintenance programs that are established by the manufacturers and approved and certified by international aviation authorities. Every mechanic is
trained in factory procedures and goes through our own rigorous in-house training program. Every mechanic is licensed by the AAC and approximately
24 of our mechanics are also licensed by the FAA. Our safety and maintenance procedures are reviewed and periodically audited by the AAC (Panama),
UAEAC (Colombia), the FAA (United States), IATA (IOSA) and, to a lesser extent, every foreign country to which we fly. Copa Airlines’ maintenance
facility at Tocumen International Airport has been certified by the FAA as an approved repair station, under FAR Part 145, and once a year the FAA
inspects this facility to validate and renew the certification. Copa’s aircraft are initially covered by warranties that have a term of four years, resulting in
lower maintenance expenses during the period of coverage. All of Copa Airlines’ and AeroRepública’s mechanics are trained to perform line
maintenance on each of the Boeing 737-Next Generation and Boeing 737 MAX.
All of AeroRepública’s’s maintenance and safety procedures are certified by the Aeronáutica Civil of Colombia and Bureau Veritas
Quality International (“BVQI”), the institute that issues International Organization for Standardization, or “ISO,” quality certificates. All of
AeroRepública’s maintenance personnel are licensed by the Aeronáutica Civil of Colombia. In December 2017, AeroRepública received its IATA
Operational Safety Audit, or “IOSA,” compliance certification, which will remain valid until December 2024.
Safety
We place a high priority on providing safe and reliable air service. We are focused on continuously improving our safety performance by
implementing internationally recognized best practices such as Safety Management System, or “SMS,” Flight Data Analysis (FDA), internal and
external operational safety audits, and associated programs.
Our SMS provides operational leaders with reactive, proactive, and predictive data analyses that are delivered on a frequent and recurring
basis. This program also uses a three-tiered meeting structure to ensure the safety risk of all identified hazards are assessed and corrective actions (if
required) are implemented. At the lowest meeting level, the Operational Leaders review the risk assessments, assign actions, and monitor progress. At
the middle meeting level, the Chief Operations Officer meets with the Operational Leaders to ensure all cross-divisional issues are properly addressed
and funded. At the highest meeting level, the Chief Executive Officer monitors the performance of the SMS program and ensures the safety risk is being
properly managed.
33
Table of Contents
The SMS is supported by safety investigations and a comprehensive audit program. Investigations are initiated either by operational events
or analyses of relevant trend information, such as via our Flight Data Analysis program. These investigations are conducted by properly qualified and
trained internal safety professionals. Our audit program consists of three major components. The first serves as the aircraft maintenance quality
assurance program and is supported by six dedicated maintenance professionals. The second team consists of an internal team dedicated to conducting
standardized audits of airport, flight operations, and associated functions. The third component of our audit program is a biennial audit of all operational
components by the internationally recognized standard IOSA (IATA Operational Safety Audit). In 2022 Copa Airlines and AeroRepública successfully
completed IOSA audits by external providers.
Airport Facilities
We believe that our hub at Panama City’s Tocumen International Airport (PTY) is an excellent base of operations for the following
reasons:
•
•
Panama’s consistently temperate climate is ideal for airport operations.
Tocumen International Airport is the only airport in Central America with two operational runways. Also, unlike some
other regional airports, consistent modernization and growth of our hub has kept pace with our needs. In 2012, Tocumen
International Airport completed Phase II of an expansion project of the existing terminal. In 2013, Tocumen International
Airport awarded the bid for the construction of a new terminal (“Terminal 2” or “T2”), with an additional 20 gates and eight
remote positions. Terminal 2 started operating a few gates during the early part of 2019. On June 22, 2022, we moved our
ticket counter and baggage claim operations to Terminal 2 and began using 20 fully equipped gates in this new terminal. We
also opened a new 20,720 square feet Copa Club in the new Terminal.
•
Panama’s central and sea level location provides a very efficient base to operate our narrow body fleet, efficiently serving
short and long-haul destinations in Central, North and South America, as well as the Caribbean.
Tocumen International Airport is operated by an independent corporate entity established by the government, where stakeholders have a
say in the operation and development of the airport. The law that created this entity also provided for a significant portion of revenues generated at
Tocumen International Airport to be used for airport expansion and improvements. None of the airlines operating at Tocumen International Airport have
any formal, written agreements with the airport management to govern access fees, landing rights or allocation of terminal gates. We rely upon our good
working relationship with the airport’s management and the Panamanian government to ensure that we have access to the airport resources we need at
prices that are reasonable.
We provide most of our own ground services and handling of passengers and cargo at Tocumen International Airport. In addition, we
provide services to several of the main foreign airlines that operate at Tocumen International Airport. In most of the other airports where we operate,
airport support services are provided by external third parties.
We use a variety of facilities at Tocumen International Airport, including our maintenance hangars and our operations facilities in the
airport terminal. In January 2019, we opened a new hangar next to our existing maintenance facility. This new hangar has an area of approximately
90,000 square feet and can accommodate up to three narrow body aircraft simultaneously.
Our Gold and higher PreferMember passengers have access to two Copa Clubs at the Tocumen International Airport in Panama, one
located at Terminal 1 and the second located in the new Terminal 2. These passengers also have access to other Copa Clubs in the region, which are
strategically located in San José, Guatemala City, Santo Domingo and Bogotá.
Fuel
Fuel costs are extremely volatile, as they are subject to many global economic, geopolitical, weather, environmental and other factors that
we can neither control nor accurately predict. Due to its inherent volatility, aircraft fuel has historically been our most unpredictable unit cost. In the
past, rapid increases in prices have come from increased demand for oil coupled with limited refinery capacity and instability in oil-exporting countries.
34
Table of Contents
Aircraft Fuel Data
Average price per gallon of jet fuel into plane (excluding hedge) (in U.S. dollars)
Gallons consumed (in millions)
Available seat miles (in millions)
Gallons per ASM (in hundredths)
2022
$
3.60
291.4
24,430
1.19
2021
$
2.14
177.4
14,934
1.19
2020
$ 1.81
92.8
7,301
1.27
In 2022, the average price of West Texas Intermediate or “WTI” crude oil, a benchmark widely used for crude oil prices that is measured
in barrels and quoted in U.S. dollars, increased by 39.6% from $68.0 per barrel to $94.9 per barrel. In 2022, we did not hedge any of our fuel needs, and
we have not hedged any part of our fuel needs for 2023. Although we have not added hedge positions since August of 2015, we continue to evaluate
various hedging strategies and may enter into additional hedging agreements in the future, as any substantial and prolonged increase in the price of jet
fuel will likely materially and negatively affect our business, financial condition and results of operation. In the past, we have managed to offset some of
the increases in fuel prices with higher load factors, fuel surcharges and fare increases. In addition, our relatively young, winglet-equipped fleet and
robust fuel conservation measures also help us mitigate the impact of higher fuel prices.
Additionally, global geopolitical events, such as the conflict between Russia and Ukraine beginning in February 2022, led to an increase in
fuel costs which may negatively impact our business operations. Due to the evolving nature of such events, we are unable to predict the extent of the
impact on our business.
Insurance
We maintain passenger liability insurance in an amount consistent with industry practice, and we insure our aircraft against losses and
damages on an “all risks” basis. We have obtained all insurance coverage required by the terms of our leases. We believe our insurance coverage is
consistent with airline industry standards and appropriate to protect us from material losses in light of the activities we conduct. No assurance can be
given, however, that the amount of insurance we carry will be sufficient to protect us from material losses. By leveraging the purchasing power of our
alliance partner, UAL, we have been able to negotiate lower premiums than those we would get if we were to purchase a standalone Hull and Airline
Liability Insurance policy.
Environmental
Our operations are covered by various local, national, and international environmental regulations. These regulations cover, among other
things, gas emissions into the atmosphere, disposal of solid waste and aqueous effluents, aircraft noise, and other activities that result from the operation
of aircraft and our aircraft comply with all environmental standards applicable to their operations as described in this annual report. Currently, we
maintain an Environmental Management and Adequacy Program (“PAMA”), in all our facilities located in Panama, including our maintenance hangar
and support facilities at the Tocumen International Airport, Administrative Offices in Costa del Este and Training Center in Clayton. This program was
approved by the Panamanian National Environmental Authority (“ANAM”) in 2013, governmental entity now named Ministry of Environment
(“MiAmbiente”), and includes actions such as a recycling program, better use of natural resources and final disposition of the unfiltered water used for
aircraft maintenance, among many others. Currently, the Copa Tocumen International Airport’s PAMA final report is presented to MiAmbiente on an
annual basis to monitor and report our environmental follow-up assessments. Copa Airlines is an active signatory company of the Global Compact of
the United Nations with its local chapter of the Global Compact Network Panama, and have, thus, published our Communication on Progress (“COP”)
since October 2001. This Global Compact agreement requires us to implement measures like maintaining a young fleet, incorporating new navigation
technologies such as RNAV to reduce fuel consumption, installing latest generation winglets and scimitars in our planes to reduce fuel consumption and
recycling, among many others.
Starting in 2019, Copa is reporting the fuel consumption burned during its annual flight operations and its gas emissions to the AAC. As a
result, Copa is in line with the global aviation effort led by ICAO, Colombia, and Panama Civil Aviation Authorities with the implementation of the
Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The first gas emissions report corresponding to 2019 operations was
successfully delivered to the AAC on October 2020, after passing the audit by our external Verification Body of greenhouse gas emissions accredited by
ICAO. The Gas Emissions Report (ER) corresponding to 2021 operations was delivered to the AAC on May 2022.
35
Table of Contents
In 2022, we were able to collect a total of 150 tons of recycling materials in Panama’s Copa facilities and avoid sending waste to the landfill.
During the same period, we recycled vehicle oil and aircraft fuel, for which we outsourced the collection of 11,063 gallons of hydrocarbons for use as
alternative fuel for other industries, thus avoiding the contamination of natural resources. We also outsourced the collection of 435,879 gallons of water
contaminated with chemicals generated during aircraft cleaning and painting operations, and from vehicle maintenance processes. The subsequent
treatment of the collected water made it possible to recover 348,703 gallons of water which were then returned to nature. We have properly disposed of a
total of 24,570 kilograms of chemical waste from Aircraft Maintenance operations.
Regulation
Panama
Authorizations and Certificates. Panamanian law requires airlines providing commercial services in Panama to hold an Operation
Certificate and an Air Transportation License/Certificate issued by the AAC. The Air Transportation Certificate specifies the routes, equipment used,
capacity, and frequency of flights. This certificate must be updated every time Copa acquires new aircraft, or when routes and frequencies to a particular
destination are modified.
Panamanian law also requires that the aircraft operated by Copa Airlines be registered with the Panamanian National Aviation Registrar
kept by the AAC, and that the AAC certifies the airworthiness of each aircraft in the fleet.
The Panamanian government does not have an equity interest in our Company. Bilateral agreements signed by the Panamanian government have
protected our operational position and route network, allowing us to have a significant hub in Panama to transport traffic within and between the
Americas and the Caribbean. All international fares are filed and, depending on the bilateral agreement, are technically subject to the approval of the
Panamanian government. Historically, we have been able to modify ticket prices on a daily basis to respond to market conditions. Copa Airlines’ status
as a private carrier means that it is not required under Panamanian law to serve any particular route and is free to withdraw service from any of the
routes it currently serves, subject to bilateral agreements. We are also free to determine the frequency of service we offer across our route network
without any minimum frequencies imposed by the Panamanian authorities.
Ownership Requirements. The most significant restriction on our Company imposed by the Panamanian Aviation Act, as amended and interpreted
to date, is that Panamanian nationals must exercise “effective control” over the operations of the airline and must maintain “substantial ownership.”
These phrases are not defined in the Aviation Act itself and it is unclear how a Panamanian court would interpret them. The share ownership
requirements and transfer restrictions contained in our Articles of Incorporation, as well as the structure of our capital stock described under the caption
“Description of Capital Stock”, are designed to ensure compliance with these ownership and control restrictions created by the Aviation Act. While we
believe that our ownership structure complies with the ownership and control restrictions of the Aviation Act as interpreted by a decree by the Executive
Branch, we cannot assure you that a Panamanian court would share our interpretation of the Aviation Act or the decree or that any such interpretations
would remain valid for the entire time you hold our Class A shares.
Although the Panamanian government does not currently have the authority to dictate the terms of our service, the government is responsible for
negotiating the bilateral agreements with other nations that allow us to fly to other countries. Several of these agreements require Copa to remain
“effectively controlled” and “substantially owned” by Panamanian nationals in order for us to use the rights conferred by the agreements. Such
requirements are analogous to the Panamanian Aviation Act described above that requires Panamanian control of our business.
Antitrust Regulations. In 1996, the Republic of Panama enacted antitrust legislation, which regulates industry concentration and vertical
anticompetitive practices and prohibits horizontal collusion. The Consumer Protection and Free Trade Authority is in charge of enforcement and may
impose fines only after a competent court renders an adverse judgment. The law also provides for direct action by any affected market participant or
consumer, independently or through class actions. The law does not provide for the granting of antitrust immunity, as is the case in the United States. In
February 2006, the antitrust legislation was amended to increase the maximum fines that may be assessed to $1,000,000 for violations and $250,000 for
minor infractions of antitrust law. In October 2007, the antitrust legislation was amended again to include new regulations.
Colombia
Even though the Colombian aviation market continues to be regulated by the Colombian Civil Aviation Administration, Unidad Especial
Administrativa de Aeronáutica Civil, or “Aeronáutica Civil,” the government policies have become more liberal in recent years.
36
Table of Contents
Colombia has expanded its open-skies agreements with several countries in the last years. In addition to Aruba and the Andean Pact
nations of Bolivia, Ecuador and Peru, open-skies agreements have been negotiated with Costa Rica, El Salvador, Panama and Dominican Republic. In
the framework of liberalization between Colombia and Panama, any airline has the right to operate unlimited frequencies between any city pair of the
two countries. As a result, Copa offers scheduled services between eleven main cities in Colombia and Panama. In November 2010, Colombia signed an
open-skies agreement with the United States, which took effect in January 2013. With respect to domestic aviation, airlines must present feasibility
studies to secure specific route rights, and no airline may serve the city pairs with the most traffic unless that airline has at least five aircraft with valid
airworthiness certificates. While Aeronáutica Civil has historically regulated the competition on domestic routes, in December 2012 it revoked a
restriction requiring a maximum number of competing airlines on each domestic route.
In October 2011, Aeronáutica Civil announced its decision to liberalize air fares in Colombia starting April 1, 2012, including the
elimination of fuel surcharges. However, airlines are required to charge an administrative fee (tarifa administrativa) for each ticket sold on domestic
routes within Colombia through an airline’s direct channels. Passengers in Colombia are also entitled by law to compensation in the event of delays in
excess of four hours, over-bookings and cancellations. Currently, the Bogotá, Pereira, Cali, Cartagena, Medellin, Bucaramanga, Barranquilla, Santa
Marta and Cucuta airports, among others, are under private management arrangements. The government’s decision to privatize airport administration in
order to finance the necessary expansion projects and increase the efficiency of operations has increased airports fees and facility rentals at those
airports.
Authorization and Certificates. Colombian law requires airlines providing commercial services in Colombia to hold an operation
certificate issued by the Aeronáutica Civil, which is renewed every five years. AeroRepública’s operation certificate was renewed in 2018.
Safety Assessment. On December 9, 2010, Colombia was re-certified as a Category 1 country under the FAA’s IASA program.
Ownership Requirements. Colombian regulations establish that an airline satisfies the ownership requirements of Colombia if it is
registered under the Colombian Laws and Regulations.
Antitrust Regulations. In 2009, an antitrust law was issued by the Republic of Colombia; however, commercial aviation activities remain
under the authority of the Aeronáutica Civil.
Airport Facilities. The airports of the major cities in Colombia have been granted to concessionaries, who impose charges on the airlines
for the rendering of airport services. The ability to contest these charges is limited, but contractual negotiations with the concessionaries are possible.
United States
Operations to the United States by non-U.S. airlines, such as Copa Airlines, are subject to Title 49 of the U.S. Code, under which the DOT,
the FAA and the TSA exercise regulatory authority. The U.S. Department of Justice also has jurisdiction over airline competition matters under federal
antitrust laws.
Authorizations and Licenses. The DOT has jurisdiction over international aviation with respect to air transportation to and from the United
States, including regulation of related route authorities, the granting of which are subject to review by the President of the United States. The DOT
exercises its jurisdiction with respect to unfair practices and methods of competition by airlines and related consumer protection matters as to all airlines
operating to and from the United States. Copa Airlines is authorized by the DOT to engage in scheduled and charter air transportation services,
including the transportation of persons, property (cargo) and mail, or combinations thereof, between points in Panama and points in the United States
and beyond (via intermediate points in other countries). Copa Airlines holds the necessary authorizations from the DOT in the form of a foreign air
carrier permit, an exemption authority and statements of authorization to conduct our current operations to and from the United States. The exemption
authority was granted by the DOT in February 1998 and was due to expire in February 2000. However, the authority remains in effect by operation of
law under the terms of the Administrative Procedure Act pending final DOT action on the application we filed to renew the authority on January 3,
2000. There can be no assurance that the DOT will grant the application. Our foreign air carrier permit has no expiration date.
Copa Airlines’ operations in the United States are also subject to regulation by the FAA with respect to aviation safety matters, including
aircraft maintenance and operations, equipment, aircraft noise, ground facilities, dispatch, communications, personnel, training, weather observation, air
traffic control and other matters affecting air safety. The FAA requires each foreign air carrier serving the United States to obtain operational
37
Table of Contents
specifications pursuant to 14 CFR Part 129 of its regulations and to meet operational criteria associated with operating specified equipment on approved
international routes. We believe that we are in compliance in all material respects with all requirements necessary to maintain in good standing our
operations specifications issued by the FAA. The FAA can amend, suspend, revoke or terminate those specifications, or can temporarily suspend or
permanently revoke our authority if we fail to comply with the regulations, and can assess civil penalties for such failure. A modification, suspension or
revocation of any of our DOT authorizations or FAA operating specifications could have a material adverse effect on our business. The FAA also
conducts safety audits and has the power to impose fines and other sanctions for violations of airline safety regulations. We have not incurred any
material fines related to operations. The FAA also conducts safety International Aviation Safety Assessment, or “IASA,” as to Panama’s compliance
with ICAO safety standards. Panama is currently considered a Category 1 country that complies with ICAO international safety standards. As a
Category 1 country, no limitations are placed upon our operating rights to the Unites States. If the FAA should determine that Panama does not meet the
ICAO safety standards, the FAA and DOT would restrict our rights to expand operations to the United States.
Security. On November 19, 2001, the U.S. Congress passed, and the President signed into law, the Aviation and Transportation Security
Act or the “Aviation Security Act”. This law federalized substantially all aspects of civil aviation security and created the TSA, an agency of the
Department of Homeland Security, to which the security responsibilities previously held by the FAA were transitioned. The Aviation Security Act
requires, among other things, the implementation of certain security measures by airlines and airports, such as the requirement that all passengers, their
bags and all cargo be screened for explosives and other security-related contraband. Funding for airline and airport security required under the Aviation
Security Act is provided in part by a $2.50 per segment passenger security fees for flights departing from the United States, subject to a $10 per
roundtrip cap; however, airlines are responsible for costs incurred to meet security requirements beyond those provided by the TSA. The United States
government is considering increases to this fee as the TSA’s costs exceed the revenue it receives from these fees. Implementation of the requirements of
the Aviation Security Act has resulted in increased costs for airlines and their passengers. Since the events of September 11, 2001, the U.S. Congress has
mandated, and the TSA has implemented numerous security procedures and requirements that have imposed and will continue to impose burdens on
airlines, passengers and shippers.
Passenger Facility Charges. Most major U.S. airports impose passenger facility charges. The ability of airlines to contest increases in
these charges is restricted by federal legislation, DOT regulations and judicial decisions. With certain exceptions, air carriers pass these charges on to
passengers. However, our ability to pass through passenger facility charges to our customers is subject to various factors, including market conditions
and competitive factors. Passenger facility charges are capped at $4.50 per flight segment with a maximum of two PFCs charged on a one-way trip or
four PFCs on a round trip, for a maximum of $18 total, respectively.
Airport Access. Two U.S. airports at which we operate, O’Hare International Airport in Chicago (O’Hare) and John F. Kennedy
International Airport in New York, or “JFK”, were formerly designated by the FAA as “high density” traffic airports subject to arrival and departure slot
restrictions during certain periods of the day. From time to time, the FAA has also issued temporary orders imposing slot restrictions at certain airports.
Although slot restrictions at JFK were formally eliminated as of January 1, 2007, on January 15, 2008, the FAA issued an order limiting the number of
scheduled flight operations at JFK during peak hours to address the over-scheduling, congestion and delays at JFK. We cannot predict the outcome of
potential future rule changes to address congestion on our costs or ability to operate at JFK.
On July 8, 2008, the DOT also issued a revised Airport Rates and Charges policy that allows airports to establish non-weight based fees
during peak hours and to apportion certain expenses from “reliever” airports to the charges for larger airports in an effort to limit congestion.
Noise Restrictions. Under the Airport Noise and Capacity Act of 1990 and related FAA regulations, aircraft that fly to the United States
must comply with certain Stage 3 noise restrictions, which are currently the most stringent FAA operating noise requirements. All of our Copa aircraft
meet the Stage 3 requirement.
Other Regulation. U.S. laws and regulations have been proposed from time to time that could significantly increase the cost of airline
operations by imposing additional requirements or restrictions on airlines. There can be no assurance that laws and regulations currently enacted or
enacted in the future will not adversely affect our ability to maintain our current level of operating results.
Other Jurisdictions
We are also subject to regulation by the aviation regulatory bodies that set standards and enforce national aviation legislation in each of the
jurisdictions to which we fly. These regulators may have the power to set fares, enforce environmental and safety standards, levy fines, restrict
operations within their respective jurisdictions or any other powers associated with aviation regulation. We cannot predict how these various regulatory
bodies will perform in the future, and the evolving standards enforced by any of them could have a material adverse effect on our operations.
38
Table of Contents
C. Organizational Structure
The 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,
South and Central America and the Caribbean. Copa Airlines Colombia is our operating subsidiary that provides air travel from Colombia to Copa
Airlines Hub of the Americas in Panama, and operates a low-cost business model, Wingo, within Colombia and various cities in the region. Oval
Financial Leasing, Ltd. controls the special purpose vehicles that have a beneficial interest in the majority of our fleet.
D. Property, plants and equipment
Headquarters
Our headquarters are located six miles away from Tocumen International Airport. We have leased five floors consisting of approximately
105,981 square feet of the building from Desarollo Inmobiliario Del Este, S.A., an entity controlled by some of the investors that controls CIASA, under
a ten-year lease that began in January 2015 at a rate of $0.2 million per month.
Other Property
At Tocumen International Airport, we lease two maintenance hangars, operations offices in the terminal, counter space, parking spaces and
other operational properties from the entity that manages the airport. We pay approximately $242,371 per month for this leased property. Around
Panama City, we also lease various office spaces, parking spaces and other properties from a variety of lessors, for which we pay approximately
$114,023 per month in the aggregate.
In each of our destination cities, we also lease space at the airport for check-in, reservations and airport ticket office sales, and we lease
space for CTOs in those cities.
39
Table of Contents
AeroRepública leases most of its airport offices and CTOs. Owned properties only include one CTO and a warehouse close to the Bogota
airport.
See also our discussion of “Aircraft” and “Airport Facilities” above.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
A. Operating Results
You should read the following discussion in conjunction with our consolidated financial statements and the related notes and the other
financial information included elsewhere in this annual report. Discussions of year-over-year comparisons between 2021 and 2020 that are not included
in this Form 20-F can be found in Part I, Item 5, Operating and Financial Review and Prospects” of our Form 20-F for the fiscal year ended
December 31, 2021.
We are a leading Latin American provider of airline passenger and cargo service through our two principal operating subsidiaries, Copa
Airlines and AeroRepública. Copa Airlines operates from its strategically located position in the Republic of Panama, and AeroRepública operates a
low-cost business model within Colombia and various cities in the region.
Copa currently offers approximately 327 daily scheduled flights among 78 destinations in 32 countries in North, Central, South America
and the Caribbean from its Panama City hub. Copa provides passengers with access to flights to more than 180 other destinations through code-share
arrangements 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, 2022, Copa Airlines and Wingo operate a modern fleet of 97 Boeing 737 aircraft. To meet growing capacity
requirements, we have firm orders, including purchase and lease commitments. As of December 31, 2022, the Company has firm orders to purchase 66
Boeing 737 MAX aircraft to be delivered between 2023 and 2028.
Factors Affecting Our Results of Operations
Fuel
In 2022, 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, increase by 39.6% from $68.0 per barrel to $94.9 per barrel. In 2022, we did not hedge any of our fuel needs. For 2023 although we have not
hedged any part of our anticipated fuel needs, we continue to evaluate various hedging strategies and may enter into hedging agreements in the future, as
any substantial and prolonged increase in the price of jet fuel will likely materially and negatively affect our business, financial condition and results of
operation. In the past, we have managed to offset some of the increases in fuel prices with higher load factors, fuel surcharges and fare increases. In
addition, our relatively young, winglet-equipped fleet and robust fuel conservation measures also help us mitigate the impact of higher fuel prices.
Additionally, global geopolitical events, such as the conflict between Russia and Ukraine beginning in February 2022, have led to an
increase in fuel costs which may negatively impact our business operations. Due to the evolving nature of such events, we are unable to predict the
extent of the impact on our business.
Regional Economic Environment
Our historical financial results have been, and we expect them to continue to be, materially affected by the general level of economic
activity and growth of per capita disposable income in North, South and Central America and the Caribbean, which have a material impact on
discretionary and leisure travel (drivers of our passenger revenue) and the volume of trade between countries in the region (the principal driver of our
cargo revenue). As a result of the effects of COVID-19 global pandemic, in March 2020 the Company and the entire aviation industry began to
experience a significant drop in the demand for air travel. This demand has been steadily recovering since the beginning of 2021.
40
Table of Contents
In Colombia, real GDP, at constant prices, increased 7.6% in 2022. Average inflation of consumer prices in Colombia was approximately
9.8% in 2022, according to the IMF.
According to data from The Preliminary Overview of the Economies of Latin America and the Caribbean, an annual United Nations
publication prepared by the Economic Development Division, the economy of Latin America (including the Caribbean) is estimated to increase by 1.3%
in 2023. Preliminary figures, according to the IMF, for 2022 indicate that the Panamanian economy increased by 7.5% (versus 15.3% increase in 2021).
Headline inflation in Panama was 3.9% compared to 1.6% in 2021.
Revenues
We derive our revenues primarily from passenger transportation, which represented 95.3% of our revenues for the year ended
December 31, 2022. In addition, 3.4% of our total revenues are derived from cargo and 1.3% from other activities.
We recognize passenger revenue from tickets when transportation is provided rather than when a ticket is sold. Passenger revenues reflect
the capacity of our aircraft on the routes we fly, load factor and yield. Our capacity is measured in terms of available seat miles, or “ASMs”, which
represents the number of seats available on our aircraft multiplied by the number of miles the seats are flown. Our usage is measured in terms of RPMs,
which is the number of revenue passengers multiplied by the miles these passengers fly. Load factor, or the percentage of our capacity that is actually
used by paying customers, is calculated by dividing RPMs by ASMs. Yield is the average amount that one passenger pays to fly one mile. We use a
combination of approaches, taking into account yields, flight load factors and effects on load factors of connecting traffic, depending on the
characteristics of the markets served, to arrive at a strategy for achieving the best possible revenue per available seat mile, balancing the average fare
charged against the corresponding effect on our load factors.
We recognize cargo revenue when transportation is provided. Historically our other revenue consists primarily of commissions earned on
tickets sold for flights on other airlines, special charges, non-air frequent flyer program revenue and services provided to other airlines.
Overall demand for our passenger and cargo services is highly dependent on the regional economic environment in which we operate,
including the GDP of the countries we serve and the disposable income of the residents of those countries. Approximately 40% of our passengers travel
at least in part for business reasons, and the growth of intraregional trade greatly affects that portion of our business. The remaining 60% of our
passengers are tourists or travelers visiting friends and family.
The following table sets forth our capacity, load factor and yields for the periods indicated.
Capacity (in available seat miles, in millions)
Load factor
Yield (in cents)
Seasonality
2022
24,430
2021
14,934
85.1%
78.6%
13.59
12.04
2020
7,301
79.6%
13.09
Generally, revenues and profitability of our flights peak during the northern hemisphere’s summer season in July and August and again during the
December and January holiday season. Given our high proportion of fixed costs, this seasonality is likely to cause our results of operations to vary from
quarter to quarter.
Operating Expenses
The main components of our operating expenses are aircraft fuel, wages, salaries, benefits and other employees’ expenses, sales and
distribution and airport facilities and handling charges. A common measure of per unit costs in the airline industry is cost per available seat mile, or
“CASM”, which is generally defined as operating expenses divided by ASMs.
41
Table of Contents
Fuel. The price we pay for aircraft fuel varies significantly from country to country primarily due to local taxes. While we purchase
aircraft fuel at most of the airports to which we fly, we attempt to negotiate fueling contracts with companies that have a multinational presence in order
to benefit from volume purchases. During 2022, as a result of the location of its hub, Copa purchased 53% of its aircraft fuel in Panama. Copa has 24
suppliers of aircraft fuel across its network. In some cases, we tanker fuel in order to minimize our cost, by fueling in airports where fuel prices are
lowest. Our aircraft fuel expenses are variable and fluctuate based on global oil prices.
Aircraft Fuel Data
Average price per gallon of jet fuel into plane (excluding hedge) (in U.S. dollars)
Gallons consumed (in millions)
Available seat miles (in millions)
Gallons per ASM (in hundredths)
2022
$
3.60
291.4
24,430
1.19
2021
$
2.14
177.4
14,934
1.19
2020
$ 1.81
92.8
7,301
1.27
Wages, salaries and other employees’ expenses. Salary and benefit expenses have historically increased at the rate of inflation and by the
growth in the number of our employees. In some cases, we have adjusted the salaries of our employees to correspond to changes in the cost of living in
the countries where these employees work. We do not increase salaries based on seniority. During 2022, we have been gradually reincorporating
personnel, whose contracts had been suspended, in line with our operational needs.
Passenger servicing. Our passenger servicing expenses consist of catering, in-flight entertainment and liability insurance among others.
These expenses 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 consist primarily of payments for ticket sales made by travel agents and commissions paid to credit card companies, depending on the country.
During the last few years we have reduced our commission expense per available seat mile as a result of an industry-wide trend of paying lower
commissions to travel agencies and by increasing the proportion of our sales made through direct channels. We expect this trend to continue as more of
our customers become accustomed to purchasing through our website at www.copaair.com, mobile app, and call centers. While increasing direct sales
may increase the commissions we pay to credit card companies, we expect that the savings from the corresponding reduction in travel agency
commissions will more than offset this increase. In recent years, base commissions paid to travel agents have decreased significantly. At the same time,
we have encouraged travel agencies to move from standard base commissions to incentive compensation based on sales volume and fare types. In
addition, the GDS or reservation systems tend to raise their rates periodically, but we expect that if we are successful in encouraging our customers to
purchase tickets through our direct sales channels, these costs will decrease as a percentage of our operating costs. A portion of our reservations and
sales expenses is also comprised of our licensing payments for the SHARES reservation and check-in management software we use, which is not
expected to change significantly from period to period.
Maintenance, materials and repairs. Our maintenance, materials and repairs expenses consist of aircraft repair expenses and charges
related to the line maintenance of our aircraft, including maintenance materials, and aircraft return costs. As the age of our fleet increases and our
warranties expire, our maintenance expenses will increase. We conduct line and heavy maintenance internally and outsource some of the heavy
maintenance to independent third-party contractors. In 2015, we restructured the original contract negotiated with GE Engine Services in 2003 for the
repair and maintenance of our CFM-56 engines which power our Boeing 737-Next Generation fleet. Our engine maintenance costs are also aided by the
sea-level elevation of our hub and the use of winglets which allow us to operate the engines on our Boeing 737-Next Generation aircraft with lower
thrust, thus putting less strain on the engines.
Depreciation, amortization and impairment. These expenses correspond primarily to the depreciation of aircraft owned by the company,
engines, maintenance components, other related flight equipment and the depreciation of the right of use on leased assets.
Flight operations. These expenses are related to the charges that the countries which we overfly levy on our aircraft as overflight charges.
These fees are generally related to the number of flights we operate.
42
Table of Contents
Other operating and administrative expenses. Other expenses include cargo and courier expenses, overhead expenditures and
miscellaneous expenses. Also includes the expense for contract services, variable lease payments, short term and low value leases.
Taxes
We pay taxes in the Republic of Panama and in other countries in which we operate, based on regulations in effect in each respective
country. Our revenues come principally from foreign operations, and according to the Panamanian Fiscal Code income from these foreign operations are
not subject to income tax in Panama.
The Panamanian Fiscal Code for the airline industry states that tax is based on net income earned for traffic whose origin or final
destination is the Republic of Panama. The applicable tax rate is currently 25%. Dividends from our Panamanian subsidiaries, including Copa, are
separately subject to a 10% percent withholding tax on the portion attributable to Panamanian sourced income and a 5% withholding tax on the portion
attributable to foreign sourced income. Additionally, a 7% value added tax is levied on tickets issued in Panama for travel commencing in Panama and
going abroad, irrespective of where such tickets were ordered. In February 2020, the Company received two notifications from the tax authority in
Panama related to a tax audit process that began in 2019. The notifications include adjustments to the reported dividend tax for the years 2012 to 2016
and income tax 2016. The Company has filed an administrative appeal which is the first legal stage under Panamanian laws. The Company, along with
its tax advisors, has concluded that it is not probable that an outflow of resources embodying economic benefits will be required to settle these notices.
According to Panamanian laws, the statute of limitations is three and 15 years for income tax and dividend tax, respectively.
We are also subject to local tax regulations in each of the other jurisdictions where we operate, the great majority of which are related to
the taxation of our income. In some of the countries to which we fly, we do not pay any income taxes because we do not generate income under the laws
of those countries either because they do not have income taxes or due to treaties or other arrangements those countries have with Panama. In the
remaining countries, we pay income tax at rates ranging from 7% to 34% of our income attributable to those countries. Different countries calculate our
income in different ways, but they are typically derived from our sales in the applicable country multiplied by our net margin or by a presumed net
margin set by the relevant tax legislation.
The determination of our taxable income in several countries is based on a combination of revenues sourced to each particular country and
the allocation of expenses to that particular country. The methodology for multinational transportation company sourcing of revenue and expense is not
always specifically prescribed in the relevant tax regulations, and therefore is subject to interpretation by both ourselves and the respective tax
authorities. Additionally, in some countries, the applicability of certain regulations governing non-income taxes and the determination of our filing status
are also subject to interpretation. We cannot estimate the amount, if any, of the potential tax liabilities that might result if the allocations, interpretations
and filing positions we use in preparing our income tax returns were challenged by the tax authorities of one or more countries. If taxes were to increase,
our financial performance and results of operations could be materially and adversely affected. Due to the competitive revenue environment, many
increases in fees and taxes have been absorbed by the airline industry rather than being passed on to the passenger. Any such increases in our fees and
taxes may reduce demand for air travel and thus our revenues.
Under a reciprocal exemption confirmed by a bilateral agreement between Panama and the United States, we are exempt from the U.S.
source transportation income tax derived from the international operation of aircraft.
Our income tax expense (credit) totaled approximately $40.2 million in 2022, $10.5 million in 2021 and ($23.7 million) in 2020.
Results of Operation
The following table shows each of the line items in our statement of profit or loss for the periods indicated as a percentage of our total operating
revenues for that period:
Operating revenues:
Passenger revenue
Cargo and mail revenue
Other operating revenue
Total operating revenues
2022
2021
2020
95.3%
3.4%
1.3%
100.0%
93.5%
4.7%
1.7%
100.0%
95.0%
2.6%
2.4%
100.0%
43
Table of Contents
Operating expenses:
Fuel
Wages, salaries, benefits and other employees expenses
Passenger servicing
Airport facilities and handling charges
Sales and distribution
Maintenance, materials and repairs
Depreciation, amortization and impairment
Impairment of non financial assets
Flight operations
Other operating and administrative expenses
Total operating expenses
Operating income
Non-operating income (expense):
Finance cost
Finance income
Gain (loss) on foreign currency fluctuations
Net change in fair value of derivatives
Other non-operating income (expense)
Total non-operating income (expense)
Profit before income taxes
Income taxes
Net profit
35.5%
12.8%
2.4%
6.5%
7.6%
3.5%
9.0%
0.0%
3.3%
4.2%
84.8%
15.2%
(3.0%)
0.6%
(0.3%)
0.6%
0.0%
(2.1%)
13.1%
(1.4%)
11.7%
25.4%
17.1%
2.4%
8.7%
8.6%
2.8%
15.9%
(0.4%)
3.7%
5.8%
89.9%
10.1%
(5.0%)
0.7%
(0.4%)
(1.5%)
(0.2%)
(6.5%)
3.6%
(0.7%)
2.9%
20.8%
32.0%
3.4%
7.4%
8.8%
9.6%
32.4%
30.3%
3.7%
9.0%
157.5%
(57.5%)
(9.1%)
2.5%
(1.1%)
(13.4%)
(0.1%)
(21.2%)
(78.7%)
3.0%
(75.8%)
Year 2022 Compared to Year 2021
Our consolidated net profit in 2022 totaled $348.1 million, compared to a net profit of $43.8 million in 2021. In addition, we had
consolidated operating profit of $450.4 million in 2022, compared to an operating profit of $152.0 million in 2021. Our consolidated operating margin in
2022 was 15.2%, an increase of 5.1 percentage points versus 2021. These results were driven by passenger demand increase with higher average fares.
Operating revenue
Our consolidated revenue totaled $3.0 billion in 2022, a 96.4% increase over operating revenue of $1.5 billion in 2021, mainly due to a
66.4% increase in passenger traffic and 20.2% higher average fare.
Passenger revenue. Passenger revenue totaled $2.8 billion in 2022, a 100.0% increase over passenger revenue of $1.4 billion in 2021. This
was driven by a 66.4% increase in passengers and by an increase of 20.2% in passenger average fare compared to 2021.
Cargo and mail revenue. Cargo and mail revenue totaled $101.8 million in 2022, a 42.2% increase from cargo and mail revenue of
$71.6 million in 2021, reflecting an increase in capacity including our newly converted freighter aircraft.
Other operating revenue. Other operating revenue totaled $38.5 million in 2022, a 48.5% increase from other revenue of $26.0 million in
2021 driven by an increase in frequent flyer program partnership revenues.
Operating expenses
Our consolidated operating expenses totaled $2.5 billion in 2022, a 85.2% increase over operating expenses of $1.4 billion in 2021. This is
mainly as a result of 63.6% increase of ASMs versus 2021 and higher fuel prices.
An overview of the major variances in operating expenses on a consolidated basis follows:
Fuel. Aircraft fuel totaled $1,052.6 million in 2022, a 174.7% increase from aircraft fuel of $383.2 million in 2021, mainly due to a 67.9%
higher effective fuel price and a 66.0% increase in block hours.
44
Table of Contents
Wages, salaries and other employees’ expenses. Salaries and benefits totaled $380.4 million in 2022, a 47.4% increase over salaries and
benefits of $258.1 million in 2021, mainly as a result of an increased headcount to support additional capacity.
Passenger servicing. Passenger servicing totaled $70.1 million in 2022 compared to $35.9 million in 2021. This represented a 95.4%
increase driven by 66.4% more passengers and a higher effective rate per passenger that resulted from the partial reestablishment of the onboard product
offering.
Airport facilities and handling charges. Airport facilities and handling charges totaled $192.6 million in 2022, a 46.6% increase over
$131.3 million in 2021. This increase was driven mainly by a 58.6% increase in departures, offset by lower airport fees mainly in the United States.
Sales and Distribution. Sales and distribution totaled $224.5 million in 2022, a 72.8% increase compared to $129.9 million in 2021, driven
mainly to 85.0% more sales, offset by lower commission rates.
Maintenance, materials and repairs. Maintenance, materials and repairs totaled $104.1 million in 2022, a 148.6% increase over
$41.9 million in 2021, primarily a result of an increase on the company’s provision related to the return of leased aircraft, increase of component repairs
and 65% more flight hours in 2022 vs 2021.
Depreciation, amortization and impairment. Depreciation totaled $267.7 million in 2022, a 14.2% increase over $234.5 million in 2021,
mainly due to new aircraft and more maintenance events.
Flight operations. Flight operations amounted to $97.3 million in 2022, an 74.4% increase compared to $55.8 million in 2021, mainly due
to 66.0% more block hours and higher overflight rates.
Other operating and administrative expenses. Other expenses totaled $125.4 million in 2022, a 43.5% increase from $87.4 million in
2021, mostly related to a higher quantity of leased spare engines and an increase in administrative and overhead expenses.
Total Non-operating Income (Expense)
Non-operating expense totaled $62.2 million in 2022, as compared to non-operating expense of $97.6 million in 2021 mainly due to a
translational gain in fair value derivatives issued in 2020.
Finance cost. Finance cost totaled $87.6 million in 2022 mainly comprised of convertible notes interest expense, loan interest, interest
charges related to operating leases and factoring. This represents a 15.0% increase over finance cost of $76.2 million in 2021.
Finance income. Finance income totaled $18.0 million in 2022, an 66.2% increase over finance income of $10.8 million in 2021 mainly
due to higher interest rates.
Loss in foreign currency fluctuations. Loss in foreign currency fluctuations totaled $9.8 million in 2022, an 58.9% increase over loss in
foreign currency fluctuations of $6.2 million in 2021 mainly due to higher exchange rates.
Net change in fair value of derivatives. Net fair value of derivatives totaled $17.2 million income in 2022, a 175.5% decrease over
$22.8 million loss in 2021, due to unrealized mark to market gain related to the senior convertible notes issued in 2020.
Other non-operating income (expense). Other non-operating expense totaled $0.1 million income in 2022, compared to $3.3 million loss in
2021 mainly due to the sale of two 737-700 airframes previously leased to a third party.
B. Liquidity and Capital Resources
Our cash, cash equivalents, and short-term investments at December 31, 2022 decreased by $82.7 million compared to December 31,
2021, to $934.7 million. As part of our financing policy, we expect to meet our liquidity needs with cash from operations, cash on hand and the
utilization of committed credit facilities, if needed. As of the date hereof, our current unrestricted cash exceeds our forecasted cash requirements to carry
out operations, including payment of debt service, for fiscal year 2023.
Our cash, cash equivalent and short-term investment position represented 31.5% of our revenues for the year ended December 31, 2022;
19.9% of our total assets and 62.6% of our total equity as of December 31, 2022, which we believe provides us with an adequate liquidity position.
45
Table of Contents
In recent years, we have been able to meet our working capital requirements through cash from our operations. In 2022, we experienced an
operational net cash inflow of $251.3 million. Our ability to meet our liquidity needs in the future is subject to numerous risks and uncertainties,
including the levels of cash refunds of customer deposits, the results of contract negotiations with suppliers and whether we take delivery of aircraft
pursuant to existing commitments as well as the terms on which we do so and the terms of any related financing available to us.
Our capital expenditures, which consist primarily of aircraft purchases, are funded through a combination of our cash from operations and
long-term financing. From time to time, we finance pre-delivery payments related to our aircraft with short or medium-term financing in the form of
commercial bank loans and/or bonds privately placed with commercial banks, as well as resorting to a deferred pre-delivery schedule from the aircraft
manufacturer.
Copa Holdings, S.A., through its subsidiaries, has aggregate credit facilities of $355.0 million, of which $295.0 million are unsecured and
secured credit facilities and $60.0 million are structured as a secured revolving credit facility.
Operating Activities
We rely primarily on cash flows from operations to provide working capital for current and future operations. Our net cash flows provided
by operating activities for the year ended December 31, 2022 were a net operating cash inflow of $758.5 million, an increase of $251.3 million
compared to a net operating cash inflow of $507.3 million in 2021. Our principal source of cash is receipts from ticket sales to customers, which for the
year ended December 31, 2022 increased by $1.5 billion over receipts in the year 2021.
Investing Activities
Net cash flow used in investing activities was $552.2 million in 2022 compared to a net cash flow used in investing activities of
$459.1 million in 2021. During 2022, we made capital expenditures of $526.9 million, which consisted of expenditures related to acquisition of property
and equipment and net of advance payments and reimbursements on aircraft purchase contracts, related to the arrival of 6 Boeing 737 MAX during
2022, compared to $412.9 million in 2021. In 2022, the Company used $14.3 million in acquisition and redemption from investments compared to
$115.9 million in 2021. Also, in 2022, we had proceeds from sale of property and equipment of $7.4 million, compared to $81.3 million in 2021. We
also had expenditures of $18.5 million in acquisition of intangible assets in 2022 compared to $11.6 million in 2021.
Financing Activities
Net cash outflow used in financing activities was $273.7 million in 2022 compared to net cash inflow used in financing activities of
$88.5 million in 2021. During 2022, $222.5 million of proceeds from borrowings were offset by the repayment of $249.5 million in debt, $79.0 million
in payment of lease liability and $167.6 million in repurchase of treasury shares. During 2021, $352.3 million of proceeds from borrowings were offset
by the repayment of $142.2 million in debt, $81.0 million in payment of lease liability and $40.5 million in repurchase of treasury shares.
Over the years, we have financed the acquisition of Boeing 737-Next Generation aircraft through syndicated loans provided by
international financial institutions with the support of guarantees issued by the Export-Import Bank of the United States, or “Ex-Im”, with repayment
profiles of 12 years. The Ex-Im guarantees support 80%-85% of the net purchase price and are secured with a first priority mortgage on the aircraft in
favor of a security trustee on behalf of Ex-Im. The documentation for each loan follows standard market forms for this type of financing, including
standard events of default. Our Ex-Im supported financings amortize on a quarterly basis, are denominated in dollars and can bear interest at a floating
rate linked to LIBOR or be set at a fixed rate. As of December 31, 2022 the Company had $466.6 million (2021: $403.2 million) of long-term fixed rate
debt and $33.3 million on long-term variable debt of outstanding indebtedness that is owed to financial institutions under financing arrangements
guaranteed by the Export-Import Bank of the United States. At December 31, 2022, the total amount outstanding under our Ex-Im-supported financings
totaled $499.9 million.
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
minimum lease term of 10 years. In a JOLCO, the aircraft is purchased by a Japanese equity investor. The Japanese equity investor funds approximately
30% of the acquisition cost of the aircraft and becomes the owner of the aircraft via a Special Purpose Entity. An international bank with onshore
46
Table of Contents
lending capabilities provides the balance of the aircraft purchase price via a senior secured mortgage loan. JOLCOs have a call option, which lessees
often expect the lessor to exercise. Under IFRS, these transactions are accounted for as financings. We have financed 21 Boeing 737 Next Generation
and 737 MAX aircraft since 2014 through JOLCO financing. As of December 31, 2022 JOLCO financed debt outstanding was $674.3 million.
Capital resources. We finance our aircraft through long-term debt and operating lease financings. Although we expect to finance future
aircraft deliveries with a combination of similar debt arrangements and financing leases, we may not be able to secure such financing on attractive
terms. To the extent we cannot secure financing, we may be required to modify our aircraft acquisition plans or incur higher than anticipated financing
costs. We expect to meet our operating obligations as they become due through available cash and internally generated funds, supplemented as necessary
by short-term or medium-term credit lines.
As of December 31, 2022, we have firm orders to purchase 66 Boeing 737 MAX aircraft to be delivered between 2023 and 2028. The
aircraft under this contract have an approximate value of $3.0 billion based on contractual obligations net of discounts and pre-delivery payments,
including estimated amounts for contractual price escalation.
We meet our pre-delivery deposit requirements for our Boeing 737 MAX aircraft by using cash from operations, or by using short or
medium-term borrowing facilities and/or vendor financing for deposits required between three years and six months prior to delivery.
The Company maintained letters of credit with several banks with a value of $32.3 million as of December 31, 2022 (2021: $20.2 million).
These letters of credit are pledged mainly for operating lessors, maintenance providers and airport operators.
The Company has aggregate credit facilities of $355.0 million, of which $295.0 million are unsecured and secured credit facilities and
$60.0 million are structured a secured revolving credit facility. These credit facilities are in place for contingency and working capital purposes. As of
December 31, 2022, the Company did not have any outstanding borrowings under these credit facilities.
C. Research and Development, Patents and Licenses, etc.
We believe that the Copa brand has strong value and indicates superior service and value in the Latin American travel industry. We have
registered the trademarks “Copa”, “Copa Airlines”, “Wingo” and “Hub of the Americas” with the trademark offices in Panama, the United States, and
the majority of the countries in which we operate. We license certain brands, logos and trade uniforms under the trademark license agreement with UAL
related to our alliance. We will have the right to continue to use our current logos on our aircraft for up to five years after the end of the alliance
agreement term. “Copa Colombia”, “Copa Airlines Colombia”, “Wingo” and “Hub of the Americas” are registered names and trademarks in Colombia,
Panama, Ecuador, Venezuela, Mexico, Dominican Republic, and Guatemala.
We operate many software products under licenses from our vendors, including our passenger services system, booking engine, revenue
management software and our cargo management system. Under our agreements with Boeing, we also use a large amount of Boeing’s proprietary
information to maintain our aircraft. The loss of these software systems or technical support information from our vendors could negatively affect our
business.
D. Trend Information
Since 2020, the COVID-19 pandemic has had a material adverse impact on the airline industry and the Company’s operations. Despite the
recent significant economic improvements due to more passenger demand and less travel restrictions, the extent of the future impact of the COVID-19
pandemic on the Company’s operational and financial performance will depend on future developments, including, but not limited to, the scope and
severity of the pandemic related travel advisories and restrictions, the availability and effectiveness of vaccines, the effectiveness of available vaccines
against variants of the virus, the duration and severity of the impact of the COVID-19 pandemic on overall demand for air travel, and the ongoing
economic recession, all of which are highly uncertain and cannot be predicted. See “Risks Relating to our Company”.
Additionally, global geopolitical events, such as the conflict between Russia and Ukraine beginning in February 2022, have led to an
increase in fuel costs which may negatively impact our business operations. Due to the evolving nature of such events, we are unable to predict the
extent of the impact on our business. While we do not expect that the conflict will be directly material to us, collateral effects of the geopolitical
instability, such as the imposition of sanctions against Russia and Russia’s response to such sanctions, could adversely affect the global economy or
domestic markets where we operate. Also, global macroeconomic conditions, such as inflation and recession, in key markets where we operate can
negatively impact our business and we cannot predict the severity or duration of such conditions or their effect.
47
Table of Contents
E. Critical Accounting Estimates
Not applicable.
Item 6. Directors, senior management and employees
A.
Directors and Senior Management
Currently, our Board of Directors is comprised of eleven members. The number of directors elected each year varies. Messrs. Stanley
Motta, Jaime Arias, Jose Castañeda and Josh Connor were re-elected as directors for two-year terms at our annual shareholders’ meeting held in 2021.
Messrs. Pedro Heilbron, Alvaro Heilbron, Carlos A. Motta, John Gebo, Andrew Levy, Mrs. Julianne Canavaggio and Makelín Arias were each
re-elected for two-year terms at our annual shareholders’ meeting held in 2022.
The following table sets forth the name, age and position of each member of our Board of Directors as of February 28, 2023. A brief
biographical description of each member of our Board of Directors follows the table:
Name
Pedro Heilbron
Stanley Motta
Alvaro Heilbron
Jaime Arias
Makelín Arias
Carlos A. Motta
John Gebo
Jose Castañeda Velez
Andrew Levy
Josh Connor
Julianne Canavaggio
Position
Chief Executive Officer and Director
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Age
64
77
57
88
57
50
52
78
53
49
41
Mr. Pedro Heilbron. See “—Executive Officers”.
Mr. Stanley A. Motta has been one of the directors of Copa Airlines since 1986 and a director of Copa Holdings since it was established
in 1998. Since 1990, he has served as the President of Motta Internacional, S.A. an international importer and distributor of consumer goods. Mr. Motta
is father of Mr. Carlos A. Motta. He serves on the boards of directors of Motta Internacional, S.A., Grupo ASSA and ASSA Compañía de Seguros, S.A.,
Inversiones Bahía, Ltd. and GBM Corporation and also serves as a director in numerous other privately held companies. Mr. Motta is a graduate of
Tulane University.
Mr. Alvaro Heilbron was elected as director of Copa Holdings in 2012. He is the brother of Mr. Pedro Heilbron, our chief executive
officer. Mr. Heilbron is the Founder and CEO of Gotuuri, a technology and tourism startup. He serves on the boards of Grupo PTM Panama, S.A.,
Editora del Caribe, S.A. and Inversiones Haripasa. Mr. Heilbron holds a B.S. in Business Administration from George Washington University, and a
Post-Graduate degree in Management from INCAE Business School. Mr. Heilbron also served as Vice-President of Commercial for Copa Airlines
between the years of 1988 and 1999.
Mr. Jaime Arias has been one of the directors of Copa Airlines since 1983. He was a director of Copa Holdings since it was established in
1998 until January 2023. He is a founding partner of Galindo, Arias & Lopez. Mr. Arias holds a BA from Yale University, a JD from Tulane University
and completed legal studies at the University of Paris, Sorbonne. In addition to COPA, he presently only serves in one other public company, which
is Promed, S.A.
48
Table of Contents
Mrs. Makelín Arias was elected as a director of Copa Holdings in 2022. She is the Executive Vice President of Human Resources and
Corporate Services for Banco General, S.A., and its subsidiaries. She joined Banco General in 2007 after a merger with Banco Continental. Her current
responsibilities include managing human capital, administration & real estate, coordinating the compliance of the Corporate Governance guidelines, and
implementing the Corporate Social Responsibility strategy for the bank. Currently, her main focus is the constant strengthening of the organizational
culture, professional and personal development of human capital, and assuring compliance with the corporate governance guidelines based on the values
that are the backbone of the organization. Before joining the financial industry, Mrs. Arias worked for Copa Airlines for ten years, where she held the
positions of Courier Services Manager, Purchasing Manager, and Director of Human Capital. During her tenure in the company, her main achievements
included participating in the definition of the company’s Strategic Vision in 1994, being part of the Copa Airlines and Continental Airlines’ integration
team, implementing a model based on targeted objectives for evaluating management, and being responsible for maintaining healthy labor and union
relations. Mrs. Arias holds a BA in Economics and Philosophy from Boston College.
Mr. Carlos A. Motta was elected as a director of Copa Holdings in 2014. He has held several positions within Motta Internacional, S.A.
and is currently a director and part of the executive committee. He is the son of Mr. Stanley Motta. Mr. Motta serves on the board of Inversiones Bahia,
Copa Holdings, ASSA Compañía de Seguros, S.A, Banco General, Motco Inc., Fundación Alberto C. Motta, IFF Panama (Panama Film Festival), and
Junior Achievement Worldwide among others. Mr Motta is a member of YPO (Young Presidents Organization); AGLN (The Aspen Global Leadership
Network); CEAL (Consejo Empresarial de America Latina). Mr. Motta received a bachelor’s degree in marketing from Boston College and an MBA
from Thunderbird (The American Graduate School of International Management).
Mr. John Gebo was elected as a director of Copa Holdings in 2015. He is Senior Vice President of Transformation for United Airlines.
Prior to his current position, Mr. Gebo was United’s Senior Vice President of Alliances, and Senior Vice President of Financial Planning and Analysis.
Mr. Gebo joined United in 2000, and has held positions of increasing responsibility in finance, investor relations, and alliances. Prior to joining United,
Mr. Gebo worked at General Motors Corporation in manufacturing engineering. Mr. Gebo received his bachelor’s degree in mechanical engineering
from the University of Texas and his master’s degree in business administration from the University of Michigan. Mr. Gebo has also been a member of
the board of directors of Azul S.A. and served for eight years on the board of directors of Alliant Credit Union, one of the largest credit unions in the
United States, last serving as Vice Chairman in 2018.
Mr. Jose Castañeda Velez is one of the independent directors of Copa Holdings. He is currently a director on the boards of MMG Bank
Corporation and MMG Trust S.A. Previously, Mr. Castañeda Velez was the chief executive officer of Banco Latinoamericano de Exportaciones, S.A.—
BLADEX and has held managerial and officer level positions at Banco Río de la Plata, Citibank, N.A., Banco de Credito del Peru and Crocker National
Bank. He is a graduate of the University of Lima.
Mr. Andrew Levy was elected as a director of Copa Holdings in 2016. Mr. Levy is currently Chairman and CEO of Avelo, Inc. and its
wholly owned subsidiary Avelo Airlines, a new ultra-low-cost carrier focused on the US domestic market. Previously, he served as Executive Vice
President and Chief Financial Officer of United Airlines from 2016 to 2018. He also served as President, Chief Operating Officer, Chief Financial
Officer, Treasurer and as a member of the Board of Directors of Allegiant Travel Company, parent company of US ultra-low-cost carrier Allegiant Air,
from 2001 to 2014. Mr. Levy started his airline career in 1994 at ValuJet Airlines, Inc. and then joined Savoy Capital, an investment banking and
advisory firm specializing in the airline industry in 1996. He holds a Juris Doctor degree from Emory University School of Law and a BA degree in
Economics from Washington University in St. Louis.
Mr. Josh Connor is the founding partner of Connor Capital SB, LLC, an investment firm founded in December 2015. Since April 2017,
he has served as a managing director and co-portfolio manager of infrastructure investing at Oaktree Capital Management, an asset management firm
specializing in alternative investment strategies. From October 2013 to July 2015, Mr. Connor served as a managing director and co-head of the
industrials banking group at Barclays Capital Inc., an international investment bank. While at Barclays, Mr. Connor also served as global head of
transportation banking from April 2011 to October 2013. Prior to joining Barclays, Mr. Connor was with Morgan Stanley, an international investment
bank, for 15 years, where he served as co-head of the global transportation and infrastructure investment banking group. Mr. Connor has served on the
board of Frontier Airlines since August 2015, on the board of managers of Watco Companies LLC since December 2018, on the board of U.S. Rail &
Logistics since June 2021, and as chairman of the board of Neighborhood Property Group, LLC since November 2020. Mr. Connor holds a B.A. in
Economics from Williams College.
Mrs. Julianne Canavaggio was elected as an independent director of Copa Holdings in 2019. She is CEO of Latin America for Lazard
(NYSE:LAZ), where she leads the company’s financial advisory business in the region. Her client work focuses on transformational domestic and cross-
border mergers and acquisitions, divestitures, joint ventures and special committee assignments. Prior to serving as CEO of Latin America, she held
49
Table of Contents
various positions at the company, most recently as the Chief of Staff for the financial advisory division of Lazard, working with the leadership team and
external partners to support the delivery of Lazard’s strategic priorities. Prior to joining Lazard, Julianne established a successful legal career in mergers
and acquisitions across a variety of industries. Ms. Canavaggio currently serves on the board of directors of a real estate development conglomerate in
Colombia, Panama and Mexico, as well as independent and non-independent director positions in various privately held companies and investment
vehicles. She also serves on the board of trustees of the Panamerican Development Foundation, a nonprofit organization established by the Organization
of American States. She has previously served on the board of directors of a Sustainable Luxury® real estate development company, a conglomerate of
wholesale distribution operations for fragrances, cosmetics and skin care products, as well as a Panamanian chain of department stores in the mid-high
range, and a general license bank authorized to operate in Panama in the banking and trust business (fiduciaries). Ms. Canavaggio holds a BA from
Harvard University and a JD from Tulane University.
The following table sets forth the name, age and position of each of our executive officers as of February 28, 2023. A brief biographical
description of each of our executive officers follows the table.
Name
Pedro Heilbron
José Montero
Daniel Gunn
Dennis Cary
Peter Donkersloot
Julio Toro
Bolívar Domínguez
Christophe Didier
Eduardo Lombana
Rafael Samudio
Maria Jaen
Ola Ohlsson Svensson
Chief Executive Officer and Director
Chief Financial Officer
Senior Vice-President of Operations
Senior Vice-President of Commercial and Planning
Position
Vice-President of Human Resources
Vice-President of Technology
Vice-President of Flight Operations
Vice-President of Sales
Chief Executive Officer of AeroRepública, S.A. (Copa Airlines Colombia)
Vice-President of Technical Operations
Vice-President of On Board Service
Vice-President of Airport
Age
64
53
55
58
39
49
47
59
61
52
49
60
Mr. Pedro Heilbron has been our Chief Executive Officer since 1988. He received an MBA from George Washington University and a
BA from College of the Holy Cross. Mr. Heilbron is the brother of Mr. Alvaro Heilbron, a member of our Board of Directors.
Mr. Jose Montero has been our Chief Financial Officer since March 2013. He started his career with Copa Airlines in 1993 and has held
various technical, supervisory, and management positions including Manager of Flight Operations, Director of System Operations Control Center
(SOCC), and, between 2004 and 2013, Director of Strategic Planning. He has a BS in Aeronautical Studies from Embry-Riddle Aeronautical University
and an MBA from Cornell University. He serves as independent director of Latinex, Inc, the holding company of the Panama Stock Exchange, and is a
member of IATA’S Financial Advisory Council.
Mr. Daniel Gunn has been our Senior Vice-President of Operations since February 2009. Prior to this Mr. Gunn had served as Vice-
President of Commercial and Planning and Vice-President of Planning and Alliances. Prior to joining Copa in 1999, he spent five years with American
Airlines holding positions in Finance, Real Estate and Alliances. Mr. Gunn received a BA in Business & Economics from Wheaton College and an
MBA from the University of Southern California.
Mr. Dennis Cary has been our Senior Vice-President of Commercial and Planning since April 2015. Prior to joining Copa Airlines,
Mr. Cary held Senior Vice-President position in various industries, including aviation. Mr. Cary served as Senior Vice-President, Chief Marketing and
Customer Officer at United Airlines, and several other top management positions in United Airlines and American Airlines. Mr. Cary graduated from
California State University, Northridge with a bachelor’s degree in Computer Sciences and holds an MBA from Duke University.
50
Table of Contents
Mr. Peter Donkersloot joined Copa Airlines in August 2019 and has served as Vice President of Human Resources since January 2020.
Mr. Donkersloot has over seventeen years working experience holding key positions in five different countries (Jamaica, Panama, Peru, El Salvador and
Guatemala). His experience ranges in Commercial Operations, Logistics, Risk Assessment, Strategic Planning and General Management. He holds a
Global MBA from the Thunderbird School of Global Management along with professional qualifications in Industrial Engineering from the Instituto
Tecnológico y de Estudios Superiores de Monterrey (ITESM).
Mr. Julio Toro has been our Vice-President of Technology since October 2015. He joined Copa in May 2011 as Director of the Project
Management Office. Before joining Copa, he served as Operations Manager and Vice-President of Information Systems for Cable & Wireless Panama.
He received a BS in Electrical Engineering from Texas A&M University, a Master in Renewable Energy from Universidad Tecnológica, and an MBA
jointly issued by New York University Stern School of Business, London School of Economics and Political Science, and HEC Paris School of
Management.
Captain Bolivar Dominguez G. has been our Vice President of Flight Operations since December 2017. He began his career with Copa
Airlines in 2000 as a Copilot in the Boeing 737-200, and has held positions of increasing responsibility, such as Head of Training on the Embraer fleet,
Director of our System Operations Control Center (SOCC), and before his latest appointment as Chief Pilot. Bolivar is also a member since 2019 of the
IATA Safety, Flight and Ground Operations Advisory Council (SFGOAC), responsible to act as advisor to the Board of Governors and the Director
General of IATA on all matters connected with the improvement of safety and efficiency of civil air transport, ground operations and baggage. Bolivar
holds an Airline Transport Pilot License, with Type Ratings on the Boeing 727, Embraer 190, and Boeing 737, and received a BS in Industrial
Engineering from Universidad Latina in Panama, and an MBA from the University of Louisville.
Mr. Christophe Didier has been our Vice-President of Sales since September 2016. Prior to joining Copa Airlines, Mr. Didier held
several sales and marketing positions in the airline industry since 1990, including Air France, Delta Air Lines and Etihad Airways, based in Europe and
the Americas. He served as Delta’s Vice-President for Latin America and the Caribbean during Delta’s significant expansion in the region, merger with
Northwest Airlines and Transatlantic joint venture implementation with Air France / KLM and equity investment in Gol and Aeromexico. Mr. Didier, a
French and Brazilian National, holds a Master in Management from ESCP Europe business school based in Paris and speaks English, Spanish,
Portuguese and French.
Mr. Eduardo Lombana joined the Company in May 2005 as Chief Operating Officer and was appointed as Chief Executive Officer of
Copa Colombia as of February 2012. He served three years at Avianca as Vice-President of Network, responsible for revenue management, network
planning and revenue accounting during the company’s bankruptcy turn over. Prior to that, he served as VicePresident of Flight Operations for ACES
before it merged with Avianca. Mr. Lombana holds a BS in Aviation Technology and an AS in Aviation Maintenance Technology from Embry Riddle
Aeronautical University.
Mr. Rafael Samudio has been our Vice President of Technical Operation since January 2022. He started his career with Copa Airlines in
1994 and has held various technical, supervisory, and management positions including, Director of Engineering & Maintenance Planning, and Senior
Director of Procurement & Technical Contracts. He has a BS in Electromechanical Engineering from Technology University of Panama and an MBA
from Latin American University of Science and Technology (ULACIT).
Mrs. Maria Alejandra Jaén has been our Vice-President of Inflight Services since January 2022. She joined Copa in November 2014 as
Director of Inflight Training and Standards. Before joining Copa, she held several management positions in large multinational companies such as Dell
and Citibank. Her previous experience included Operations, Customer Service, Project Management and Business Process Improvement, being a
Certified Black Belt. She has a BS in Industrial Engineering from Universidad Tecnológica de Panamá, an MBA from Nova Southeastern University
and an Executive Certification in Management and Leadership from MIT Sloan School of Management.
Mr. Ola Ohlsson has been our Vice-President of Airports since May 2021. Prior to joining Copa Airlines, Mr. Ohlsson has held various
positions in the tour operation, hotel and airline industry since 1984. First in the SAS group, including 21 years in Spanair holding the positions as
Senior Vice-President Passenger Services and later as Senior Vice-President Traffic Execution. His previous experience before Copa Airlines, during the
last 9 years, was the Spanish LCC Start up Volotea where he served as Director Ground Operations and Inflight Services. Mr. Ohlsson, a Swedish and
Spanish National, is a Construction Engineer, and speaks English, Spanish and the Scandinavian languages.
The business address for all of our senior management is c/o Copa Airlines, Avenida Principal y Avenida de la Rotonda, Urbanización
Costa del Este, Complejo Business Park, Torre Norte, Parque Lefevre Panama City, Panama.
51
Table of Contents
B. Compensation
In 2022, we paid an aggregate of approximately $2.9 million in cash compensation to our executive officers. In addition, members of committees
of the Board of Directors receive additional compensation per committee meeting. All of the members of our Board of Directors and their spouses
receive benefits to travel on Copa flights as well.
Incentive Compensation Program
In 2005, the Compensation Committee of our Board of Directors eliminated the then-existing Long-Term Retention Plan and approved a
one-time non-vested stock bonus award program for certain executive officers or the “Stock Incentive Plan”. Non-vested stock delivered under the Stock
Incentive Plan may be sourced from treasury stock or authorized un-issued shares. In accordance with this program, the Compensation Committee of
our Board of Directors had granted restricted stock awards to our senior management and to certain named executive officers and key employees.
Normally, these shares vest over three to five years in yearly installments equal to one-third of the awarded stock on each anniversary of the grant date,
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 of the first three
anniversaries of the grant date, 25% on the fourth anniversary and 30% on the fifth anniversary. See note 25 – “Share-based payments” from our
consolidated financial statements beginning on page F-1.
The following table shows shares granted:
Shares
Fair value
Contractual life
2022
35,305
$ 71.59
3 years
2021
137,799
$
85.31
3 to 5 years
2020
28,201
$
93.99
1 to 3 years
The Compensation Committee plans to make additional equity-based awards under the plan from time to time, including additional
non-vested stock and stock option awards. While the Compensation Committee will retain discretion to vary the exact terms of future awards, we
anticipate that future employee non-vested stock and stock option awards granted pursuant to the plan will generally vest over a three-year period and
the stock options will carry a ten-year term.
The total compensation cost recognized for non-vested stock and options awards amounts to $5.2 million, $7.1 million, and $5.3 million in
2022, 2021, and 2020, respectively, and was recorded as a component of “Wages, salaries, benefits and other employees’ expenses” within operating
expenses.
Please also see “Item 6D. Employees” for a description of the bonus plan implemented by the Company.
C. Board Practices
Our Board of Directors currently meets quarterly. Additionally, informal meetings with UAL are held on an ongoing basis and are
supported by annual formal meetings of an “Alliance Steering Committee”, which directs and reports on the progress of the Copa and UAL Alliance.
Our Board of Directors is focused on providing our overall strategic direction and as a result is responsible for establishing our general business policies
and for appointing our executive officers and supervising their management.
Currently, our Board of Directors is comprised of eleven members. The number of directors elected each year varies. Messrs. Stanley
Motta, Jose Castañeda, Jaime Arias and Josh Connor were re-elected as directors for two-year terms at our annual shareholders’ meeting held in 2021.
Messrs. Pedro Heilbron, Alvaro Heilbron, Carlos A. Motta, John Gebo, Andrew Levy, Mrs. Julianne Canavaggio and Makelín Arias were each
re-elected for two-year terms at our annual shareholders’ meeting held in 2022.
Pursuant to contractual arrangements with us and CIASA, UAL is entitled to designate one of our directors. Currently, Mr. John Gebo is
the UAL-appointed director.
None of our Directors has entered into any service contract with the Company or its subsidiaries.
52
Table of Contents
Committees of the Board of Directors
Audit Committee. The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight
responsibilities by reviewing:
•
•
•
•
the integrity of financial reports and other financial information made available to the public or any regulator or governmental body;
the effectiveness of our internal financial control and risk management systems, including cybersecurity and privacy risks and the
Company’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, and supervision of the independent auditor; and
the compliance with laws and regulations, as well as the policies and ethical codes established by management and the Board of
Directors.
The Audit Committee is also responsible for implementing procedures for receiving, retaining and addressing complaints regarding
accounting, internal control and auditing matters, including the submission of confidential, anonymous complaints regarding questionable accounting,
ethical or auditing matters.
Messrs. Jose Castañeda, Josh Connor and Mrs. Julianne Canavaggio, are independent non-executive directors under the applicable rules of
the New York Stock Exchange, are the current members of the committee. The Committee´s chairman is Mr. Josh Connor. All members are financially
literate. Messrs. Castañeda, Connor and Mrs. Canavaggio have been determined to be financial experts by the Board of Directors.
Compensation Committee. Our Compensation Committee is responsible for the selection process of the Chief Executive Officer and the
evaluation of all executive officers (including the CEO), recommending the level of compensation and any associated bonus. The charter of our
Compensation Committee requires that all its members shall be non-executive directors, of which at least one member will be an independent director
under the applicable rules of the New York Stock Exchange. Messrs. Stanley Motta, Jaime Arias and Jose Castañeda are the members of our
Compensation Committee, and Mr. Stanley Motta is the Chairman of the Compensation Committee.
Nominating and Governance Committee. Our Nominating and Governance Committee is responsible for developing and recommending
criteria for selecting new directors, overseeing evaluations of the Board of Directors, its members and committees of the Board of Directors,
environmental, social and governance matters and handling other issues that are specifically delegated to the Nominating and Governance Committee by
the Board of Directors from time to time. Our charter documents require that there be at least one independent member of the Nominating and
Governance Committee until the first shareholders’ meeting to elect directors after such time as the Class A shares are entitled to full voting rights.
Messrs. Carlos Alberto Motta, Alvaro Heilbron, and José Castañeda are the members of our Nominating and Governance Committee, and Mr. Carlos
Alberto Motta is the Chairman of the Nominating and Governance Committee.
Independent Directors Committee. Our Independent Directors Committee is created by our Articles of Incorporation and consists of any
directors that the Board of Directors determines from time to time meet the independence requirements of the NYSE rules applicable to audit committee
members of foreign private issuers. Our Articles of Incorporation provide that there will be no fewer than three independent directors at all times,
subject to certain exceptions. Under our Articles of Incorporation, the Independent Directors Committee must approve:
•
•
any transactions in excess of $5 million between us and our controlling shareholders;
the designation of certain primary share issuances that will not be included in the calculation of the percentage ownership pertaining
to the Class B shares for purposes of determining whether the Class A shares should be converted to voting shares under our Articles
of Incorporation; and
•
the issuance of additional Class B shares or Class C shares to ensure Copa Airlines’ compliance with aviation laws and regulations.
53
Table of Contents
The Independent Directors Committee shall also have any other powers expressly delegated by the Board of Directors. Under the Articles of
Incorporation, these powers can only be changed by the Board of Directors acting as a whole upon the written recommendation of the Independent
Directors Committee. The Independent Directors Committee will only meet regularly until the first shareholders’ meeting at which the Class A
shareholders will be entitled to vote for the election of directors and afterwards at any time that Class C shares are outstanding. All decisions of
the Independent Directors Committee shall be made by a majority of the members of the committee. See “Item 10B. Memorandum and Articles of
Association—Description of Capital Stock”.
Mrs. Julianne Canavaggio, Messrs. Jose Castañeda, and Josh Connor, are independent non-executive directors under the applicable rules of
the New York Stock Exchange, are the current members of the committee.
D. Employees
We believe that our growth potential and the achievement of our results-oriented corporate goals are directly linked to our ability to attract,
motivate and maintain the best professionals available in the airline business. In order to help retain our employees, we encourage open communication
channels between our employees and management. Our CEO meets quarterly with all of our Copa employees in Panama in town hall-style meetings
during which he explains the Company’s performance and encourages feedback from attendees. A similar presentation is made by our senior executives
at each of our foreign stations. Our compensation strategy reinforces our determination to retain talented and highly motivated employees and is
designed to align the interests of our employees with our shareholders through profit-sharing.
Approximately 85.2% of the Company’s employees are located in Panama, while the remaining 14.8% are distributed among our foreign
stations. Copa’s employees can be categorized as follows:
December 31,
Pilots
Flight attendants
Mechanics
Customer service agents, reservation agents, ramp and others
Management and clerical
Total employees
2021
2022
2020
1,230 1,040 1,060
2,344 1,822 1,462
610 477 340
1,022 913 1,087
2,059 1,875 1,718
7,265 6,127 5,667
Our profit-sharing program reflects our belief that our employees will remain dedicated to our success if they have a stake in that success.
We identify key performance drivers within each employee’s control as part of our annual objectives plan, or “Path to Success”. Typically, we pay
bonuses in the first quarter of the year based on our performance during the preceding calendar year. For members of management, 75% of the bonus
amount is based on our performance as a whole and 25% is based on the achievement of individual goals. Bonuses for non-management employees are
based on the Company’s performance and payment is typically a multiple of the employee’s weekly salary. The bonus payments are approved by our
compensation committee. We typically make accruals each month for the expected annual bonuses, which are reconciled to actual payments at their
dispersal within the first half of the following year.
We provide training for all of our employees, including technical training for our pilots, dispatchers, flight attendants and other technical
staff. In addition, we provide recurrent customer service training to frontline staff, as well as leadership training for managers. We currently have three
flight simulators at our training facility in Panama’s City of Knowledge. In 2006, we leased a Level B flight simulator for Boeing 737-Next Generation
training that served 80% of our initial training, transition and upgrade training, and 100% of our recurrent training needs relating to that aircraft. During
2007, we upgraded this simulator to Level C to provide 100% of our initial training. In 2011, Copa bought a second 737-Next Generation Full Flight
Simulator, or “FFS”, Level D. The Level D qualification is the highest certification provided by the Federal Aviation Administration (FAA) to any Flight
Training Device. Another important acquisition in 2011 was the second B737 Virtual Procedure Trainer (VPT), which complements the new FFS
training. In October 2012, the lease on our first B737 Next Generation simulator expired and we bought a new FFTX technology training device
accompanied by a new Virtual Procedure Trainer (VPT). In 2015, Copa bought a new Boeing 737-800 Full Flight Simulator (FFS-X) compliant with
regulatory Qualification Level D, and two new B737-800 Cockpit Procedure Trainers (CPTs) compliant with regulatory Qualification FTD Level 4 to
provide 100% of our initial, recurrent, transition and upgrade training needs. We bought a new Boeing 737 MAX Full Flight Simulator compliant with
regulatory qualification Level D to provide 100% of our training needs which is available for use since May of 2019, which underwent an important
upgrade with the Boeing 737 MAX-9 data package software in November 2021 to resemble our fleet.
54
Table of Contents
Approximately 65.4% of the Company’s 7,265 employees are unionized. Our employees currently belong to eight union organizations;
five covering employees in Panama and three covering employees in Colombia, in addition to union organizations in other countries to which we fly.
Copa Airlines has traditionally had good relations with its employees and all the unions and expects to continue to enjoy good relations with its
employees and the unions in the future.
The five unions covering employees in Panama include: the pilots’ union (UNPAC), the flight attendants’ union (SIPANAB), the
mechanics’ union (SITECMAP), the industry union (SIELAS), which represents ground personnel, messengers, drivers, passenger service agents,
counter agents and other non-executive administrative staff, and other industry union named UGETRACAS which represents ground personnel and
flight attendants.
Copa entered into collective bargaining agreements with the pilots’ union in February 2023, the industry union in March 2022, the
mechanics’ union in May 2022 and the flight attendants’ union in March 2023. Collective bargaining agreements in Panama are typically between three
and four-year terms.
The four unions covering employees in Colombia are: the pilots’ union (ACDAC), the flight attendants’ union (ACAV), the industry union
in Colombia (SITRANAC) and the mechanics’ union (ACMA).
Copa entered into collective bargaining with ACDAC and ACAV in January 2018 and ended without an agreement. ACDAC has not yet
resolved and ACAV ended with a new arbitration collective agreement for two years that expired in September 2020. This new arbitration agreement
was automatically extended until March 2023. Additionally, SINTRATAC and Copa entered into collective bargaining agreement in September 2022 for
terms of four years until August 2026. Negotiations with ACMA were resolved by arbitration on December 31, 2015, extending the validation every 6
months from this date until December 2022. ACMA has not presented a new bill of petition.
Typically, collective bargaining agreements in Colombia have terms of two to three years. Although AeroRepública usually settles many
of its collective bargaining agreement negotiations through arbitration proceedings, it has traditionally experienced good relations with its unions.
In addition to the unions in Panama and Colombia, the Company’s employees in Brazil are covered by industry union agreements that
cover all airline industry employees in the country and airport employees in Argentina are affiliated with an industry union (UPADEP).
E. Share Ownership
The members of our Board of Directors and our executive officers as a group own less than one percent of our Class A shares. See “Item
7A. Major Shareholders”.
For a description of stock options granted to our Board of Directors and our executive officers, see “—Compensation—Incentive
Compensation Program”.
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth information relating to the beneficial ownership of our Class A shares as of December 31, 2022 by each
person known to us to beneficially own 5% or more of our common shares and all our directors and officers as a group.
Class A shares are limited voting shares entitled only to vote in certain specified circumstances. See “Item 10B. Additional Information – Memorandum
and Articles of Association – Description of Capital Stock”.
55
Table of Contents
Class A Shares
Beneficially Owned
CIASA(2)
Executive officers and directors as a group (13 persons)
Others
Total
Shares
65,000
164,668
28,248,036
28,477,704
(1) Based on a total of 28,477,704 Class A shares outstanding.
(2) CIASA owns 100% of the Class B shares of Copa Holdings representing 27.8% of our total capital stock.
In June 2006, Continental reduced its ownership of our total capital stock from 27.3% to 10.0%. In May 2008, Continental sold down its
remaining shares in the public market.
CIASA currently owns 100% of the Class B shares of Copa Holdings, representing 100% of the voting power of our capital stock. CIASA
is controlled by a group of Panamanian investors representing several prominent families in Panama. This group of investors has historically acted
together in a variety of business activities both in Panama and elsewhere in Latin America, including banking, insurance, real estate,
telecommunications, international trade and commerce and wholesale. Members of the Motta, Heilbron and Arias families, and their affiliated
companies, including our Chief Executive Officer, Mr. Pedro Heilbron, and several of our directors beneficially own approximately 83.5% of CIASA’s
shares, as of January 31, 2023. Such individual shareholders of CIASA have entered into a shareholders’ agreement that restricts transfers of CIASA
shares to non-Panamanian nationals. Mr. Stanley Motta exercises effective control of CIASA.
In March 2010, CIASA converted a portion of its Class B shares into 1.6 million non-voting New York Stock Exchange-listed Class A
shares and sold such Class A shares in an SEC-registered public offering. As a result, CIASA’s ownership decreased from 29.2% to 25.1% of our capital
stock. CIASA’s current ownership is 27.8% of our capital stock. In the event CIASA seeks to reduce its ownership below 10% of our total share capital,
our independent directors may decide to issue special voting shares solely to Panamanian nationals to maintain the ownership requirements mandated by
the Panamanian Aviation Act.
The address of CIASA is Corporación de Inversiones Aéreas, S.A., c/o Copa Holdings, S.A., Boulevard Costa del Este, Avenida Principal
y Avenida 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 January 31, 2023, we
had 222 registered record holders of our Class A shares.
B. Related Party Transactions
Registration Rights Agreement
Under the registration rights agreement, as amended by the supplemental agreement, CIASA continues to have the right to make one
demand on us with respect to the registration and sale of our common stock held by them. The registration expenses incurred in connection with a
demand registration requested after the date hereof, which expenses exclude underwriting discounts and commissions, will be paid ratably by each
security holder participating in such offering in proportion to the number of their shares that are included in the offering.
Agreements with our controlling shareholders and their affiliates
Our directors and controlling shareholders have many other commercial interests within Panama and throughout Latin America. We have
commercial relationships with several of these affiliated parties from which we purchase goods or services, as described below. In each case we believe
our transactions with these affiliated parties are consistent with market rates and terms.
Banco General, S.A.
We have a strong commercial banking relationship with Banco General, S.A., a Panamanian bank partially owned by our controlling
shareholders. We have obtained financing from Banco General under short to medium-term financing arrangements for part of the commercial loan
tranche of one of the Company’s Export-Import Bank facilities. We also maintain general lines of credit and time deposit accounts with Banco General.
Interest received from Banco General amounted to $0.8 million, $1.5 million and $2.7 million in 2022, 2021, or 2020, respectively. There have not been
any material interest payments for the last three years. There was no outstanding debt balance at December 31, 2022, 2021, or 2020.
The Company’s controlling shareholders have a vote and a decision within the board of directors of BG Financial Group, which is the
controlling company of Banco General. Likewise, Banco General, S. A. owns ProFuturo Administradora de Fondos de Pensión y Cesantĺa S.A., which
manages the Company’s reserves for pension purposes.
56
Table of Contents
ASSA Compañía de Seguros, S.A.
Panamanian law requires us to maintain our insurance policies through a local insurance company. We have contracted with ASSA, an
insurance company that provide substantially all of the Company’s insurance policies. While the Company’s controlling shareholders do not hold a
controlling equity interest in ASSA Compañía de Seguros, S. A., various members of the Company’s Board of Directors are also board members of
ASSA Compañía de Seguros, S. A. ASSA has, in turn, reinsured almost all of the risks under those policies with insurance companies around the world.
The payments to ASSA totaled $10.2 million in 2022, $9.7 million in 2021 and $7.1 million in 2020.
Petróleos Delta, S.A.
Since 2005, we entered into a contract with Petróleos Delta, S.A. to supply our jet fuel needs. Until 2021, various members of the
Company’s Board of Directors were shareholders of Petróleos Delta, S.A. As of December 2022, those individuals are no longer members of the
Company’s Board. Therefore, Petróleos Delta is no longer a related party.
Desarollo Inmobiliario del Este, S.A.
During January 2006, we moved into headquarters located six miles away from Tocumen International Airport. We lease four floors
consisting of approximately 105,981 square feet of the building from Desarollo Inmobiliario Del Este, S.A., an entity controlled by the same group of
investors that controls CIASA. Payments to Desarrollo Inmobiliario Del Este, S.A. totaled $3.0 million, $3.4 million and $3.3 million in 2022, 2021 and
2020, respectively.
Galindo, Arias & Lopez
Most of our legal work is carried out by the law firm Galindo, Arias & Lopez. Messrs. Jaime Arias and Ricardo Alberto Arias, partners of
Galindo, Arias & Lopez, are indirect shareholders of CIASA and serve on our Board of Directors. Payments to Galindo, Arias & Lopez totaled
$0.5 million, $0.2 million and $0.2 million in 2022, 2021 and 2020, respectively.
Milicom Tigo Panama, S.A.
The Company is responsible for providing television and internet broadcasting services in Panama. Until 2021, a member of the
Company’s Board of Directors was shareholder of Millicom Tigo Panamá, S.A. As of December 2022, this company was no longer a related party.
Panama Air Cargo Terminal
Provides cargo and courier services in Panama, an entity controlled by the same group of investors that controls CIASA. Payments to
Panama Air Cargo Terminal totaled $4.1 million in 2022, $3.2 million in 2021 and $2.0 million in 2020.
GBM International, Inc.
Provides systems integration and computer services, as well as technical services and enterprise management. A member of the
Company’s Board of Directors is shareholder of GBM International, Inc. Payments to GBM International, Inc. totaled $0.1 million, $0.1 million and
$0.1 million in 2022, 2021, 2020, respectively.
Other Transactions
We also purchase most of the alcohol and some of the other beverages served on our aircraft from Motta Internacional, S.A. and Global
Brands, S.A., both of which are controlled by our controlling shareholders. We do not have any formal contracts for these purchases but pay wholesale
prices based on price lists periodically submitted by those importers and comparisons to other options in the marketplace. We paid these entities
approximately $0.9 million in 2022, $0.1 million in 2021 and $0.6 million in 2020.
C. Interests of Experts and Counsel
Not applicable.
57
Table of Contents
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
See “Item 3A. Key Information—Selected Financial Data” and “Item 18. Financial Statements.”
Legal Proceedings
In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our
business. While legal proceedings are inherently uncertain, we believe that the outcome of the proceedings to which we are currently a party is not likely
to have a material adverse effect on our financial position, results of operations and cash flows.
Dividends and Dividend Policy
The payment of dividends on our shares is subject to the discretion of our Board of Directors. Under Panamanian law, we may pay
dividends only out of retained earnings and capital surplus. So long as we do not default on our payments under our loan agreements, there are no
covenants or other restrictions on our ability to declare and pay dividends. Our Articles of Incorporation provide that all dividends declared by our
Board of Directors will be paid equally with respect to all of the Class A and Class B shares. See “Item 10B. Additional Information—Memorandum
and Articles of Association—Description of Capital Stock—Dividends”.
In February 2016, the Board of Directors approved a change to the dividend policy to limit aggregate annual dividends to an amount equal to 40% of the
prior year’s annual consolidated adjusted net income, to be distributed in equal quarterly installments subject to board ratification each quarter. Our
Board of Directors may, in its sole discretion and for any reason, amend or discontinue the dividend policy. Our Board of Directors may change the level
of dividends provided for in this dividend policy or entirely discontinue the payment of dividends. Future dividends with respect to shares of our
common stock, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions,
business opportunities, provisions of applicable law and other factors that our Board of Directors may deem relevant.
During the first quarter of 2020, the Company paid dividends in the amount of $0.80 per share. Given the uncertainty related to the COVID-19
pandemic, including the effect on future air travel demand, on April 26, 2020 the Board of Directors postponed dividend payments for the remaining
quarters of 2020, until December 31, 2022.
On March 22, 2023, the Board of Directors of Copa Holdings approved a 2023 dividend of $0.82 cents per share per quarter, corresponding to 40% of
the adjusted consolidated net income of 2022. Proposed dividends are subject to board ratification each quarter, and are not recognized as a liability as at
December 31, 2022.
Dividend for
Fiscal
Year:
2020
2019
2019
2019
2019
2018
2018
2018
2018
2017
2017
2017
2017
2016
2016
2016
2016
March 13, 2020
December 13, 2019
September 13, 2019
June 14, 2019
March 15, 2019
December 14, 2018
September 14, 2018
June 15, 2018
March 15, 2018
December 15, 2017
September 12, 2017
June 15, 2017
March 13, 2017
December 15, 2016
September 13, 2016
June 16, 2016
March 16, 2016
Payment Date
Total Dividend Payment
(U.S. Dollars)
Cash Dividend per
Share
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
34 million
28 million
28 million
28 million
28 million
37 million
37 million
37 million
37 million
32 million
32 million
22 million
22 million
22 million
22 million
21 million
21 million
0.80
0.65
0.65
0.65
0.65
0.87
0.87
0.87
0.87
0.75
0.75
0.51
0.51
0.51
0.51
0.51
0.51
58
Table of Contents
B. Significant Changes
None.
Item 9. The Offer and Listing
A. Offer and Listing Details
Our Class A shares have been listed on the New York Stock Exchange, or NYSE, under the symbol “CPA” since December 14, 2005.
B. Plan of Distribution
Not applicable.
C. Markets
Our Class A shares have been listed on the NYSE under the symbol “CPA” since December 14, 2005. Our Class B shares are not listed on
any exchange and are not publicly traded. We are subject to the NYSE corporate governance listing standards. The NYSE requires that corporations
with shares listed on the exchange comply with certain corporate governance standards. As a foreign private issuer, we are only required to comply with
certain NYSE rules relating to audit committees and periodic certifications to the NYSE. The NYSE also requires that we provide a summary of the
significant differences between our corporate governance practices and those that would apply to a U.S. domestic issuer. Please refer to “Item 16 G.
Corporate Governance” for a summary of the significant differences between our corporate governance practices and those that would typically apply to
a U.S. domestic issuer under the NYSE corporate governance rules.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Copa Holdings was formed on May 6, 1998 as a corporation (sociedad anónima) duly incorporated under the laws of Panama with an
indefinite duration. The Registrant is registered under Public Document No. 3.989 of May 5, 1998 of the Notary Number Eight of the Circuit of Panama
and recorded in the Public Registry Office, Microfilm (Mercantile) Section, Microjacket 344962, Film Roll 59672, Frame 0023.
59
Table of Contents
Objects and Purposes
Copa Holdings is principally engaged in the investment in airlines and aviation-related companies and ventures, although our Articles of
Incorporation grant us general powers to engage in any other lawful business, whether or not related to any of the specific purposes set forth in the
Articles of Incorporation (See Article 2 of the Company’s Articles of Incorporation).
Common Stock
Our authorized capital stock consists of 80 million shares of common stock without par value, divided into Class A shares, Class B shares
and Class C shares. As of December 31, 2022, we had 34,033,575 Class A shares issued and 28,477,704 Class A shares outstanding; 10,938,125 Class B
shares issued and outstanding, and no Class C shares outstanding. Class A and Class B shares have the same economic rights and privileges, including
the right to receive dividends, except as described in this section.
For a description of our common stock, see Exhibit 2.1 to this annual report.
C. Material Contracts
Engine Services Agreements between GE Engine Services, LLC and Copa Holdings, S.A.
Regarding engine maintenance, Copa currently has two Rate per Engine Flight Hour Services Agreements and one “Time and Material”
Service Agreement with GE Engine Services, LLC, (“GE”) pursuant to which GE shall be the exclusive provider of maintenance, repair and overhaul
services to our CFM-56 and CFM LEAP 1-B aircraft engines. Under the Rate per Engine Flight Hour Service Agreements, the maintenance services are
performed at a certain rate per engine flight hour incurred by our engines. These rates were set based on our predicted operating parameters and will be
adjusted in case of variation of those parameters. Unless terminated, the agreement with respect to the CFM-56 engines will continue through
September 30, 2028, while the agreement with respect to the LEAP-1B engines will be valid for at least 12 years for each individual engine and
terminates once each engine has gone through two performance restoration shop visits. Under the aforementioned “Time and Material” Service
Agreement, GE will perform maintenance services on 60 CFM56 engines of our fleet until the agreement expires on October 15, 2027. The services
consist of defined scopes of work, each with a set maximum cost and specific repair services included. Pursuant to all of these agreements, either party
may terminate the agreement in the event of insolvency of the other party or upon a material breach by the other party which remains uncured. Any
material breach of this agreement by us could, at the option of GE, trigger a cross-default of all our other contracts. GE may also terminate this
agreement if the number of engines covered decreases below the prescribed minimum. Upon early termination of the agreement for any reason, we shall
pay GE for all services or work performed up to the time 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 August 2022.
D. Exchange Controls
There are currently no Panamanian restrictions on the export or import of capital, including foreign exchange controls, and no restrictions on the
payment of dividends or interest, nor are there limitations on the rights.
E. Taxation
United States
The following summary describes the material United States federal income tax consequences of the ownership and disposition of our
Class A shares as of the date hereof. The discussion set forth below is applicable to United States Holders (as defined below) that beneficially own our
Class A shares as capital assets for United States federal income tax purposes (generally, property held for investment). This summary does not represent
a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United
States federal income tax laws, including if you are:
•
•
•
•
a bank;
a dealer in securities or currencies;
a financial institution;
a regulated investment company;
60
Table of Contents
•
•
•
•
•
•
•
•
•
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 or 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 and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in United States
federal income tax consequences different from those discussed below.
If you are considering the purchase, ownership or disposition of our Class A shares, you should consult your own tax advisors concerning the
United States federal income tax consequences to you in light of your particular situation as well as any consequences arising under state or
local law or under the laws of any other taxing jurisdiction.
As used herein, “United States Holder” means a beneficial owner of our Class A shares that is for United States federal income tax
purposes:
•
•
•
•
an individual citizen or resident of the United States;
a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof or the District of Columbia;
an estate the income of which is subject to United States federal income taxation regardless of its source; or
a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States
persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a United States person.
If a partnership holds our Class A shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the
activities of the partnership. An investor who is a partner of a partnership holding our Class A shares should consult its own tax advisor.
Taxation of Dividends
Distributions on the Class A shares (including amounts withheld to reflect Panamanian withholding taxes, if any) will be taxable as
dividends to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles.
Such income (including withheld taxes) will be includable in your gross income as foreign-source ordinary income on the day actually or constructively
received by you. Such dividends will not be eligible for the dividends received deduction allowed to corporations. Because we do not intend to keep
earnings and profits in accordance with United States federal income tax principles, you should expect that distributions on the Class A shares will
generally be treated as dividends.
With respect to non-corporate United States Holders, certain dividends received from a qualified foreign corporation may be subject to
reduced rates of taxation. A foreign corporation generally is treated as a qualified foreign corporation with respect to dividends paid by that corporation
on shares that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that
our Class A shares, which are listed on the NYSE, are currently readily tradable on an established securities market in the United States. There can be no
assurance, however, that our Class A shares will be considered readily tradable on an established securities market at a later date. Non-corporate United
States Holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the
dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our
status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make
related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has
been met. You should consult your own tax advisors regarding the application of these rules to your particular circumstances.
61
Table of Contents
Subject to certain conditions and limitations, Panamanian withholding taxes on dividends may be treated as foreign taxes eligible for credit
against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the Class A shares generally
will be treated as income from sources outside the United States and will generally constitute passive income. Further, in certain circumstances, if you:
•
•
have held Class A shares for less than a specified minimum period during which you are not protected from risk of loss, or
are obligated to make 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
the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular
circumstances.
Passive Foreign Investment Company
We do not believe that we were a passive foreign investment company (a “PFIC”) for United States federal income tax purposes for 2022,
and we expect to operate in such a manner so as not to become a PFIC in 2023 or the foreseeable future. However, the determination whether we are a
PFIC must be made annually based on the facts and circumstances at that time, some of which may be beyond our control, such as our market
capitalization and the valuation of our assets, including goodwill and other intangible assets, and the nature and sources of our income. If, contrary to
our expectations, we are or become a PFIC, you could be subject to additional United States federal income taxes on gain recognized with respect to the
Class A shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Further,
non-corporate United States Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable
year in which such dividends are paid or the preceding taxable year.
Taxation of Disposition of Shares
For United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of a Class A share in an
amount equal to the difference between the amount realized for the Class A share and your tax basis in the Class A share. Such gain or loss will
generally be capital gain or loss. Capital gains of individuals derived with respect to capital assets held for more than one year generally are eligible for
reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as
United States source gain or loss.
Information Reporting and Backup Withholding
In general, information reporting will apply to dividends in respect of our Class A shares and the proceeds from the sale, exchange or
redemption of our Class A shares that are paid to you within the United States (and in certain cases, outside the United States), unless you establish that
you are an exempt recipient such as a corporation. A backup withholding tax may apply to such payments unless you provide an accurate taxpayer
identification number 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 tax liability provided the required information is timely furnished to the Internal Revenue Service.
Panama
The following is a discussion of the material Panamanian tax considerations to holders of Class A shares under Panamanian tax law and is
based upon the tax laws and regulations in force and effect as of the date hereof, which may be subject to change. This discussion, to the extent it states
matters of Panamanian tax law or legal conclusions and subject to the qualifications herein, represents the opinion of Galindo, Arias & Lopez, our
Panamanian counsel.
62
Table of Contents
Taxation of Dividends
Dividends paid by a corporation duly licensed to do business in Panama, whether in the form of cash, stock or other property, are subject
to a 10% withholding tax on the portion attributable to Panamanian sourced income, and a 5% withholding tax on the portion attributable to foreign
sourced income. Dividends paid by a holding company which correspond to dividends received from its subsidiaries for which the dividend tax was
previously paid, are not subject to any further withholding tax under Panamanian law.
Therefore, distributions on the Class A shares would not be subject to withholding tax to the extent that said distributions are attributable
to dividends received from any of our subsidiaries for which the dividend tax was previously paid.
Taxation of Capital Gains
As long as the Class A shares are registered with the SMV and are sold through an organized market, Panamanian taxes on capital gains
will not apply either to Panamanians or other countries’ nationals. We have registered the Class A shares, with both the NYSE and the SMV.
Other Panamanian Taxes
There are no estate, gift or other taxes imposed by the Panamanian government that would affect a holder of the Class A shares, whether
such holder were Panamanian or a national of another country.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the informational requirements of the U.S. Securities Exchange Act of 1934, which is also known as the Exchange Act.
Accordingly, we are required to file reports and other information with the Commission, including annual reports on Form 20-F and reports on Form
6-K. You may inspect and copy reports and other information to be filed with the Commission at the Public Reference Room of the Commission at 100
F Street, N.W., Washington D.C. 20549, and copies of the materials may be obtained there at prescribed rates. The public may obtain information on the
operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. In addition, the Commission
maintains a website at www.sec.gov, from which you can electronically access the registration statement and its materials.
As a foreign private issuer, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act.
For example, we are not required to prepare and issue quarterly reports. In 2016, the SEC approved a new rule and the NYSE published a new
requirement for foreign private issuers to submit interim financials as of the end of and for the first two quarters of its fiscal year if they do not already
furnish interim financials at least semi-annually. This new requirement will not affect us because we furnish our shareholders with annual reports
containing financial statements audited by our independent auditors and make available to our shareholders quarterly reports containing unaudited
financial data for the first three quarters of each fiscal year. We furnish such quarterly reports with the SEC within two months of each quarter of our
fiscal year, and we file annual reports on Form 20-F within the time period required by the SEC, which is currently four months from December 31, the
end of our fiscal year.
I.
Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
The risks inherent in our business are the potential losses arising from adverse changes to the price of fuel, interest rates and the U.S.
dollar exchange rate. Please also refer to note 28 of our financial statements.
63
Table of Contents
Aircraft Fuel. Our results of operations are affected by changes in the price and availability of aircraft fuel. The Company has not entered
into new fuel hedge contracts and has adopted a strategy of remaining unhedged, while regularly reviewing its policies based on market conditions and
other factors. As of December 31, 2022, the Company did not have any outstanding fuel hedge contracts. Market risk is estimated as a hypothetical 10%
increase in the December 31, 2022 cost per gallon of fuel. Based on projected 2023 fuel consumption, such an increase would result in an increase to
aircraft fuel expense of approximately $101.0 million in 2023. There are no hedged contracts for 2023. Additionally, global geopolitical events, such as
the conflict between Russia and Ukraine beginning in February 2022, have led to an increase in fuel costs which negatively impact our business
operations. Due to the evolving nature of such events, we are unable to predict the extent of the impact on our business.
Interest. Our earnings are affected by changes in interest rates due to the impact those changes have on interest expense from variable-rate
debt instruments and operating leases and on interest income generated from our cash and investment balances. If the interest rate average is 100 basis
points more in 2022, the variable-rate debt interest expense would increase by approximately $1.9 million and the estimated fair value of the fixed-rate
debt would decrease by approximately $16.6 million. These amounts are determined by considering the impact of the hypothetical interest rates on the
variable-rate debt and marketable securities equivalent balances at December 31, 2022.
Foreign Currencies. The majority of our obligations are denominated in U.S. dollars. Since Panama uses the U.S. dollar as legal tender, the
majority of our operating expenses are also denominated in U.S. dollars, approximately 63.3% of revenues and 77.3% of expenses are in U.S. dollars. A
significant part of our revenue is denominated in foreign currencies, including the Colombian peso, Brazilian real, Argentinian peso, and Chilean peso,
which represented 12.1%, 8.0%, 4.6% and 3.2% of our revenue in 2022, respectively.
On January 1, 2015, given the change in its business strategy focused on international markets, AeroRepública concluded that the most
appropriate functional currency of the Company would be U.S. dollars. This reflects the fact that the majority of the airline’s business is influenced by
pricing in international markets, with a dollar economic environment. In the same way, the major operating expenses such as fuel, leasing, airport
services and sales commissions are dollarized. Until December 31, 2014, the previous functional currency of the Company was the Colombian peso.
The following chart summarizes the Company’s exchange risk exposure (assets and liabilities denominated in foreign currency) at
December 31, 2022 and 2021:
Assets
Cash and cash equivalents
Accounts receivable, net
Other assets
Total assets
Liabilities
Accounts payable
Taxes payable
Other liabilities
Total liabilities
Net position
Item 12. Description of Securities Other than Equity Securities
Not applicable.
A.
Debt securities
Not applicable.
64
2022
2021
$13,546
48,900
20,605
$83,051
16,969
38,303
13,465
$68,737
$14,314
$10,848
50,103
17,811
$78,762
35,948
25,827
12,239
$74,014
$ 4,748
Table of Contents
B.
Warrants and rights
Not applicable.
C.
Other securities
Not applicable.
D.
American depositary shares
Not applicable.
65
Table of Contents
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
PART II
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
A.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports filed or
submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms. We carried out an evaluation under the supervision of our Management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022. There are inherent
limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms,
and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
B.
Management’s Annual Report on Internal Control over Financial Reporting
The Management of Copa Holdings, S.A. or the “Company”, is responsible for establishing and maintaining effective internal control over
financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is
designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of
published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making
this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control – Integrated Framework (2013).
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal
control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
66
Table of Contents
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could
have a material effect on our financial statements.
Based on this assessment, Management believes that, as of December 31, 2022, the Company’s internal control over financial reporting is
effective based on those criteria.
C.
Attestation Report of the Registered Public Accounting Firm
The effectiveness of our internal controls over financial reporting as of December 31, 2022 has been audited by Ernst &Young, the
independent registered public accounting firm who also audited the Company’s consolidated financial statements. Ernst & Young’s attestation report of
the effectiveness of the Company’s internal control over financial reporting is included herein.
D.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during 2022 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
67
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Copa Holdings, S.A. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Copa Holdings, S.A. and subsidiaries internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the
COSO criteria). In our opinion, Copa Holdings, S.A. and subsidiaries (the Company) maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
statements of financial position of the Company as of December 31, 2022 and 2021 and the related consolidated statements of profit or loss,
comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes,
and our report dated March 24, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards, as issued by
the International Accounting Standards Board. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
International Financial Reporting Standards, as issued by the International Accounting Standards Board, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the
financial statements.
68
Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Ernst & Young Limited Corp.
A member practice of Ernst & Young Global Limited
/s/ Ernst & Young Limited Corp.
Panama City, Republic of Panama
March 24, 2023
69
Table of Contents
Item 16. Reserved
Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that Messrs. Jose Castañeda, Josh Connor and Mrs. Julianne Canavaggio qualify as an “audit
committee financial experts” as defined by current SEC rules and meet the independence requirements of the SEC and the NYSE listing standards. For a
discussion of the role of our audit committee, see “Item 6C. Board Practices—Audit Committee”.
Item 16B. Code of Ethics
Our Board of Directors has adopted a Code of Business Conduct and Ethics applicable to our directors, officers, employees and
consultants. The Code of Business Conduct and Ethics can be found at www.copaair.com under the heading “Investor Relations—Corporate
Governance”. Information found on this website is not incorporated by reference into this document.
Item 16C. Principal Accountant Fees and Services
The following table sets forth by category of service the total fees for services performed by our independent registered public accounting
firm Ernst & Young Limited Corp (PCAOB ID No. 1415) and its affiliates during the fiscal years ended December 31, 2022, 2021 and 2020:
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
Audit Fees
2022
$948,700
—
—
$ —
$948,700
2021
$695,934
—
—
—
$695,934
2020
$815,000
—
—
—
$815,000
Audit fees for 2022, 2021 and 2020 included the audit of our annual financial statements and internal controls.
Audit-Related Fees
There were no audit-related fees for 2022, 2021 or 2020.
Tax Fees
There were no tax fees for 2022, 2021 or 2020.
All Other Fees
Other fees for 2022 and 2021 include amounts paid for permitted consulting services performed by Ernst & Young and pre-approved by
our audit committee.
Pre-Approval Policies and Procedures
Our audit committee approves all audit, audit-related, tax and other services provided by Ernst & Young. Any services provided by
Ernst & Young that are not specifically included within the scope of the audit must be pre-approved by the audit committee in advance of any
engagement. Pursuant to Rule 201 of Regulation S-X, audit committees are permitted to approve certain fees for audit-related services, tax services and
other services pursuant to a de minimis exception prior to the completion of an audit engagement. In 2022, none of the fees paid to Ernst & Young were
approved pursuant to the de minimis exception.
70
Table of Contents
Item 16D. Exemptions from the Listing Standards for Audit Committees
None.
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers
In November 2014, the Board of Directors of the Company approved a $250 million share repurchase program. During 2022, the Board of
Directors of Copa Holdings approved the expansion of the current share repurchase program by $200 million. Purchases can be made from time to time,
subject to market and economic conditions, applicable legal requirements, and other relevant factors.
The following table provides a summary for the Company’s share repurchase program as of December 31, 2022:
Period
Program 2014 (EOMR)
December 2014
January 2015
February 2015
ASR 2015
September 2015
December 2015
Program 2021 (10b5-1)
July 2021
November 2021
December 2021
Program 2022
March 2022
May 2022
June 2022
July 2022
September 2022
Total
Total number of
shares purchased
Average price paid
per share
Total number of
shares purchased as
part of publicly
announced program
Maximum number of
shares that may be yet
be purchased under
the program
182,592
139,196
28,454
500,000
1,460,250
1,474
54,998
502,553
401,950
651,992
1,224,868
279,007
14,100
5,441,434
$
$
$
$
$
$
$
$
$
$
$
101.84
104.13
109.65
64.88
70.68
72.67
70.09
69.87
61.73
62.26
65.99
182,592
321,788
350,242
850,242
2,310,492
2,311,966
2,366,964
2,869,517
3,271,467
3,923,459
5,148,327
5,427,334
5,441,434
2,274,440
2,084,941
1,951,529
1,373,184
1,326,157
884,346
2,944,906
2,397,187
1,488,064
1,279,206
1,268,018
(1) Calculated based on the last share price for the end of the year
As of December 31, 2022, the Company had $105.5 million remaining to purchase shares under its share repurchase program.
Item 16F. Changes in Registrant’s Certifying Accountant
None.
Item 16G. Corporate Governance
Companies that are registered in Panama are required to disclose whether or not they comply with certain corporate governance guidelines
and principles that are recommended by the Superintendence of the Securities Market (Superintendencia del Mercado de Valores, or SMV). Statements
below referring to Panamanian governance standards reflect these voluntary guidelines set by the SMV rather than legal requirements or standard
national practices. Our Class A shares are registered with the SMV, and we comply with the SMV’s disclosure requirements.
71
Table of Contents
NYSE Standards
Director Independence.
Majority of board of directors must be independent. §303A.01
Executive Sessions. Non-management directors must meet regularly in
executive sessions without management.
Independent directors should meet alone in an executive session at least once
a year. §303A.03
Nominating/Corporate Governance
Committee. Nominating/corporate governance committee of independent
directors is required. The committee must have a charter specifying the
purpose, duties and evaluation procedures of the committee. §303A.04
Compensation Committee. Compensation committee of independent
directors is required, which must approve or make a recommendation to the
board regarding executive officer compensation. The committee must have a
charter specifying the purpose, duties and evaluation procedures of the
committee. §303A.05
Our Corporate Governance Practice
Panamanian corporate governance standards recommend that one in
every five directors should be an independent director. The criteria for
determining independence under the Panamanian corporate governance
standards differs from the NYSE rules. In Panama, a director would be
considered independent as long as the director does not directly or
indirectly own 5% or more of the issued and outstanding voting shares of
the Company, is not involved in the daily management of the Company
and is not a spouse or related to the second degree by blood or marriage
to the persons named above.
Our Articles of Incorporation require us to have three independent
directors as defined under the NYSE rules.
There are no mandatory requirements under Panamanian law that a
company should hold, and we currently do not hold, such executive
sessions.
Panamanian corporate governance standards recommend that registered
companies have a nominating committee composed of three members of
the board of directors, at least one of which should be an independent
director, plus the chief executive officer and the chief financial officer. In
Panama, the majority of public corporations do not have a nominating or
corporate governance committee. Our Articles of Incorporation require
that we maintain a Nominating and Corporate Governance Committee
with at least one independent director until the first shareholders’
meeting to elect directors after such time as the Class A shares are
entitled to full voting rights.
Panamanian corporate governance standards recommend that the
compensation of executives and directors be overseen by the nominating
committee but do not otherwise address the need for a compensation
committee.
While we maintain a compensation committee that operates under a
charter as described by the NYSE governance standards, currently only
one of the members of that committee is independent.
Equity Compensation Plans. Equity compensation plans require shareholder
approval, subject to limited exemptions.
Under Panamanian law, shareholder approval is not required for equity
compensation plans.
Code of Ethics. Corporate governance guidelines and a code of business
conduct and ethics is required, with disclosure of any waiver fordirectors or
executive officers. §303A.10
Panamanian corporate governance standards do not require the adoption
of specific guidelines as contemplated by the NYSE standards, although
they do require that companies disclose differences between their
practices and a list of specified practices recommended by the SMV.
We have not adopted a set of corporate governance guidelines as
contemplated by the NYSE, although we will be required to comply with
the disclosure requirement of the SMV.
Panamanian corporate governance standards recommend that registered
companies adopt a code of ethics covering such topics as its ethical and
moral principles, how to address conflicts of interest, the appropriate use
of resources, obligations to inform of acts of corruption and mechanism
to enforce the compliance with established rules of conduct.
Item 16H. Mine Safety Disclosure
None.
72
Table of Contents
Item 17. Financial Statements
See “Item 18. Financial Statements”
Item 18. Financial Statements
See our consolidated financial statements beginning on page F-1.
Item 19. Exhibits
PART III
2.1 (2019)
Description of the registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
3.1**
English translation of the Amended Articles of Incorporation (Pacto Social) of the Registrant
4.1 (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.
4.2†
4.3**
4.4†
4.5†
4.6**
4.7**
4.8**
4.9**
4.10**
4.11**
4.12*
4.13**
4.14†
4.15†
4.16†
4.17†
Aircraft Lease Agreement, dated as of March 4, 2004, between International Lease Finance corporation and Compañía Panameña
de Aviación, S.A., Boeing Model 737-700 or 800 Aircraft, Serial No. 32800
Aircraft General Terms Agreement, dated November 25, 1998, between The Boeing Company and Copa Holdings, S.A.
Maintenance Cost per Hour Engine Service Agreement, dated March 5, 2003, between G.E. Engine Services, Inc. and Copa
Holdings, S.A.
Form of Amended and Restated Alliance Agreement between Continental Airlines, Inc. and Compañía Panameña de Aviación,
S.A.
Form of Amended and Restated Services Agreement between Continental Airlines, Inc. and Compañía Panameña de Aviación,
S.A.
Form of Second Amended and Restated Shareholders’ Agreement among Copa Holdings, S.A., Corporación de Inversiones
Aéreas, S.A. and Continental Airlines, Inc.
Form of Guaranteed Loan Agreement
Form of Amended and Restated Registration Rights Agreement among Copa Holdings, S.A., Corporación de Inversiones Aéreas,
S.A. and Continental Airlines, Inc.
Form of Copa Holdings, S.A. 2005 Stock Incentive Plan
Form of Copa Holdings, S.A. Restricted Stock Award Agreement
Form of Indemnification Agreement with the Registrant’s directors
Form of Amended and Restated Trademark License Agreement between Continental Airlines, Inc. and Compañía Panameña de
Aviación, S.A.
Supplemental Agreement No. 11 dated as of August 30, 2006 to the Boeing Purchase Agreement Number 2191 dated
November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Supplemental Agreement No. 12 dated as of February 26, 2007 to the Boeing Purchase Agreement Number 2191 dated
November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Supplemental Agreement No. 13 dated as of April 23, 2007 to the Boeing Purchase Agreement Number 2191 dated
November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Supplemental Agreement No. 14 dated as of August 31, 2007 to the Boeing Purchase Agreement Number 2191 dated
November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
73
Table of Contents
4.18†
4.19†
4.20†
4.21†
4.22†
4.23†
4.24†
4.25†
4.26†
4.27†
4.28†
8.1
12.1
12.2
13.1
13.2
Supplemental Agreement No. 15 dated as of February 21, 2008 to the Boeing Purchase Agreement Number 2191 dated November 25,
1998 between the Boeing Company and Copa Holdings, S.A.
Supplemental Agreement No. 16 dated as of June 30, 2008 to the Boeing Purchase Agreement Number 2191 dated November 25,
1998 between the Boeing Company and Copa Holdings, S.A.
Supplemental Agreement No. 17 dated as of December 15, 2008 to the Boeing Purchase Agreement Number 2191 dated
November 25, 1998 between the Boeing Company and Copa Holdings, S.A.
Supplemental Agreement No. 18 dated as of July 15, 2009 to the Boeing Purchase Agreement Number 2191 dated November 25,
1998 between the Boeing Company and Copa Holdings, S.A
Supplemental Agreement No. 19 dated as of August 31, 2009 to the Boeing Purchase Agreement Number 2191 dated November 25,
1998 between the Boeing Company and Copa Holdings, S.A
Supplemental Agreement No. 20 dated as of November 19, 2009 to the Boeing Purchase Agreement Number 2191 dated
November 25, 1998 between the Boeing Company and Copa Holdings, S.A
Supplemental Agreement No. 21 dated as of May 28, 2010 to the Boeing Purchase Agreement Number 2191 dated November 25,
1998 between the Boeing Company and Copa Holdings, S.A
Supplemental Agreement No. 22 dated as of September 24, 2010 to the Boeing Purchase Agreement Number 2191 dated
November 25, 1998 between the Boeing Company and Copa Holdings, S.A
Supplemental Agreement No. 23 dated as of October, 2010 to the Boeing Purchase Agreement Number 2191 dated November 25,
1998 between the Boeing Company and Copa Holdings, S.A
On Pointsm Solutions Rate per Engine Flight Hour Service Agreement dated as of April 15, 2012 between GE Engine Services, LLC.,
Compañía Panameña de Aviación, S.A., and Lease Management Services, LLC.
Purchase Agreement No. PA-03774 dated June 27, 2012 between The Boeing Company and Copa Holdings S.A. relating to Boeing
Model 737 MAX Aircraft.
Subsidiaries of the Registrant
Certification of the Chief Executive Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.
Certification of the Chief Financial Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.
Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101. 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.
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, File No. 001-
09801609.
74
Table of Contents
2019 Previously filed with the SEC as an exhibit and incorporated by reference from our Annual Report on Form 20-F, filed April 8, 2020, File
†
No. 001- 32696.
Certain information from this exhibit has been excluded from this exhibit because it is both not material and is the type the registrant treats as
private or confidential.
75
Table of Contents
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
COPA HOLDINGS, S.A.
By: /s/ Pedro Heilbron
Name: Pedro Heilbron
Title: Chief Executive Officer
By: /s/ Jose Montero
Name: Jose Montero
Title: Chief Financial Officer
Dated: March 24, 2023
Table of Contents
Consolidated Financial Statements
Copa Holdings, S. A. and Subsidiaries
Year ended December 31, 2022
with Report of the Independent Registered Public Accounting Firm
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Contents
Report of the Independent Registered Public Accounting Firm
Consolidated statement of financial position
Consolidated statement of profit or loss
Consolidated statement of comprehensive income (loss)
Consolidated statement of changes in equity
Consolidated statement of cash flows
1.
2.
3.
4.
5.
6.
7.
8.
9.
Corporate information
Basis of preparation
Significant accounting policies
(a)
Basis of consolidation
(b)
Current versus non-current classification
(c)
Foreign currencies
(d)
Revenue recognition
(e)
Cash and cash equivalents
(f)
Financial instruments
(g)
Impairment of non - financial assets
(h)
Senior convertible notes
(i)
(j)
Expendable parts and supplies
Passenger traffic commissions
(k)
Property and equipment
(l)
Leases
(m)
Intangible assets
(n)
Taxes
(o)
Borrowing costs
(p)
Provisions
(q)
Employee benefits
(r)
Non-current assets held for sale and discontinued operations
Significant accounting judgments, estimates and assumptions
Adoption of new and amended standards and interpretations
Standards issued but not yet effective
Revenue from contract with customers
Cash and cash equivalents
Investments
10.
Accounts receivable
Pages
F-1
F-4
F-5
F-6
F-7
F-8
F-9
F-10
F-11
F-11
F-11
F-12
F-12
F-14
F-15
F-21
F-21
F-21
F-22
F-22
F-23
F-26
F-27
F-29
F-30
F-30
F-31
F-32
F-36
F-38
F-40
F-41
F-42
F-42
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Contents
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
Expendable parts and supplies
Prepaid expenses
Property and equipment
Leases
Net defined benefit assets
Intangible assets
Other assets
Loans and borrowings
Trade, other payables and financial liabilities
Accrued expenses payable
Other long-term liabilities
Income taxes
Accounts and transactions with related parties
Equity
Share-based payments
Earnings per share
Commitments and contingencies
Financial instruments - Risk management and fair value
28.1 Fuel price risk
28.2 Market risk
28.3 Credit risk
28.4
Interest rate and cash flow risk
28.5 Liquidity risk
28.6 Fair value measurement
29.
Subsequent events
F-43
F-43
F-44
F-46
F-49
F-54
F-55
F-56
F-59
F-59
F-59
F-61
F-62
F-64
F-66
F-68
F-69
F-71
F-71
F-72
F-73
F-74
F-74
F-75
F-77
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Copa Holdings, S.A. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Copa Holdings, S.A. and subsidiaries (the Company) as of
December 31, 2022 and 2021, the related consolidated statements of profit or loss, comprehensive income (loss), changes in equity and cash flows for
each of the three years in the period ended December 31, 2022, 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 financial position of the Company at December 31, 2022
and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with
International Financial Reporting Standards, as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 24, 2023 expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-1
Table of Contents
Description of the Matter
Provision for Return Conditions
As described in Notes 3, 4 and 21 to the consolidated financial statements, the Company records a provision in
accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets to accrue for the expected cost that
will be incurred to return aircraft to their lessors in an agreed-upon condition. These payments are generally owed at the
end of the lease term and represent a restoration obligation incurred over the lease term as the aircraft and engines are
utilized. The provision is based on the net present value of the estimated costs of returning the aircraft and is accrued
during the term of the lease. These costs are reviewed annually and adjusted as appropriate. Changes in estimates between
the provision balance and the expected costs are adjusted prospectively with any final difference recorded in the period
when the aircraft is returned. As of December 31, 2022, the Company’s provision for return conditions totaled $174
million.
Auditing this provision was complex due to the subjectivity of the assumptions applied in the model used by the
Company, including estimates of future maintenance costs, leases extension, determination of an appropriate discount rate
and operational estimates of aircraft utilization.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the
Company’s return condition estimation process. We tested controls over management’s review of the expected return cost,
leases extension, expected aircraft utilization and discount rate calculation.
Our audit procedures included, among others, evaluating the methodology and the significant assumptions used and the
review of the accuracy and completeness of the lease contract population and underlying data used by the Company to
calculate the return cost. We tested the inputs used in the calculation, discount rate, specified returns conditions
requirements and the actual utilization reports from the Company’s aircraft maintenance records. We involved a valuation
specialist to assist in the review of the discount rate.
We evaluated the change in the provision for return conditions from prior years in relation to changes in return costs and
discount rates. In addition, we independently recalculated the discount rate as of December 31, 2022, and we compared
our results with the Company’s calculations.
Frequent Flyer Deferred Revenue – Mileage Breakage
Description of the Matter
The Company’s frequent flyer deferred revenue totaled $112 million as of December 31, 2022. As described in Notes 3, 4
and 7 to the consolidated financial statements, members of the Company’s ConnectMiles program earn miles through the
Company’s flights, Star Alliance partners and by purchasing the goods and services of the Company’s network of non-
airline partners and co-branded credit cards. The miles or points earned can be exchanged for flights on Copa or any of
other Star Alliance partner airlines. In determining the value of mileage credits earned, the Company applies an estimate
of mileage credits earned that are not expected to be redeemed (“breakage”) prior to their expiration.
F-2
Table of Contents
To estimate breakage the Company uses a statistical model that incorporates the internal historical redemption data as
well as industry patterns to determine the redemptions behavior. However, considering Copa’s frequent flyer program was
established in 2015, its historical redemption data is limited. Changes in the estimated breakage are applied on a
prospective basis. The initial estimate of breakage is established at the time the miles are earned, but the expected
breakage on outstanding miles is updated annually along with the estimated fair value of the miles earned. The Company
engages a specialist to assist in the performance of the breakage calculation.
Auditing the breakage in the frequent flyer program was challenging due to the complexity of the models used related to
the determination of future behavior of redemptions.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the controls over the Company’s frequent flyer program.
We tested controls over management’s review of the breakage calculations including statistical behavior method of
redemptions and the data inputs used for the calculation.
To test the estimated miles that will expire without use, our procedures included evaluating the redemptions statistical
behavior used and the assumptions applied, including whether the historical redemption data used in the model is
representative of future redemption behavior. We also evaluated the competence of management’s specialist. We involved
our valuation specialists to assist in our evaluation of the Company’s model, assumptions related to redemptions behavior
and calculation of mileage breakage. Also, we performed a sensitivity analysis to determine the impact of changes in the
breakage rate.
To test the completeness and accuracy of the underlying data our procedures included a review of the actual redemptions
made from program inception to 2022.
Ernst & Young Limited Corp.
A member practice of Ernst & Young Global Limited
We have served as the Company’s auditor since 1999
Panama City, Republic of Panama
March 24, 2023
F-3
Table of Contents
Copa Holdings, S. A. and Subsidiaries
Consolidated statement of financial position
As of December, 31
(In US$ thousands)
ASSETS
Current assets
Cash and cash equivalents
Investments
Accounts receivable
Expendable parts and supplies
Prepaid expenses
Prepaid income tax
Other currents assets
Non-current assets
Investments
Prepaid expenses
Property and equipment
Right of use assets
Intangible assets
Net defined benefit assets
Deferred tax assets
Other non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Loans and borrowings
Current portion of lease liabilities
Trade, other payables and financial liabilities
Air traffic liability
Frequent flyer deferred revenue
Taxes payable
Accrued expenses payable
Income tax payable
Non-current liabilities
Loans and borrowings long-term
Lease liabilities
Frequent flyer deferred revenue
Net defined benefit liabilities
Derivative financial instruments
Deferred tax liabilities
Other long-term liabilities
Total liabilities
Equity
Issued capital
Class A common stock - 34,033,575 (2021 - 33,998,654) shares issued 28,477,704 (2021 - 30,995,120) outstanding
Class B common stock - 10,938,125 (2021 - 10,938,125) shares issued and outstanding, no par value
Additional paid in capital
Treasury stock
Retained earnings
Accumulated other comprehensive loss
Total equity
Commitments and contingencies
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Notes
2022
2021
8 $ 122,424 $ 211,081
812,323 806,340
9
92,450
137,583
10,23
74,778
93,332
11
31,148
52,322
12
16,938
798
6,054
17,043
1,235,825 1,238,789
17
202,056 199,670
9
12
6,727
7,770
13 2,883,524 2,512,704
234,380 166,328
14
81,749
78,555
16
—
504
15
28,196
30,743
22
14,098
17,005
17
3,454,537 3,009,472
$4,690,362 $4,248,261
18 $ 142,484 $ 196,602
80,084
14
73,917
168,839 121,330
19,23
651,805 557,331
7.2
34,719
55,292
7.2
32,600
43,878
32,767
44,913
3,835
6,276
1,193,571 1,053,101
20
18 1,301,819 1,229,031
158,289 104,734
14
60,395
56,234
7.2
15
7,670
—
251,150 268,338
18
16,571
22
18,782
220,618 206,813
21
2,004,681 1,895,763
3,198,252 2,948,864
24
21,327
7,466
103,465
(344,541)
21,289
7,466
98,348
(176,902)
1,715,838 1,367,866
(18,670)
1,492,110 1,299,397
—
—
$4,690,362 $4,248,261
(11,445)
27
Table of Contents
Copa Holdings, S. A. and Subsidiaries
Consolidated statement of profit or loss
For the year ended December, 31
(In US$ thousands)
Operating revenue
Passenger revenue
Cargo and mail revenue
Other operating revenue
Operating expenses
Fuel
Wages, salaries, benefits and other employees’ expenses
Passenger servicing
Airport facilities and handling charges
Sales and distribution
Maintenance, materials and repairs
Depreciation and amortization
Impairment of non financial assets
Flight operations
Other operating and administrative expenses
Operating profit (loss)
Non-operating income (expense)
Finance cost
Finance income
Loss on foreign currency fluctuations
Net change in fair value of derivatives
Other net non-operating income (expense)
Profit (loss) before taxes
Income tax expense
Net profit (loss)
Earnings (loss) per share
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Notes
2022
2021
2020
$2,824,719 $1,412,390 $ 760,594
21,002
19,407
801,003
71,577
25,964
7 2,965,033 1,509,931
101,765
38,549
383,179
258,128
35,869
131,335
129,877
41,888
239,946
(5,441)
55,766
87,426
1,052,637
380,385
70,080
192,584
224,465
104,114
267,704
—
97,256
125,424
166,723
256,327
27,566
59,536
70,395
76,948
259,336
243,097
30,028
71,977
2,514,649 1,357,973 1,261,933
(460,930)
151,958
450,384
13,14,16
13,16
14,18
18
18
(87,631)
18,030
(9,812)
17,189
70
(62,154)
388,230
(40,176)
$ 348,054 $
22
(73,045)
(76,234)
19,963
10,849
(8,459)
(6,174)
(107,139)
(22,778)
(1,169)
(3,291)
(169,849)
(97,628)
(630,779)
54,330
(10,486)
23,717
43,844 $ (607,062)
26
$
$
8.58 $
7.88 $
1.03 $
1.03 $
(14.28)
(14.28)
Table of Contents
Copa Holdings, S. A. and Subsidiaries
Consolidated statement of comprehensive income (loss)
For the year ended December, 31
(In US$ thousands)
Net profit (loss)
Other comprehensive income (loss)
2022
2021
$348,054 $43,844 $(607,062)
2020
Other comprehensive income (loss) not to be reclassified to profit or loss in subsequent periods -
Remeasurement of actuarial gain (loss), net of amortization
Total comprehensive income (loss) for the year
7,225 5,412
(15,454)
$355,279 $49,256 $(622,516)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
Copa Holdings, S. A. and Subsidiaries
Consolidated statement of changes in equity
For the year ended December,31
(In US$ thousands)
Common stock
(Non - par value)
Notes
Class A
Class B
Issued capital
Class A Class B
Additional
paid in
capital
Treasury
stock
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
equity
At January 1, 2020
Net loss
Other comprehensive
31,337,856 10,938,125 $21,142 $7,466 $ 86,135 $(136,388) $1,965,179 $
(607,062)
— — —
—
—
—
(8,628) $1,934,906
(607,062)
—
loss
15
—
— — —
—
—
—
(15,454)
(15,454)
Issuance of stock for
employee awards
Share-based
83,409
—
57 —
(57)
—
—
—
—
compensation expense 25
24
Dividends paid
Other
—
—
—
—
(33,990)
(105)
31,421,265 10,938,125 $21,199 $7,466 $ 91,341 $(136,388) $1,324,022 $
43,844
— — —
— — —
— — —
5,263
—
—
— — —
—
—
—
—
—
—
—
—
—
5,263
(33,990)
(105)
(24,082) $1,283,558
43,844
—
At December 31, 2020
Net profit
Other comprehensive
income
15
—
— — —
—
—
—
5,412
5,412
Issuance of stock for
employee awards
Share-based
132,880
—
90 —
(90)
—
—
—
—
compensation expense 25
—
— — —
7,097
—
—
—
7,097
Repurchase of treasury
shares
At December 31, 2021
Net profit
Other comprehensive
24
(559,025)
—
30,995,120 10,938,125 $21,289 $7,466 $ 98,348 $(176,902) $1,367,866 $
348,054
— — —
— — —
(40,514)
—
—
—
—
—
(40,514)
(18,670) $1,299,397
348,054
—
income
15
—
— — —
—
—
—
7,225
7,225
Issuance of stock for
employee awards
Share-based
54,501
—
38 —
(38)
—
—
—
—
compensation expense 25
—
— — —
5,155
—
—
—
5,155
Repurchase of treasury
shares
Other
At December 31, 2022
24 (2,571,917)
—
—
(82)
28,477,704 10,938,125 $21,327 $7,466 $103,465 $(344,541) $1,715,838 $
— — —
— — —
— (167,639)
—
—
—
—
(167,639)
(82)
(11,445) $ 1,492,110
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
Copa Holdings, S. A. and Subsidiaries
Consolidated statement of cash flows
For the year ended December,31
(In US$ thousands)
Operating activities
Net profit (loss)
Adjustments for:
Income tax expense
Finance cost
Finance income
(Reversal) impairment of non financial assets
Depreciation and amortization
Disposal of non financial assets
Impairment of financial assets
Allowance for obsolescence of expendable parts and supplies
Share-based compensation expense
Net change in fair value of derivatives
Unrealized loss on investment
Net foreign exchange differences
Change in:
Accounts receivable
Accounts receivable from related parties
Other current assets
Other assets
Accounts payable
Accounts payable from related parties
Air traffic liability
Frequent flyer deferred revenue
Other liability
Cash from operating activities
Income tax paid
Interest paid
Interest received
Net cash from operating activities
Investing activities
Acquisition of investments
Proceeds from redemption and sale of investments
Advance payments on aircraft purchase contracts
Reimbursement of advance payments on aircraft purchase contracts
Acquisition of property and equipment
Proceeds from sale of property and equipment
Acquisition of intangible assets
Net cash used in investing activities
Financing activities
Proceeds from issue of convertible notes, net of costs
Proceeds from new borrowings
Payments on loans and borrowings
Payment of lease liability
Repurchase of treasury shares
Dividends paid
Net cash (used) from in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at January 1
Effect of exchange rate change on cash
Cash and cash equivalents at December 31
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Notes
2022
2021
2020
$ 348,054 $
43,844 $(607,062)
18
18
40,176
87,631
(18,030)
—
13,14,16 267,704
(2,458)
2,408
80
5,155
(17,189)
4,252
25,330
25
18
9
9,10
10
19
(51,318)
(336)
(47,436)
(10,874)
46,982
(6,945)
94,474
16,413
33,317
817,390
(26,353)
(44,761)
12,267
758,543
(23,717)
10,486
73,045
76,234
(10,849)
(19,963)
(5,441) 243,097
239,946 259,336
4,635
4,260
1,570
1,516
47
30
7,097
5,263
22,778 107,139
—
44,328
274
44,853
(35,645)
(403)
(4,599)
(6,786)
49,285
4,978
86,636
3,901
6,450
538,845
(3,904)
(40,170)
12,514
507,285
71,625
(1,282)
11,148
8,895
(55,718)
(11,116)
(26,679)
10,887
(36,975)
58,503
(37,631)
(41,938)
26,343
5,277
(763,842) (1,117,214) (904,570)
749,576 1,001,268 840,627
—
(377,670)
105,381
—
(44,065)
(254,561)
30,666
7,426
(16,419)
(18,461)
(93,761)
(552,151)
(276,939)
70,800
(206,795)
81,336
(11,591)
(459,135)
16
18
—
18 222,481
18 (249,519)
14
(79,017)
24 (167,639)
—
(273,694)
(67,302)
211,081
(21,355)
$ 122,424 $
— 342,898
352,278 145,000
(142,233) (267,086)
(80,992)
(93,213)
(40,514)
—
—
(33,990)
88,539
93,609
5,125
136,689
119,065 158,732
(44,673)
(44,792)
211,081 119,065
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
1.
Corporate information
Copa Holdings, S. A. (“the Company”) was incorporated according to the laws of the Republic of Panama on May 6, 1988 with an indefinite duration.
The Company is a public company listed in the New York Stock Exchange (NYSE) under the symbol CPA since December 14, 2005. The address of its
registered office is Boulevard Costa del Este, Avenida Principal y Avenida de la Rotonda, Urbanización Costa del Este, Complejo Business Park, Torre
Norte, Parque Lefevre, Panama City, Republic of Panama.
These consolidated financial statements comprise the Company and its subsidiaries: Compañía Panameña de Aviación, S. A. (“Copa Airlines”), Oval
Financial Leasing, Ltd. (“OVAL”), AeroRepública, S. A. (“AeroRepública”) and, La Nueva Aerolínea, S.A (“LNA”).
•
•
•
•
Copa Airlines: the Company’s core operation is incorporated according to the laws of the Republic of Panama and provides international air
transportation for passengers, cargo and mail, operating from its Panama City hub in the Republic of Panama.
AeroRepública: is a Colombian air carrier, incorporated according to the laws of the Republic of Colombia which provides domestic and
international air transportation for passengers, cargo, and mail.
AeroRepública operates “Wingo” a brand under a low-cost business model. Wingo operates administratively and functionally under
AeroRepública, with an independent structure for its commercialization, distribution systems and customer service.
OVAL: incorporated according to the laws of the British Virgin Islands, it controls the special-purpose entities that have a beneficial interest in the
majority of the Company’s fleet, which is leased to either Copa Airlines or AeroRepública.
LNA. is a Panamanian air carrier, incorporated according to the laws of the Republic of Panama and will provide international air transportation
for passengers, cargo and mail, operating from the Republic of Panama. LNA, will operate air transportation for passengers under “Wingo’s”
brand, low-cost business model, and it is expected to start operations during 2023.
The Company currently offers approximately 327 daily scheduled flights to 78 destinations in 32 countries in North, Central and South America and the
Caribbean, mainly from its Panama City Hub. Additionally, the Company provides passengers with access to flights to more than 180 international
destinations through codeshare agreements. The Company is part of Star Alliance, the leading global airline network since June 2012.
The Company has a broad commercial alliance with United Airlines Holdings, Inc. (“United”), which was renewed during May 2021, for another five
years. This Alliance includes an extensive and expanding code-sharing and technology cooperation.
Copa Airlines has the loyalty program “ConnectMiles”, designed to strengthen the relationship with its frequent flyers and provide exclusive attention.
ConnectMiles members are eligible to earn and redeem miles to any of Star Alliance’s, 1,200 (unaudited) destinations in 184 countries (unaudited)
within 26 airlines members (unaudited).
In March 2022, the newly converted freighter aircraft, the Boeing 737-800 BCF (Boeing Converted Freighter) with a capacity of 21.7 tons per flight,
began operations. The aircraft came from the Company’s fleet and was converted into a freighter by Boeing. This freighter aircraft will further increase
cargo capacity. As of December 31, 2022, the Company operates a fleet of 97 aircraft with an average age of 9.5 years, and consists of 67 Boeing
737-800 Next Generation aircraft, 9 Boeing 737-700 Next Generation aircraft, 1 Boeing 737-800 BCF and 20 737-MAX aircraft.
F-9
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The consolidated financial statements for the year ended December 31, 2022 have been authorized for issuance by the Company’s Chief Executive
Officer and Chief Financial Officer on March 24, 2023.
2.
Basis of preparation
Statement of compliance
The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board (“IASB”).
As used in these notes to the consolidated financial statements, the terms “the Company”, “we”, “us”, “our”, and similar terms refer to Copa
Holdings, S. A. and, unless the context indicates otherwise, its consolidated subsidiaries.
Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, except for the following:
•
•
•
certain financial assets, certain classes of property, plant and equipment, investment property and derivative financial instruments –
measured at fair value
assets held for sale – measured at fair value less cost of disposal, and
defined benefit pension plans – plan assets measured at fair value.
Functional and presentation currency
These consolidated financial statements are presented in United States dollars (U.S. dollars “$”), which is the Company’s functional currency and
the legal tender of the Republic of Panama. The Republic of Panama does not issue its own paper currency; instead, the U.S. dollar is used as legal
currency.
All values are rounded to the nearest thousand in U.S. dollars ($000), except when otherwise indicated.
Going concern
Since the beginning of the pandemic in 2020, the Company has taken proactive actions, focusing on reducing fixed costs, further bolstering its
liquidity position, to continue strengthening its long term competitive position and to implement initiatives to further strengthen its network and
product in the post COVID-19 world.
As of December 31, 2022, the Company ended the year with $1.3 billion of available liquidity, consisting of approximately $927.4 million in cash,
short-term investments (see notes 8 and 9), and $355.0 million of committed and undrawn credit facilities (see note 27).
Based on these factors, management has prepared the financial statements as of December 31, 2022 on the basis that it will continue to operate as
a going concern.
F-10
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
3.
Significant accounting policies
(a) Basis of consolidation
These consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Control is achieved when the
Company is exposed to, or has right to, variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee. Specifically, the Company controls the investee, when it has:
•
•
•
power over the investee,
exposure, or rights to, variable returns from its involvement with the investee, and
the ability to use its power over the investee to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of
the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when
the Company loses control of the subsidiary.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting
policies. All intercompany balances, transactions, and dividends are eliminated in full.
The following are the significant subsidiaries included in these financial statements:
Name
Copa Airlines
AeroRepublica
Oval
LNA
Country of
Incorporation
Panama
Colombia
British Virgin Islands
Panama
Ownership
interest
2022
99.9%
99.9%
100%
100%
2021
99.9%
99.9%
100%
100%
(b) Current versus non-current classification
The Company presents assets and liabilities in the statement of financial position based on current/non-current classification.
An asset is current when it is:
•
•
•
expected to be realized or intended to be sold or consumed in the normal operating cycle
expected to be realized within twelve months after the reporting period, or
cash or cash equivalent, unless restricted.
All other assets are classified as non-current.
A liability is current when:
•
it is expected to be settled in the normal operating cycle
F-11
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
•
•
it is due to be settled within twelve months after the reporting period, or
there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
(c) Foreign currencies
The Company’s consolidated financial statements are presented in U.S. dollars, which is the Company’s functional currency. The Company
determines the functional currency for each entity, and the items included in the financial statements of each entity are measured using that
functional currency.
Transactions and balances
Transactions in foreign currencies are initially recorded by the Company at the respective functional currency spot rates on the date when
the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot exchange rate at the reporting
date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the
dates of the initial transactions.
Foreign exchange gains and losses are included in the exchange rate difference line in the consolidated statement of profit or loss for the
year.
(d) Revenue recognition
Revenue is recognized when control of the goods or services is transferred to the customer at an amount that reflects the consideration to
which the Company expects to be entitled in exchange for those goods or services. The consideration received or receivable is measured
taking into account contractually defined terms of payment and excluding taxes or duties. The following specific recognition criteria must
also be met before revenue is recognized:
Passenger revenue
Passenger revenue is primarily composed of passenger ticket sales, frequent flyer miles redeemed and ancillaries revenues associated with a
passenger’s flight.
•
Passenger tickets
Passenger revenue from tickets is recognized when transportation is provided or when the ticket expires unused, rather than when a ticket is
sold. The amount of passenger ticket sales, not yet recognized as revenue, is reflected under “Air traffic liability” in the consolidated
statement of financial position.
In addition, revenue is recognized for tickets that are expected not to be used, the Company performs a monthly liability evaluation using its
historical experience with refundable and nonrefundable expired tickets and other facts. A year after the sale is made, actual ticket breakage
is removed from “Air Traffic liability” and the provision is reversed.
F-12
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The unused tickets expire after one year, and any revenue associated with tickets sold for future travel is recognized within 12 months.
Since 2020, in response to Covid-19 and for those tickets which were scheduled to expire before June 2021, the Company established a new
commercial policy that extended the tickets expiration to June 30, 2022. The Company calculated a specific breakage for tickets that were
not expected not to be used based on this new commercial policy. As of December 31, 2022, all revenue related to these tickets has been
recognized in the consolidated statement of profit or loss.
The Company sells certain tickets with connecting flights with one or more segments operated by its other airline partners. For segments
operated by other airline partners, the Company has determined that it is acting as an agent on behalf of the other airlines as they are
responsible for their portion of the contract. The Company, as the agent, reduces its “Air traffic liability” when consideration is remitted to
those airlines, and recognizes revenue for the net amount representing commission to be retained by the Company for any segments flown
by other airlines.
Denied boarding compensation made to customers for voluntarily or involuntarily denied boarding reduces revenue when the voucher is
issued to the passenger.
•
Frequent flyer program
The Company’s frequent flyer program objective, is to reward customer loyalty. Members in this program earn miles for travel on Copa
Airlines, Star Alliance partners’ airlines and also by purchasing the goods and services of the Company network of non-airline partners and
co-branded credit cards. The miles or points earned can be exchanged for flights on Copa or any of other Star Alliance partners’ airlines.
Passenger revenue includes flights redeemed under our frequent flyer program. When a passenger elects to receive Copa’s frequent flyer
miles in connection with a flight, the Company recognizes a portion of the tickets sale as revenue when the air transportation is provided and
recognizes a deferred liability (Frequent flyer deferred revenue) for the portion of the ticket sale representing the value of the related miles
as a separate performance obligation. To determine the amount of revenue to be deferred, the Company estimates and allocates the fair value
of the miles that were essentially sold along with the airfare, based on a weighted average ticket value, which incorporates the expected
redemption of miles including factors such as redemption pattern, cabin class and geographic region.
A statistical model that estimates the percentages of points that will not be redeemed before expiration is used to estimate breakage. The
breakage and the fair value of the miles are reviewed at least 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
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 flight, those carriers pay to the
Company a per mile rate. The rates paid by them depend on the class of service, the flight length, and the availability of the reward and is
included in passenger revenues.
F-13
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
•
Ancillaries revenues
Primarily composed of services performed in conjunction with a passenger’s flight, including administrative fees (such as ticket change
fees), baggage fees, and other ticket-related fees. These ancillary fees are part of the travel performance obligation and, as such, are
recognized as passenger revenue when the travel occurs.
Cargo and mail revenue
Cargo and mail revenue is recognized when the Company provides and completes the shipping services as requested by the client and the
risks on the merchandise and goods are transferred.
Other operating revenue
Other operating revenue includes revenue associated with the marketing component of the frequent flyer program. This revenue is
comprised of the marketing component of mileage sales to co-branded card, 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 to
co-branded credit card relationships with major banks in the region. The Company determined the selling prices of miles according to a
method which allocates consideration based upon the relative selling price of the deliverables. The relative selling price of the deliverables
is determined based upon the estimated standalone selling prices of each deliverable in the arrangement and is allocated between the miles
sold to the passenger (as described above) and the marketing elements. Revenue allocated to the performance obligations related to,
marketing components, is recorded in other operating revenue when miles are delivered.
The remaining amounts included within other revenue are related to lease income, advertising and vacation-related services.
(e)
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position, comprise cash on hand and in banks, money market accounts, and time
deposits with original maturities of three months or less from the date of purchase.
The Company evaluates the term and conditions relating to its restricted cash to determine where it should be presented, as current assets
in cash and cash equivalents or as non-current assets in long-term investments.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash net of outstanding bank overdrafts,
if any. The Company has elected to present the statement of cash flows using the indirect method.
As of December 31, 2022 and 2021, the Company cash position is comprise from cash on hand and in banks.
F-14
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
(f)
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of
another entity.
Financial assets
The Company’s financial assets include cash and cash equivalents, short and long-term investments and accounts receivable.
(i)
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive
income (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 the
Company’s business model for managing them. With the exception of accounts receivables that do not contain a significant financing
component or for which the Company has applied the practical expedient, the Company initially measures a financial asset at its fair value
plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Accounts receivable that do not contain a
significant 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 flows
that are ‘solely payments of principal and interest’ (SPPI) on the principal amount outstanding. This assessment is referred to as the SPPI
test and is performed at an instrument level.
The 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
provisions of an instrument.
(ii)
Subsequent measurement
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 (equity
instruments)
Financial assets at fair value through profit or loss
F-15
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Financial assets at amortized cost
This category is the most relevant to the Company. The Company measures financial assets at amortized cost if both of the following
conditions are met:
•
•
The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash
flows; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest 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 includes 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, and
invests in long-term deposits and bonds with maturities greater than one year. These investments are classified as short and long-term
investments, respectively, in the accompanying consolidated statement of financial position.
Accounts receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These
financial instruments are initially recognized and carried at the original invoice amount since recognition of interest under the amortized
cost would be immaterial less a provision for impairment.
Financial assets at fair value through OCI (debt instruments)
The 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 and
interest on the principal amount outstanding
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are
recognized in the statement of profit or loss and computed in the same manner as for financial assets measured at amortized cost. The
remaining fair value changes are recognized in OCI. Upon derecognition, the cumulative fair value change recognized in OCI is recycled
to profit or loss.
The Company currently does not have assets classified under this category.
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Company may elect to classify irrevocably its equity investments as equity instruments designated at fair
value 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.
F-16
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in the statement of
profit or loss when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part
of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI
are not subject to impairment assessment.
The Company currently does not have assets classified under this category.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial
recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are
classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including
separated 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 through
profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortized cost or at
fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if
doing 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 fair
value recognized in the statement of profit or loss.
(iii)
Derecognition
A financial asset is derecognized when:
•
•
the rights to receive cash flows from the asset have expired, or
the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash
flows in full without material delay to a third party under a “pass-through” arrangement, and either (a) the Company has transferred
substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks
and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it
evaluates, if and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained
substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the
Company’s continuing involvement in the asset. In that case, the Company also recognizes an associated liability. The transferred asset and
the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
(iv)
Impairment of financial assets
The Company recognizes an allowance for expected credit losses (ECLs) on financial asset measured at amortized cost. Loss allowance
for financial assets are deducted from the gross carrying amount on the assets.
F-17
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the
Company 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 initial
recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month
ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is
required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
Both, lifetime ECLs and 12-month ECLs, are calculated on either an individual basis or a collective basis, depending on the nature of the
underlying 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 financial
instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over
the remaining life of the financial instrument.
For accounts receivables the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes
in credit 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 the
probability of a receivable progressing through successive stages of delinquency to write-off. To measure 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 the economic environment over the expected life of the receivables.
A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. The Company considers
that 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
the Company has exhausted all legal and/or administrative recourse
where the account exceeds one year without decreases
when there are no documents establishing the debt
Losses arising from impairment are recognized under “Other operating and administrative expenses” in the consolidated statement of
profit or loss.
F-18
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Financial liabilities
(i)
Initial recognition and measurement
Financial 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 directly
attributable transaction costs.
The Company’s financial liabilities include trade and other payables and loans and borrowings including bank overdrafts, and derivative
financial instruments.
(ii)
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:
•
•
Financial liabilities at fair value through profit or loss
Financial liabilities at amortized cost (loans and borrowings)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon
initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category
also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge
relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as
effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the statement of profit or loss.
Financial liabilities at amortized cost (loans and borrowings)
Subsequent to initial recognition, all borrowings and loans are measured at amortized cost using the EIR method. Gains and losses are
recognized in the consolidated statement of profit or loss when the liabilities are derecognized as well as through the EIR amortization
process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the
EIR. The EIR amortization is included under finance cost in the consolidated statement of profit or loss.
(iii) Derecognition
Financial liabilities are derecognized when the obligation under the liability is discharged, cancelled, or expire. When an existing financial
liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and
the difference in the respective carrying amounts is recognized in the consolidated statement of profit or loss.
F-19
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Offsetting of financial instruments
Financial 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 net
basis or to realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and
must be enforceable in the ordinary course of business and in the event of default, insolvency or bankruptcy of the Company or the
counterparty.
Derivative financial instruments and hedging activities
Derivative instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently
remeasured at their fair value.
Derivatives are carried as financial assets when the fair value results in a right to the Company and as financial liabilities when the fair
value results in an obligation. The accounting for changes in value depends on whether the derivative is designated as a hedging
instrument, and if so, the classification of the hedge.
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 firm
commitment
Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with
a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm
commitment
•
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 to
apply 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 the
Company will assess whether the hedging relationship meets the hedge effectiveness requirements. A hedging relationship qualifies for
hedge accounting if it meets all of the following effectiveness requirements:
•
•
•
There is ‘an economic relationship’ between the hedged item and the hedging instrument.
The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship.
The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Company
actually hedges and the quantity of the hedging instrument that the Company actually uses to hedge that quantity of hedged item.
As of December 31, 2022 and 2021, the Company does not have financial instruments designated under hedge accounting.
F-20
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
(g)
Impairment of non - financial assets
The Company assesses at each reporting date whether there is an indication that an asset or its cash-generating unit (CGU) may be
impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s or
CGU’s recoverable amount. The recoverable amount is the higher of an asset’s or its CGU’s fair value less costs to sell and its value in use.
The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent
of those from other assets or group of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have
not been adjusted.
Impairment losses of continuing operations, including impairment on inventories, are recognized under “Impairment of non-financial
assets” in the consolidated statement of profit or loss.
For assets, excluding goodwill, an assessment is made at each reporting date to determine whether there is any indication that previously
recognized impairment losses no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s or
CGU’s recoverable amount.
A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s
recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not
exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment
loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss.
(h)
Senior convertible notes
Senior convertible notes are classified as hybrid instruments that comprise a debt host contract for the interest and principal payments plus
a derivative instrument for the conversion option.
The initial carrying amount of the non-derivative host contract is the difference between the fair value minus transaction costs of the
hybrid instrument and the fair value of the embedded derivative. Under this approach, all of the transaction costs are always allocated to
and deducted from the carrying amount of the non-derivative host contract on initial recognition.
After initial recognition, the debt host contract would be measured at amortized cost, and the derivative liability, not being closely related
to the debt host contract, would be measured at fair value through profit or loss.
(i)
Expendable parts and supplies
Expendable parts and supplies for flight equipment are carried at the lower of the average acquisition cost or replacement cost, and are
expensed when used in operations. The replacement cost is the estimated purchase price in the ordinary course of business.
F-21
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
(j)
Passenger traffic commissions
Passenger traffic commissions are recognized as expense when transportation is provided and the related revenue is recognized. Passenger
traffic commissions paid but not yet recognized as expense are included under “Prepaid expenses” in the accompanying consolidated
statement of financial position.
(k)
Property and equipment
Property and equipment comprise mainly airframe, engines, and other related flight equipment. All property and equipment are stated at
cost, 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 the
carrying amount of the component. These initial built-in maintenance assets are depreciated over the estimated time period until the first
maintenance event is performed. The cost of major maintenance events completed after the aircraft acquisition are capitalized and
depreciated over the estimated time period until the next major maintenance event. The remaining value of the previously capitalized
component if any, is charged to expense upon completion of the subsequent maintenance event.
The Company recognizes the depreciation on a straight-line basis which for some aircraft components is akin to depreciation based on use,
over the estimated useful life of the assets. Depreciation is recognized in the consolidated statement of profit or loss from the date the
property, and equipment is installed and ready for use.
Property and equipment
Flight equipment (*)
Airframe and core engines
Major maintenance events
Convertion to freighter
Cabin refurbishment
Ramp and miscellaneous
Ground equipment
Furniture, fixture, equipment and other
Leasehold improvements
Estimate useful life (years)
Residual Value
27
3-16
Lesser of 10 years
and remaining useful life
of the aircraft
Lesser of remaining useful
life of the aircraft and
estimated useful life of the
refurbishment
10
5-10
Lesser of remaining lease
term and estimated useful
life of the leasehold
improvement
15%
—
—
—
—
(*) Estimates for Boeing 737-700 fleet may differ , see note 13.
F-22
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
An item of property and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognized.
The costs of major maintenance events for leased aircraft are capitalized and depreciated over the shorter of the scheduled usage period to
the next major inspection event or the remaining life of lease term (as appropriate), the remaining value of the previously capitalized
maintenance or the right-of-use asset (“ROU”) component if any, is charged to expense upon completion of the subsequent maintenance
event.
The residual values, useful lives, and methods of depreciation of property and equipment are reviewed at each financial year-end and
adjusted prospectively, if appropriate.
The land owned by the Company is recognized at cost less any accumulated impairment.
(l)
Leases
At inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a
contract, conveys the right to control the use of an identified asset, the Company assesses whether:
•
•
The Company has the right to obtain substantially all of the economic benefits from use of the identified asset; and
The Company has the right to direct the use of the identified asset.
The Company as a lessee
At the commencement date, the Company recognizes a ROU and a lease liability.
The ROU is measured at cost and comprises:
•
•
•
•
the amount of the initial measurement of the lease liability,
any lease payments made at or before the commencement date, less any lease incentives received;
any initial direct costs incurred by the lessee; and
an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is
located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are
incurred to produce inventories. The Company incurs the obligation for those costs either at the commencement date or as a
consequence of having used the underlying asset during a particular period.
The ROU is subsequently depreciated using the straight line method from the commencement date to the earlier of the end of the useful
life of the ROU or component, or lease term. The estimated useful life of ROU is determined of the same basis of owned property and
equipment.
F-23
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to
each lease component on the basis of their relative stand-alone prices.
The ROU assets are also subject to impairment. Refer to the accounting policies in section (g) impairment of non-financial assets.
In this regard, the Company applies the following, by class of underlying asset:
•
•
for the leases of real estate, the Company has elected to separate non-lease components.
for aircraft leases, the value of major maintenance inspection or overhaul embedded in the aircraft is recognized as a separated
component and is depreciated over the estimated time period until the first maintenance event is performed or the remaining life of
lease term (as appropriate) which ever is shorter.
The lease liability, is initially measured at the present value of the lease payments that are not paid at that date, discounted using the
interest rate implicit in the lease, if that rate can be readily determined or the lessee’s incremental borrowing rate.
The lease payments included in the measurement of the lease liability comprise:
•
•
•
•
•
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
amounts expected to be payable by the lessee under residual value guarantees;
the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
Variable lease payments that do not depend on an index or a rate are recognized as lease expenses in the period in which the event or
condition that triggers the payment occurs, under “Other operating and administrative expenses” in the consolidated statement of profit or
loss.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease
payments arising from a change in an index or a rate, if there is a change in the Company’s estimated amount expected to be payable under
a residual value guarantee or if the Company changes its assessment of whether it will exercise a purchase, extension or termination
option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the ROU, or is recorded
in profit or loss if the carrying amount of ROU has been reduced to zero.
Financing arrangements where is certain that the asset will be purchased at the end of the lease term, are “in substance purchases” and not
leases, in those cases, the related liability is considered a financial liability under IFRS 9 and the asset, as property and equipment,
according to IAS 16.
F-24
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The Company has elected not to recognize ROU and lease liabilities for short-term leases that have a lease term of 12 months or less and
leases of low value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis
over the lease term as “Other operating and administrative expenses” in the consolidated statement of profit or loss.
The Company as lessor
When assets are leased under operating leases, the asset is included in the consolidated statement of financial position according to its
nature. Revenue from operating leases is recognized over the lease term on a straight-line basis as part of other operating revenue.
Initial direct costs incurred by the Company in negotiating and arranging an operating lease are added to the carrying amount of the leased
asset and recognized as an expense over the lease term on the same basis as the related lease income.
Sale and leaseback transactions
The Company enters into transactions whereby an asset is sold and subsequently lease back.
The Company applies the IFRS 15 requirements for determining whether the transfer of an asset is accounted for as a sale.
If the transfer of an asset by the seller-lessee satisfies the requirements of IFRS 15 to be accounted for as a sale of the asset:
•
•
The seller-lessee measures the ROU at the proportion of the previous carrying amount that relates to the ROU retained by the seller-
lessee; and
The buyer-lessor shall account for the purchase applying the appropriate standards and for the lease applying IFRS 16.
Where either the sale is below fair value or the leasing arrangement below market rates, adjustments are required to measure the proceeds
at fair value.
Below market terms are to be accounted for as a prepayment of lease payments and above market terms shall be accounted for as
additional financing provided by the buyer to the seller.
The adjustment must be measured with reference to the more determinable of the the difference between the consideration for the sale and
the fair value of the asset or the difference between the present value of the contractual lease payments and the the present value of
payments for the lease at market rates.
If the transaction does not meet the sale recognition requirements of IFRS 15:
•
•
the seller-lessee shall continue to recognize the transferred asset and shall recognize a financial liability equal to the transfer
proceeds. It shall account for the financial liability applying IFRS 9.
the buyer-lessor shall not recognize the transferred asset and shall recognize a financial asset equal to the transfer proceeds. It shall
account for the financial asset applying IFRS 9.
F-25
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
(m)
Intangible assets
Goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred over the net identifiable assets
acquired and liabilities assumed of the acquired subsidiary at the date of acquisition.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing,
goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s CGU or group of CGU’s that
are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to
goodwill cannot be reversed in future periods.
Other intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development
costs, are not capitalized and the expenditure is reflected in the consolidated statement of profit or loss in the year in which the expenditure
is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over their useful economic life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortization period and amortization method for an intangible asset with a finite
useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as
appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite life is recognized
in the consolidated statement of profit or loss as the expense category that is consistent with the function of the intangible assets.
Intangible assets with indefinite useful life are not amortized but are tested for impairment at least annually, either individually or at the
CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If
not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains and losses arising from the derecognition of an intangible asset are measured as the difference between the net disposal proceeds and
the carrying amount of the asset and are recognized in the consolidated statement of profit or loss when the asset is derecognized.
F-26
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The Company’s intangible assets and the policies applied are summarized as follows:
•
Licenses and software rights
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software.
These costs are amortized using the straight-line method over their estimated useful life (from three to eight years) and the amortization is
recognized in the consolidated statement of profit or loss. Costs associated with maintaining computer software programs are recognized
as an expense as incurred.
Costs that are directly associated with the production of identifiable and unique software products controlled by the Company and that are
estimated to generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Direct costs include the
software development employee costs and an appropriate portion of relevant overheads. These costs are amortized using the straight-line
method over their estimated useful life (from five to fifteen years).
(n)
Taxes
Income tax expense
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except when related to the items recognized
directly in equity or in other comprehensive income (“OCI”).
•
Current income tax
The Company pays taxes in the Republic of Panama and in other countries in which it operates, based on regulations in effect in each
respective country.
Revenue arises principally from foreign operations, and according to the Panamanian Tax Code, these foreign operations are not subject to
income tax in Panama.
The Panamanian tax code for the airline industry states that tax is based on net income earned for passenger traffic with origin or final
destination in the Republic of Panama. The applicable tax rate is currently 25%. Additionally, entities with annual taxable income over one
million five hundred thousand dollars, must pay income tax on the greater of:
•
•
Net taxable income calculated by the traditional method, or
Net taxable income resulting from applying four-point sixty-seven percent (4.67%) to the total taxable income (alternative method
“CAIR”).
In the event that, due to income tax, the taxpayer incurs in losses or that the effective rate is higher than 25%, the taxpayer may submit a
request to the authorities for the non-application of the alternative method and in its effective that the payment of income tax is accepted
on the traditional basis.
Dividends from the Panamanian subsidiaries are separately subject to a 10% withholding tax on the portion attributable to Panamanian
sourced income and a 5% withholding tax on the portion attributable to foreign sourced income.
The Company is also subject to local tax regulations in each of the other jurisdictions where it operates, the great majority of which are
related to income taxes.
F-27
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries
where the Company operates and generates taxable income.
Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are
subject to interpretation and establishes provisions when appropriate.
•
Deferred tax
Deferred tax is calculated using the liability method on temporary differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes at the reporting date.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and unused tax losses.
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible
temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized, except:
•
•
when the deferred tax asset relating to the deductible temporary difference arises from initial recognition of an asset or
liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting
profit nor taxable profit or loss.
in respect of deductible temporary differences associated with investments in subsidiaries, associates, and interests in joint
ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse
in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are
reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the
deferred tax asset to be recovered.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
•
•
when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is
not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss.
in respect of taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint
ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the
liability settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
F-28
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in
correlation to the underlying transaction either in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current
income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
•
Ticket taxes
The Company is required to charge certain taxes and fees on its passenger tickets. These taxes and fees include transportation taxes, airport
passenger facility charges, and certain governmentally imposed airport arrival and departure taxes. These taxes and fees are legal
assessments on the customer. Since the Company has a legal obligation to act as a collection agent with respect to these taxes and fees,
such amounts are not included in passenger revenue. The Company records a liability when these amounts are collected and derecognizes
the liability when payments are made to the applicable government agency or operating carrier.
•
Global minimum tax
On 8 October 2021, 136 countries, including Panama, reached an agreement for a two-pillar approach to international tax reform. Amongst
other things, Pillar One proposes a reallocation of a proportion of tax to market jurisdictions, while the Pillar Two Global anti-Base
Erosion rules (“GloBE Rules”) propose four new taxing mechanisms under which multinational enterprises (“MNEs”) would pay a
minimum level of tax (“Minimum Tax”): the Subject to Tax Rule is a tax treaty-based rule that generally proposes a Minimum Tax on
certain cross-border intercompany transactions that otherwise are not subject to a minimum level of tax; the Income Inclusion Rule
(“IIR”); the Under Taxed Payments Rule (“UTPR”); and the Qualified Domestic Minimum Top-up Tax (“QDMT”) generally propose a
Minimum Tax of 15% on the income arising in each jurisdiction in which an MNE operates. The Company expects implement these new
rules by 2024.
Under IAS 12 Income Tax, a new tax law is effective when it is enacted or substantively enacted in a particular jurisdiction. The Company
as MNE is monitoring the regulatory developments in respect of (substantive) enactment of the GloBE Rules in all of the jurisdictions
where its operates either through wholly- or partially owned subsidiaries and, permanent establishments. At the date when the financial
statements were authorized for issue, none of the jurisdictions in which the Company operates had enacted or substantively enacted the tax
legislation related to the top-up tax.
At December 31, 2022, the Company did not have sufficient information to determine the potential quantitative impact. The impact of
changes in corporate tax rates on the measurement of tax assets and liabilities depends on the nature and timing of the legislative changes
in each country.
(o)
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction, or production of any qualifying asset, that necessarily takes a
substantial period of time to get ready for its intended use or sale, are capitalized as part of the cost of the asset during that period of time.
Other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity
incurs in connection with the borrowing of funds.
F-29
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
(p)
Provisions
Provisions for costs, including restitution, restructuring and legal claims and assessments are recognized when:
•
•
the Company has a present legal or constructive obligation as a result of past events;
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and the amount of
obligation can be reliably estimated.
When the Company expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is
recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the
statement of profit or loss net of any reimbursement.
For aircraft leases, the Company is contractually obliged to return the aircraft in a defined condition. The Company accrues a provision for
return conditions which are based on the usage of leased aircraft throughout the duration of the lease.
Return conditions are based on the net present value of the estimated costs of returning the aircraft and are recognized in the consolidated
statement of profit or loss under “Maintenance, materials and repairs”. These costs are reviewed annually and adjustments, if any, are
recognized prospectively over the remaining lease term.
(q)
Employee benefits
Defined benefit plan
The Company has a defined benefit plan in accordance with Panamanian law, which requires contributions to be made to a separately
administered fund.
The calculation of the defined benefit obligation is performed annually by a qualified actuary using the projected unit credit actuarial cost
method (PUC).
Remeasurements of the net defined benefit liability, which comprises actuarial gains and losses, the return on plan assets and the effect of
the asset ceiling (if any), are recognized immediately in other comprehensive income. The Company determines the net interest by
applying the discount rate to the net defined benefit liability or asset. The Company recognizes the following changes in the net defined
benefit obligation in the consolidated statement of profit or loss.
Share-based payments
Employees (including senior executives) of the Company receive compensation in the form of share-based payment transactions, whereby
employees render services as consideration for equity instruments (equity-settled transactions).
The cost of equity-settled transactions is recognized, together with a corresponding increase in additional paid in capital in equity, over the
period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions
at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of
the number of equity instruments that will ultimately vest. Expense or credit for a period represents the movement in cumulative expense
recognized as of the beginning and end of that period and is recognized under “Wages, salaries, benefits and other employees’ expenses”
expense in the consolidated statement of profit or loss (note 25).
F-30
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Termination benefits
Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an
employee accepts voluntary redundancy in exchange for these benefits.
The Company recognizes termination benefits when it is demonstrably committed to either terminating the employment of current
employees according to a detailed formal plan without realistic possibility of withdrawal, or providing termination benefits as a result of
an offer made to encourage voluntary redundancy.
(r)
Non-current assets held for sale and discontinued operations
The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally
through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are
measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable
to the 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 is
available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant
changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell 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.
If the Company has classified an asset as held for sale, but the criteria for held for sale classification is no longer met, the Company shall
cease to classify the asset as held for sale.
The Company shall measure a non-current asset that ceases to be classified as held for sale at the lower of:
i)
ii)
its carrying amount before the asset was classified as held for sale, adjusted for any depreciation, amortization or revaluations
that would have been recognized had the asset not been classified as held for sale, and
its recoverable amount at the date of the subsequent decision not to sell or distribute. The recoverable amount of the asset is
the higher between its fair value less costs to sell and its value in use.
All the financial statements include amounts for continuing operations. Additional disclosures about assets held for sale are provided in
note 13.
F-31
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
4.
Significant accounting judgments, estimates and assumptions
The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates, and assumptions that affect the
reported amounts of revenues, expenses, assets, and liabilities and the accompanying disclosures and the disclosure of contingent liabilities.
Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or
liabilities in future periods.
Judgments
In the process of applying the Company’s accounting policies, management has made judgments, which have the most significant effect on the amounts
recognized in the consolidated financial statements in the following area:
•
Leases
The Company enters into contracts for the use of the aircraft and real estate which include, airport and terminal facilities, sales offices, maintenance
facilities, and general offices. The Company assesses, based on the terms and conditions of the arrangements, whether the contract is, or contains, a
lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration.
•
Lease term
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it
is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
The Company applies judgement in evaluating whether it is reasonably certain or not to exercise the option to renew or terminate the lease. That is, it
considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the
Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or
not to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements or significant customization to the leased
asset).
•
Assets held for sale
In 2020, the Company decided to sell 14 Boeing 737-700 fleet over the next year. As of December 31, 2020 the Boeing 737-700 fleet was classified as
“Asset held for sale” in the consolidated statement of financial position.
The Company considered the fleet to meet the criteria to be classified as held for sale for the following reasons:
•
•
•
The fleet was available for immediate sale and could be sold to the buyer in its current condition.
The actions to complete the sale were initiated and expected to be completed within one year from the date of initial classification.
The Board of Directors approved the plan to sell its Boeing 737-700 fleet.
During 2021, the Company signed an agreement for the sale of three Boeing 737-700 and the Board of Directors approved to keep the remaining eleven
Boeing 737-700 for a period of three years. The Company has reclassified these aircraft to “Property and equipment” in the consolidated statement of
financial position. Additional estimates were made by the Company to proceed with this reclassification.
F-32
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
For more details refer to note 13.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.
The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing
circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the
Company’s control. Such changes are reflected in the assumptions when they occur.
•
Impairment of financial assets
The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Company uses judgement in making
these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history, existing market conditions as well as
forward looking estimates at the end of each quarterly reporting period.
•
Impairment of non-financial assets
Impairment exists when the carrying amount of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs to sell
and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions, conducted at arm’s length, for
similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash
flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Company is not yet
committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is most
sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash-inflows and the growth rate used for
extrapolation purposes (see note 16).
•
Property and equipment
The Company’s management has determined that the residual value of the airframe, engines, and components (rotable parts) owned is 15% of the cost of
the asset, therefore the depreciation of flight equipment is made accordingly. Annually, management reviews the useful life and residual value of each of
these assets (see note 13).
•
Provision for return condition
The Company records a provision to accrue for the cost that will be incurred in order to return the lease aircraft to their lessor in the agreed-upon
condition, excluded estimated dismantling costs not based on utilization of the aircraft which are included in the ROU asset and lease liability. The
methodology applied to calculate the provision requires management to make assumptions, including the future maintenance costs, discount rate, and
related inflation rates and aircraft utilization. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to the
decommissioning.
F-33
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Any difference in the actual maintenance cost incurred and the amount of the provision is recorded under “Maintenance, materials and repairs” in the
consolidated statement of profit or loss. The effect of any changes in estimates, including those mentioned above, is also recognized under
“Maintenance, materials and repairs” for the period (see note 21).
•
Revenue recognition – expired tickets
The Company recognizes estimated fare revenue for tickets that are expected to expire based on departure date (unused tickets), based on historical data
and experience. Estimating the expected expiration rate requires management’s judgment, among other things, the historical data and experience is an
indication of the future customer behavior.
The unused tickets expire after one year, and any revenue associated with tickets sold for future travel is recognized within 12 months.
Since 2020, in response to Covid-19 and for those tickets which were scheduled to expire before June 2021, the Company established a new commercial
policy that extended the tickets expiration to June 30, 2022. The Company calculated a specific breakage for tickets that were not expected to be used
based on this new commercial policy. As of December 31, 2022, all revenue related to these tickets has been recognized in the consolidated statement of
profit or loss.
•
Multiple deliverable revenue arrangements - Frequent flyer program
The frequent flyer program includes two major 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 fair value 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 a mile flown by a
customer earned with travel, less an estimate of the miles that will expire unused (breakage). The Company engages a specialist to assist in the
performance of the breakage calculation.
•
Taxes
The Company believes that taken tax positions, including transfer pricing between entities, are reasonable. However, in the event of an audit by the tax
authorities, they may challenge the positions taken by the Company, resulting in additional taxes and interest liabilities.
Management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of
future taxable profits, together with future tax planning strategies (see note 22).
•
Incremental borrowing rate for leases
The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease
liabilities. The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds
necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The Company estimates the IBR using
observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates.
F-34
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
•
Fair value measurement
The Company measures financial instruments such as derivatives at fair value at the date of each statement of financial position. Fair values of financial
instruments measured at amortized cost are disclosed in note 28.6.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.
The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
•
•
in the principal market for the asset or liability, or
in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming
that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its
highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value,
maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is
measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input
that is significant to the fair value measurement as a whole (see note 28.6 for further disclosures):
i)
ii)
iii)
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly
observable.
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. The inputs to
these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing
fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these
factors could affect the reported fair value of financial instruments.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred
between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
•
Reclassification from assets held for sale to property and equipment
During 2021, the Board of Directors of the Company approved not to sale for a period of three years, eleven Boeing 737-700 that were reclassified to
available for sale assets on 2020. During 2021, the Company reclassified these aircraft to property and equipment.
F-35
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
According to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, the Company shall measure a non-current asset that ceases to be
classified as held for sale at the lower of:
i)
ii)
its carrying amount before the asset was classified as held for sale, adjusted for any depreciation, amortization or revaluations that
would have been recognized had the asset not been classified as held for sale, and
its recoverable amount at the date of the subsequent decision not to sell or distribute. The recoverable amount of the asset is the
higher between its fair value less costs to sell and its value in use.
The Company concluded that the recoverable amount was the fair value less cost to disposal. The Company plans to exit of its 737-700 fleet in 2025
(see note 13).
5.
Adoption of new and amended standards and interpretations
The Company applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2022
(unless otherwise stated). The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet
effective.
Amendments to IAS 37 – Onerous Contracts – Costs of Fulfilling a Contract
An onerous contract is a contract under which the unavoidable of meeting the obligations under the contract costs (i.e., the costs that the Company
cannot avoid because it has the contract) exceed the economic benefits expected to be received under it.
The amendments specify that when assessing whether a contract is onerous or loss-making, an entity needs to include costs that relate directly to a
contract to provide goods or services including both incremental costs (e.g., the costs of direct labour and materials) and an allocation of costs directly
related to contract activities (e.g., depreciation of equipment used to fulfil the contract and costs of contract management and supervision). General and
administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract.
As of December 31, 2022, the Company has not identified any contracts as being onerous. The Company will apply these amendments when an onerous
contract is identified.
Amendments to IFRS 3 – Reference to the Conceptual Framework
The amendments replace a reference to a previous version of the IASB’s Conceptual Framework with a reference to the current version issued in March
2018 without significantly changing its requirements.
The amendments add an exception to the recognition principle of IFRS 3 Business Combinations to avoid the issue of potential ‘day 2’ gains or losses
arising for liabilities and contingent liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or
IFRIC 21 Levies, if incurred separately. The exception requires entities to apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the
Conceptual Framework, to determine whether a present obligation exists at the acquisition date.
The amendments also add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date.
These amendments had no impact on the consolidated financial statements of the Company as there were no business combinations within the scope of
these amendments that arose during the period.
F-36
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Amendment to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use
The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment, any proceeds of the sale of items produced
while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an
entity recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss.
These amendments had no impact on the consolidated financial statements of the Company.
Amendment to IFRS 9 – Fees in the ’10 per cent’ test for derecognition of financial liabilities
The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially
different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including
fees paid or received by either the borrower or lender on the other’s behalf.
These amendments had no impact on the consolidated financial statements of the Company as there were no modifications of the Company’s financial
instruments during the period.
Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an
alternative nearly risk-free interest rate (RFR). The amendments include the following practical expedients:
•
•
•
A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as
changes to a floating interest rate, equivalent to a movement in a market rate of interest
Permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship
being discontinued
Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a
hedge of a risk component
The Company has exposures to LIBORs on its variable rate aircraft loans. Amendments to the financial debt instruments with contractual terms indexed
to LIBOR such that they incorporate new benchmark rates, is expected to be completed during 2023, using as the alternative reference rate, the Secured
Overnight Financing Rate (SOFR).
Although US dollar LIBOR was planned to be discontinued by the end of 2021, in November 2020 the ICE Benchmark Administration (IBA), the
FCA-regulated and authorized administrator of LIBOR, announced that it had started to consult on its intention to cease the publication of certain USD
LIBORs after June 2023. Nevertheless, the Company is in the process of implementing appropriate fallback provisions for all US dollar LIBOR indexed
exposures and expects to finish by the end of 2023.
As of December 31, 2022 the amendment had no impact on the consolidated financial statements of the Company. The Company intends to use the
practical expedients in 2023, when the change on interest rate in our financing contracts become applicable.
F-37
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
6.
Standards issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial
statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective
Amendments to IAS 1 - Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 Presentation of Financial Statements to specify the requirements for
classifying liabilities as current or non-current and apply for annual reporting periods beginning on or after January 2023. The amendments clarify:
•
•
•
•
What is meant by a right to defer settlement.
That a right to defer must exist at the end of the reporting period.
That classification is unaffected by the likelihood that an entity will exercise its deferral right.
That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its
classification
However, the IASB has subsequently proposed further amendments to IAS 1 and the deferral on the effective date to no earlier than January 2024. Due
to these ongoing developments, the Company is unable to determine the impacts of these amendments on the consolidated financial statements in the
period of initial application.
Amendments to IAS 8 - Definition of Accounting Estimates
In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of ‘accounting estimates’. The amendments clarify the
distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. Also, they clarify how entities use
measurement techniques and inputs to develop accounting estimates.
The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and apply to changes in accounting policies and
changes in accounting estimates that occur on or after the start of that period. Earlier application is permitted as long as this fact is disclosed.
The amendments are not expected to have a material impact on the Company.
Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies -
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, in which it provides guidance
and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting
policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement to
disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting
policy disclosures.
The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023 with earlier application permitted. Since the
amendments to the Practice Statement 2 provide non-mandatory guidance on the application of the definition of material to accounting policy
information, an effective date for these amendments is not necessary.
The Company will be assessing the impact of the amendments to determine the impact they will have on the Company’s accounting policy disclosures.
F-38
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction
In May 2021 the IASB issued the amendments to IAS 12 Income Taxes require companies to recognize deferred tax on transactions that, on initial
recognition, give rise to equal amounts of taxable and deductible temporary differences. They will typically apply to transactions such as leases of
lessees and decommissioning obligations and will require the recognition of additional deferred tax assets and liabilities.
The amendments apply for annual reporting periods beginning on or after 1 January 2023, and1 January 2023 and should be applied to transactions that
occur on or after the beginning of the earliest comparative period presented. In addition, entities should recognize deferred tax assets (to the extent that it
is probable that they can be utilized) and deferred tax liabilities at the beginning of the earliest comparative period for all deductible and taxable
temporary differences associated with:
•
•
Right-of-use assets and lease liabilities, and
Decommissioning, restoration and similar liabilities, and the corresponding amounts recognized as part of the cost of the related assets.
The cumulative effect of recognizing these adjustments is recognized in retained earnings, or another component of equity, as appropriate.
The Company is currently assessing the impact of the amendment, there will be an impact on retained earnings, for the initial recognition of the deferred
tax liability related to the taxable temporary difference in relation to the ROU and a deferred tax asset for the deductible temporary difference in relation
to the lease liability, but will not be material in the consolidated financial statements.
Amendment to IFRS 16 - Lease Liability in a Sale and Leaseback
In September 2022, the IASB issued Lease Liability in a Sale and Leaseback. The amendment to IFRS 16 Leases specifies the requirements that a seller-
lessee uses in measuring the lease liability arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognise any amount of the
gain or loss that relates to the right of use it retains. These amendments explain how an entity accounts for a sale and leaseback after the date of the
transaction. Sale and leaseback transactions where some or all the lease payments are variable lease payments that do not depend on an index or rate are
most likely to be impacted.
The amendment applies retrospectively to annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted.
During 2022, the Company entered into sale and lease back transactions, howewer we do not expect impacts for the adoption of this amendment since
the lease payments on these transactions are fixed.
Amendment to IAS 1 - Non current liabilities with covenants
In November 2022, the IASB issued Non current liabilities with covenants, in the amendments, the Board clarifies that only covenants with which an
entity must comply on or before the reporting date will affect a liability’s classification as current or non-current.
The amendments will be effective for annual reporting periods beginning on or after 1 January 2024 and will need to be applied retrospectively in
accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Early adoption is permitted, but will need to be disclosed.
The amendment is not expected to have a material impact on the consolidated financial statements.
F-39
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
7.
Revenue from contract with customers
7.1 Revenue disaggregation
Operating revenues are comprised of passenger revenues, cargo and mail, and other operating revenues. The following table shows disaggregated
operating revenues for the years ended as December 31, 2022, 2021 and 2020.
Passenger revenue
Passenger revenue
Miles redeemed
Cargo and mail revenue
Other operating revenue
Frequent flyer program - marketing services
Other operating revenue
2022
2021
2020
$2,793,420
31,299
2,824,719
$1,388,089
24,301
1,412,390
$752,050
8,544
760,594
101,765
71,577
21,002
28,396
10,153
38,549
$2,965,033
18,897
7,067
25,964
$1,509,931
15,452
3,955
19,407
$801,003
7.2 Contract balances
The significant contract liabilities are comprised of ticket sales for transportation that has not yet been provided, recorded as “Air traffic liability” and
outstanding loyalty program miles that may be redeemed for future travel, recorded as “Frequent flyer deferred revenue”.
The table below presents the changes in air traffic liability:
Balance at beginning of year
Sales
Revenue recognition
Tax recognition
Reimbursements
Interline tickets
Other
Balance at end of year
2022
$
557,331
3,320,260
(2,623,256)
(450,541)
(105,508)
(52,496)
6,015
651,805
$
2021
$
470,695
1,801,347
(1,326,627)
(218,624)
(129,296)
(26,436)
(13,728)
557,331
$
The contract duration of passenger tickets is one year. Accordingly, any revenue associated with tickets sold for future travel dates will be recognized
within twelve months. Since 2020, in response to Covid-19 and for those tickets which were scheduled to expire before June 2021, the Company
established a new commercial policy that extended the tickets expiration to June 30, 2022 The Company calculated a specific breakage for tickets that
were not expected be used based on this new commercial policy. As of December 31, 2022, the revenue related to these tickets, has been recognized in
the consolidated statement of profit or loss.
F-40
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The table below presents the activity of the current and non-current frequent flyer liability:
Balance at beginning of year
Deferred of revenue
Recognition of revenue
Balance at end of year
Current
Non-current
Contract assets are reflected as account receivable. See note 10.
7.3 Segment reporting
2022
2021
$ 95,114 $ 91,213
28,202
47,711
(31,299)
(24,301)
$111,526 $ 95,114
34,719
55,292
60,395
56,234
$111,526 $ 95,114
The Company’s business activities are conducted as one operating segment – Air transportation (that includes cargo and mail revenue), the reporting
results of which are regularly reviewed by management for purposes of analyzing its performance and making decisions about resource allocations.
Information concerning operating revenue by geographic area for the period ended December 31 is as follows:
North America
South America
Central America
Caribbean
2022
$ 957,730
1,094,450
819,534
54,770
$2,926,484
2021
$ 428,457
557,827
475,590
22,093
$1,483,967
2020
$233,039
281,008
246,727
20,822
$781,596
The Company attributes revenue to the geographic areas based on point of sales. Our tangible assets and capital expenditures consist primarily of flight
and related ground support equipment, which is mobile across geographic markets and, therefore, has not been allocated.
8. Cash and cash equivalents
Checking and saving accounts
Cash on hand
2022
2021
$122,184 $210,818
263
$122,424 $ 211,081
240
Cash at checking and saving accounts, earned interest based on rates determined by the banks in which the instruments are held.
As of December 31, 2022, the cash and cash equivalents disclosed above and in the consolidated statement of cash flows include $7.3 million (2021:
$12.9 million) that the Company has pledged from its checking and saving accounts to fulfill the collateral requirement.
As of December 31, 2022 and 2021, except for the cash pledged to fulfill collateral requirement, the Company’s cash and cash equivalents are free of
restriction or charges that could limit its availability.
F-41
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
9.
Investments
Investment at amortised cost
Time deposits
Bonds
Allowance for expected credit losses
Investment at fair value through profit or loss
Investment funds
Current
Non Current
Total
Current
Non Current
Total
2022
2021
$432,750 $
286,203
718,953
(2,104)
716,849
65,000 $ 497,750 $382,000 $ 103,000 $ 485,000
397,596
882,596
(1,312)
881,284
96,966
199,966
(296)
199,670
300,630
682,630
(1,016)
681,614
424,110
921,860
(2,955)
918,905
137,907
202,907
(851)
202,056
95,474
124,726
$812,323 $ 202,056 $1,014,379 $806,340 $ 199,670 $1,006,010
124,726
95,474
—
—
Investments at amortised cost include time deposits, and bonds which include, zero coupon bonds and listed corporate bonds. All of the investments are
denominated in U.S. dollar, as a result, there is no exposure to foreign currency risk. There is also no exposure to price risk as the investments will be
held to maturity.
Time deposits earned interest based on rates determined by the banks in which the instruments are held. The use of these instruments before its maturity
date depends on the cash requirements of the Company.
Listed corporate bonds, have interest rates ranging between 0.40% and 5.25% (2021: between 0.15% and 5.75%).
The information about the expected credit loss over these financial assets is disclosed in note 28.3.
Investments at fair value through profit or loss (“FVPL”) include investments in listed equity shares of an investment fund. Fair values of these equity
shares are determined by reference to published price quotations in an active market. During 2022, the Company recognize a net unrealized loss on
instruments at FVPL of $4.2 million (2021: $0.3 million) recorded under “Other net non-operating income (expense)” in the accompanying consolidated
statement of profit or loss.
For information about the methods and assumptions used in determining fair value see 28.6.
10.
Accounts receivable
Credit cards
Clearing house
Airlines
Cargo and courier
Agencies
Government
Trade receivables from related parties
Other
Allowance for expected credit losses
2022
2021
$ 75,274 $ 48,361
16,566
32,278
3,123
2,180
10,784
9,023
2,214
4,090
6,060
6,446
1,832
2,168
11,075
13,814
100,015
145,273
(7,565)
(7,690)
$137,583 $ 92,450
Trade receivables are non-interest bearing and have maturities between 30 to 90 days.
F-42
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
See detail of trade receivables from related parties in note 23.
The category “Other” mainly includes receivables from miles’ partners and employees accounts.
The change in the allowance for expected credit losses in respect of accounts receivable during the year was as follows.
Balance at beginning of years
Additions
Write-off
Balance at end of year
The information about the credit exposures is disclosed in note 28.3.
11.
Expendable parts and supplies
Material for repair and maintenance
Other inventories
Allowance for obsolescence
2022
2020
2021
$(7,565) $(6,483) $(5,579)
(765) (1,421) (1,310)
406
640
$(7,690) $(7,565) $(6,483)
339
2022
2021
$88,276 $70,929
4,217
5,158
75,146
93,434
(368)
(102)
$93,332 $74,778
Expendable parts and supplies recognized when used as an expense in the accompanying consolidated statement of profit or loss under “Maintenance,
materials and repairs” amount to $25.4 million, (2021: $22.0 million and, 2020: $12.7 million).
12.
Prepaid expenses
Prepaid taxes
Prepaid commissions
Prepaid insurance
Prepaid to supplier
Current
Non-current
2022
$25,385
3,936
446
30,325
$60,092
52,322
7,770
$60,092
2021
$13,095
4,822
522
19,436
$37,875
31,148
6,727
$37,875
The current portion of prepaid taxes amounts to $9.2 million and mainly includes tax advance of VAT, and withholdings taxes (2021: $6.4 million). The
non-current portion of prepaid expenses mainly include tax credits for $7.7 million (2021: $5.2 million).
Prepaid to supplier mainly includes operating expenses related to aircraft rent, fuel and maintenance services.
F-43
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
13. Property and equipment
Land
Flight
equipment
Purchase
deposits for flight
equipment
Ramp and
miscellaneous
Furniture,
fixtures,
equipment a
and other
Leasehold
improvements
Construction
in progress
Total
Cost -
Balance at January 1, 2020
$6,301 $ 3,038,594 $
463,274 $
56,337 $
32,798 $
65,291 $
5,587 $ 3,668,182
Transfer of pre-delivery
payments
Additions
Disposals
Assets held for sale
Reclassifications
Balance at December 31, 2020
Transfer of pre-delivery
payments
Additions
Disposals
Reclassifications
Reclassifications from assets
held for sale
Balance at December 31, 2021
Transfer of pre-delivery
payments
Additions
Disposals
Reclassifications
Balance at December 31, 2022
Accumulated depreciation and
impairment -
49,860
—
39,492
—
(34,626)
—
(554,790)
—
—
244
$6,301 $ 2,538,774 $
(49,860)
—
—
—
(5,600)
407,814 $
—
582
(306)
—
—
56,613 $
—
221
(223)
—
—
32,796 $
—
566
(780)
—
2,382
67,459 $
—
—
44,065
3,204
(35,935)
—
(554,790)
—
(2,626)
(5,600)
6,165 $ 3,115,922
—
—
—
—
284,170
75,080
(36,351)
1,028
(284,170)
347,010
—
5,600
—
525
(3,576)
—
—
1,114
(140)
135
—
290
(3,139)
657
—
11,296
—
(1,877)
—
435,315
(43,206)
5,543
—
62,875
$6,301 $ 2,925,576 $
—
476,254 $
—
53,562 $
—
33,905 $
—
65,267 $
—
62,875
15,584 $ 3,576,449
50,977
—
228,908
—
(46,121)
—
—
8,179
$6,301 $ 3,167,519 $
(50,977)
383,176
—
(76,200)
732,253 $
—
2,903
(1,395)
—
55,070 $
—
3,318
(4,265)
—
32,958 $
—
3,291
(164)
5,873
74,267 $
—
882
(29)
(14,052)
—
622,478
(51,974)
(76,200)
2,385 $ 4,070,753
Balance at January 1, 2020
Depreciation for the year
Disposals
Impairment
Assets held for sale
Balance at December 31, 2020
Depreciation for the year
Disposals
Balance at December 31, 2021
Depreciation for the year
Disposals
Balance at December 31, 2022
$ — $(1,028,085) $
(126,988)
—
32,335
—
—
—
—
273,251
$ — $ (849,487) $
(127,432)
—
—
34,893
$ — $ (942,026) $
(163,674)
—
42,631
—
$ — $(1,063,069) $
— $
—
—
—
—
— $
—
—
— $
—
—
— $
(43,871) $ (27,506) $
(3,134)
(3,121)
179
290
—
—
—
—
(46,702) $ (30,461) $
(1,639)
(2,576)
137
3,501
(45,777) $ (31,963) $
(1,354)
(2,392)
4,265
1,366
(46,803) $ (29,052) $
(36,318) $
(5,759)
295
—
—
(41,782) $
(4,696)
2,503
(43,975) $
(4,490)
164
(48,301) $
— $(1,135,780)
(139,002)
—
33,099
—
(4)
(4)
273,251
—
(4) $ (968,436)
(136,343)
41,034
(4) $(1,063,745)
(171,910)
48,426
(4) $(1,187,229)
—
—
—
—
Carrying amounts -
At December 31, 2020
At December 31, 2021
At December 31, 2022
$6,301 $ 1,689,287 $
407,814 $
9,911 $
2,335 $
25,677 $
6,161 $ 2,147,486
$6,301 $ 1,983,550 $
476,254 $
7,785 $
1,942 $
21,292 $
15,580 $ 2,512,704
$6,301 $ 2,104,450 $
732,253 $
8,267 $
3,906 $
25,966 $
2,381 $ 2,883,524
F-44
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Flight equipment
Flight equipment includes aircraft, engines, aircraft components, and major maintenance of own and leased aircraft.
During 2022, the Company capitalized 3 Boeing 737 MAX aircraft (2021: 6 Boeing 737 MAX aircraft). The Company acquired these aircraft through
financing from the Export-Import Bank of the United States (the “EXIM Bank”). These arrangements establish quarterly payments of obligations, and
have a term of 12 years.
In March 2022, the newly converted freighter aircraft, the Boeing 737-800 BCF (Boeing Converted Freighter) with a capacity of 21.7 tons per flight,
began operations. The convertion is depreciated over the lesser of ten years or remaining useful life of the aircraft.
Aircraft with a carrying value of $1.5 billion (includes new acquired aircraft) are pledged as collateral for the obligation of the special purpose entities as
of December 31, 2022 (2021: $1.5 billion).
During 2021, the Company identified indicators of impairment in its CGU due the capacity reductions, the temporary grounding of part of its fleet,
following by the reduction in air traffic as a result of the Covid-19 pandemic. To determine whether impairment exists, the recoverable amount at the
level of the CGU, was determined using cash flow projections from financial forecasts approved by senior management covering a five-year period. The
pre-tax discount rate applied to cash flow projections was 13.6%. As a result of this analysis, the Company determined the recoverable amount of the
CGU was in excess of its book value and, therefore, no impairment was recorded (See note 16). No impairment indicators were identified in 2022.
Purchase deposits for flight equipment
Purchase deposits for flight equipment corresponds to the future purchase of MAX aircraft and engines (see note 27).
As of December 31, 2022, the additions for $383.2 million include $377.7 million of advance payments paid on aircraft purchase contracts made during
2022 (2021: the additions for $347.0 million include $276.9 million of advance payments paid on aircraft purchase contracts).
During the first quarter of 2021, the Company reached an agreement with Boeing regarding compensation related to the Boeing 737 MAX grounding.
The terms of the agreement are confidential, but the Company has received compensation in the form of certain credits concurrent with the aircraft
deliveries and other considerations, including a revised delivery stream. In accordance with applicable accounting principles, the Company accounted
for substantially all the compensation received from Boeing as a reduction in cost basis of the aircraft. No material financial impacts of the agreement
were recorded in the Company’s earnings during the year ended December 31, 2021.
Other property and equipment
As of December 31, 2022 construction in progress mainly includes remodeling projects for airport facilities and offices. As of December 31, 2021,
construction in progress mainly includes the construction of the new VIP lounge in the Terminal 2 of Tocumen International Airport and other
remodeling projects for airport facilities and offices.
During 2022, the Company capitalized under “Leasehold improvements” $5.2 million for improvements to the the new VIP lounge in Terminal 2 of
Tocumen International Airport and other remodeling projects for Terminal facilities and offices.
F-45
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
During 2021, the Company capitalized under “Leasehold improvements” $0.7 million for improvements to the Training Center located at the Ciudad del
Saber in Panama City, and $0.8 million in other remodeling projects for airport facilities and offices.
Reclassification from assets held for sale
Boeing 737-700 fleet
In August 2020, motivated by the decrease in demand as a consequence of Covid-19, the Board of Directors of the Company approved the plan to sell
fourteen aircraft Boeing 737-700. As of December 31, 2020, this decision resulted in impairment losses of $191.2 million.
In 2021, the Company signed an agreement for the sale of three Boeing 737-700 and four spare engines. As of December 31, 2021, the Company has
completed the sale of the assets according to the sales plan, no significant additional gain or loss was recognized on the sale.
Due to an increase in demand in the region, the Board of Directors approved to keep the remaining eleven Boeing 737-700 for a period of three years.
The Company reclassified these aircraft to property and equipment since the classification as assets held for sale is no longer met, and proceeded to
measure the aircraft at its fair value less cost of disposal determined considering sales contracts.
This reclassification resulted in reversal of impairment losses of $5.4 million, which have been included under “Impairment of non-financial assets” in
the accompanying consolidated statement of profit or loss.
During 2022, the Company sold 2 Boeing 737-700 airframes, no significant additional gain or loss was recognized on the sale.
14. Leases
The Company as a lessee
The Company leases some aircraft under long-term lease agreements with an average duration of 12 years. Aircraft under operating leases may be
renewed in accordance with management’s business plan.
Other leased assets include real estate, airport and terminal facilities, sales offices, maintenance facilities, and general offices. Most lease agreements
include renewal options; a few have escalation clauses, but no purchase options.
F-46
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Information about leases for which the Company is a lessee is presented below:
Right of use assets
Balance at January 1, 2020
Additions
Impairment
Depreciation expense
Balance at December 31, 2020
Additions/(Terminations)
Depreciation expense
Balance at December 31, 2021
Additions/(Terminations)
Depreciation expense
Balance at December 31, 2022
Aircraft
Real estate
Total
(1,888)
—
(6,390)
$260,647 $ 30,196 $290,843
19,818
21,706
(1,541)
(1,541)
(94,841)
(88,451)
$192,361 $ 21,918 $214,279
30,242
29,157
(73,687)
(78,193)
$147,831 $ 18,497 $166,328
142,191
10,069
132,122
(69,167)
(74,139)
(4,972)
$210,786 $ 23,594 $234,380
1,085
(4,506)
Additions to the right-of-use assets include new leases, contract extensions, changes in discount rate and changes in rental payments.
During 2022, the Company entered into lease transactions with third parties, for 3 new Boeing 737 MAX 9 aircraft for approximately 8 years.
Lease liabilities
Current portion of lease liability
Aircraft
Real estate
Long-term lease liability
Aircraft
Real estate
2022
2021
$ 74,906 $ 70,061
3,856
$ 80,084 $ 73,917
5,178
22,680
$135,609 $ 86,167
18,567
$158,289 $104,734
$238,373 $178,651
For leases under IFRS 16 the Company recognizes a provision to estimate the costs for work required to be performed just before the redelivery of the
aircraft to the lessors and which does not depend on the aircraft utilization. This provision is booked as a dismantling provision cost under “long term
liabilities” in the consolidated statement of financial position. As of December 31, 2022 the total liability related to leases including the provision of
dismantling amounts to $266.4 million (2021: $203.1 million).
F-47
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Total cash outflow for leases for the years ended as December 31, 2022 and 2021:
Aircraft
Real estate
As of December 31, 2022 the average incremental borrowing rate of leased aircraft is 3.63% (2021: 2.95%).
The maturity analysis of lease liabilities is disclosed in note 28.5.
Amounts recognized in the consolidated statement of profit or loss related to leases:
2022
$79,812
5,832
$85,644
2021
$81,936
5,862
$87,798
Depreciation and amortization
Aircraft
Real estate
Impairment of non financial assets
Aircraft
Other operating and administrative expenses
Short-term leases
Leases of low-value assets
Variable lease payments not include in the measurement of lease liabilities
Variable lease payments by rental concessions received
Finance cost
Aircraft
Real estate
Unwinding of discount and changes in the discount rate
2022
2021
2020
$ 69,167
4,972
$ 74,139
$73,687
4,506
$78,193
$ 88,451
6,390
$ 94,841
$ —
$ —
$
$
$
1,541
90
330
827
(489)
758
$
440
279
1,352
(1,295)
776
$
$ 5,480
1,326
762
$ 7,568
$86,537
$
8,185
1,717
832
$ 10,734
$107,874
$ 9,530
377
3,222
—
$ 12,259
$ 5,153
1,473
819
$ 7,445
$ 93,843
Some property leases contain variable payment terms that are linked to the number of passengers or employees using the areas. Additional, some aircraft
leases contain variable payment terms that depend on the aircraft’s flight hours.
The unwinding of discount and changes in the discount rate over leased aircraft correspond to the interest expenses of the discounted dismantling
provision.
As of December 31, 2022, the Company did not receive concessions as a direct consequence of the Covid-19 pandemic. As of December 31, 2021, the
Company received rent concessions occurred as a direct consequence of the Covid-19 pandemic only for its real estate leases, and applied the practical
expedient, accounting the
F-48
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
concession in the form of forgiveness or deferral of lease payments, as a negative variable lease payment to the concessions.
At December 31, 2020, the impairment loss relates to leased aircraft grounded until its redelivery due the capacity reductions a result of the Covid-19
pandemic.
The Company as a lessor
From June 2015 to August 2022, the Company leased two aircraft Boeing 737-700, as part of the strategy of fleet management, in order to optimize the
use of aircraft in relation to the routes scheduled for those years. Both leases expired during 2022 and both aircraft airframes were sold to third parties.
Total lease income amounts to $1.7 million for the period ended December 31, 2022 (2021: $3.0 million and 2020: $3.2 million), and is included under
“Other operating revenue” in the accompanying consolidated statement of profit or loss.
As of December 31, 2021, the carrying amount of the two aircraft under operating leases was $12.9 million.
15. Net defined benefit assets (liability)
Fair value of plan assets
Defined benefit obligation
Other employee benefits
Net defined benefit asset (liability)
2022
2021
$ 31,197 $ 27,413
(34,593)
(30,332)
(490)
(361)
$(30,693) $(35,083)
504 $ (7,670)
$
In accordance with Panamanian law, the Company contributes to the following defined benefit plans:
Seniority premium plan: is a contingent liability that companies must pay to their employees according to article 224 of Panama’s Labor Code according
to the following:
Eligibility:
Benefit:
Salary:
Payment:
All employees
One week of salary per years of service
Average of the 5 prior years of the monthly base salary
Lump sum
The actuarial liability is recognized for the legal obligation under the formal terms of the plan, and for the implied projections as required under IAS
19R. These actuarial projections do not constitute a legal obligation for the Company.
Indemnity plan: According to paragraph 225 of Panama’s Labor Code, in the case of unjustified dismissal the employee is entitled to an Indemnity Plan
depending on their weekly salary and seniority. However, this benefit does not constitute a constructive obligation for the Company as described in
paragraphs 61 and 62 of IAS19, therefore there is no obligation calculated for this benefit.
F-49
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The following table summarizes the components of net benefit expense included under “Wages, salaries, benefits and other employees’ expenses” in the
accompanying consolidated statement of profit or loss:
Year ended December 31,2022
Current service cost
Interest cost on net benefit obligation
Past service cost
Net periodic benefit cost (income)
Year ended December 31,2021
Current service cost
Interest cost on net benefit obligation
Past service cost
Net periodic benefit cost (income)
Year ended December 31,2020
Current service cost
Interest cost on net benefit obligation
Past service cost
Curtailment / Settlement
Net periodic benefit cost (income)
Defined benefit
obligation
Fair value of
assets
Defined benefit
assets (liability)
$
$
$
2,860
972
16
3,848
Defined benefit
obligation
3,272
721
191
4,184
Defined benefit
obligation
2,393
706
457
(2,026)
1,530
$
F-50
$
$
$
$
$
—
(722)
—
(722)
Fair value of
assets
—
(472)
—
(472)
Fair value of
assets
—
(731)
—
—
(731)
$
$
$
$
$
2,860
250
16
3,126
Defined benefit
assets (liability)
3,272
249
191
3,712
Defined benefit
assets (liability)
2,393
(25)
457
(2,026)
799
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The following table shows reconciliation from the opening balance to the closing balances for net employee defined benefit liabilities and its
components:
At January 1, 2020
Current service cost
Interest (cost) income
Past service cost
Curtailment / Settlement
Return on plan assets
Experience gain (loss)
Actuarial changes arising from changes in demographic
assumptions
Actuarial changes arising from changes in financial
assumptions
Employer contributions
Benefits paid
Others
As of December 31, 2020
Current service cost
Interest (cost) income
Past service cost
Return on plan assets
Experience gain (loss)
Actuarial changes arising from changes in financial
assumptions
Employer contributions
Benefits paid
Adjustments
Others
As of December 31, 2021
Current service cost
Interest (cost) income
Past service cost
Return on plan assets
Experience gain (loss)
Actuarial changes arising from changes in financial
assumptions
Employer contributions
Benefits paid
Others
As of December 31, 2022
$
$
$
$
Defined benefit
obligation
(28,195)
(2,393)
(706)
(457)
2,026
—
(4,001)
$
Fair value of
assets
29,086
—
731
—
—
374
—
Other employee
benefits liability
$
(642)
—
—
—
—
—
—
Net defined
benefit
assets
(liability)
249
$
(2,393)
25
(457)
2,026
374
(4,001)
(11,285)
—
—
(11,285)
(1,028)
—
6,573
—
(39,466)
(3,272)
(721)
(191)
—
602
4,411
—
1,622
2,422
—
(34,593)
(2,860)
(972)
(16)
—
(3,959)
10,874
—
1,194
—
(30,332)
—
1,709
(6,117)
—
25,783
—
472
—
416
—
—
2,565
(1,102)
—
(721)
27,413
—
722
—
172
—
—
3,911
(869)
(152)
31,197
$
$
$
$
$
$
—
—
—
(7)
(649)
—
—
—
—
—
—
—
—
—
159
(490)
—
—
—
—
—
—
—
129
(361)
(1,028)
1,709
456
(7)
$ (14,332)
(3,272)
(249)
(191)
416
602
4,411
2,565
520
2,422
(562)
$ (7,670)
(2,860)
(250)
(16)
172
(3,959)
10,874
3,911
325
(23)
504
$
F-51
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
As of December 31, 2022, and 2021, plan assets are comprised totally by fixed term deposits.
For the year ended December 31, 2022, actuarial gain of $7.2 million, (2021: actuarial gain of $5.4 million and 2020: actuarial loss of $15.5 million)
were recognized in other comprehensive income.
During 2022 and 2021, the Company did not retire interest earned of the fund. As of December 31, 2020 employer contributions is a net amount of
regular contributions by $2.8 million and retirement of interest earned by $1.1 million.
F-52
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The following were the principal actuarial assumptions at the reporting date:
Economic assumptions -
Discount rate
Compensation - salary increase
Demographic assumptions -
Mortality
Termination
Retirement
Males
Females
2022
5.9%
4.0%
2021
2.9%
4.0%
2020
2.0%
4.0%
Panama expirence
RP - 2000 no collar
2003 SoA pension plan
13% all ages
62 years
57 years
Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected
the defined benefit obligation by the amount shown below:
Discount rate (0.5% movement)
December, 31 2020
December, 31 2021
December, 31 2022
Increase Decrease
Increase Decrease
Increase Decrease
$ 1,338 $(1,451) $ 1,876 $(2,056) $ 2,318 $(2,554)
The sensitivity analyses above have been determined based on a method that extrapolates the impact on the defined benefit obligation as a result of
reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analyses are based on a change in a significant
assumption, keeping all other assumptions constant. The sensitivity analyses may not be representative of an actual change in the defined benefit
obligation as it is unlikely that changes in assumptions would occur in isolation from one another.
The following payments are expected contributions to the defined benefit plan in future years:
Up to one year
One to five years
Over five years
Total expected payments
2022
$ 2,532
10,989
16,847
$30,368
2021
$ 2,202
8,853
13,271
$24,326
The average duration of the defined benefit plan obligation at the end of the reporting period is 9.8 years.
F-53
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
16.
Intangible assets
Cost -
Balance at January 1, 2020
Additions
Disposals
Reclassifications
Balance at December 31, 2020
Additions
Reclassifications
Balance at December 31, 2021
Additions
Disposals
Reclassifications
Balance at December 31, 2022
Accumulated amortization and impairment—
Balance at January 1, 2020
Amortization for the year
Impairment
Disposals
Balance at December 31, 2020
Amortization for the year
Balance at December 31, 2021
Amortization for the year
Disposals
Balance at December 31, 2022
Carrying amounts -
At December 31, 2020
At December 31, 2021
At December 31, 2022
Goodwill
Goodwill
$20,380
—
—
—
$20,380
—
—
$20,380
—
—
—
$20,380
$ —
—
—
—
$ —
—
$ —
—
—
$ —
$20,380
$20,380
$20,380
Other intangibles assets
License and
software rights
Intangible
in process
143,201
4,378
(5,546)
13,975
156,008
1,694
14,495
172,197
2,899
(29,214)
9,594
155,476
(73,399)
(25,493)
—
3,092
(95,800)
(25,410)
(121,210)
(21,655)
29,214
(113,651)
$ 17,934
12,041
—
(13,975)
$ 16,000
9,897
(14,495)
$ 11,402
15,562
—
(9,594)
$ 17,370
$ —
—
(1,020)
—
$ (1,020)
—
$ (1,020)
—
—
$ (1,020)
Total
$ 181,515
16,419
(5,546)
—
$ 192,388
11,591
—
$ 203,979
18,461
(29,214)
—
$ 193,226
$ (73,399)
(25,493)
(1,020)
3,092
$ (96,820)
(25,410)
$(122,230)
(21,655)
29,214
$(114,671)
60,208
$ 14,980
$ 95,568
50,987
$ 10,382
$ 81,749
41,825
$ 16,350
$ 78,555
$
$
$
$
$
$
$
$
$
$
$
For impairment testing, goodwill acquired through business combinations is allocated to the air transportation CGU which is also the operating and
reportable segment of the Company. Goodwill is tested for impairment annually at August, 31 and when circumstances indicate that the carrying value
may be impaired.
The recoverable amount of the CGU of $5.1 billion (2021: $2.8 billion) has been determined based on a value in use calculation using cash flow
projections from financial budgets approved by senior management covering a five-year period. The pre-tax discount rate applied to cash flow
projections is 13.8% (2021: 13.6%) and the cash flows beyond the five-year period are extrapolated using a 3.0% (2021: 4.9%) growth rate. It was
concluded that no impairment charge is necessary since the estimated recoverable amount of the CGU exceed its carrying value.
F-54
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The calculations of value in use of the CGU are sensitive to the following main assumptions:
•
•
•
Revenue – the Company calculated the projected passenger revenue based on the current beliefs, expectations, and projections about future
events and financial trends affecting its business.
Cash flows – determination of the terminal value is based on the present value of the Company’s cash flows in perpetuity. When estimating
the cash flows for use in the residual value calculation, it is essential to clearly define the normalized cash flows level, the appropriate
discount rate for the degree of risk inherent in that return stream, and a constant future growth rate for the related cash flows. To estimate
the value, the Gordon Growth Model was used.
Discount rates – The selected pre-tax rate of 13.8% represents the current market assessment of the risks specific to the CGU, taking into
consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow
estimates. The discount rate calculation is based on the specific circumstances of the Company and its operating segment and is derived
from its pre-tax weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is
derived from the expected return on investment by the Company’s investors. The cost of debt is based on the interest-bearing borrowings
the Company is obliged to service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated
annually based on publicly available market data.
A rise in the discount rate to 20.7% (i.e., +6.9%) would result in an impairment.
Other intangible assets
Intangible assets in process
Intangible assets in process as of December 31, 2022 and 2021 mainly comprise the development of sales, revenues and operational systems and
improvements.
During 2022, the Company capitalized $9.6 million on sales and revenue programs. During 2021, the Company capitalized $11.2 million on marketing,
sales and human resources programs.
17. Other assets
Current -
Interest receivable
Other
Non-current -
Guarantee deposits
Deposits for litigation
Other
2022
2021
$10,554
6,489
17,043
$ 4,791
1,263
6,054
5,493
8,300
3,212
17,005
$34,048
3,296
7,590
3,212
14,098
$20,152
F-55
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
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. Loans and borrowings
Long term fixed rate debt
Long term variable rate debt
Senior convertible notes
Current maturities
Loans and borrowings long-term
Long-term fixed rate debt
Long-term variable rate debt
Loan payable
Senior convertible notes
Current maturities
Loans and borrowings long-term
Maturities of the loans and borrowings for the next five years are as follows:
2023
2024
2025
2026
2027
Thereafter
Due
through
2034
2029
2025
2022
Effective rates
ranged
1.73% to 3.95%
4.97% to 6.35%
14.68%
Due
through
2033
2029
2022
2025
2021
Effective rates
ranged
0.97% to 3.70%
0.31% to 1.47%
14.68%
Carrying
Amount
983,138
191,132
270,033
1,444,303
(142,484)
$1,301,819
Carrying
Amount
896,607
235,632
50,014
243,380
1,425,633
(196,602)
$1,229,031
142,484
201,979
202,978
361,455
101,387
434,020
$1,444,303
Senior convertible notes
In April 2020, the Company issued Senior Convertible Notes (“notes”) in the total principal amount of $350.0 million maturing on April 15, 2025, in a
private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).
F-56
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The notes are senior, unsecured obligations of the Company and will accrue interest at a rate of 4.50% per annum, payable semi-annually in arrears on
April 15 and October 15 of each year.
Noteholders have the right to convert their notes only upon the occurrence of certain events. From and after October 15, 2024, noteholders may convert
their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The
Company will settle conversions by paying or delivering, as applicable, cash, shares of their Class A common stock or a combination of cash and shares
of their Class A common stock, at the Company’s election. The initial conversion rate is 19.3564 shares per $1,000 principal amount of notes, which
represents an initial conversion price of approximately $51.66 per share of Class A common stock and will be subject to adjustment upon the occurrence
of certain events.
The net proceeds from the offering, after deducting the initial purchasers’ discounts, commissions and other transaction costs is as follows:
Date
April 30, 2020
Nominal issue
Cost assigned to
the debt host
liability
Net funding
$
350,000
$
(7,102)
$ 342,898
The Company used the net proceeds from the offering for general corporate purposes.
The notes are redeemable, in whole or in part, for cash at the Company’s option at any time, and from time to time, on or after April 17, 2023 and on or
before the 40th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of the Company’s Class A
common stock exceeds 130% of the conversion price for a specified period of time. In addition, the notes are redeemable, in whole and not in part, at the
Company’s option in connection with certain changes in tax law at any time. The redemption price will be equal to the principal amount of the notes to
be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a make-whole premium.
The component corresponding to the conversion feature of the notes is recorded an embedded derivative under “Derivative financial instruments” in the
consolidated statement of financial position. The fair value of the embedded derivative at initial recognition on April 30, 2020 was $138.4 million.
The Company recorded an unrealized net profit or loss, for the change in the fair value of the embedded derivative as “Net change in fair value of
derivatives” in the consolidated statement of profit or loss (see note 28.6):
The impact of the embedded derivative on the consolidated statement of financial position and consolidated statement of profit or loss is, as follows:
Derivative financial instrument
Long term debt and loan payable
Statement
of financial position
2021
2022
Statement of
profit or loss
2022
$251,150 $268,338 $17,189 $(22,778) $(107,139)
2020
2021
As of December 31, 2022, long-term fixed rate debt included $516.5 million (2021: $548.7 million) and long-term variable debt included $157.8 million
corresponding to aircraft acquisitions using JOLCO arrangements (2021: $180.3 million).
F-57
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
As of December 31, 2022 the Company had $466.6 million (2021: $403.2 million) on long-term fixed rate debt and $33.3 million on long-term variable
debt of outstanding indebtedness that is owed to financial institutions under financing arrangements guaranteed by the Export-Import Bank of the United
States. The Export-Import Bank guarantees support 80%—85% of the net purchase price of the aircraft and are secured with a first priority mortgage on
the aircraft in favor of a security trustee on behalf of Export-Import Bank.
The Company’s Export-Import Bank supported financings are amortized on a quarterly basis, are denominated in U.S. dollars.
The detail of finance cost and income is as follows:
2022
2021
2020
Finance income -
Interest income on short-term bank deposits
Interest income on investment
Finance cost -
Interests expense on bank loans
Interests expense on senior convertible notes
Interest on factoring
Interest on lease liabilities (see note 14)
Unwinding of discount and changes in the discount rate
211 $
954 $
$
543
17,076 10,638 19,420
$ 18,030 $ 10,849 $ 19,963
$(30,502) $(26,817) $ (29,711)
(42,403) (38,301) (23,571)
(256)
(1,365)
(7,568) (10,734)
(8,773)
(2,183)
$(87,631) $(76,234) $(73,045)
(5,393)
(7,445)
(1,888)
Changes in liabilities arising from financing activities:
Loans and borrowings
Lease liability
Total liabilities from financing activities
Loans and borrowings
Lease liability
Total liabilities from financing activities
2021
Cash flows
Foreign
exchange
movement
Leases
Concession
Covid-19
Other
2022
Non-cash movements
$1,425,633 $ (27,038) $ — $ — $ — $45,708 $1,444,303
(275)
238,373
—
(275) $139,014 $ — $45,708 $1,682,676
$1,604,284 $(106,055) $
139,014
—
178,651
(79,017)
2020
Cash flows
Foreign
exchange
movement
Leases
Concession
Covid-19
Other
2021
Non-cash movements
$1,163,900 $210,045 $ — $ — $ — $51,688 $1,425,633
178,651
(1,295)
(348)
(348) $30,776 $ (1,295) $51,688 $1,604,284
$1,394,410 $129,053 $
(80,992)
30,776
—
230,510
The column “Leases” includes the non-cash additions to ROU and lease liabilities.
For the year ended December 31, 2022 and 2021 the column “Other” includes non-cash investing and financing transactions related to the acquisition of
new aircraft, and also includes the effect of accrued but not yet paid interest on loans and borrowings.
The Company classifies interest paid as cash flows from operating activities.
F-58
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
For the year ended December 31, 2021, the “Concession Covid-19” column discloses the reduction or absence of cash outflows that arise from rent
concessions to which the Company has applied the practical expedient.
19. Trade, other payables and financial liabilities
Account payables
Account payables to related parties
Others
See details of the account due to related parties in note 23.
20. Accrued expenses payable
Accruals and estimations
Labor related provisions
Liability for social security contributions
Other
2022
2021
$ 166,660 $ 112,596
7,948
120,544
786
$ 168,839 $ 121,330
1,004
167,664
1,175
2022
$
4,167
34,423
6,323
—
$ 44,913
2021
$
4,290
23,163
5,043
271
$ 32,767
As of December 31, 2022 and 2021, accruals and estimations include the estimated balance of the current portion of the long-term provisions (see note
21).
Labor related provisions include a profit-sharing program for both management and non-management staff. For members of management, profit-sharing
is based on a combination of the Company’s performance as a whole and the achievement of individual goals. Profit-sharing for non-management
employees is based solely on the Company’s performance. The accrual at year-end represents the amount expensed for the current year, which is
expected to be settled within 12 months.
21. Other long-term liabilities
Balance at January 1, 2022
Increases
Used
Adjustment
Effect of movements in exchange rates
Unused amounts reversed
Unwinding of discount and changes in the discount rate
Balance at December 31, 2022
Current
Non-current
Provision
for litigations
$
Provision for
return condition
$
9,052
703
(61)
—
531
(318)
—
9,907
—
9,907
9,907
$
$
159,539
20,223
—
(7,381)
—
—
1,888
174,269
—
174,269
174,269
$
$
F-59
Dismantling
provision
$ 24,424
2,133
—
680
—
—
819
$ 28,056
—
28,056
$ 28,056
Other long-term
liabilities
$
$
$
18,088
869
(4,066)
(2,338)
—
—
—
12,553
4,167
8,386
12,553
Total
$ 211,103
23,928
(4,127)
(9,039)
531
(318)
2,707
$224,785
4,167
220,618
$224,785
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Provision for litigation
Provisions for litigation in process and expected payments related to labor legal cases.
The Company is the plaintiff in an action in October 2003 against Empresa Brasileira de Infraestrutura Aeroportuária (“INFRAERO”), Brazil’s airport
operator, the legality of the Additional Airport Tariffs (Adicional das Tarifas Aeroportuárias, or ATAERO), which is a 50% surcharge imposed on all
airlines which fly to Brazil. Similar suits have been filed against INFRAERO by other major airline carriers. In this case, the court of first a second
instance ruled in favor of INFRAERO. The Company has paid the amounts due into an escrow account and as of December 31, 2022, the aggregate
amount in such account totaled $8.2 million (2021: $7.5 million).
During 2023, the Company could be required to release the escrowed fund to INFRAERO once the company receives the formal final notification from
de judge and confirmation of the amount. The Company does not, however, expect the release of such amounts could have a material impact on its
financial results since these amounts already had been expensed.
Provision for return condition
For operating leases, the Company is contractually obliged to return aircraft in an agreed-upon condition. The Company accrues for return conditions
related to aircraft held under operating leases throughout the duration of the lease. The Company does not plan to return aircraft in 2023.
During 2022, the Company adjusted $7.3 million of its provision for return condition due to a renewals of aircraft contracts during 2022.
Dismantling provision
For leases under IFRS 16 the Company recognizes a dismantling provision to estimate the costs for work required to be performed just before the
redelivery of the aircraft to the lessors and which does not depend of the aircraft utilization.
Other long-term liabilities
Other long-term liabilities include principally the provision for maintenance which mainly include the accrual of formal agreements with third parties
for operational maintenance events. The cost of these agreements is billed by power by the hour and charged to the consolidated statement of profit or
loss. As of December 31, 2022, the provision for maintenance amounts to $9.2 million (2021: $14.9 million) and the Company has presented the
estimated balance of the current portion of this provision as “Accrued expenses payable” in the consolidated statement of financial position (see note
20).
Other long-term liabilities also include the provision for the non-compete agreement created for payment to senior management related to covenants not
to compete with the Company in the future (relative to the $3.0 million trust fund). This provision is accounted for as “Other long-term employee
benefits” under IAS 19R Employee benefits. The accrued amount is revalued annually using the projected benefit method as required by IAS 19R (see
note 23 - Compensation of key management personnel).
F-60
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
22.
Income taxes
Current taxes expense -
Current period
Adjustment for prior period
Deferred taxes expenses -
Origination and reversal of temporary differences
Total income tax
2022
2021
2020
$(45,561) $ (8,892) $(14,032)
162
$(44,935) $ (6,495) $(13,870)
2,397
626
4,759
(3,991) 37,587
$(40,176) $(10,486) $ 23,717
As of December 31, 2022, the Panamanian subsidiaries calculated income tax in accordance with the traditional method.
In accordance with current tax regulations in Panama, income tax returns are subject to review by the tax authorities for up to the last three (3) years,
including the ending period on December 31, 2022.
During the year 2022 and 2021, deferred tax expected to reverse in the next year, has been measured using the effective rate applying for Copa Airlines
(25%) and AeroRepública (35%).
The balances of deferred taxes are as follows:
Statement
of financial position
2021
2022
Statement of
profit or loss
2021
2022
2020
Deferred tax liabilities
Maintenance deposits
Prepaid dividend tax
Property and equipment
Other
Set off tax
Deferred tax assets
Provision for return conditions
Air traffic liability
Other provisions
Tax loss
Set off tax
$ (11,945) $(17,918) $(5,973) $(5,973) $ (5,972)
(7,403)
(5,004)
(3,190)
362
$(16,571) $(18,782) $ (2,211) $(3,408) $(21,207)
(2,003) 3,798 2,003
606
1,502
379
(1,879)
(423)
1,516
(5,801)
944
(1,738)
1,969
558
(141)
(453)
2,686
1,946
2,462
2,109
(224)
24
161 (1,485)
$ 9,807 $ 8,564 $(1,243) $ 4,101 $ (2,570)
(447)
6,202
18,273 16,577 (1,695) 4,336 (19,203)
(362)
$ 30,743 $ 28,196 $(2,548) $ 7,399 $(16,380)
$ 14,172 $ 9,414 $(4,759) $ 3,991 $(37,587)
(1,516)
(1,969)
453
423
At December 31, 2022, the deferred tax assets include tax losses carried forward of $11.4 million in Copa Airlines and $6.9 million in AeroRepública
(December 2021: $10.5 million and $6.0 million respectively). The Company has concluded that the deferred assets will be recoverable using the
estimated future taxable income based on the approved business plans for the subsidiary. Tax losses in Panama can be used for 5 years from the year the
loss is incurred. The Company started utilizing these losses in 2021 and plans to continue using them until 2025. The Company plans to use the tax
losses of AeroRepública within the next two years.
F-61
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Reconciliation of the effective tax rate is as follows:
Net profit (loss)
Total income tax expense
Profit (loss) excluding income tax
Income taxes at Panamanian statutory rates
Stations - Taxable / Panama
Stations - Taxable / Non Panama
Stations - Non Taxable / Non Panama
Dividend tax
Over provided in prior periods
Provision for income taxes
23. Accounts and transactions with related parties
Account receivable -
Banco General, S.A.
Panama Air Cargo Terminal
Petróleos Delta, S.A.
Account payable -
Petróleos Delta, S.A.
Assa Compañía de Seguros, S.A.
Desarrollos Inmobiliarios del Este, S.A.
Panama Air Cargo Terminal
Galindo, Arias & López
Motta Internacional, S.A.
Millicom Tigo Panamá, S.A.
GBM International, Inc.
Tax rate
Tax rate
Tax rate
2022
$348,054
40,176
388,230
97,057
2021
$ 43,844
10,486
54,330
13,583
2020
$(607,062)
(23,717)
(630,779)
(157,695)
25.0%
25.0%
25.0%
(16.8%)
0.2%
(2.3%)
4.4%
(0.1%)
(65,384)
945
(8,961)
17,145
(626)
10.4% $ 40,176
15.4%
10.3%
(27.0%)
0.0%
(4.4%)
8,379
5,605
(14,684)
—
(2,397)
19.3% $ 10,486
83,071
(13.2%)
9,850
(1.5%)
33,728
(5.3%)
7,491
(1.2%)
0.0%
(162)
3.8% $ (23,717)
2022
2021
$1,960
208
—
$2,168
$ —
765
51
141
28
14
—
5
$1,004
$1,589
217
26
$1,832
$7,677
196
37
11
17
7
3
—
$7,948
F-62
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Transactions with related parties for the year ended December 31 are as follows:
Related party
Petróleos Delta, S.A.
ASSA Compañía de Seguros, S.A.
Desarrollo Inmobiliario del Este, S.A.
Profuturo Administradora de Fondos de Pensión y Cesantía
Panama Air Cargo Terminal
Motta International
Galindo, Arias & López
GBM International, Inc.
Global Brands, S.A.
Televisora Nacional, S.A.
Banco General, S.A.
Transaction
Purchase of jet fuel
Insurance
Property leasing
Payments
Handling
Purchase
Legal services
Technological support
Purchase
Communications
Interest income
Amount of
transaction
2020
Amount of
transaction
2022
Amount of
transaction
2021
$ — $ 190,628 $ 102,702
7,147
10,157
9,713
3,301
2,989
3,384
2,839
3,911
2,565
2,037
4,116
3,193
550
812
108
236
530
170
146
50
102
60
31
31
13
—
—
(829) $ (1,546) $ (2,657)
$
Banco General, S.A.: The Company’s controlling shareholders have a vote and a decision within the board of directors of BG Financial Group, which is
the controlling company of Banco General. Likewise, Banco General, S. A. owns ProFuturo Administradora de Fondos de Pensión y Cesantía S.A.,
which manages the Company’s reserves for pension purposes. As of December 31, 2022 Company has interest receivable by $0.1 million (2021: $0.9
million) due to short and long term time deposits in this financial institution.
Also Banco General it is a non air partner of the Copa’s loyalty program “ConnectMiles”. During, 2022 the Company sales miles to Banco General for
$18.9 million (2021: $13.8 million, 2020: $10.7 million).
Petróleos Delta, S.A.: Since 2005, the fuel company entered into a contract with the Company to meet its jet fuel needs. Until 2021, various member of
the Company’s Board of Directors were shareholder of Petróleos Delta, S.A. As of December 2022 those individuals are no longer members of the
Company’s Board. Therefore, Petroleos Delta is not longer a related party.
ASSA Compañía de Seguros, S. A.: An insurance company that provides substantially all of the Company’s insurance policies. While the Company’s
controlling shareholders do not hold a controlling equity interest in ASSA Compañía de Seguros, S. A., various members of the Company’s Board of
Directors are also board members of ASSA Compañía de Seguros, S. A.
Desarrollo Inmobiliario del Este, S. A.: The Company leases four floors consisting of approximately 105,981 square feet of the building from Desarrollo
Inmobiliario, an entity controlled by the same group of investors that controls Corporación de Inversiones Aéreas, S. A. (“CIASA”). CIASA owns 100%
of the class B shares of the Company. This contract is a lease contract under IFRS 16.
Panama Air Cargo Terminal: Provides cargo and courier services in Panama, an entity controlled by the same group of investors that controls CIASA.
Motta Internacional, S.A. & Global Brands, S. A.: The Company purchases most of the alcohol and other beverages served on its aircraft from Motta
Internacional, S. A. and Global Brands, S. A., both of which are controlled by the Company’s controlling shareholders.
Millicom Tigo Panamá, S.A.: The Company is responsible for providing television and internet broadcasting services in Panama. Until 2021, a member
of the Company’s Board of Directors was shareholder of Millicom Tigo Panamá, S.A. As of December 2022, this company is not longer a related party.
Galindo, Arias & López: Certain partners of Galindo, Arias & López (a law firm) are indirect shareholders of CIASA and serve on the Company’s
Board of Directors.
F-63
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
GBM International, Inc.: Provides systems integration and computer services, as well as technical services and enterprise management. A member of
the Company’s Board of Directors is shareholder of GBM International, Inc.
Televisora Nacional, S.A.: This Panamanian television channel provides broadcasting services. A member of the Company’s Board of Directors is a
shareholder of Televisora Nacional, S. A.
Compensation of key management personnel
Key management personnel compensation is as follows:
Short-term employee benefits
Post-employment pension
Share-based payments
2022
$2,901
56
318
$3,275
2021
$2,748
53
1,083
$3,884
2020
$3,177
61
2,362
$5,600
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
$3.0 million established in 2006 (see note 21).
24. Equity
Common stock
The authorized capital stock consists of 80 million shares of common stock without par value, divided into Class A shares, Class B shares, and Class C
shares. As of December 31, 2022, the Company had 34,033,575 Class A shares issued (2021: 33,998,654) and 28,477,704 shares outstanding (2021:
30,995,120), 10,938,125 Class B shares issued and outstanding (2021: 10,938,125) and no Class C shares outstanding. Class A and Class B shares have
the same economic rights and privileges, including the right to receive dividends.
•
Class A shares
The holders of the Class A shares are not entitled to vote at our shareholders’ meetings, except in connection with the following specific matters: (i) a
transformation of the Company into another corporate type; (ii) a merger, consolidation, or spin-off of the Company, (iii) a change of corporate purpose;
(iv) voluntarily delisting Class A shares from the NYSE; (v) and any amendment to the foregoing special voting provisions adversely affecting the rights
and privileges of the Class A shares.
•
Class B shares
Every holder of Class B shares is entitled to one vote per share on all matters for which shareholders are entitled to vote. The Class B shares may only
be held by Panamanians, and upon registration of any transfer of a Class B share to a holder that does not certify that it is Panamanian, such Class B
share shall automatically convert into a Class A share.
Transferees of Class B shares will be required to deliver to the Company a written certification of their status as Panamanian as a condition to registering
the transfer to them of Class B shares.
•
Class C shares
The Independent Directors Committee of the Board of Directors, or the Board of Directors as a whole if applicable, is authorized to issue Class C shares
to the Class B holders pro rata in proportion to such Class B
F-64
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
holders’ ownership of Copa Holdings. The Class C shares will have no economic value and will not be transferable except to Class B holders, but will
possess such voting rights as the Independent Directors Committee shall deem necessary to ensure the effective control of the Company by
Panamanians.
The Class C shares will be redeemable by the Company at such time as the Independent Directors Committee determines that such a triggering event
shall no longer be in effect. The Class C shares will not be entitled to any dividends or any other economic rights.
Class A shares are listed on the NYSE under the symbol “CPA” The Class B shares and Class C shares will not be listed on any stock exchange unless
the Board of Directors determines that it is in the best interest of the Company to list the Class B shares on the Panama Stock Exchange.
Dividends
The payment of dividends on shares is subject to the discretion of the Board of Directors. Under Panamanian law, the Company may pay dividends only
out of retained earnings and capital surplus. The Articles of Incorporation provides that all dividends declared by the Board of Directors will be paid
equally with respect to all of the Class A and Class B shares.
In February 2016, the Board of Directors of the Company approved to change the dividend policy to base the calculation of the payment of yearly
dividends to shareholders in an amount of up to 40% of the prior year’s annual consolidated underlying net income, distributed in equal quarterly
installments upon board ratifications.
On April 26, 2020 the Board of Directors postponed dividend payments given the uncertainty related to the Covid-19 pandemic. As of December 31,
2021 and 2022, the decision remains.
Treasury stock
When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable cost net of any tax effects,
is recognized as a deduction from equity and presented separately in the balance sheet. When treasury shares are sold or reissued subsequently, the
amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is presented within share premium.
Since treasury stock is not considered outstanding for share count purposes, it is excluded from average common shares outstanding for basic and
diluted earnings per share.
In November, 2014, the Board of Directors of the Company approved a $250 million share repurchase program. Subsequently, during the second quarter
of 2022, the Board approved the expansion of the current shares repurchase program by $200.0 million. Purchases will be made from time to time,
subject to market and economic conditions, applicable legal requirements, and other relevant factors.
A summary of the repurchased shares for the Company as of December 31, 2022 is as follows:
2014
2015
2021
2022
Shares
Cash paid
(in thousands)
(18,506)
182,592 $
(117,882)
2,127,900
(40,514)
559,025
2,571,917
(167,639)
5,441,434 $ (344,541)
F-65
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
25.
Share-based payments
The Company has established equity compensation plans under which it administers restricted stock, stock options, and certain other equity-based
awards to attract, retain, and motivate executive officers, certain key employees, and non-employee directors to compensate them for their contributions
to the growth and profitability of the Company. Shares delivered under this award program may be sourced from treasury stock, or authorized unissued
shares.
The Company’s equity compensation plans are accounted for under IFRS 2 Share-Based Payment (“IFRS 2”). IFRS 2 requires companies to measure
the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award or at fair value of
the award at each reporting date, depending on the type of award granted. The resulting cost is recognized over the period during which an employee is
required to provide service in exchange for the award, which is usually the vesting period.
The total compensation cost recognized for non-vested stock and options awards amounts to $5.2 million, $7.1 million, and $5.3 million in 2022, 2021,
and 2020, respectively, and was recorded as a component of “Wages, salaries, benefits and other employees’ expenses” within operating expenses.
F-66
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Non-vested Stock
The Company approved a non-vested stock bonus award for certain executive officers of the Company.
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
Number
of instruments
Vesting conditions
Contractual
life
February, 2016
147,000
February, 2016
February, 2018
February, 2018
February, 2018
July, 2018
February, 2019
June, 2019
June, 2019
August, 2019
December, 2019
February, 2020
December, 2020
February, 2021
February, 2021
April, 2021
February, 2022
June, 2022
June, 2022
15% first three anniversaries
25% fourth
30% fifth anniversary
Fifth anniversary
7% first month
31% first three anniversaries
33% first three anniversaries
15% first three anniversaries
25% fourth
30% fifth anniversary
Third anniversary
1% first month
33% first three anniversaries
33% first three anniversaries
33% first three anniversaries
33% first three anniversaries
100% first anniversary
1% first month
33% first three anniversaries
63,000
21,556
14,379
1,316
6,104
15,951
9,256
977
1,039
1,724
24,650
100% first anniversary
3,551
32,852
20% first five anniversaries
103,802 33% first three anniversaries
33% first three anniversaries
1,145
33% first three anniversaries
13,943
33% first three anniversaries
20,368
33% first three anniversaries
994
5 years
5 years
3 years
3 years
5 years
3 years
3 years
3 years
3 years
3 years
1 year
3 years
1 year
5 years
3 years
3 years
3 years
3 years
3 years
Non-vested stock awards were measured at their fair value on the grant date. For the 2022 grants, the fair value of these non-vested stock awards
amounts to $71.59 per share (2021: $85.31).
F-67
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
A summary of the non-vested stock award activity under the plan as of December 31, 2022, 2021 and 2020 with changes during these years is as follows
(in number of shares):
Non-vested as of January 1
Granted
Vested
Forfeited
Non-vested as of December 31
2022
2020
2021
157,823 153,921 211,205
35,305 137,799 28,201
(54,501) (132,880) (83,409)
(2,076)
138,243 157,823 153,921
(1,017)
(384)
The Company uses the accelerated attribution method to recognize the compensation cost for awards with graded vesting periods. The Company
estimates that the remaining compensation cost, not yet recognized for the non-vested stock awards, amounts to $3.7 million (2021: $6.3 million), with a
weighted average remaining contractual life of 2.2 years (2021: 2.6 years). Additionally, the Company estimates that the 2023 compensation cost related
to these plans amounts to $2.7 million.
The Company plans to make additional equity-based awards under the plan from time to time, including additional non-vested stock and stock option
awards. The Company anticipates that future employee non-vested stock and stock option awards granted pursuant to the plan will generally vest over a
three to five-year period and the stock options will carry a ten-year term.
26. Earnings per share
Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent by the
weighted average number of shares outstanding during the year, increased by the number of non-vested dividend participating share-based payment
awards outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the net profit (loss) attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion
of all the dilutive potential ordinary shares into ordinary shares, when the effect of their inclusion is dilutive (decreases earnings per share or increases
loss per share).
F-68
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The computation of the income (losses) and share data used in the basic and diluited earnings per share is as follows:
2022
2021
2020
Basic earnings per share—
Net profit (loss)
Weighted-average shares outstanding
Non-vested dividend participating awards
Diluted earnings per share—
Net profit (loss)
Interest on convertible senior notes
Net change in fair value of derivatives
Net profit (loss) income adjusted for the effect of dilution
Weighted-average shares outstanding
Convertible shares
$348,054 $43,844
40,445 42,439
162
40,581 42,601
1.03
8.58
136
$348,054 $43,844
42,403 —
(17,189) —
373,268 43,844
40,581 42,601
6,775 —
47,356 42,601
1.03
7.88
$(607,062)
42,338
170
42,508
(14.28)
$(607,062)
—
—
(607,062)
42,508
—
42,508
(14.28)
At December 31, 2021 and 2020, 6.7 million of shares of potential ordinary shares related to the convertible notes issued on 2020 and its related
expenses, were excluded from the calculation of diluted earnings per share, because their effect was antidilutive. Details relating to the notes are set out
in note 18.
27. Commitments and contingencies
Purchase contracts
As of December 31, 2022, the Company had one purchase contract with Boeing entailing sixty six (66) firm orders of Boeing 737 MAX aircraft, agreed
to be delivered between 2023 and 2028. Also, the Company has agrees to purchase and take delivery between 2023 and 2028, 6 LEAP-1B spare Engines
from CFM International.
The aircraft and engines contractual obligations net of discounts and pre-delivery payments, including estimated amounts for contractual price
escalation, are as follows:
Year ending December 31,
2023
2024
2025
2026
2027
2028
423,579
634,353
494,232
526,425
533,922
415,075
$3,027,586
As of December 31, 2022, the Company has paid $720.5 million (2021: $469.4 million) in predelivery deposits related to the purchase contract with
Boeing for the 737 MAX aircraft.
From March 2019 to November 18, 2020, the Federal Aviation Administration (FAA) grounded all U.S. registered Boeing 737 MAX aircraft an action
that was followed by most of the world’s aviation regulators, including Panamanian aviation regulators. As a consequence, during February 2021, the
Company reached an
F-69
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
agreement with Boeing regarding compensation related to the Boeing 737 MAX grounding. As part of the agreement, the Company received
compensation in the form of certain credits concurrent with future aircraft deliveries and other considerations, including a revised delivery stream.
Labor unions
Approximately 65.4% of the Company’s 7,265 employees are unionized. There are currently nine (9) union organizations, five (5) covering employees
in Panama, and four (4) covering employees in Colombia. The Company traditionally had good relations with its employees and with all the unions and
expects to continue to enjoy good relations with its employees and the unions in the future.
The five (5) unions covering employees in Panama include the pilots’ union (UNPAC); the flight attendants’ union (SIPANAB); the mechanics’ union
(SITECMAP), the industry union (SIELAS), which represents ground personnel, messengers, drivers, passenger service agents, counter agents, and
other non-executive administrative staff, and other industry union named UGETRACA which represents ground personnel and flight attendants.
Copa Airlines entered into collective bargaining agreements with the industry union in April 2022, the mechanics’ union in May 2022. As of
December 31, 2022, Copa Airlines is in negotiations for new collective agreements for the flight attendants’ union and de pilot union. Copa Airlines
does not have a collective bargain agreement negotiated with UGETRACAS because they do not have the eligible amount of employees.
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), the mechanics’unionmechanics ‘union (ACMA), approximately 31.8% of the Company’s 645 employees are unionized.
AeroRepública entered into collective bargaining with ACDAC and ACAV in January 2018. ACDAC has not yet resolved and ACAV ended with a new
arbitration collective document for two years that expired in September 2020. This new arbitration was automatically extended until March 2023.
Additionally, SINTRATAC and Copa entered into collective bargaining agreement in September 2022 for terms of four years until August 2026.
Negotiations with ACMA were resolved by arbitration on December 31, 2015, extending the validation every 6 months from this date, until December,
2022. ACMA has not presented a new bill of petition.
Typically, collective bargaining agreements in Colombia have terms of two to three years. Although AeroRepública usually settles many of its collective
bargaining agreement negotiations through arbitration proceedings, it has traditionally experienced good relations with its unions.
In addition to unions in Panama and Colombia, the Company’s employees in Brazil are covered by industry union agreements that cover all airline
industry employees in the country and airport employees in Argentina are affiliated to an industry union (UPADEP).
Lines of credit for working capital and letters of credit
The Company maintained letters of credit with several banks with a value of $32.3 million as of December 31, 2022 (2021: $20.2 million). These letters
of credit are pledged mainly for operating lessors, maintenance providers and airport operators.
The Company has aggregate credit facilities of $355.0 million (2021: 345.0 million), of which $295.0 million are unsecured and secured credit facilities
and $60.0 million are structured a secured revolving credit facility. These credit facilities are in place for contingency and working capital purposes. As
of December 31, 2022, the Company does not have any outstanding borrowings under these credit facilities.
F-70
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
Tax audit
The Company received notifications from the tax authorities in Panama on February 2020 and in Colombia on November 2020 and March 2016. The
Company, along with its tax advisors, has concluded that it is not probable that an outflow of resources embodying economic benefits will be required to
settle them, especially considering that the Company has enough arguments to support its position and also taking into consideration that both cases are
in the preliminary stages.
In February 2020, the Company received two notifications from the tax authority in Panama related to a tax audit process that began in 2019. The
notification includes potentially significant adjustments to the reported dividend tax for the years 2012 to 2016 and income tax 2016. The Company has
filed an administrative appeal which is the first legal stage under Panamanian laws. The Company, along with its tax advisors, has concluded that is
probable that the Company’s tax position will be upheld. As a result, is not probable that the Company will incur any significant additional tax as result.
According to Panamanian laws, the statute of limitations is 3 and 15 years for income tax and dividend tax, respectively.
Aircraft incident
On 26 September 2022, one of the Company’s Boeing 737-800 aircraft came off the runway while landing at Tocumen International Airport in
Panama. Surveyors are in the process of assessing the extended of the damages of the two engines CFM56-7B. The event is covered by the Company’s
insurance policy. Reimbursement will be requested from the insurers once the damage has been assessed. As of December 31, 2022, the Company is
unable to estimate the incremental cost relating to reparation of the engines.
As December 31, 2022, the Company has recognized and asset for reimbursement within other current assets, corresponding to the repair of the
aircraft’s airframe (see note 17).
28. Financial instruments—Risk management and fair value
In the normal course of its operations, the Company is exposed to a variety of financial risks: market risk (especially cash flow, currency, commodity
prices and interest rate risk), credit risks and liquidity risk.
In terms of equity, the Company’s objectives when managing equity are to safeguard the Company’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal equity structure to reduce the cost of capital.
The Company has established risk management policies to minimize potential adverse effects on the Company’s financial performance:
28.1 Fuel price risk
The Company has risks that are common in its industry, related to the price level of aircraft fuel, which can significantly affect its operations, financial
position 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 has
not entered into new fuel hedge contracts, and has adopted a new strategy of remaining unhedged, while regularly reviewing its policies based on market
conditions and others factors. As of December 31, 2022 and 2021, the Company did not have any outstanding fuel hedge contracts.
Fuel price risk is estimated as a hypothetical 10% increase in the December 31, 2022 cost per gallon of fuel. Based on projected 2023 fuel consumption,
such an increase would result in an increase to aircraft fuel expense of approximately $101 million in 2023 (unaudited).
F-71
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
28.2 Market risk
Equity price risk
The Company’s listed and non-listed equity investments are susceptible to market price risk arising from uncertainties about future values of the
investment securities. The Company manages the equity price risk through diversification and by placing limits on individual and total equity
instruments. Reports on the equity portfolio are submitted to the Company’s senior management on a regular basis. The Company’s Board of Directors
reviews and approves all equity investment decisions. At the reporting date, the exposure on investments at fair value is $95.5 million (2021: 124.7
million).
Foreign currency risk
Foreign exchange risk is originated when the Company performs transactions and maintains monetary assets and liabilities in currencies that are
different from the functional currency of the Company. Assets and liabilities in foreign currency are translated using the exchange rates at the end of the
period, except for non-monetary assets and liabilities that are translated at the equivalent cost of the U.S. dollar at the acquisition date and maintained at
the historical rate. The results of foreign operations are translated using the average exchange rates that were in place during the period. Gains and losses
deriving from exchange rates are included within “(Loss) Gain on foreign currency fluctuations” in the consolidated statement of profit or loss.
The majority of the Company’s obligations are denominated in U.S. dollars. Since Panama uses the U.S. dollar as legal tender, the majority of the
Company’s operating expenses are also denominated in U.S. dollars, approximately 63.3% of revenues and 77.3% of expenses. A significant part of our
revenue is denominated in foreign currencies, including the Colombian peso, Brazilian real, Argentinian peso, and Chilean peso, which represented
12.1%, 8.0%, 4.6% and 3.2%, respectively (2021: 13.6%, 8.1%, 2.0% and 1.79% respectively).
Generally, the Company’s exposure to most of these foreign currencies, is limited to the period of up to two weeks between the completion of a sale and
the conversion to U.S. dollar. The following chart summarizes the Company’s foreign currency risk exposure (assets and liabilities denominated in
foreign currency) as of December 31:
Assets
Cash and cash equivalents
Accounts receivable, net
Other assets
Total assets
Liabilities
Accounts payable
Taxes payable
Other liabilities
Total liabilities
Net position
2022
2021
$13,546
48,900
20,605
$83,051
16,969
38,303
13,465
$68,737
$14,314
$10,848
50,103
17,811
$78,762
35,948
25,827
12,239
$74,014
$ 4,748
From time to time the Company enters into factoring agreements on receivables outstanding on credit card sales in certain countries.
F-72
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
28.3 Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The
Company is exposed to credit risk from its financing activities, including deposits with banks and investments in financial instruments and from its
accounts receivable. IFRS 9 requires the Company to recognize an allowance for ECLs for all financial assets not held at fair value through profit or
loss.
The carrying amounts of financial assets represent the maximum credit risk.
Short and long-term investments
To mitigate the credit risk arising from deposits in bank, the Company only conducts business with financial institutions that have an investment grade
above BBB- from Standard & Poor’s and liquidity indicators aligning with or above the market average. For the investments in financial instruments,
different from deposits in bank, the Company requires a grade above A- from Standard & Poor’s.
The Company has established a policy to perform an assessment, at the end of each quarterly reporting period, of whether a financial instrument’s credit
risk has increased significantly since initial recognition, by monitoring 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 as
prescribed by IFRS 9.
The movement in the allowance for impairment for short and long-term investments at amortized cost for the year ended December 31 was as follows:
Balance at beginning of year
(Additions)/Reversal
Balance at end of year
Accounts receivable
2022
2021
$(1,312) $(1,217)
(1,643)
(95)
$(2,955) $(1,312)
Regarding credit risk originating from commercial accounts receivable, the Company does not consider it significant since most of the accounts
receivable can be easily converted into cash, usually in periods no longer than one month. The risk is managed by each business unit subject to the
Company’s established policy, procedures and control relating to customer credit risk management. Specific credit limits and payment terms have been
established according to periodic analysis of the client’s payment capacity.
A considerable amount of the Company’s tickets sales are processed through major credit cards, resulting in accounts receivable that are generally short-
term and usually collected before revenue is recognized. The Company considers that the credit risk associated with these accounts receivable is
controllable based on the industry’s trends and strong policies and procedures established and followed by the Company.
As a 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 are
calculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to write-off. To
measure the ECLs, trade receivables have been grouped based on shared credit risk characteristics and the day past due.
F-73
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
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 the
economic environment over the expected life of the receivables.
Although the Company evaluates the concentration of risk with respect to trade receivables as low, and its customers are located in several jurisdictions
and operate in largely independent markets, some of them have been affected by Covid-19 to a greater degree than others and therefore be exposed to
different risks of default. As a consequence, forward-looking information includes one or more downside scenarios related to the spread of Covid 19,
specifically with respect to the categories “Government” and “Cargo and other travel agencies”.
Set out below is the information about the credit risk exposure on the Company’s trade receivables using a provision matrix as of December 31:
Total
Current
<30
2022
Days past due
30-60
60-90
>90
Expected credit loss rate
Gross carrying amount
Expected credit loss
Expected credit loss rate
Gross carrying amount
Expected credit loss
$ 145,273 $ 127,412
28
$
7,690 $
0.0%
$
$
5.9%
$
$
2,877
170
13.1%
$
$
2,134
279
57.3%
30.5%
545
166
$ 12,305
7,047
$
Total
Current
<30
2021
Days past due
30-60
60-90
>90
$ 100,015 $ 77,995
9
$
7,565 $
0.0%
$
$
3.2%
$
$
3,157
100
3.4%
$
$
4,080
139
51.2%
13.5%
658
89
$ 14,125
7,228
$
28.4 Interest rate and cash flow risk
The income and operating cash flows of the Company are substantially independent of changes in interest rates, because the Company does not have
significant assets that generate interest except for surplus cash and cash equivalents and short and long-term investments.
Interest rate risk originates mainly from long-term debt related to aircraft financing. These long-term lease payments at variable interest rates expose the
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, 2022, fixed interest rates range from 1.73% to 3.95%, and the main floating rate is LIBOR.
The Company’s earnings are affected by changes in interest rates primarily due to the impact of those changes on interest expenses from variable-rate
debt instruments. As of December 31, 2022 we had $983.1 million of fixed-rated debt and $191.1 million of variable-rated debt. If the interest rate
average is 100 basis points more in 2022, the variable-rate debt interest expense would increase by approximately $1.9 million, and the estimated fair
value of the fixed-rate debt would decrease– by approximately $16.6 million. These amounts are determined by considering the impact of the
hypothetical interest rates on the variable-rate debt and marketable securities equivalent balances at December 31, 2022.
28.5 Liquidity risk
The Company’s policy requires having sufficient cash to fulfill its obligations. The Company maintains sufficient cash on hand and in banks or cash
equivalents that are highly liquid. The Company also has credit lines in financial institutions that allow it to withstand potential cash shortages to fulfill
its short-term commitments (see note 27).
F-74
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
The table below summarizes the Company’s financial liabilities according to their maturity date. The amounts in the table are the contractual
undiscounted cash flows. Balances due within twelve months equal their carrying balances as the impact of discounting is not significant.
December 31, 2022
Non-derivative financial liabilities
Loans and borrowings
Lease liabitity
Account payable
Account payable to related parties
December 31, 2021
Non-derivative financial liabilities
Loans and borrowings
Lease liabitity
Account payable
Account payable to related parties
28.6 Fair value measurement
Note
Carrying
amount
Contractual
cash flow
Less than
twelve
months
Between 1
and 4
years
More than
4 years
18 $1,444,303 $1,538,467 $167,759 $ 920,846 $449,862
40,518
14
—
19
—
19
$1,850,340 $2,047,978 $441,499 $1,116,099 $490,380
106,076
166,660
1,004
195,253
—
—
238,373
166,660
1,004
341,847
166,660
1,004
Note
Carrying
amount
Contractual
cash flow
Less than
twelve
months
Between 1
and 4
years
More than
4 years
18 $1,425,633 $1,549,887 $228,272 $ 895,620 $425,995
4,679
14
—
19
—
19
$1,724,828 $1,887,957 $438,229 $1,019,054 $430,674
89,413
112,596
7,948
123,434
—
—
217,526
112,596
7,948
178,651
112,596
7,948
Set out below is a comparison, by class, of the carrying amounts and fair values of the Company’s financial instruments, other than those with carrying
amounts that are reasonable approximations of fair values:
Financial assets
Long-term investments
Financial liabilities
Loans and borrowings
Carrying amount
Fair Value
Note
2022
2021
2022
2021
9 202,056 199,670 201,061 199,082
18 1,444,303 1,425,633 1,559,435 1,549,934
The fair value of the financial assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale.
The management assessed that the fair values of cash and short-term investments, accounts receivables, account payable and other current liabilities
approximate their carrying amounts largely due to the short-term maturities of these instruments.
The following methods and assumptions were used to estimate the fair values:
•
•
The fair values of the quoted notes and bonds are based on price quotations at the reporting date Debt obligations, financial assets, and
financial liabilities are estimated by discounting future cash flows using the Company’s current incremental borrowing for a similar
liability.
Asset held for sale was determined considering observable quoted prices, in active markets adjusted by the costs to disposal estimated by
the Company.
F-75
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
•
Derivative financial instruments is valued by the Company, using a Least Square Monte Carlo pricing method by modelling the different
triggers under which the notes can be converted. The market data used to calibrate the model are historical volatility measures based on
stock prices of the Company obtained from Bloomberg and a zero-coupon interest rate curve in US$ (US$ Libor 3m Swap curve).
The following chart summarizes the Company’s financial instruments measured at fair value, classified according to the valuation method:
Recurring fair value measurements
Assets
Investment fund
Total assets
Liabilities
Derivative financial instruments
Total liabilities
Recurring fair value measurements
Assets
Investment fund
Total assets
Liabilities
Derivative financial instruments
Total liabilities
Fair value measurement as of reporting date
Quoted
prices in
active
markets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
2022
95,474
$ 95,474
95,474
$95,474
—
$ —
251,150
$251,150
—
$ —
251,150
$251,150
—
—
—
—
$
$
Fair value measurement as of reporting date
Quoted
prices in
active
markets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
2021
124,726
$124,726
124,726
$124,726
—
$ —
268,338
$268,338
—
$ —
268,338
$268,338
—
—
—
—
$
$
F-76
(Continued)
Table of Contents
COPA HOLDINGS, S. A. AND SUBSIDIARIES
Notes to the consolidated financial statements
29.
Subsequent events
New collective bargainings
During the first quarter of 2023, Copa Airlines reached an agreement for the new collective bargaining agreements with the pilots’ union UNPAC and
for the flight attendants’ union SIPANAB, for the period 2023-2027.
Dividends
On March 22, 2023, the Board of Directors of Copa Holdings approved a 2023 dividend of $0.82 cents per share per quarter, corresponding to 40% of
the adjusted consolidated net income of 2022. Proposed dividends are subject to board ratification each quarter, and are not recognized as a liability as at
December 31, 2022.
F-77
SUBSIDIARIES OF THE REGISTRANT
NAME
COPA HOLDINGS, S.A
COMPAÑÍA PANAMEÑA DE AVIACIÓN, S.A.
ENTERPRISES SUPPORT, INC
LA NUEVA AEROLINEA, S.A.
AEROFINANCE CORPORATION
AERO CORPORATION ONE LTD
AERO CORPORATION TWO LTD
FINANCIAL LEASING HOLDINGS, INC
AEROREPUBLICA, S. A.
OVAL FINANCIAL LEASING LTD.
ALSACE HOLDINGS LTD
ANCON LEASING
NEW WINGS LEASING, INC.
INTERNATIONAL AVIATION LEASING GROUP LTD
INTERNATIONAL AVIATION LEASING GROUP TWO LTD
NEW TRIUMPH PACIFIC
NEW TRIUMPH ENGINE TWO
ONMAX ENTERPRISES LIMITED
REGIONAL AIRCRAFT HOLDINGS, LTD
LEASE MANAGEMENT SERVICES LLC
ASIAN AIRCRAFT LEAS. LTD.
ASIAN AIRCRAFT LEAS. 2 LT
ASIAN AIRCRAFT LEAS. 3 LT
ASIAN AIRCRAFT LEA 4 LTD
ASIAN AIRCRAFT LEA 5 LTD
PANAMAX 20 LEASING LTD
Exhibit 8.1
JURISDICTION OF
INCORPORATION
Panamá
Panamá
Panamá
Panamá
British Virgin Islands
British Virgin Islands
British Virgin Islands
British Virgin Islands
Colombia
British Virgin Islands
British Virgin Islands
British Virgin Islands
Delaware
British Virgin Islands
British Virgin Islands
British Virgin Islands
British Virgin Islands
British Virgin Islands
British Virgin Islands
Delaware
Irlanda
Irlanda
Irlanda
Irlanda
Irlanda
Irlanda
I, Pedro Heilbron, certify that:
Certification
EXHIBIT 12.1
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Copa Holdings, S.A.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control
over financial reporting; and
5.
The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting.
Date: March 24, 2023
/s/ Pedro Heilbron
Pedro Heilbron
Chief Executive Officer
(Section 302 CEO Certification)
I, Jose Montero, certify that:
Certification
EXHIBIT 12.2
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Copa Holdings, S.A.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control
over financial reporting; and
5.
The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting.
Date: March 24, 2023
/s/ Jose Montero
Jose Montero
Chief Financial Officer
(Section 302 CFO Certification)
EXHIBIT 13.1
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
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, 2022 of the Company fully complies with the requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: March 24, 2023
/s/Pedro Heilbron
Pedro Heilbron
Chief Executive Officer
(Section 906 CEO Certification)
EXHIBIT 13.2
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
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, 2022 of the Company fully complies with the requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: March 24, 2023
/s/Jose Montero
Jose Montero
Chief Financial Officer
(Section 906 CFO Certification)