UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of May, 2015.
Commission File Number 001-36142
Avianca Holdings S.A.
(Translation of registrant’s name into English)
Aquilino de la Guardia Calle No. 8, Panama City,
Republic of Panama
(+507) 205-600
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F
⌧ Form 40-F Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Avianca Holdings S.A. informs that it has published on its website www.aviancaholdings.com its earnings release for the first quarter
of 2015.
Enclosures:
Exhibit 99.1 – Consolidated Financial Statements for the three-month period ended March 31, 2015.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: May 29, 2015
AVIANCA HOLDINGS S.A.
By: /s/ Elisa Murgas
Name: Elisa Murgas
Title:
General Secretary, VicePresident of Legal Affairs
Exhibit 99.1
AVIANCA HOLDINGS S.A.
AND SUBSIDIARIES
(Republic of Panama)
Interim Condensed Consolidated Financial Statements
Three months ended March 31, 2015
AVIANCA HOLDINGS S.A.
AND SUBSIDIARIES
(Republic of Panama)
Index
Interim Condensed Consolidated Statement of Financial Position
Interim Condensed Consolidated Statement of Comprehensive Income
Interim Condensed Consolidated Statement of Changes in Equity
Interim Condensed Consolidated Statement of Cash Flows
Notes to the Interim Condensed Consolidated Financial Statements
2
3
5
7
9
11
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Interim Condensed Consolidated Statement of Financial Position
(In USD thousands)
Notes
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Available-for-sale securities
Accounts receivable, net of provision for doubtful
accounts
Accounts receivable from related parties
Expendable spare parts and supplies, net of provision for
obsolescence
Prepaid expenses
Assets held for sale
Deposits and other assets
Total current assets
Non-current assets:
Available-for-sale securities
Deposits and other assets
Accounts receivable, net of provision for doubtful
accounts
Accounts receivable from related parties
Intangible assets
Deferred tax assets
Property and equipment, net
Total non-current assets
Total assets
8
8
6
As of
March 31,
2015
(Unaudited)
$
9
10
668,403
38,741
—
As of
December 31,
2014
(Audited)
$
292,297
36,169
355,168
27,386
71,137
65,495
745
187,133
1,360,120
65,614
56,065
1,369
174,128
1,323,826
6
11
671
207,611
237
218,010
9
10
47,921
11,247
414,257
29,701
4,158,766
4,870,174
6,230,294
42,407
11,247
416,070
35,664
4,128,051
4,851,686
6,175,512
11
12
$
$
See accompanying notes to Interim Condensed Consolidated Financial Statements
3
640,891
1,987
1,218
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Interim Condensed Consolidated Statement of Financial Position
(In USD thousands)
Notes
Liabilities and equity
Current liabilities:
Current portion of long-term debt
Accounts payable
Accounts payable to related parties
Accrued expenses
Provisions for legal claims
Provisions for return conditions
Employee benefits
Air traffic liability
Other liabilities
Total current liabilities
Non-current liabilities:
Long-term debt
Accounts payable
Provisions for return conditions
Employee benefits
Deferred tax liabilities
Air traffic liability
Other liabilities non-current
Total non-current liabilities
Total liabilities
Equity:
Common stock
Preferred stock
Additional paid-in capital on common stock
Additional paid-in capital on preferred stock
Retained earnings
Revaluation and other reserves
Total equity attributable to the Company
Non-controlling interest
Total equity
Total liabilities and equity
10
21
24
As of
March 31,
2015
(Unaudited)
As of
December 31,
2014
(Audited)
$
$
481,523
559,102
12,299
129,123
13,003
60,576
45,527
448,429
110,098
1,859,680
2,728,390
21,434
75,282
160,968
14,499
84,798
13,468
3,098,839
4,958,519
2,711,898
21,167
70,459
173,460
15,760
85,934
8,466
3,087,144
4,958,765
82,600
42,023
234,567
469,273
409,671
24,550
1,262,684
9,091
1,271,775
$ 6,230,294
82,600
42,023
234,567
469,273
355,671
24,550
1,208,684
8,063
1,216,747
6,175,512
$
See accompanying notes to Interim Condensed Consolidated Financial Statements
4
458,679
547,494
13,797
138,262
14,157
61,425
49,193
461,118
127,496
1,871,621
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Interim Condensed Consolidated Statement of Comprehensive Income
(In USD thousands, except share and per share data)
For the three months ended
March 31,
2015
2014
(Unaudited)
Notes
Operating revenue:
Passenger
Cargo and other
Total operating revenue
$
4
Operating expenses:
Flight operations
Aircraft fuel
Ground operations
Aircraft rentals
Passenger services
Maintenance and repairs
Air traffic
Sales and marketing
General, administrative and other
Salaries, wages and benefits
Depreciation and amortization
Total operating expenses
Operating profit
Interest expense
Interest income
Derivative instruments
Foreign exchange
Profit before income tax
6
Income tax expense - current
Income tax expense - deferred
Total income tax expense
19
Net profit for the period
$
899,134
216,582
1,115,716
$
18,154
265,141
102,615
79,678
36,944
79,729
49,215
154,445
46,373
169,371
57,045
1,058,710
57,006
18,399
336,553
87,569
70,789
35,480
57,380
41,638
146,475
52,540
160,670
41,035
1,048,528
50,008
(41,464)
5,492
(361)
23,364
44,037
(25,340)
2,716
2,674
(14,827)
15,231
(9,943)
(670)
(10,613)
(3,508)
556
(2,952)
33,424
$
See accompanying notes to Interim Condensed Consolidated Financial Statements
5
917,253
181,283
1,098,536
12,279
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Interim Condensed Consolidated Statement of Comprehensive Income
(In USD thousands, except share and per share data)
Notes
Net profit for the period
Other comprehensive income (loss):
Items that will not be reclassified to profit or loss in
future periods:
Actuarial losses
Income tax
For the three months ended
March 31
2015
2014
(Unaudited)
$
33,424
$
12,279
14
(3,491)
327
(3,164)
(4,283)
53
(4,230)
26,017
(11,236)
3,098
(4,347)
24,768
948
—
(10,288)
Other comprehensive income (loss), net of income
tax
Total comprehensive income (loss) net of income tax
21,604
55,028
(14,518)
(2,239)
Profit attributable to:
Equity holders of the parent
Non-controlling interest
Net profit for the period
32,396
1,028
33,424
12,992
(713)
12,279
Total comprehensive income(loss) attributable to:
Equity holders of the parent
Non-controlling interest
Total comprehensive income(loss) for the period
$
54,000
1,028
55,028
$
(1,526)
(713)
(2,239)
$
$
0.03
0.03
$
$
0.01
0.01
Items that will be reclassified to profit or loss in future
periods:
Effective portion of changes in fair value of hedging
instruments
Net change in fair value of available-for-sale
securities
Income tax
Basic and diluted earnings per share
Common stock
Preferred stock
14
13
See accompanying notes to Interim Condensed Consolidated Financial Statements
6
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
14
Notes
For the three months ended March 31, 2015
(Unaudited)
—
$ 82,600
Amount
—
336,187,285
Shares
—
$ 42,023
—
—
$ 42,023
Amount
$ 234,567
—
—
$ 234,567
Common
stock
$ 469,273
—
—
$ 469,273
Preferred
stock
$ 24,550
—
—
$ 24,550
Revaluation
and other
reserves
$ 409,671
21,604
32,396
$ 355,671
Retained
earnings
and OCI
reserves
$ 1,262,684
21,604
32,396
$ 1,208,684
Equity
attributable
to equity
holders of the
parent
$ 9,091
—
1,028
$ 8,063
Noncontrolling
interest
$ 1,271,775
21,604
33,424
$ 1,216,747
Additional paid-in
capital
—
336,187,285
Preferred stock
—
660,800,003
Shares
—
$ 82,600
Total
equity
660,800,003
Common stock
Interim Condensed Consolidated Statement of Changes in Equity
(In USD thousands, except share and per share data)
Balance at
December 31, 2014
Net profit
Other comprehensive income for the
period
Balance at
March 31, 2015 (unaudited)
See accompanying notes to Interim Condensed Consolidated Financial Statements
7
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Amount
Preferred stock
Interim Condensed Consolidated Statement of Changes in Equity
(In USD thousands, except share and per share data)
Common stock
Shares
Revaluation
and other
reserves
Retained
earnings
and OCI
reserves
For the three months ended March 31, 2014
(Unaudited)
Preferred
stock
Additional paid-in
capital
Common
stock
Equity
attributable
to equity
Nonholders of the controlling
parent
interest
Total
equity
12,279
Amount
(713)
(38,944)
(14,518)
Shares
$ 1,208,422
—
Notes
351,102
12,992
—
$ 6,324 $ 1,214,746
12,992
(38,944)
(14,518)
$ 28,857 $
—
(38,944)
(14,518)
467,498
—
—
—
236,342 $
—
41,398 $
—
—
331,187,285 $
—
—
83,225
—
—
665,800,003 $
—
—
Balance at December 31, 2013
—
—
Net profit
—
$ 5,611 $ 1,173,563
—
$ 1,167,952
—
$ 28,857 $ 310,632
—
467,498
—
236,342 $
—
41,398 $
24
331,187,285 $
14
83,225
Other comprehensive loss for the period
665,800,003 $
Dividends paid
Balance at March 31, 2014 (unaudited)
See accompanying notes to Interim Condensed Consolidated Financial Statements
8
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Interim Condensed Consolidated Statement of Cash Flows
(In USD thousands)
For the three months ended
March 31,
2015
2014
(unaudited)
Cash flows from operating activities:
Net profit for the period
Adjustments for:
Depreciation, amortization and impairment
Share-based payment (income) expense
Loss on disposal of assets
Fair value adjustment of financial instruments
Interest income
Interest expense
Deferred tax
Current tax
Currency translation adjustment
Changes in:
Accounts receivable
Expendable spare parts and supplies
Prepaid expenses
Deposits and other assets
Accounts payable and accrued expenses
Air traffic liability
Provisions for return conditions
Employee benefits
Income tax paid
Net cash flows provided by (used in) operating activities
Cash flows from investing activities:
Available-for-sale securities
Restricted cash
Interest received
Advance payments on aircraft purchase contracts
Acquisition of property and equipment
9
$
33,424
$
12,279
57,045
(18)
2,185
6,469
(5,492)
41,464
670
9,943
(23,364)
41,035
1,955
338
10,592
(2,716)
25,340
(556)
3,508
14,827
46,045
(5,523)
(9,430)
4,138
4,890
(17,891)
4,711
(4,432)
(9,094)
135,740
(34,299)
(1,946)
(2,480)
(19,140)
(52,215)
(19,715)
14,284
(16,886)
(3,916)
(29,711)
7,305
(36,754)
2,280
(28,203)
(69,851)
(12,825)
21,473
2,725
(40,723)
(24,413)
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Interim Condensed Consolidated Statement of Cash Flows
(In USD thousands)
For the three months ended
March 31,
2015
Investment in certificates of bank deposits
Acquisition of intangible assets
Proceeds from sale of property and equipment
Acquisition of investments
Net cash flows used in investing activities
Cash flows from financing activities:
Proceeds from loans and borrowings
Payments of loans and borrowings
Payments on financial lease liabilities
Interest paid
Net cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
10
2014
(unaudited)
(1,924)
(2,377)
42,574
(23)
(86,973)
$
118,271
(97,932)
—
(26,030)
(5,691)
43,076
(15,564)
640,891
668,403
$
(31,743)
(6,317)
7,281
(1,112)
(85,654)
77,053
(86,567)
(1,327)
(21,384)
(32,225)
(147,590)
(16,554)
735,577
571,433
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(1)
Reporting entity
Avianca Holdings S.A. (the “Company” or “Avianca Holdings S.A.”), a Panamanian corporation whose
registered address is at Calle Aquilino de la Guardia No. 8 IGRA Building, Panama City, Republic of Panama,
was incorporated on October 5, 2009 under the name SK Holdings Limited and under the laws of the
Commonwealth of the Bahamas. Subsequently, on March 10, 2010 the Company changed its corporate name to
AviancaTaca Limited, and, on January 28, 2011 the Company changed its name to AviancaTaca Holding S.A.
and thereafter on March 3, 2011 the Company changed its registered offices to Panama. In 2011 AviancaTaca
listed its shares in the Bolsa de Valores de Colombia (“BVC”) and was listed as PFAVTA: CB. On March 21,
2013, the Company changed its legal name from AviancaTaca Holding S.A. to Avianca Holdings S.A. and its
listing name to PFAVH: CB. On November 6, 2013, the Company listed its shares in the New York Stock
Exchange (NYSE) and is listed as AVH.
The Company, through its subsidiaries, is a provider of domestic and international, passenger and cargo air
transportation, both in the domestic markets of Colombia, Ecuador, Costa Rica, Nicaragua and Peru and
international routes serving North, Central and South America, Europe, and the Caribbean. The Company has
entered into a number of bilateral code share alliances with other airlines (whereby selected seats on one
carrier’s flights can be marketed under the brand name of the other), expanding travel choices to customers
worldwide. Marketing alliances typically include joint frequent flyer program participation; coordination of
reservations, ticketing, passenger check-in and baggage handling; and transfer of passenger and baggage at any
point of connectivity, among others. The code share agreements include Air Canada, United Airlines,
Aeromexico, Copa Airlines, Satena, Sky Airlines, OceanAir Linhas Aéreas, S.A., Iberia, Lufthansa and Turkish
Airlines. Avianca and Taca International (as well as Taca affiliates) and Aerogal are members of Star Alliance
which give customers access to the routes, destinations and services of the Star Alliance network.
Cargo operations are carried out by our subsidiaries and affiliates, including, Tampa Cargo S.A.S. and Aero
Transporte de Carga Unión, S.A. de C.V. (Aerounion). The Company also undertakes cargo operations through
the use of hold space on passenger flights and dedicated freight aircraft. In certain of the airport hubs, the
Company performs ground operations for third-party airlines.
The Company operates a coalition loyalty program, including the frequent flyer program for the airline
subsidiaries of Avianca Holdings S.A. LifeMiles is designed to retain customers and increase loyalty by
offering incentives to passengers traveling on the participating airline partners for their continued preference.
Under the LifeMiles program, the customer earns miles by flying through its air partners, including Star
Alliance and by using the services of non–air program partners such as credit cards, hotels, car rentals and
other. The miles earned can be exchanged for flights or other partners’ products or services. Customers may
redeem their awards and earn miles through airline members of Star Alliance, which give customers of the
Company access to the routes, destinations and services of the Star Alliance network.
11
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
As of March 31, 2015 and December 31, 2014, Avianca Holdings S.A. had a total fleet consisting of:
Aircraft
Airbus A-318
Airbus A-319
Airbus A-320
Airbus A-321
Airbus A-330
Airbus A330F
Airbus A300F-B4F
Boeing 787
ATR 42
ATR 72
Boeing 767
Boeing 767F
Cessna Grand Caravan
Embraer E-190
Fokker 100
(2)
March 31, 2015
Owned/ Operating Total
Financial
Lease
Lease
—
10
10
20
17
37
31
28
59
3
6
9
1
10
11
6
—
6
4
—
4
3
1
4
5
3
8
15
—
15
—
—
—
2
1
3
9
—
9
10
2
12
5
—
5
114
78
192
December 31, 2014
Owned/
Operating Total
Financial
Lease
Lease
—
10
10
20
17
37
31
27
58
3
6
9
1
11
12
6
—
6
4
—
4
3
1
4
4
5
9
14
—
14
—
1
1
2
1
3
9
—
9
10
2
12
5
—
5
112
81
193
Basis of preparation
The Interim Condensed Consolidated Financial Statements for the three months ended March 31, 2015 have
been prepared in accordance with IAS 34 Interim Financial Reporting.
The Interim Condensed Consolidated Financial Statements do not include all the information and disclosures
required in the annual financial statements, and should be read in conjunction with the Company’s annual
financial statements as of December 31, 2014.
These Interim Condensed Consolidated Financial Statements are presented in US dollars, which is the
Company’s functional currency. All financial information presented has been rounded to the nearest thousands,
except when otherwise indicated.
The Interim Condensed Consolidated Financial Statements of the Company for the three months ended
March 31, 2015 were prepared and submitted by Management and authorized for issue by the Audit Committee
on May 26, 2015.
12
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(3)
New Standards, interpretations, and amendments adopted by the Company
The accounting policies adopted in the preparation of the Interim Condensed Consolidated Financial
Statements are consistent with those followed in the preparation of the Company’s annual Consolidated
Financial Statements for the year ended December 31, 2014, except for the adoption of new standards and
interpretations effective as of January 1, 2015.
The Company applied for the first time certain standards and amendments, which are effective for annual
periods beginning on or after January 1, 2015. The nature and the impact of each new standard or amendment is
described below:
Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined
benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a
negative benefit. These amendments clarify that, if the amount of the contributions is independent of the
number of years of service, an entity is permitted to recognize such contributions as a reduction in the service
cost in the period in which the service is rendered, instead of allocating the contributions to the periods of
service. This amendment is effective for annual periods beginning on or after July 2014. This amendment was
not relevant to the Company, since none of the entities within the Company has defined benefit plans with
contributions from employees or third parties.
Annual Improvements 2010–2012 Cycle
These improvements are effective from July 1, 2014, and the Company has applied these amendments for the
first time in these interim condensed consolidated financial statements. They include:
IFRS 2 Share-based Payment
This improvement is applied prospectively and clarifies various issues relating to the definitions of performance
and service conditions which are vesting conditions, including:
-
A performance condition must contain a service condition
A performance target must be met while the counterparty is rendering service
A performance target may relate to the operations or activities of an entity, or to those of another entity
in the same group
A performance condition may be a market or non-market condition
If the counterparty, regardless of the reason, ceases to provide service during the vesting period, the
service condition is not satisfied
The above definitions are consistent with how the Company has identified any performance and service
conditions which are vesting conditions in previous periods, and thus these amendments do not impact the
Company’s accounting policies.
13
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified
as liabilities (or assets) arising from a business combination should be subsequently measured at fair value
through profit or loss whether or not they fall within the scope of IAS 39. This amendment has no impact on the
Company.
IFRS 8 Operating Segments
The amendments are applied retrospectively and clarify that:
-
-
An entity must disclose the judgments made by management in applying the aggregation criteria in
paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated
and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are
‘similar’.
The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is
reported to the chief operating decision maker, similar to the required disclosure for segment liabilities.
The Company has not applied the aggregation criteria in IFRS 8.12. The Company has determined that it has
one operating segment: air transportation, therefore no reconciliation is required.
IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by
reference to observable data by either adjusting the gross carrying amount of the asset to market value or by
determining the market value of the carrying value and adjusting the gross carrying amount proportionately so
that the resulting carrying amount equals the market value. In addition, the accumulated depreciation or
amortization is the difference between the gross and carrying amounts of the asset. The Company did not
record any revaluation adjustments during the current interim period.
IAS 24 Related Party Disclosures
The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key
management personnel services) is a related party subject to the related party disclosures. In addition, an entity
that uses a management entity is required to disclose the expenses incurred for management services. This
amendment is not relevant for the Company as it does not receive any management services from other entities.
Annual Improvements 2011-2013 Cycle
These improvements are effective from 1 July 2014 and the Group has applied these amendments for the first
time in these interim condensed consolidated financial statements. They include:
14
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies for the scope exceptions within IFRS 3 that:
-
Joint arrangements, not just joint ventures, are outside the scope of IFRS 3
This scope exception applies only to the accounting in the financial statements of the joint arrangement
itself
The Company is not a joint arrangement, and thus this amendment is not relevant for the Company and its
subsidiaries.
IFRS 13 Fair Value Measurement
The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not
only to financial assets and financial liabilities, but also to other contracts within the scope of IAS 39. The
Company does not apply the portfolio exception in IFRS 13.
IAS 40 Investment Property
The description of ancillary services in IAS 40 differentiates between investment property and owner-occupied
property (i.e., property and equipment). The amendment is applied prospectively and clarifies that IFRS 3, and
not the description of ancillary services in IAS 40, is used to determine if the transaction is the purchase of an
asset or a business combination. This amendment has no impact on Company financial statements.
The Company has not early adopted any standard, interpretation or amendment that has been issued but is not
yet effective.
(4)
Segment information
The Company reports information by segments as established in IFRS 8 “Operating segments”. The Company
has determined that it has one operating segment: air transportation.
The Company’s revenues by geographic area for the periods ended March 31, 2015 and 2014 are as follows:
For the three months ended March 31,
2015
2014
North America
Central America and the Caribbean
Colombia
South America (ex-Colombia)
Other
Total operating revenue
$
$
15
190,563
133,828
474,355
245,394
71,576
1,115,716
$
$
184,906
117,310
433,001
288,496
74,823
1,098,536
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
The Company allocates revenues by geographic area based on the point of origin of the flight. Non-current
assets are composed primarily of aircraft and aeronautical equipment, which are used throughout different
countries and are therefore not assignable to any particular geographic area.
(5)
Seasonality
The results of operations for any interim period are not necessarily indicative of those for the entire year
because the business is subject to seasonal fluctuations. These fluctuations are the result of high vacation and
leisure demand occurring during the northern hemisphere’s summer season in the third quarter (principally in
July and August) and again during the fourth quarter (principally in December). In addition, January is typically
a month in which heavy air passenger demand occurs. The lowest levels of passenger traffic are concentrated in
February, April and May. Given the proportion of fixed costs, the Company and its subsidiaries expect that
quarterly operating results to continue to fluctuate from quarter to quarter. This information is provided to
allow for a better understanding of the results, however management has concluded that this does not constitute
“highly seasonal” as considered by IAS 34.
(6)
Foreign exchange
The gain or loss in foreign currency is derived primarily from the appreciation or depreciation of the
Colombian Peso against the US Dollar, which is the Company’s functional currency, and the changes in the
foreign exchange mechanisms enacted by the Venezuelan government. For the three months ended March 31,
2015 and 2014, the Company recognized a net gain of $23,364 and a net loss of $14,827, respectively.
The Company has liabilities denominated in Colombian Pesos, such as its pension plans and bond issuance. For
the three months ended March 31, 2015, the Company recognized a net gain of $20,066 primarily as a result of
the liquidation of net monetary assets denominated in Colombian Pesos that resulted in the recognition of
realized foreign exchange gains. As of March 31, 2015, the Colombian Peso depreciated 7.7% against the US
Dollar when compared to December 31, 2014 exchange rate. For the three months ended March 31, 2014, the
Company recognized a net gain of $7,112, primarily as a result of the depreciation of the Colombian Peso
against the US Dollar of 1.9% compared to the exchange rate as of December 31, 2013.
Despite the uncertainty of the current exchange control in Venezuela, the government has officially announced
a new currency system on February 12, 2015 called the Marginal Currency System, or SIMADI, consisting of a
mechanism from which both businesses and individuals are allowed to purchase and sell foreign currency at the
price set by the market. Under SIMADI, the system known as SICAD II was annulled and combined with the
former rate SICAD I, creating a new exchange rate named SICAD exclusively applicable for non-essential
goods at which 1.00 USD is exchanged at 12.00 VEF. Although this rate remained static as of March 31, 2015,
it is expected to fluctuate. The official exchange rate remains unchanged (1.00 USD = 6.30 VEF) and it is still
used for preferential goods only (including airlines). Despite these events, no relevant changes have occurred as
of March 31, 2015 with impact on the accounting treatment applied for the Company’s balances denominated
in VEF. The current cash balances are not affected by the new regime and continue to be converted at the
exchange rate of $1:VEF6.3 and $1:VEF12.0 as approved by the Venezuelan Government.
16
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
The Company still has significant outstanding cash balances in Bolivares, and approvals have been obtained for
only a portion of the amounts requested for remittance. The government has offered the Company a proposal
that includes outstanding balances from remittances requested in 2013. However, the expected payments and
proposed timetable have not been fully agreed as of March 31, 2015.
The Company has available-for-sale instruments in Venezuela denominated in US Dollars such as bonds and
TICCs that will be paid in Bolivares at the official exchange rate that remains at US$1:VEF6.3. Once the bonds
are paid, the Company is expected to request conversion of these funds at the current SICAD rate. As of
March 31, 2015, a net gain of $3,422 has been recorded as a result of the annulment of SICAD II rate of
US$1:VEF 49.8 and the maturity of TICCs. In addition, a net fair value loss previously recognized in other
comprehensive income of $3,098 was reversed as the cash amounts were collected. As of March 31, 2015, the
balance of the remaining available for sale securities amount to $671, including $42 of accrued interest,
recorded within non–current assets.
During the three months ended March 31, 2015 and 2014, the Company recorded total gain (loss) due to
exchange rate changes in Venezuela amounting to $5,371 and $(20,270), respectively.
(7)
Employee benefits
The Company sponsors defined benefit pension plans, which require contributions to be made to separately
administered funds. The Company has also agreed to provide certain additional post-employment benefits.
These benefits are unfunded. The cost of providing benefits under the defined benefit plans is determined
separately for each plan using the projected unit credit cost method. Actuarial gains and losses for defined
benefit plans are recognized in full in the period in which they occur in other comprehensive income.
The defined benefit liability comprises the present value of the defined benefit obligation (using a discount rate
based on government bonds of the country where each benefit plan is established), less the fair value of plan
assets out of which the obligations are to be settled. Plan assets are assets that are held by the Social Security
Institute and private pension funds. Plan assets are not available to the creditors of the Company, nor can they
be paid directly to the Company. Fair value is based on market price information and in the case of quoted
securities on the published bid price. The value of any defined benefit asset recognized is restricted to the sum
of any past service costs and the present value of any economic benefits available in the form of refunds from
the plan or reductions in the future contributions to the plan.
The discount rate indexed by Colombian Government bonds was 7.00% as of March 31, 2015 and
December 31, 2014.
17
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(8)
Cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash as of March 31, 2015 and 2014 and December 31, 2014 are as
follows:
Cash on hand and bank deposits
Demand and term deposits
Cash and cash equivalents
Restricted cash
Cash and cash equivalents and
restricted cash
March 31,
2015
March 31,
2014
December 31,
2014
$
654,800
13,603
668,403
38,741
$
535,235
36,198
571,433
2,065
$
627,040
13,851
640,891
1,987
$
707,144
$
573,498
$
642,878
The carrying amount of cash and cash equivalents includes cash held in Venezuela of $280,249 and $281,220
as of March 31, 2015 and December 31, 2014, respectively, is subject to future changes due to the economic
instability in Venezuela, with the possibility of new limitations in the repatriation of funds by CADIVI or even
sanctions by the Venezuelan government to restrict the cash repatriation.
(9)
Accounts receivables, net of provision for doubtful accounts
Receivables as of March 31, 2015 and December 31, 2014 are as follows:
March 31,
2015
Trade
Indirect tax credits
Manufacturer credits
Employee advances (1)
Other
$
$
Less provision for doubtful accounts
Total
$
Net current
Net non-current
Total
$
$
December 31,
2014
218,027
122,767
1,999
5,450
5,333
353,576
(13,358)
340,218
$
292,297
47,921
340,218
$
$
$
$
254,846
143,374
2,207
5,011
5,459
410,897
(13,322)
397,575
355,168
42,407
397,575
(1) Employee advances mainly relate to per diem allowances provided to crew prior to traveling.
18
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
Changes during the year in the allowance for doubtful accounts are as follows:
March 31,
2015
$
13,322
3,795
(3,759)
$
13,358
Balance at beginning of the period
Bad debt expense
Write-offs against the allowance
Balance at end of the period
19
December 31,
2014
$
14,109
8,409
(9,196)
$
13,322
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(10) Balances and transactions with related parties and key management compensation expenses
Country
Panama
Brazil
Receivables
$
6,577
23,075
Expenses
$
—
—
3,977
719
13,209
8,611
December 31, 2014
Receivables
Payables
$
1,324
$ 1,272
22,754
—
March 31, 2015
Payables
Revenues
$ 1,272
$
—
—
285
521
March 31, 2014
Revenues
Expenses
$
320
$
—
—
—
6,587
6,219
245
401
1,451
16,524
Brazil
—
5
211
—
—
—
43
2,125
2,965
174
131
3,800
—
2
3
—
6
86
30
3,140
3,930
El Salvador
Colombia
El Salvador
1,464
—
353
$ 13,797
Colombia
Panama
73
977
80
38,633
$
$
—
—
76
7,697
2,474
—
447
$ 8,773
$
Payables
$ 13,797
—
—
—
—
6,872
Receivables
$ 27,386
11,247
$ 13,797
$
38,633
462
—
241
$ 12,299
Payables
$ 12,299
—
$
71
977
100
47,416
Receivables
$ 36,169
11,247
$ 12,299
$
47,416
$
—
—
13
4,315
The following is a summary of related party transactions for the periods ended March 31, 2015 and 2014:
Company
Synergy Aerospace Corp.
SP SYN Participações S.A.
OceanAir Linhas Aéreas,
S.A.
Corp Hotelera Internac.,
S.A.
Empresariales S.A.S.
Aeromantenimiento, S.A.
Transportadora del Meta
S.A.S.
Aerovias Beta Corp.
Other
Total
Short–term
Long–term
Total balances with
related parties
20
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
The receivables balance with SP SYN Participações S.A. as of March 31, 2015 amounted to $23,075,
consisting of $22,644 of principal and $431 of accrued interests. The debt bears an interest equal to 90
days LIBOR plus 550 basis points as of payment date and will be repaid according to the following
payment schedule:
Year
2015
2016
Total
$
$
11,828
11,247
23,075
Receivable balances as of March 31, 2015 from OceanAir Linhas Aéreas, S.A., include an amount of
$6,600 past due which corresponds to payments from aircraft leases and other services. On March 24,
2015 the Company reached an agreement with Synergy Aerospace Corp. over the debt of OceanAir
Linhas Aéreas, S.A. up to $6,468 as of December 31, 2014. The renegotiated debt will bear an interest
rate equal to 90 days LIBOR plus 550 basis points and matures within 2015.
The Company has not recognized any expense or provision for doubtful accounts since it is expected that
the balances will be recovered completely.
All related parties are companies controlled by the same ultimate shareholder that controls Avianca
Holdings S.A. The following is a description of the nature of services provided by and to related parties.
These transactions include:
Related party
Synergy Aerospace Corp.
Nature of Services
The receivables amount corresponds to aircraft
engine reserves and maintenance contracts. The
payable amount originates in payments executed
by Synergy Aerospace Corp. on behalf of Latin
Airways Corp.
Avianca, S.A. (“Avianca”) and SP SYN
Participações S.A. (“SP SYN”) signed a novation
of the receivables from OceanAir Linhas Aéreas,
S.A. (“OceanAir”) whereby SP SYN would be
the new debtor. Avianca agreed to sign purchase
agreement assignments and take delivery of
certain aircraft which were originally purchased
by Synergy Group. This agreement originates in
certain obligations signed on December 30, 2010
and amended subsequently on December 30,
2011 and on February 28, 2012.
SP SYN Participações S.A.
21
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
Related party
Oceanair Linhas Aéreas, S.A.
Nature of Services
The Company provides to and receives from
OceanAir logistic services, marketing and
advertising, maintenance services, and training
services. The Company has entered into a
licensing agreement with OceanAir for the use of
the Avianca trademark in Brazil. Additionally,
the Company leases aircraft to OceanAir (see
Note 22). On November 4, 2014, Tampa Cargo
S.A.S., entered into a Block Space Agreement
with OceanAir Linhas Aéreas, S.A., acquiring
priority rights and a minimum guaranteed cargo
capacity on certain flights of the carrier.
Transportation services for Avianca, S.A.’s
employees.
Aircraft maintenance company which provides
aircraft overhaul services to the Company.
Provides road transportation services for cargo /
courier deliveries to Avianca, S.A.
Accommodation services for crew and employees
of the Company.
The accounts receivables balance relates to
amount owed to Latin Airways Corp. arising
from the Aerovias Beta Corp. spinoff, which gave
rise to Latin Airways Corp.
Empresariales S.A.S.
Aeromantenimiento, S.A.
Transportadora del Meta S.A.S.
Corporación Hotelera Internacional
S.A. Hotelera Los Pozos, S.A.
Aerovias Beta Corp.
Key management personnel compensation expense
Key management personnel compensation expense recognized within “Salaries, wages, and benefits” in the
Consolidated Statement of Comprehensive Income for the three months ended March 31, 2015 and 2014
amounts to $8,301 and $9,763, respectively.
22
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(11) Deposits and other assets
Deposits and other assets as of March 31, 2015 and December 31, 2014 are as follows:
Short term:
Deposits with lessors
Short term investments
Margin call deposits
Guarantee deposits
Others
Sub-Total
Fair value of derivative instruments
Total
Long term:
Deposits with lessors
Long term investments - restricted
Guarantee deposits
Restricted cash
Others
Total
March 31,
2015
December 31,
2014
$
$
15
$
$
$
76,138
43,966
41,868
18,986
1,153
182,111
5,022
187,133
141,411
11,532
7,083
19,731
27,854
207,611
$
$
$
79,098
41,631
37,718
9,777
1,700
169,924
4,204
174,128
144,949
11,943
13,207
21,025
26,886
218,010
Deposits with lessors refer mainly to maintenance deposits in connection with leased aircraft. These deposits
are applied to future maintenance event costs, and are calculated on the basis of a performance measure, such as
flight hours or cycles. They are specifically intended to guarantee maintenance events on leased aircraft.
Maintenance deposits paid do not transfer the obligation to maintain aircraft or the costs associated with
maintenance activities.
Maintenance deposits are reimbursable to the Company upon completion of the maintenance event in an
amount equal to the lesser of (1) the amount of the maintenance deposits held by the lessor associated with the
specific maintenance event or (2) the qualifying costs related to the specific maintenance event.
Guarantee deposits correspond mainly to amounts paid to suppliers in connection with leasehold of airport
facilities, among other service agreements.
23
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(12) Property and equipment, net
During the three months ended March 31, 2015, the Company acquired one ATR-72 and one ATR-42.
Additionally the Company paid Predelivery Payments (“PDPs”) and purchased rotable spare parts.
During the three months ended March 31, 2014, the Company acquired one A319, one A321, and two ATR-72.
Additionally the Company paid Predelivery Payments (“PDPs”) and purchased rotable spare parts.
As of March 31, 2015 a total amount of $39,358 has been recognized as property and equipment in the course
of construction. As of March 31, 2015, the Company had future commitments related to the completion of the
construction of administrative property in the amount of $20,538.
A total amount of $12,686 recognized as of March 31, 2015 as property and equipment in the course of
construction corresponds to the Aviation Center Project consisting of hangars and aircraft component repair
facilities as well as premises for aircraft taxi, parts and replacements warehouses, and training classrooms being
built in adjacent areas to the José María Córdova International Airport. The project, of an estimated cost of
$42,287, due date for completion is set for December 31, 2015, except an extension of the term is agreed by the
contracting parties. The disbursement schedule consists of a 30.0% upfront payment, monthly consecutive
installments of $2,749 equal to 65.0% of the total investment and a final payment for the remaining 5.0% of
project value.
Additionally, within the total amount of property and equipment in the course of construction $23,471
corresponds to the Center of Operational Excellence Building (CEO). It is located near Bogotá’s El Dorado
International Airport. This new facility will serve as an educational training center for pilots, flight attendants
and technicians, as well as for the rest of employees from different administrative areas. It is estimated to be
approximately 26,600 square meters and is currently scheduled to be in operation by 2016.
24
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
Flight equipment, property and other equipment as of December 31, 2014 and March 31, 2015, and
December 31, 2013 and March 31, 2014 is as follows:
Flight
equipment
Gross:
December 31, 2014
Additions
Disposals
Transfers
March 31, 2015
Accumulated depreciation:
December 31, 2014
Additions
Disposals
March 31, 2015
Net balances:
December 31, 2014
March 31, 2015
$ 3,850,651
24,994
(25,973)
14,939
$
3,864,611
477,249
29,690
(395)
506,544
$
$ 3,373,402
$ 3,358,067
$
$
$
Flight
equipment
Gross:
December 31, 2013
Additions
Disposals
Transfers to assets held for sale
Transfers
March 31, 2014
Accumulated depreciation:
December 31, 2013
Additions
Disposals
Transfers to assets held for sale
March 31, 2014
Net balances:
December 31, 2013
March 31, 2014
Capitalized
maintenance
Rotable
spare parts
Aircraft
predelivery
payments
Other
Total
278,177 $ 177,677 $
22,890
16,262
(4,622)
(13,771)
—
—
264,471 $ 335,898 $ 4,906,874
28,203
35,356
127,705
—
(5,820)
(50,186)
(14,939)
—
—
296,445
277,735
180,168
190,271
16,294
(4,622)
201,943 $
87,906
94,502
Capitalized
maintenance
23,382
2,586
(203)
25,765 $
—
87,921
—
4,579
—
(1,125)
— $ 91,375 $
$ 154,295 $
$ 154,403 $
Rotable
spare parts
365,434
4,984,393
778,823
53,149
(6,345)
825,627
264,471 $ 247,977 $ 4,128,051
277,735 $ 274,059 $ 4,158,766
Aircraft
predelivery
payments
Other
Total
$ 2,813,210
69,076
(157)
(16,594)
75,569
2,941,104
$ 209,754
7,287
(17,286)
—
—
199,755
$ 139,091
3,540
(1,050)
—
—
141,581
396,034
24,324
(795)
(11,594)
$ 407,969
152,738
7,360
(10,363)
—
$ 149,735
16,676
1,676
(1,053)
—
$ 17,299
$
$ 2,417,176
$ 2,533,135
$
$
$ 122,415
$ 124,282
$ 409,314 $ 227,437 $ 3,233,358
$ 374,468 $ 224,375 $ 3,306,280
25
57,016
50,020
$ 409,314 $ 325,427 $ 3,896,796
40,723
4,778
125,404
—
(2,734)
(21,227)
—
(1,987)
(18,581)
(75,569)
—
—
374,468 325,484 3,982,392
—
97,990
—
4,387
—
(1,268)
—
—
— $ 101,109 $
663,438
37,747
(13,479)
(11,594)
676,112
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(13) Earnings per Share
The calculation of basic and diluted earnings per share at March 31, 2015 and 2014 is as follows:
Net profit attributable to Avianca Holdings S.A.
March 31, 2015
$
33,424
March 31, 2014
$
12,279
660,800
336,187
665,800
331,187
Weighted average number of ordinary shareholders
(in thousands of shares)
Common stock
Preferred stock
Basic and diluted earnings per share
Common stock
Preferred stock
$
$
0.03
0.03
$
$
0.01
0.01
There are no dilutive shares as the Company has no convertible preferred shares or convertible debentures.
(14) Other comprehensive income
The movement of other comprehensive income from December 31, 2014 to March 31, 2015 is as follows:
Income tax reserves relating to (4)
Reserves
relating to
Hedging Fair value actuarial gains
reserves
reserves
and losses
(1)
(2)
(3)
As of December 31, 2014 $ (98,898) $ (3,098)
$ (36,388)
Other comprehensive
income (loss) in the
period
26,017
3,098
(3,491)
As of March 31, 2015
$ (72,881) $
—
$ (39,879)
Reserve
Revaluation of
administrative
relating to
property
Hedging
Fair value actuarial gains
(5)
reserves
reserves
and losses
$ 12,678
$ 683
$ 7,444
$
24,550
$
26
(3,664)
9,014
$
(683)
—
$
327
7,771
$
—
24,550
Total OCI
Reserves
$ (93,029)
$
21,604
(71,425)
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
The movement of other comprehensive income from December 31, 2013 to March 31, 2014 is as follows:
Income tax reserves relating to (4)
Reserves
Reserve
Revaluation of
relating to
relating to
administrative
Fair value actuarial gains
property
reserves
Hedging
and losses
Hedging Fair value actuarial gains
and losses
(5)
reserves (1)
(2)
(3)
reserves
reserves
As of December 31, 2013
$ 14,351
$ (1,571)
$ (52,827)
$ (1,755)
$ 297
$ 9,683
$ 28,857
Other comprehensive
income in the period
(11,236)
948
(4,283)
—
—
53
—
As of March 31, 2014
$
3,115
$ (623)
$ (57,110)
$ (1,755)
$ 297
$ 9,736
$ 28,857
(1)
Total OCI
Reserves
$ (2,965)
(14,518)
$ (17,483)
Hedging Reserves
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of
hedging instruments used in cash flow hedges pending subsequent recognition of the hedged cash
flows.
(2)
Fair value reserves
The fair value reserve comprises the cumulative net change in the fair value of available-for-sale
financial assets until the assets are derecognized or impaired.
(3)
Reserve relating to actuarial gains and losses
It comprises actuarial gains or losses on defined benefit plans and post-retirement medical benefits
recognized in other comprehensive income.
(4)
Income tax on other comprehensive income
Whenever an item of other comprehensive income gives rise to a temporary difference, a deferred
income tax asset or liability is recognized directly in other comprehensive income.
(5)
Revaluation of administrative property
Revaluation of administrative property is related to the revaluation of administrative buildings and
property in Colombia, Costa Rica, and El Salvador. The revaluation reserve is adjusted for increases
or decreases in fair values of such property.
27
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
The following provides an analysis of items presented net in the statement of profit or loss and other
comprehensive income which have been subject to reclassification, without considering items remaining
in OCI which are never reclassified to profit or loss:
For the three months ended
March 31,
2015
2014
Cash flow hedges:
Reclassification during the year to profit or
loss
Effective valuation of cash flow hedges
Fair value reserves:
Valuations of available-for-sale investments
Income tax on other comprehensive income:
Reclassification during the year to profit or
loss
Temporary differences within OCI
$ 42,923
(16,906)
$ 26,017
$ (6,490)
(4,746)
$ (11,236)
$
$
$
$
3,098
3,098
$ (8,853)
4,506
$ (4,347)
948
948
$ (1,252)
1,252
$
—
(15) Derivatives recognized as hedging instruments
Financial instruments recognized as hedging instruments at fair value through other comprehensive income as of
March 31, 2015 and December 31, 2014 are the following:
Cash flow hedges – Assets fuel price hedges
Total
Cash flow hedges – Liabilities fuel price
hedges
Total
March 31,
2015
$
5,022
$
5,022
December 31,
2014
$
4,204
$
4,204
$
$
$
$
94,159
94,159
110,084
110,084
Financial assets and liabilities at fair value through other comprehensive income reflect the change in fair value of
fuel price derivative contracts designated as cash flow hedges. Hedged items are designated future purchases deemed
as highly probable forecast transactions.
Cash flow hedges liabilities are recognized within Other Liabilities in the Condensed Consolidated Statement of
Financial Position.
28
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
The Company purchases jet fuel on an ongoing basis as its operating activities require a continuous supply of this
commodity. The increased volatility in jet fuel prices has led the Company to the decision to enter into commodity
contracts. These contracts are expected to reduce the volatility attributable to fluctuations in jet fuel prices for highly
probable forecast jet fuel purchases, in accordance with the risk management strategy outlined by the Board of
Directors. The contracts are intended to hedge the volatility of the jet fuel prices for a period between three and
twelve months based on existing purchase agreements.
The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to
occur, and the fair values of the related hedging instruments.
Fair
Value
Fuel price
Assets
Liabilities
$
$
1-12 months
5,022
94,159
$
$
5,022
94,159
The terms of the cash flow hedging contracts have been negotiated for the expected highly probable forecast
transactions to which hedge accounting has been applied. As of March 31, 2015 and 2014, a net gain (loss) relating to
the hedging instruments of $26,017 and $(11,236), respectively is included in other comprehensive income.
(16) Derivative financial instruments
Derivative financial instruments at fair value through profit or loss as of March 31, 2015 and December 31, 2014 are
the following:
March 31,
2015
Derivatives not designated as hedges –
Liabilities:
Derivate contracts of foreign
currency
Derivative contracts of interest rate
Total
$
$
851
4,748
5,599
December 31,
2014
$
$
578
5,893
6,471
Financial instruments through profit or loss are derivative contracts not designated as hedges for accounting purposes
that are intended to reduce the levels of risk of foreign currency and interest rates.
Foreign currency risk
Certain foreign currency forward contracts are measured at fair value through profit or loss and are not designated as
hedging instruments for accounting purposes. The foreign currency forward contract balances vary with the level of
expected foreign currency sales and purchases and changes in foreign currency forward rates.
29
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
Interest rate risk
The Company incurs interest rate risk primarily on financial obligations to banks and aircraft lessors. Certain
financial derivative instruments are recognized at fair value through profit or loss and are not designated as
hedging instruments for accounting purposes. The interest rate contracts vary according to the level of expected
interest payable and changes in interest rates of financial obligations. Interest rate risk is managed through a
mix of fixed and floating rates on loans and lease agreements, combined with interest rate swaps and options.
Under these agreements, the Company pays a fixed rate and receives a variable rate.
(17)
Offsetting of Financial Instruments
The Company has derivative instruments that could meet the offsetting criteria in paragraph 42 of IAS 32 given
that the Company has signed with its counterparties enforceable master netting arrangements. Consequently,
when derivatives signed with the same counterparty and for the same type of notional result in gross assets and
liabilities, the positions are set off resulting in the presentation of a net derivative. As of March 31, 2015 and
December 31, 2014, the Company has not set off derivative instruments because it has not had gross assets and
liabilities with the same counterparty for the same type of notional.
(18)
Fair value measurements
The fair values of financial assets and liabilities, together with the carrying amounts shown in the Consolidated
Statement of Financial Position as of March 31, 2015 are as follows:
March 31, 2015
Financial assets
Available-for-sale securities
Derivative instruments
Carrying
amount
Fair value
$
$
$
Financial liabilities
Long-term debt
Derivative instruments
671
5,022
5,693
$ 3,209,913
99,758
$ 3,309,671
30
$
671
5,022
5,693
$ 3,221,690
99,758
$ 3,321,448
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
The fair values of financial assets and liabilities, together with the carrying amounts shown in the Consolidated
Statement of Financial Position as of December 31, 2014 are as follows:
December 31, 2014
Carrying
amount
Fair value
Financial assets
Available-for-sale securities
Derivative instruments
$
$
Financial liabilities
Short term borrowings and long-term debt
Derivatives instruments
1,455
4,204
5,659
$ 3,170,577
116,555
$ 3,287,132
$
$
1,455
4,204
5,659
$ 3,200,729
116,555
$ 3,317,284
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Management assessed that cash and cash equivalents, account receivable, account payable and other current
liabilities approximate their carrying amount largely due to the short-term maturities of these instruments.
Fair values have been determined for measurement and/or disclosure purposes based on the following methods:
(a)
The fair value of available-for-sale financial assets is determined by reference to the present value of
future principal and interest cash flows, discounted at a market based interest rate at the reporting date.
(b)
The Company enters into derivative financial instruments with various counterparties, principally
financial institutions with investment grade credit ratings. Derivatives valued using valuation
techniques with market observable inputs are mainly interest rate contracts, foreign currency forward
contracts and commodity contracts. The most frequently applied valuation techniques include forward
pricing and swap models, using present value calculations. The models incorporate various inputs
including the credit quality of counterparties, foreign currency spot and forward rates, interest rate
curves and forward rate curves of the underlying commodity.
(c)
The fair value of short-term borrowings and long-term debt, which is determined for disclosure
purposes, is calculated based on the present value of future principal and interest cash flows, discounted
at a market based interest rate at the reporting date. For finance leases, the market rate is determined by
reference to similar lease agreements.
31
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(d)
The Company uses the revaluation model to measure its land and buildings which are composed of
administrative properties. Management determined that this constitutes one class of asset under IAS 16,
based on the nature, characteristics and risks of the property. The fair values of the properties were
determined by using market comparable methods. This means that valuations performed by the
appraisals are based on active market prices, adjusted for difference in the nature, location or condition
of the specific property. The Company engaged accredited independent appraisals, to determine the fair
value of its land and buildings.
(e)
The Frequent flyer liability is included in the Condensed Consolidated Statement of Financial Position
within Air traffic liability. The Company estimates the fair value of miles awarded under the LifeMiles
program by applying statistical techniques. Inputs to the models include making assumptions about
expected redemption rates, the mix of products that will be available for redemption in the future and
customer preferences.
Fair values hierarchy
The table below analyses financial instruments carried at fair value by valuation method. The different
levels have been defined as follows:
Level 1
inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that
the Company has the ability to access at the measurement date.
Level 2
inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly; or
Level 3
inputs are unobservable inputs for the asset or liability.
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.
32
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities
as of March 31, 2015:
Quantitative disclosures of fair value measurement hierarchy for assets:
Assets measured at fair value
Derivative financial assets
(Notes 15 and 16)
Aircraft fuel hedges
Available-for-sale securities
Assets held for sale
Revaluated administrative
property
Date of
valuation
Fair value measurement using
Quoted prices
Significant
Significant
observable
in active
unobservable
markets
inputs
inputs
(Level 2)
(Level 1)
(Level 3)
March 31,
2015
March 31,
2015
March 31,
2015
March 31,
2015
Total
—
5,022
—
5,022
—
671
—
671
—
745
—
745
—
78,224
—
78,224
Quantitative disclosures of fair value measurement hierarchy for liabilities:
Fair value measurement using
Quoted prices Significant
Significant
observable unobservable
in active
Date of
inputs
inputs
markets
Liabilities measured at fair value valuation
(Level 1)
(Level 2)
(Level 3)
Derivative financial liabilities
(Notes 15 and 16)
March 31,
Aircraft fuel hedges
2015
—
94,159
—
March 31,
Foreign currency derivatives
2015
—
851
—
March 31,
Interest rate derivatives
2015
—
4,748
—
March 31,
Frequent flyer liability
2015
—
148,768
—
Liabilities for which fair values
are disclosed
Short-term borrowings and longMarch 31,
term debt
2015
—
3,221,690
—
33
Total
94,159
851
4,748
148,768
3,221,690
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities as of
December 31, 2014:
Quantitative disclosures of fair value measurement hierarchy for assets:
Assets measured at fair value
Derivative financial assets
(Notes 15 and 16)
Aircraft fuel hedges
Available-for-sale securities
Assets held for sale
Revalued administrative
property
Date of
valuation
Fair value measurement using
Quoted prices
Significant
Significant
observable
in active
unobservable
markets
inputs
inputs
(Level 2)
(Level 1)
(Level 3)
December
31, 2014
December
31, 2014
December
31, 2014
December
31, 2014
Total
—
4,204
—
4,204
—
1,455
—
1,455
—
1,369
—
1,369
—
78,442
—
78,442
Quantitative disclosures of fair value measurement hierarchy for liabilities:
Fair value measurement using
Quoted prices Significant
Significant
observable unobservable
in active
Date of
inputs
inputs
markets
Liabilities measured at fair value valuation
(Level 1)
(Level 2)
(Level 3)
Derivative financial liabilities
(Notes 15 and 16)
December
Aircraft fuel hedges
31, 2014
—
110,084
—
December
Foreign currency derivatives
31, 2014
—
578
—
December
Interest rate derivatives
31, 2014
—
5,893
—
December
Frequent flyer liability
31, 2014
—
150,760
—
Liabilities for which fair values
are disclosed
Short-term borrowings and longDecember
term debt
31, 2014
—
3,200,729
—
34
Total
110,084
578
5,893
150,760
3,200,729
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(19) Income tax expense
The major components of income tax expense for the three months period ended March 31, 2015 and 2014 are
as follows:
Consolidated income statement
For the three months ended
March 31,
2015
2014
Current income tax:
Current income tax charge
Deferred tax expense:
Related to origination and reversal of temporary differences
Income tax expense reported in the income statement
$
9,943
$
3,508
$
670
10,613
$
(556)
2,952
Consolidated statement of other comprehensive income
Income tax charged directly to other comprehensive income
$
(4,020)
$
53
The total income tax expense results primarily from taxes levied on Aerovías del Continente Americano S.A. in
Colombia. The consolidation of this subsidiary along with others in Avianca Holdings S.A. have a material
effect on the effective tax rate of the Company as certain of these subsidiaries have significant losses.
(20) Share based payments
The Company authorized the implementation of an incentive plan (the “Share Plan”) on January 27, 2012
whereby eligible recipients, including directors, officers, certain employees, receive a special cash payout if
certain redemption conditions are met.
The Share Plan participants have the option to redeem the vested portion of their respective rights for cash, with
the payment being equal to the difference between the trading share price of the preferred shares of Avianca
Holdings S.A., as reported by the Colombian Stock Exchange during the 30 calendar days immediately
preceding redemption and COP$ 5,000.
18,026,158 awards were issued on March 15, 2012, and will vest in equal tranches over a 4 year period, with
the first tranche vesting on March 15, 2013, and subsequent tranches vesting on each subsequent anniversary
date. Upon vesting, each tranche must be redeemed within 5 years and no later than March 2021.
On November 5, 2013, the Company listed its American Depositary Shares (“ADS”) in the New York Stock
Exchange. As a consequence, the terms of the Share Plan were modified as follows: Starting on the effective
date of the sale of ADSs in the market, the value of each award, as long as the result is positive, will result
from: i) calculating the difference between the average quote of the ADSs representative of preferred shares of
Avianca Holdings S.A., as reported by the New York Stock Exchange during the 30 calendar days immediately
prior to each vesting date of the Share Plan
35
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
and the price of $15, and ii) dividing the latter calculation by eight, considering that each ADS represents eight
preferred shares and applying the resulting amount by the exchange rate of COP$ 1,901.22 per $1 (the
exchange rate as of November 5, 2013 or the effective date of listing of the ADSs in the New York Stock
Exchange). However, this modification does not affect Tranche 1.
Additionally, the Company issued 2,000,000 new Awards (“New Awards”) for the Board of Directors and C
Levels on November 6, 2013. These New Awards vest in four equal tranches and expire five year after the
vesting date. The value of each New Award is determined in the same way as the modified terms of the Share
Plans. On March 11, 2014, the Company revised the New Awards and reduced them to 1,840,000 units.
As of March 31, 2015, active beneficiaries have been awarded with 11,984,755 units out of 18,026,158 initially
approved and issued, and have redeemed 480,025 units, corresponding to the vesting periods March, 15 20122013 and March 15, 2013-2014. Total awards to be redeemed as of March 31, 2015 equal to 11,504,730.
A summary of the terms of the awards excluding the 1,840,000 New Awards is as follows:
Vesting dates
March 15, 2013
Percentage
vesting
25.0%
Redemption period
From March 16, 2013 through March 15, 2018
March 15, 2014
25.0%
From March 16, 2014 through March 15, 2019
March 15, 2015
25.0%
From March 16, 2015 through March 15, 2020
March 15, 2016
25.0%
From March 16, 2016 through March 15, 2021
A summary of the terms of the 1,840,000 New Awards is as follows:
Vesting dates
November 6, 2014
Percentage
vesting
25.0%
Redemption period
From November 7, 2014 through November 6, 2019
November 6, 2015
25.0%
From November 7, 2015 through November 6, 2020
November 6, 2016
25.0%
From November 7, 2016 through November 6, 2021
November 6, 2017
25.0%
From November 7, 2017 through November 6, 2022
Participants who are terminated, or resigned, cease to be part of the Share Plan. The awards were only issued to
board members and key management.
The Company has determined the fair value of the outstanding awards as of March 31, 2015 using the
Turnbull-Wakeman model, which is a variation of the Black-Scholes model and was deemed to be an
appropriate valuation model given the requirement that the share price be above a certain threshold for 30 days
prior to redemption.
36
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
For the valuation as of March 31, 2015, the Turnbull-Wakeman model uses several inputs including:
-
Expected term of 1.48 to 5.10 years
Time in averaging period of 0.08 years
Stock price of COP$3,665 in the Colombian Stock Exchange and $11.32 in the New York Stock
Exchange
Strike price of COP$5,000 for tranche 1 and $15 for tranches 2, 3, 4, and New Awards
Risk free rate of 0.6% to 5.2%
Dividend yield of 2.1%
Volatility of 25.8% to 28.8%
For the valuation as of March 31, 2014, the Turnbull-Wakeman model uses several inputs including:
-
Expected term of 1.98 to 6.10 years
Time in averaging period of 0.08 years
Stock price of COP$ 4,215 in the Colombian Stock Exchange and $17.05 in the New York Stock
Exchange
Strike price for the original awards issued on March 15, 2012 of COP$5,000 for tranche 1 and $15 for
tranches 2, 3, 4.
Strike price of $15 for the New Awards in all tranches
Risk free rate of 0.7% to 4.7%
Dividend yield of 1.8%
Volatility of 24.2% to 34.9%
Since Avianca Holdings S.A. has a public traded history of approximately three and a half years for the
preferred shares, which is shorter than all the expected terms except for Tranche 1 of the awards issued on
March 15, 2012, the Company used data for guideline public companies similar to Avianca Holdings S.A. to
estimate its equity volatility.
Based on the aforementioned assumptions, the Company determined that the income (expense) of the Share
Plan Awards for the period ended March 31, 2015 and 2014 was $18 and ($1,955), respectively which has been
recognized within operating profit. As of March 31, 2015 and December 31, 2014, $1,180 and $1,256,
respectively, are reflected as non-current liabilities on the Interim Condensed Consolidated Statement of
Financial Position.
(21) Provisions for legal claims
As of March 31, 2015 and December 31, 2014, the Company is involved in various claims and legal actions
arising in the ordinary course of business. Out of the total claims and legal actions Management has estimated a
probable loss of $13,003 and $14,157, respectively. These claims have been accrued for in the Interim
Condensed Consolidated Statement of Financial Position within “Provisions for legal claims”.
37
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
Certain proceedings are considered possible obligations. Based on the plaintiffs’ claims, as of March 31, 2015
and December 31, 2014, these contingencies amount to a total of $80,221 and $74,567, respectively. Certain
losses which may result from those proceedings will be covered either by insurance companies or with funds
provided by third parties. The proceedings that will not be settled using the aforementioned forms of payment
are estimated at $44,168 as of March 31, 2015 and $35,316 as of December 31, 2014.
In accordance with IAS 37, proceedings that the Company considers to represent a remote risk are not accrued
in the Consolidated Financial Statements.
(22) Future aircraft leases payments
The Company has 78 aircraft under operating leases with an average remaining lease term of 41 months.
Operating leases may be renewed in accordance with management’s business plan. Future operating lease
commitments are as follows:
Aircraft
$
274,701
628,280
149,813
$ 1,052,794
Less than 1 year
Between 1 and 5 years
More than 5 years
The Company has eight spare engines under operating leases for its E190 and A320 family aircraft, and A330
fleets. Future operating lease commitments are as follows:
Engines
$
3,703
2,050
$
5,753
Less than 1 year
Between 1 and 5 years
As of March 31, 2015, the Company had three Airbus A319, one Airbus A330F, and five Fokker 100 under
operating lease to OceanAir Linhas Aéreas, S.A. Future minimum income from these lease agreements is as
follows:
Aircraft
$
24,671
90,072
58,299
$
173,042
Less than 1 year
Between 1 and 5 years
More than 5 years
38
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(23) Acquisition of aircraft
In accordance with the agreements in effect, future commitments related to the acquisition of aircraft and
engines are as follows:
Airbus – The Company has 49 firm orders for the acquisition of A320 family aircraft with deliveries scheduled
between 2015 and 2019 as well as 21 purchase options.
Under the terms of these agreements to acquire Airbus aircraft, the Company must make pre-delivery payments
to Airbus on predetermined dates.
Boeing – The Company has 11 firm orders for the acquisition of B787-8 aircraft with deliveries scheduled
between 2015 and 2019 as well as 10 purchase options.
ATR - The Company has up to 15 purchase options.
Other – The Company has eight firm orders for the acquisition of spare engines with deliveries between 2015
and 2020.
The value of the final purchase orders is based on the aircraft price list (excluding discounts and contractual
credits granted by the manufacturers) and including estimated surcharges. As of March 31, 2015, commitments
acquired with manufacturers for the purchase of aircraft and advance payments are summarized below.
Advance payments are subsequently applied to aircraft acquisition commitments.
Advance payments
Aircraft acquisition
Commitments
2015
$ 129,713
2016
$ 134,618
2017
$ 168,762
$
2018
72,386
Thereafter
$
1,182
Total
$ 506,661
$1,179,692
$1,396,276
$1,509,240
$1,158,359
$ 1,327,998
$6,571,565
On December 31, 2014, the Company signed a Memorandum of Understanding for the purchase of 100 A320
NEO Family aircraft with delivery dates between 2019 and 2024. Under the terms of these agreements to
acquire Airbus aircraft, the Company must make pre-delivery payments to Airbus on predetermined dates as
follows:
Advance payments
Aircraft acquisition
commitments
2015
2016
$ 45,668 $ 6,149
2017
2018
Thereafter
Total
$ 35,847 $ 97,470 $ 862,565 $ 1,047,699
$
$
—
$
—
—
$ 287,464 $10,239,501
$10,526,965
The value of the purchase orders above is based on the aircraft price list (excluding discounts and contractual
credits granted by the manufacturers) and including estimated surcharges.
39
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
(24) Dividends paid
The following dividends were paid by the Company during the three months ended March 31, 2015 and 2014:
March 31,
2015
COP$75/approximately $4 cents per ordinary share to be paid in US$
COP$75/approximately $4 cents per preferred share to be paid in COP$
Total
$
—
$
—
2014
$
25,865
13,079
$
38,944
As of March 31, 2015, dividends were not declared. Dividends of 75/0.04 COP$/US$ per share were declared
in March 2014 and paid in April 2014 based on profits for the year 2013.
(25) Debt covenants
As of March 31, 2015 and December 31, 2014 the Company did not comply with certain debt covenants,
however, the Company did not require waivers from the Financial Institutions since the breached covenants
have no possible consequences on acceleration of debt.
(26) Accounts classification
Starting July 1, 2014, the Company implemented the first phase of its new ERP System (Enterprise Resource
Planning System). This change harmonized and improved the chart of accounts across the organization, which
allows the Company to better monitor and allocate its operational costs. The new chart of accounts resulted in
the reclassification of certain line items within operating expenses and was applied retrospectively from
January 1, 2014. The necessary information to reclassify March 31, 2014 operating expenses under the new
chart of accounts was not available.
These reclassifications had no material impact on the key line items in the Company’s income statements such
as operating revenue, operating profit, profit before tax or net profit.
(27) Subsequent events
Dividends
Dividends of US$0.06691 per share were declared in April 2015 and will be paid no later than October 31,
2015 based on profits for the year 2014.
40
AVIANCA HOLDINGS S.A. AND SUBSIDIARIES
(Republic of Panama)
Notes to Interim Condensed Consolidated Financial Statements
(In USD thousands)
Acquisition of aircraft
As of April 30, 2015, the Company formalized the Memorandum of Understanding (MOU) for the purchase of
100 A320 NEO Family aircraft (mentioned in note 23) under a Purchase Agreement (PA), modifying certain
terms and conditions defined in the original memorandum. On this new PA a total of 33 NEO family aircraft
undelivered but already committed in a prior PA signed in 2011 were added. As a result, total orders for NEOs
aircraft add-up to 133 units as of April 30, 2015, being the incremental number of aircraft the 100 units
included in the MOU. The impact on main terms of the purchase agreement affecting the future commitments is
as follows:
Delivery dates:
-
Prior to 2015 Purchase Agreement (For 33 aircraft): From 2017 to 2019.
-
After 2015 Purchase Agreement (For 133 aircraft): From 2017 to 2024.
Total commitment amount: Increased in $11,574,665.
Guarantors: Avianca Leasing, LLC was deleted on the Purchase Agreement.
****
41