ABC Aerolíneas, S. A. de C. V., and Subsidiaries Aerolíneas, S. A. de C. V., and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2014 and 2013, and

ABC Aerolíneas, S. A. de C. V.,

and Subsidiaries

Consolidated Financial Statements for

the Years Ended December 31, 2014

and 2013, and Independent Auditors’

Report Dated April 30, 2015

ABC Aerolíneas, S. A. de C. V. and Subsidiaries

Independent Auditors’ Report and Consolidated

Financial Statements for 2014 and 2013

Table of contents Page

Independent Auditors’ Report 1

Consolidated Statements of Financial Position 3

Consolidated Statements of Loss or Profit 4

Consolidated Statements of Comprehensive (Loss) Income 5

Consolidated Statements of Changes in Stockholders’ Equity 6

Consolidated Statements of Cash Flows 7

Notes to Consolidated Financial Statements 8

Independent Auditors’ Report to the

Board of Directors and Stockholders of

ABC Aerolíneas, S. A. de C. V.

We have audited the accompanying consolidated financial statements of ABC Aerolíneas, S. A. de C. V. and

subsidiaries (the “Entity”) which comprise the consolidated statements of financial position as of December 31,

2014 and 2013, and the consolidated statements of loss or profit, comprehensive (loss) income, changes in

stockholders’ equity and cash flows for the years then ended, and a summary of the significant accounting policies

and other explanatory information.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in

accordance with accounting International Financial Reporting Standards, as issued by the International Accounting

Standards Board, and for such internal control as management determines is necessary to enable the preparation of

consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We

conducted our audits in accordance with International Standards on Auditing. Those standards require that we

comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the

consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain evidence about the amounts and disclosures in the consolidated

financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the

risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making

those risk assessments, the auditor considers internal control relevant to the Entity’s preparation and fair

presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity’s internal control.

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of

accounting estimates made by management, as well as evaluating the overall presentation of the consolidated

financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit

opinion.

Galaz, Yamazaki,

Ruiz Urquiza, S.C.

Paseo de la Reforma 489

piso 6 Colonia Cuauhtémoc

06500 México, D. F.

México

Tel: +52 (55) 5080 6000

Fax:+52 (55) 5080 6001

www.deloitte.com/mx

Deloitte se refiere a Deloitte Touche Tohmatsu Limited, sociedad privada de responsabilidad limitada en el Reino Unido, y a su red

de firmas miembro, cada una de ellas como una entidad legal única e independiente. Conozca en www.deloitte.com/mx/conozcanos la descripción detallada de la estructura legal de Deloitte Touche Tohmatsu Limited y sus firmas miembro.

2

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of

ABC Aerolíneas, S.A. de C.V. and subsidiaries as of December 31, 2014 and 2013, and their financial performance

and their cash flows for the years then ended in accordance with International Financial Reporting Standards as

issued by the International Accounting Standards Board.

Galaz, Yamazaki, Ruiz Urquiza, S. C.

Member of Deloitte Touche Tohmatsu Limited

C. P. C. Miguel Ángel del Barrio Burgos

April 30, 2015

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ABC Aerolíneas, S. A. d e C. V. and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2014 and 2013

(In thousands of Mexican pesos)

Assets Note 2014 2013

Current assets:

Cash and cash equivalents 6 $ 2,360,283 $ 2,622,495

Accounts receivable 7 462,915 413,436

Due from related parties 18 - 11,207

Recoverable taxes, mainly business flat tax and value-

added tax

99,820 226,986

Inventories 408,673 190,812

Prepaid expenses 8 365,778 406,983

Total current assets 3,697,469 3,871,919

Prepaid expenses 8 1,200,016 1,192,760

Flight equipment, leasehold improvements, furniture and

equipment - Net

9

12,474,178 8,688,307

Prepaid maintenance 4g 3,328,996 2,355,717

Deferred taxes 19 19,293 -

Other assets 10 151,777 141,380

Concession 4i 43,797 43,797

Deposits on aircraft leases 11 549,721 461,739

Total $ 21,465,247 $ 16,755,619

Liabilities and stockholders’ equity Note 2014 2013

Current liabilities:

Notes payable to financial institutions 12 $ 6,911,742 $ 5,204,175

Provision of maintenance and return conditions 15 510,609 332,160

Accounts payable 1,007,623 599,285

Other accounts payable and accrued expenses 619,768 345,341

Payable taxes other than income taxes 177,562 92,711

Air traffic liability 779,976 526,245

Total current liabilities 10,007,280 7,099,917

Long-term debt 12 6,594,072 5,253,503

Deferred income taxes 19 - 116,177

Employee benefits and other deferred liabilities 14 5,956 4,300

Provision of maintenance and retirement conditions 15 1,709,429 1,112,013

Total liabilities 18,316,737 13,585,910

Stockholders’ equity:

Capital stock 16 900,000 900,000

Contributions for future capital increases 5 5

Cumulative translation adjustments of foreign operations 101,012 12,105

Retained earnings 2,127,472 2,235,320

Controlling interest 3,128,489 3,147,430

Non-controlling interest 20,021 22,279

Total stockholders’ equity 3,148,510 3,169,709

Total $ 21,465,247 $ 16,755,619

See accompanying notes to consolidated financial statements.

4


Consolidated Statements of Loss or Profit For the years ended December 31, 2014 and 2013


Note 2014 2013

Operating revenues:

Passengers $ 12,015,220 $ 10,943,221

Ancillary revenues 366,057 453,133

Cargo 230,187 27,420

Other 332,397 155,885

12,943,861 11,579,659

Operating expenses:

Aircraft fuel 4,364,555 4,063,198

Maintenance and return conditions 1,549,524 1,155,311

Airport operating and landing fees 1,634,044 1,369,788

Wages, salaries and benefits 888,609 762,368

Insurance and passenger service 127,810 126,276

Selling 1,113,877 920,753

Administrative and other 978,991 770,560

Flight equipment rentals 20 1,512,286 1,276,261

Depreciation and amortization 630,683 445,279

12,800,379 10,889,794

Gross profit 143,482 689,865

Interest income 28,209 40,082

Interest expense (452,570) (317,221)

Exchange gain (loss) - Net 51,258 (27,434)

(373,103) (304,573)

(Loss) profit before income taxes (229,621) 385,292

Income taxes (benefit) expense 19 (119,515) 64,797

Net (loss) profit (110,106) 320,495

(Loss) profit for the year attributable to:

Owners of the Entity (107,848) 310,965

Non-controlling interests (2,258) 9,530

Consolidated net (loss) profit $ (110,106) $ 320,495


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Consolidated Statements of Comprehensive (Loss)

Income For the years ended December 31, 2014 and 2013


2014 2013

Consolidated net (loss) profit $ (110,106) $ 320,495

Other comprehensive (loss) income:

Cumulative translation adjustments of foreign operations 88,907 589

Consolidated comprehensive (loss) income of the year $ (21,199) $ 321,084

(Loss) profit for the year attributable to:

Owners of the Entity $ (18,941) $ 310,965

Non-controlling interests (2,258) 9,530

Consolidated net comprehensive (loss) income of the year $ (21,199) $ 320,495


6


Consolidated Statements of Changes in Stockholders’ Equity For the years ended December 31, 2014 and 2013


Cumulative

Contributions translation

Capital for future adjustments of Retained Non-controlling

stock capital increases foreign operations earnings interest Total

Balance as of January 1, 2013 $ 900,000 $ 5 $ 11,516 $ 1,924,355 $ 12,749 $ 2,848,625

Comprehensive income:

Cumulative translation

adjustments of foreign

operations - - 589 - - 589

Net income for the year - - - 310,965 9,530 320,495

Comprehensive income - - 589 310,965 9,530 321,084

Balance as of December 31, 2013 900,000 5 12,105 2,235,320 22,279 3,169,709

Comprehensive loss

Cumulative translation

adjustments of foreign

operations - - 88,907 - - 88,907

Net loss for the year - - - (107,848) (2,258) (110,106)

Comprehensive income - - 88,907 (107,848) (2,258) (21,199)

Balance as of December 31, 2014 $ 900,000 $ 5 $ 101,012 $ 2,127,472 $ 20,021 $ 3,148,510


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Consolidated Statements of Cash Flows For the years ended December 31, 2014 and 2013


2014 2013

Operating activities:

Net (Loss) profit $ (110,106) $ 320,495

Items related to investing activities

Income tax (benefit) expense (119,515) 64,797

Depreciation and amortization 630,683 445,279

Provision for maintenance and retirement conditions 775,865 324,541

Interest expense 452,570 317,221

Unrealized foreign exchange (395,080) (14,723)

1,234,417 1,457,610

(Increase) decrease in:

Accounts receivable (49,479) (123,049)

Due from related parties 11,207 -

Recoverable taxes, mainly business flat tax and value-added tax 127,166 (1,936)

Inventories (199,989) (71,209)

Prepaid expenses 41,205 15,209

Deposits on aircraft leases (87,982) 5,630

Increase (decrease) in:

Accounts payable 408,338 157,005


Income taxes paid 84,851 34,035


Employee benefits 1,656 1,628

Net cash provided by operating activities 2,099,548 1,623,788

Investing activities:

Flight equipment, leasehold improvements, and furniture and

equipment (4,416,554) (996,488)

Advance payment to purchase aircraft (7,256) (195,951)

Other assets (10,397) -

Prepaid maintenance (596,071) (688,159)

Net cash used in investing activities (5,030,278) (1,880,598)

Financing activities:

Loans received 4,397,611 4,070,828

Paid of loans (1,349,474) (2,384,352)

Interest paid (443,421) (308,072)

Net cash provided by financing activities 2,604,716 1,378,404

Effects from exchange rates 63,802 16,946

Net (decrease) increase in cash and cash equivalents (262,212) 1,138,540

Cash and cash equivalents at beginning of year 2,622,495 1,483,955

Cash and cash equivalents at end of year $ 2,360,283 $ 2,622,495


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Notes to the Consolidated Financial Statements For the years ended December 31, 2014 and 2013


1. Nature of business

ABC Aerolíneas, S. A. de C. V. and Subsidiaries (the “Entity” or “Interjet”) are mainly engaged in providing

domestic and international public air transportation services for passengers, luggage, correspondence, cargo,

parcels and mail, as well as operating flight equipment. The Entity also develops and operates centers for

aircraft maintenance and air and land personnel training. Through its associate, it is also engaged in providing

ground transportation services from various locations to the airports at which it operates. At December 31,

2014, the Entity provided services with a fleet of 51 aircraft of which seven are owned by the Entity, 20 are

under financing leases and 24 are under operating lease schemes.

The Entity provides air transportation services to the general public and cargo transportation mainly in

Mexico under a concession granted by the Mexican Government through the Secretaria de Comunicaciones y

Transportes (the Secretary of Communications and Transportation or “SCT”), which was granted on August

8, 2005 and had an original term of five years. The Entity requested an extension of the concession term

subject to certain requirements of Law and Regulation of Civil Aviation. On February 12, 2010, the SCT

extended the concession granted to the Entity for an additional 30 years, which took effect in August 2010.

The main offices of the Entity are located in Ignacio Longares 102 lote 2, Manzana 2, Parque industrial

Exportec 1, Colonia San Pedro Totoltepec Toluca from Mexico City.

2. Significant events and seasonality

Seasonality

The business is subject to seasonal fluctuations. Usually, air travel demand is highest during the summer

months and during the winter holiday season, particularly in international markets, because there are more

vacation trips during these periods. Busiest months in the year are July, August, March or April (depending

on the date of Easter each year) and December, while the lower occupancy months are February, May and

September. The results of our operations generally reflect this seasonality, but can also be affected by factors

that are not necessarily seasonal, such as economic conditions, weather, delays in air traffic control and other

factors.

Acquisition of Airbus A320 NEO aircraft

On November 8, 2012, Interjet entered into with Airbus, a favorable amendment agreement to the aircraft

purchase contracts signed on October 18, 2005. Such amendment agreement establishes, among other things,

a firm commitment to purchase 40 Airbus A320 Neo aircraft, with scheduled deliveries between the second

half of 2018 and the second half of 2023. The A320 Neo aircraft incorporate the latest aeronautical

technology, providing a 15% saving in fuel consumption due to their greater range and load capacity. With

this purchase Interjet will gradually replace its current fleet with more efficient aircraft, improving its

operating profitability and maintaining a low average age for the whole fleet.

9

The commercial and financial conditions negotiated by Interjet with the manufacturer will enable it to access

different financing sources for the acquisition, including without limitation, export financing by export credit

agencies (ECA´s), long-term commercial bank loans, and sale and leaseback with lessors, or direct financing

from the manufacturer, all under convenient terms, which will help improve its financial profile. Furthermore,

as part of the same transaction Interjet convinced Airbus to reduce by approximately 10.89% the price of each

of the six A320 aircrafts that are received between November 2012 and December 2013, which represent a

significant direct benefit.

New aircraft

On March 2, 2015, the Entity signed a contract with Superjet to acquire 10 SSJ100 model aircraft, whose

delivery is scheduled between 2015 and 2016. The four deliveries will be between August and December

2015.

New destinations

In 2014, the Entity began flights between México-Palenque, Tijuana-Culiacán, Tijuana-Oaxaca, Tijuana-

Bajío, Tijuana-Aguascalientes, Monterrey-Villahermosa, Monterrey-Cd. Juárez, Monterrey-Veracruz,

Monterrey-Houston and Monterrey-Cd. Del Carmen.

Alliances

During the first quarter of 2014 the Entity signed a code share agreement with Iberia, which involves all

destinations departing and arriving at the International Airport of Mexico City operated by Iberia.

During the fourth quarter of 2014, the Entity signed a code share agreement with American Airlines in five

destinations, Huatulco, Villahermosa, Merida, Oaxaca and Tuxtla Gutierrez.

3. Basis of presentation

a. Explanation for preparation in English

The accompanying consolidated financial statements have been prepared in English for use outside of

Mexico. These consolidated financial statements are presented on the basis of International Financial

Reporting Standards (“IFRS”). Certain accounting practices applied by the Entity that conform with

IFRS may not conform with accounting principles generally accepted in the country of use.

b. Negative working capital

As of December 31, 2014 and 2013, the Entity has a negative working capital of $6,309,811 and

$3,227,998, respectively. The Entity since the beginning of its operations decided to enter into short-

term loans agreements renewable every year to take advantage of lower interest rates and to reduce the

financial costs every year. The Entity is assessing the convenience of renegotiating the short-term loans

into long-term loans.

c. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis.

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i. Historical cost:

Historical cost is generally based on the fair value of the consideration given in exchange for

assets.

ii. Fair value:

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, regardless of whether

that price is directly observable or estimated using another valuation technique. In estimating

the fair value of an asset or a liability, the Entity takes into account the characteristics of the

asset or liability if market participants would take those characteristics into account when

pricing the asset or liability at the measurement date. Fair value for measurement and/or

disclosure purposes in these consolidated financial statements is determined on such a basis,

except for share-based payment transactions that are within the scope of IFRS 2, leasing

transactions that are within the scope of IAS 17, and measurements that have some similarities

to fair value but are not fair value, such as net realizable value in IAS 2 or value in use in IAS

36.

In addition, for financial reporting purposes, fair value measurements are categorized into Level

1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable

and the significance of the inputs to the fair value measurement in its entirety, which are

described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or

liabilities that the entity can access at the measurement date;

Level 2 inputs are inputs, other than quoted prices included within Level 1, that are

observable for the asset or liability, either directly or indirectly; and

Level 3 inputs are unobservable inputs for the asset or liability.

d. Consolidation of financial statements

The consolidated financial statements incorporate the financial statements of the Entity and its

subsidiaries controlled by it. Control is achieved when the Entity has the power to govern their

financial and operational policies of an entity so as to obtain benefits from its activities.

Entity

Ownership

2014 and 2013

%

ABC Shuttle Transporte Terrestre, S. A. de C. V. (“ABC Shuttle”) 99

Compañía para la Capacitación y Adiestramiento Integral para Pilotos, S. A de

C. V. (“Capacitación y Adiestramiento”) 99

Servicios Administrativos Galem, S. A. de C. V. (“Servicios Galem”) 95

ABC Capacitación y Adiestramiento, S. A. de C. V. (“ABC Capacitación”) 99(1)

ABC Aerolíneas Mantenimiento Técnico Aeronáutico,

S. A. de C. V. (“ABC Mantenimiento”) 99(1)

ABC Servicios Terrestres, S. A de C. V. (“ABC Servicios Terrestres”) 95(1)

AV Aerolíneas, S. A de C. V. y subsidiaria (“AV”) 99

Grupo Aleve, S. A. de C. V. (“Aleve”) 99

Taller de Reparación Aeronáutica IJ-TEK, SAPI, de

C. V. (“Taller”) 60

IJ Cargo, S.A. de C.V. (IJ Cargo) 98

11

(1) The 90% of these companies are controlled by the Entity directly and 9% indirectly through a

consolidated subsidiary.

Balances and transactions between consolidated companies have been eliminated.

The non-controlling interests in the subsidiaries are identified separately in relation to the investments

that Entity has in them. The non-controlling interests may be initially valued, either at fair value or at

the proportional interest in the non-controlling interests over the fair value of the identifiable assets of

the entity acquired. The choice of the valuation basis is made individually for each transaction. After

the acquisition, the book value of the controlling interests represents the amount of such interests as of

the initial recognition, plus the portion of the subsequent non-controlling interests of the statement of

changes in stockholders' equity. The comprehensive result is attributed to the non-controlling interests

even if it gives rise to a deficit in them.

i. Subsidiaries – The subsidiaries are all the companies over which the Entity has the power to

govern their operating and financial policies, generally because it owns more than half of the

voting stock. The existence and effects of the potential voting rights which are currently

exercisable or convertible are considered when it is evaluated whether the Entity controls other

Entity. The subsidiaries are consolidated from the date on which their control is transferred to

Entity, and they cease to consolidate from the date on which control is lost. According to the

prior Standing Interpretations Committee SIC 12 the SPE are consolidated when the substance

of the relationship between the Entity and the SPE indicates that these are controlled by it.

The accounting policies of subsidiaries have been changed to the extent necessary to ensure that

there is consistency with the policies adopted by the Entity

e. Functional and reporting currency

These consolidated financial statement are presented in Mexican pesos, that is the functional currency

of the operations located in México. To consolidate financial statements of foreign subsidiaries, the

accounting policies of the foreign entities are converted to IFRS using the currency in which

transactions are recorded. The financial statements are subsequently translated to Mexican pesos using

the following methodologies:

Foreign operations whose functional currency is the same as the currency in which transactions are

recorded translate their financial statements using the following exchange rates: 1) the closing

exchange rate in effect at the balance sheet date for assets and liabilities; 2) historical exchange rates

for stockholders’ equity, and 3) the rate on the date of accrual of revenues, costs and expenses.

Translation effects are recorded to other comprehensive income beginning on the transition date to

IFRS.

The currency in which transactions are recorded and the functional currency of foreign operations and

the exchange rates used in the different translation processes are as follows:

Entity

Currency of

accounting

records

Functional

currency Mexican peso exchange rates

December 31,

2014

December 31,

2013

Inter-Jet Airlines Ldt. U.S. Dollar U.S. Dollar $ 14.7348 $ 13.0652

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f. Statements of Loss or Profit

Costs and expenses presented in the consolidated statements of loss or profit were classified according

to their nature because this is the practice of the sector to which the Entity belongs. It presents a

subtotal for income from operations in order to provide a better understanding of the economic and

financial performance, which is the result of decreased the service revenue less operating expenses.

g. Statements of Cash Flows

Cash flow is used by applying the indirect method for presentation of cash flows from operating

activities, so that consolidated net income for the period is adjusted for items not required, neither used

cash flows and flows relating to investment and financing activities. Interest received are presented as

investing activities operating and interest expense as financing activities or operation.

h. New and revised IFRSs in issue but not yet effective

The Entity has not applied the following news and revised IFRSs that have been issued but are not yet

effect.

a. Amendments to International Financial Reporting Standards (IFRSs) and new interpretations

which are mandatory from 2014. In the current year, the Entity has applied a series of amendments to IFRS and new Interpretation issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after January 1, 2014.

Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities Amendments to IAS 36 Disclosures Recoverable Amounts for Financial Assets The application of these amendments did not have a significant impact on the disclosures in the consolidated financial statements. Annual Improvements to IFRSs 2010-2012 Cycle Annual Improvements to IFRSs 2011-2013 Cycle The Management of the Entity determined that the application of these amendments had not significant effect on the consolidated financial statements of the Entity. New and amended IFRS issued but not yet effective

b. IFRS 9, Financial Instruments The Management of the Entity anticipate that the application of IFRS 9 may have a significant impact on amounts reported in respect of financial assets and liabilities of the Entity. However, it is not practical to provide a reasonable estimate of that effect until a detailed review has been completed.

4. Summary of significant accounting policies

a. Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial

Reporting Standards released by IASB.

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b. Financial assets

Financial assets are recognized when the Entity becomes a party to the contractual provisions of the

instruments.

Financial assets are initially valued at fair value. The transaction costs directly attributable to the

acquisition or issuance of financial assets (other than financial assets at fair value through profit or

loss) are added to or deducted from the fair value of the financial assets, as the case may be, in the

initial recognition. The transaction costs directly attributable to the acquisition of financial assets at

fair value through profit or loss are recognized immediately in results.

Financial assets are classified into the following specified categories: financial assets ‘at fair value

through profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial

assets and ‘loans and receivables’. The classification depends on the nature and purpose of the

financial assets and is determined at the time of initial recognition. All regular way purchases or sales

of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or

sales are purchases or sales of financial assets that require delivery of assets within the time frame

established by regulation or convention in the marketplace.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument

and of allocating interest income over the relevant period. The effective interest rate is the rate

that exactly discounts estimated future cash receipts (including all fees and points paid or

received that form an integral part of the effective interest rate, transaction costs and other

premiums or discounts) through the expected life of the debt instrument, or, where appropriate,

a shorter period, to the net carrying amount on initial recognition.

Income is recognized on an effective interest basis for debt instruments other than those

financial assets classified as of FVTPL.

Financial assets at FVTPL

Financial assets are classified as of FVTPL when the financial asset is either held for trading or

it is designated as of FVTPL.

A financial asset is classified as held for trading if:

It has been acquired principally for the purpose of selling it in the near term; or

On initial recognition it is part of a portfolio of identified financial instruments that the

Entity manages together and has a recent actual pattern of short-term profit-taking; or

It is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as of FVTPL

upon initial recognition if:

Such designation eliminates or significantly reduces a measurement or recognition

inconsistency that would otherwise arise; or

The financial asset forms part of an Entity of financial assets or financial liabilities or

both, which is managed and its performance is evaluated on a fair value basis, in

accordance with the Entity’s documented risk management or investment strategy, and

information about the Entity is provided internally on that basis; or

It forms part of a contract containing one or more embedded derivatives, and IAS 39

permits the entire combined contract to be designated as of FVTPL.

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Financial assets at FVTPL are stated at fair value, with any gains or losses arising on

remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss

incorporates any dividend or interest earned on the financial asset and is included in the ‘other

income (expenses) - Net’ line item.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. Loans and receivables are measured at amortized cost

using the effective interest method, less any impairment.

Interest income is recognized by applying the effective interest rate, except for short-term

receivables when the effect of discounting is immaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end

of each reporting period. Financial assets are considered to be impaired when there is objective

evidence that, as a result of one or more events that occurred after the initial recognition of the

financial asset, the estimated future cash flows of the investment have been affected.

For AFS equity investments, a significant or prolonged decline in the fair value of the security

below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

Significant financial difficulty of the issuer or counterparty; or

Breach of contract, such as a default or delinquency in interest or principal payments; or

It becoming probable that the borrower will enter bankruptcy or financial re-

organization; or

The disappearance of an active market for that financial asset because of financial

difficulties.

For certain categories of financial assets, such as trade receivables, assets are assessed for

impairment on a collective basis even if they were assessed not to be impaired individually.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is

the difference between the asset’s carrying amount and the present value of estimated future

cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets that are carried at cost, the amount of the impairment loss is measured as

the difference between the asset’s carrying amount and the present value of the estimated future

cash flows discounted at the current market rate of return for a similar financial asset. Such

impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all

financial assets with the exception of trade receivables, where the carrying amount is reduced

through the use of an allowance account. When a trade receivable is considered uncollectible, it

is written off against the allowance account. Subsequent recoveries of amounts previously

written off are credited against the allowance account. Changes in the carrying amount of the

allowance account are recognized in profit or loss.

When an AFS financial asset is considered to be impaired, cumulative gains or losses

previously recognized in other comprehensive income are reclassified to profit or loss in the

period.

15

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the

impairment loss decreases and the decrease can be related objectively to an event occurring

after the impairment was recognized, the previously recognized impairment loss is reversed

through profit or loss to the extent that the carrying amount of the investment at the date the

impairment is reversed does not exceed what the amortized cost would have been had the

impairment not been recognized.

In respect of AFS equity securities, impairment losses previously recognized in profit or loss

are not reversed through profit or loss. Any increase in fair value subsequent to an impairment

loss is recognized in other comprehensive income and accumulated under the heading of

investments revaluation reserve. In respect of AFS debt securities, impairment losses are

subsequently reversed through profit or loss if an increase in the fair value of the investment

can be objectively related to an event occurring after the recognition of the impairment loss.

Derecognition of financial assets

The Entity derecognizes a financial asset when the contractual rights to the cash flows from the

asset expire, or when it transfers the financial asset and substantially all the risks and rewards of

ownership of the asset to another party. If the Entity neither transfers nor retains substantially

all the risks and rewards of ownership and continues to control the transferred asset, the Entity

recognizes its retained interest in the asset and an associated liability for amounts it may have to

pay. If the Entity retains substantially all the risks and rewards of ownership of a transferred

financial asset, the Entity continues to recognize the financial asset and also recognizes a

collateralized borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying

amount and the sum of the consideration received and receivable and the cumulative gain or

loss that had been recognized in other comprehensive income and accumulated in equity is

recognized in profit or loss.

On derecognition of a financial asset other than in its entirety, the Entity allocates the previous

carrying amount of the financial asset between the part it continues to recognize under

continuing involvement, and the part it no longer recognizes on the basis of the relative fair

values of those parts on the date of the transfer. The difference between the carrying amount

allocated to the part that is no longer recognized and the sum of the consideration received for

the part no longer recognized and any cumulative gain or loss allocated to it that had been

recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or

loss that had been recognized in other comprehensive income is allocated between the part that

continues to be recognized and the part that is no longer recognized on the basis of the relative

fair values of those parts

c. Inventories

Inventories of expendable parts, accessories, materials and supplies are stated at the lower of their cost

or net realizable values, using the average method. They are recognized in results as consumed, also

based on their average cost.

d. Prepaid expenses

The Entity makes advances for the purchase of aircraft to be recognized in the entity functional

currency translated at the exchange rate of the payment date. When the financial effect is relevant,

despite the advances that do not qualify as a financial asset, recognizing the implicit financing to

accrue the discount interest rate implicit in the agreement. The item also includes prepayments

additional minimum lease payments resulting from subtracting the payment of advances for

maintenance, fair value, as described in accounting policy advances for maintenance.

16

e. Flight equipment, leasehold improvements, furniture and equipment

The flight equipment, adaptations, improvements and equipment are initially recorded at cost. These

assets are recorded at acquisition cost. Balances from acquisitions made through December 31, 2007

were restated for the effects of inflation by applying factors derived from the National Consumer Price

Index (“NCPI”) through that date as deemed cost in accordance with the transition elections to IFRS

applied by the Entity.

Land is not depreciated.

The furniture and equipment are stated at cost less accumulated depreciation.

Depreciation and amortization are recognized to lead to results of cost or valuation of assets (other

than land) less their residual values over their useful lives using the straight line method. The estimated

useful lives, residual values and depreciation method are reviewed at the end of each year, and the

effect of any changes in the estimate recorded is recognized on a prospective basis.

Years

Simulator 20

Flight equipment – aircraft 19 (average)

Flight equipment – aircraft (1) 10

Leasehold improvements 20

Communication equipment 12

Airport operating equipment 10

Furniture 10

Transportation equipment 4

Computer equipment 3

Assets held under finance leases are depreciated based on their estimated useful life as owned assets

or, if life is lower, in the corresponding lease term.

The gain or loss arising from the sale or retirement of an item of flight equipment, leasehold

improvements, and furniture and equipment is calculated as the difference between the resources

received from sales and the carrying amount of the asset and is recognized in income.

The category includes aircraft engines, airframes, landing gear, major maintenance carryforwards and

repair costs, on owned aircraft and those obtained through leasing, which are amortized over the hours

or accumulated cycles of operation, as applicable. Considering a residual value of 15%.

(1) The limit is the physical condition of the “overhaul” (repaired replacement part). The reparable

spare parts and replacement parts whose substitution is expected in the short term are at values

similar to those existing in the market which consider the prevailing situation each year and are

estimated to be recoverable in the regular course of operations. No residual value is considered.

f. Leases

Leases are classified as finance leases when the terms of the lease transfer substantially all the Entity

risks and rewards of ownership. All other leases are classified as operating leases.

17

The assets held under finance leases are recognized as assets of the entity at fair value at inception of

the lease, or if lower, the present value of the minimum lease payments. The corresponding liability to

the lessor is included in the statement of financial position as a finance lease liability.

Lease payments are apportioned between the finance charge and the reduction of the lease obligation

so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are

charged directly against income, unless they can be directly attributable to qualifying assets, in which

case they are capitalized in accordance with the entity's accounting policy. Contingent rents are

recognized as expenses in the periods in which they are incurred.

g. Prepaid maintenance

The Entity records the amounts paid in advance for maintenance as a financial asset if it is required to

make the payment of maintenance, and has made advance payments for maintenance, that they may be

reimbursed by the lessor if the institution demonstrates that spending maintenance has been performed.

The resulting financial asset is recognized at fair value. Any difference between this and the amount

paid is considered part of the lease payments. A financial asset is classified as a receivable, and

therefore, it is recognized at amortized cost. For its part, the additional minimum lease payments are

recognized in the caption of prepayments.

When the amounts paid are not fully recoverable, the unrecoverable amounts are determined and

periodically reviewed and represent an impairment of the financial asset.

h. Other assets

Costs derived from development activities and which give rise to future economic benefits, as they

fulfill certain requirements for recognition as assets, are capitalized and amortized based on the

straight-line method over ten years. Expenses that do not meet these requirements, as well as research

costs, are recorded in operations in the year they are incurred.

On August 19, 2008, the Entity commenced operations at the Mexico City International Airport,

through a contract with Aerocalifornia, S. A. de C. V., under which the Entity acquired rights to space

and flight hours for takeoff and landing of aircraft, documentation counters for passengers and

baggage, passenger information desks on the general terminal, as well as parking facilities for short

stay and long stay, Aero cares services, baggage revision services, service corridors, telescopic mobile

service facilities, equipment and ground support services. The acquisition of these rights and other

services paid were recorded as an indefinite lived asset, which is not amortized, but is subject to

impairment testing annually. Presented in the balance sheet in the other assets line item.

i. Concession

On August 8, 2005, the Federal Government, through the SCT, granted the Entity the concession to

provide public services related to national air transportation of passengers, cargo and mail for a five-

year period. As mentioned in Note 1, in 2010, the Entity obtained an extension of the concession term

for 30 additional years.

The Entity considers that the grant qualifies as an intangible asset with an indefinite life and therefore

is not amortized and is subject to impairment tests at least annually.

j. Deposits on aircraft leases

Deposits on aircraft leases mainly represent deposits paid to lessors of the fleet rented by the Entity as

well as deposits with lessors of buildings and airport service providers. These amounts are presented as

current or non-current, based on their contractually established recovery date.

18

k. Impairment of long-lived assets in use

At the end of each reporting period, the Entity reviews the carrying amounts of its tangible and

intangible assets to determine whether there is any indication that those assets have suffered an

impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order

to determine the extent of the impairment loss (if any). When it is not possible to estimate the

recoverable amount of an individual asset, the Entity estimates the recoverable amount of the cash-

generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be

identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are

allocated to the smallest Entity of cash-generating units for which a reasonable and consistent

allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested

for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. 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.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying

amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable

amount. An impairment loss is recognized immediately in profit or loss, unless the relevant asset is

carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating

unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying

amount does not exceed the carrying amount that would have been determined had no impairment loss

been recognized for the asset (or cash generating unit) in prior years. A reversal of an impairment loss

is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in

which case the reversal of the impairment loss is treated as a revaluation increase.

l. Financial liabilities

Financial liabilities are initially valued at fair value. The transaction costs which are directly

attributable to the acquisition or issuance of financial liabilities (other than financial liabilities valued

at fair value with changes recorded through results) are added or deducted, when applicable, from the

initially recognized fair value of financial liabilities. The transaction costs which are directly

attributable to financial liabilities at fair value with changes recorded through results are immediately

recognized in results.

Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial

liabilities’. Note 12 describe the characteristics of loans received by the Entity from financial

institutions.

Financial liabilities at FVTPL

Financial liabilities are classified as of FVTPL when the financial liability is either held for

trading or it is designated as of FVTPL.

19

A financial liability is classified as held for trading if: • It has been incurred principally for the purpose of repurchasing it in the near term; or

• On initial recognition it is part of a portfolio of identified financial instruments that the

Entity manages together and has a recent actual pattern of short-term profit-taking; or

• It is a derivative that is not designated and effective as a hedging instrument. A financial liability other than a financial liability held for trading may be designated as of FVTPL upon initial recognition if:

• Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• The financial liability forms part of an Entity of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Entity’s documented risk management or investment strategy, and information about the Entity is provided internally on that basis; or

• It forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as of FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on

remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss

incorporates any interest paid on the financial liability and is included in the statement of profit

or loss.

Financial liabilities at FVTPL

Other financial liabilities (including borrowings and trade and other payables) are subsequently

measured at amortized cost using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial liability and

of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash payments (including all fees and points paid or received that form an

integral part of the effective interest rate, transaction costs and other premiums or discounts) through

the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying

amount on initial recognition.

The Entity only eliminates financial liabilities when its obligations are fulfilled, canceled or expire.

m. Derivative financial instruments

The Entity enters into derivative financial instruments contracts. These instruments are negotiated only

with institutions of recognized financial strength and trading limits have been established for each

institution. The Entity’s policy is not to carry out transactions with derivative financial instruments for

the purpose of speculation.

The Entity recognizes all assets or liabilities that arise from transactions with derivative financial

instruments at fair value in the statements of financial position, regardless of its intent for holding

them. Fair value is determined using prices quoted on recognized markets. If such instruments are not

traded, fair value is determined by applying valuation techniques recognized in the financial sector.

20

When derivatives are entered into to hedge risks, and such derivatives meet all hedging requirements,

their designation is documented at the beginning of the hedging transaction, describing the

transaction’s objective, characteristics, accounting treatment and how the effectiveness of the

instrument will be measured.

The Entity discontinues hedge accounting when the derivative instrument matures, is sold, cancelled or

exercised, when the derivative instrument does not reach a high percentage of effectiveness to

compensate for changes in fair value or cash flows of the hedged item, or when the Entity decides to

cancel its designation as a hedge.

While certain derivative financial instruments are contracted for hedging from an economic point of

view, they are not designated as hedges because they do not meet all of the requirements and are

instead classified as held-for-trading for accounting purposes. Changes in fair values are recognized in

comprehensive financing results.

n. Air traffic liability and revenue recognition

Flight sales are initially recognized as a liability under air traffic liability. When the transportation

service is provided or the right to use the ticket is lost, the earned revenues are recognized and the

liability account is reduced.

With respect to unused tickets, transportation revenues are recognized based on the itinerary date of

the last respective coupon. As a policy, the Entity does not reimburse sold tickets. Revenue from freight and excess baggage are recognized when the service is provided.

o. Frequent-flier program

The Entity maintains the Payback Program (formerly the Interjet Club Program) through which, in

exchange for an annual enrollment fee, program members can accrue 10% of their airfares (without

taxes or airport tax) to acquire tickets, pay excess baggage charges or itinerary change fees throughout

a 12-month period. The fair value attributed to these rewards is deferred as a liability and recognized

as income when the Entity has fulfilled its obligation, i.e., when rewards are utilized or expire,

whichever occurs first. The price is assigned to rewards at fair value, while the residual amount is

assigned to the ticket value.

At December 31, 2014 and 2013, the liability generated by this program is insignificant and is

presented under accrued expenses in the consolidated statements of financial position.

p. Employee benefits from termination, retirement and statutory employee profit sharing (PTU)

Payments to defined contribution retirement benefit plans are recognized as an expense when

employees have rendered service entitling them to the contributions.

21

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the

projected unit credit method, with actuarial valuations being carried out at the end of each annual

reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the changes to

the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected

immediately in the statement of financial position with a charge or credit recognized in other

comprehensive income in the period in which they occur. Remeasurement recognized in other

comprehensive income is reflected immediately in retained earnings and will not be reclassified to

profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net

interest is calculated by applying the discount rate at the beginning of the period to the net defined

benefit liability or asset. Defined benefit costs are categorized as follows:

• Service cost (including current service cost, past service cost, as well as gains and losses on

curtailments and settlements).

• Net interest expense or income.

• Remeasurement.

The Entity presents the first two components of defined benefit costs in profit or loss in the line item

employee benefits expense. Gains and losses for reduction of service are accounted for as past service

costs.

The retirement benefit obligation recognized in the consolidated statement of financial position

represents the actual deficit or surplus in the Entity’s defined benefit plans. Any surplus resulting from

this calculation is limited to the present value of any economic benefits available in the form of refunds

from the plans or reductions in future contributions to the plans.

A liability for a termination benefit is recognized at the earlier of when the Entity can no longer

withdraw the offer of the termination benefit and when the entity recognizes any related restructuring

costs.

Statutory employee profit sharing (PTU)

PTU is recorded in the results of the year in which it is incurred and presented under other income and

expenses in the Entity consolidated statements of operations

q. Provision for maintenance and return conditions

When an operating lease establishes a future major maintenance obligation, the provision is calculated

by independent actuaries. In this case, the Entity records the best estimate of the future obligation if the

following assumptions are fulfilled:

I. A current obligation (whether legal or assumed) payable by the Entity exists as the result of a

past event;

II. The disbursement of economic resources as a means of settling this obligation is likely, and

III. The obligation can be fairly estimated.

The obligation established in lease contracts generally involves returning, in minimum performance

conditions, main components like engines, auxiliary power units (APU), major maintenance (1.e. C-

Checks), landing gear, repainting or shared maintenance costs (when usage exceeds a given level), as

detailed in each particular lease contract.

It is usually fairly clear whether a return obligation condition has been activated under the terms of the

lease contract for each component by matching return conditions with monthly aircraft condition

records.

22

When the existing condition of a leased aircraft component does not meet the return conditions

stipulated in the lease contract, the Entity has the obligation to settle the major maintenance costs

incurred for the component or make a payment to the lessor. Accordingly, it must create a provision

for the obligation established for this purpose in lease contracts.

A provision is recorded for the minimum amount required for the next maintenance program to return

significant aircraft components to a performance level in compliance with return conditions. This is the

case because the minimum disbursement required for the next major maintenance program or the

minimum amount payable to the lessor is the only contractual obligation established for the Entity,

which is fulfilled (at least temporarily) by the next major maintenance program implemented to return

components to a performance level exceeding lease contract requirements. This provision is discounted

at current value if the effect is material and classified as short and long-term based on estimated

maintenance dates.

The related provision for maintenance and return conditions is computed by independent actuary on

the basis of the lease agreements.

r. Provisions

Provisions are recognized for current obligations that arise from a past event, that are probable to result

in the use of economic resources, and that can be reasonably estimated.

s. Income taxes

The expense for taxes on income represents the sum of current taxes on income and deferred taxes on

income.

Current taxes

Current income taxes, calculated as the higher of the regular Mexican income tax (“ISR”) or the

Business Flat Tax (“IETU”), are recorded in the results of the year in which they are incurred.

Deferred income taxes

Deferred income tax is recognized on temporary differences between the carrying amounts of

assets and liabilities in the consolidated financial statements and the corresponding tax bases

used in the computation of taxable profit. Deferred income tax liabilities are generally

recognized for all taxable temporary differences. Deferred income tax assets are generally

recognized for all deductible temporary differences to the extent that it is probable that taxable

profits will be available against which those deductible temporary differences can be utilized.

Such deferred income tax assets and liabilities are not recognized if the temporary difference

arises from the initial recognition (other than in a business combination) of assets and liabilities

in a transaction that affects neither the taxable profit nor the accounting profit. In addition,

deferred income tax liabilities are not recognized if the temporary difference arises from the

initial recognition of goodwill.

As a consequence of the 2014 Tax Reform, as of December 31, 2013 deferred IETU is no

longer recognized.

23

Deferred income tax liabilities are recognized for taxable temporary differences associated with

investments in subsidiaries and associates, and interests in joint ventures, except where the

Entity is able to control the reversal of the temporary difference and it is probable that the

temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from

deductible temporary differences associated with such investments and interests are only

recognized to the extent that it is probable that there will be sufficient taxable profits against

which to utilize the benefits of the temporary differences and they are expected to reverse in the

foreseeable future.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting

period and reduced to the extent that it is no longer probable that sufficient taxable profits will

be available to allow all or part of the asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the

period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that

have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred income tax liabilities and assets reflects the tax consequences that

would follow from the manner in which the Entity expects, at the end of the reporting period, to

recover or settle the carrying amount of its assets and liabilities.

For the purposes of measuring deferred tax liabilities and deferred tax assets for investment

properties that are measured using the fair value model, the carrying amounts of such properties

are presumed to be recovered entirely through sale, unless the presumption is rebutted. The

presumption is rebutted when the investment property is depreciable and is held within a

business model whose objective is to consume substantially all of the economic benefits

embodied in the investment property over time, rather than through sale. The Entity’s

management reviewed the Entity’s investment property portfolios and concluded that none of

the Entity’s investment properties are held under a business model whose objective is to

consume substantially all of the economic benefits embodied in the investment properties over

time, rather than through sale. Therefore, management has determined that the ‘sale’

presumption set out in the amendments to IAS 12 is not rebutted. As a result, the Entity has not

recognized any deferred taxes on changes in fair value of the investment properties as the Entity

is not subject to any income taxes on the fair value changes of the investment properties on

disposal.

Current and deferred income taxes

Current and deferred income tax are recognized in loss or profit or loss, except when they relate

to items that are recognized in other comprehensive income or directly in equity, in which case,

the current and deferred income tax are also recognized in other comprehensive income or

directly in equity respectively. Where current income tax or deferred income tax arises from the

initial accounting for a business combination, the tax effect is included in the accounting for the

business combination.

t. Transactions in foreign currency

The individual financial statements of each of the Entity's subsidiaries are prepared in the currency of

the primary economic environment in which the Entity operates (its functional currency). For the

purpose of the consolidated financial statements, results and the financial position of each entity are

expressed in Mexican pesos, the Entity's functional currency and also the presentation currency of the

consolidated financial statements.

24

In preparing the financial statements of each individual Entity entity, transactions in currencies other

than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange

prevailing at the dates of the transactions. At the end of each reporting period, monetary items

denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary

items carried at fair value that are denominated in foreign currencies are retranslated at the rates

prevailing at the date when the fair value was determined. Non-monetary items that are measured in

terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognized in profit or loss in the period in which they

arise except for:

Exchange differences on foreign currency borrowings relating to assets under construction for

future productive use, which are included in the cost of those assets when they are regarded as

an adjustment to interest costs on those foreign currency borrowings.

Exchange differences on monetary items receivable from or payable to a foreign operation for

which settlement is neither planned nor likely to occur (therefore forming part of the net

investment in the foreign operation), which are recognized initially in other comprehensive

income and reclassified from equity to profit or loss on repayment of the monetary items.

For the purposes of presenting these consolidated financial statements, the assets and liabilities of the

Entity’s foreign operations are translated into Currency Units using exchange rates prevailing at the

end of each reporting period. Income and expense items are translated at the average exchange rates

for the period, unless exchange rates fluctuate significantly during that period, in which case the

exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are

recognized in other comprehensive income and accumulated in equity (and attributed to non-

controlling interests as appropriate).

u. Revenue recognition – The Entity recognizes sold, unused transportation as a liability and recognizes

the respective revenues when the transportation service is provided or the respective utilization right is

lost. In the case of the Club Interjet® Program, the Entity defers the estimated fair value of rewards (by

determining the fair value of the ticket in a residual manner) as a liability; but subsequently recognizes

this amount as revenue when rewards are utilized or expire, whichever occurs first.

5. Judgments and estimates

In the application of the Entity’s accounting policies, which are described in Note 4, the Entity’s management

are required to make judgments, estimates and assumptions about the carrying amounts of assets and

liabilities that are not readily apparent from other sources. The estimates and associated assumptions are

based on historical experience and other factors that are considered to be relevant. Actual results may differ

from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the period in which the estimate is revised if the revision affects only that period,

or in the period of the revision and future periods if the revision affects both current and future periods:

a. Lease classification – For accounting purposes, lease contracts are classified as operating or capital

leases by considering the extent to which the Entity obtains the risks and rewards inherent to the

ownership of aircraft and other leased goods, and depending on the substance of the transaction rather

than its legal form. As this determination requires that management use its judgment, the Entity has

established internal evaluation criteria. For example, the Entity evaluates the lease contract period, the

economic life of the leased asset, the current value of minimum contract payments and the asset's

estimated fair value, among other items, as the key factors used to classify a lease contract as an

operating or finance lease. Note 12 indicates the obligations recognized for the finance leases executed

for flight equipment, while Note 20 discloses the obligations resulting from operating leases. Lease

classification modifications can have a significant impact on the Entity's financial position and results.

25

b. Advances, the maintenance provision and return conditions - Accounting for the obligations and

rights derived from operating lease contracts requires that management utilize its judgment and prepare

estimates. Provisions are only recorded when the Entity has a contractual obligation and when the

liability amount can be fairly estimated. Estimates are prepared based on maintenance projections,

which are also utilized to determine the payment of advances. The provision is discounted by utilizing

a pretax rate of 6.05%, which reflects the risk associated with the maintenance expense. While subject

to certain conditions that require the legal interpretation of contracts, advances are recognized as a

financial asset which accrues financial income. Finally, advances and the provision are presented on a

gross basis because IFRS require this presentation unless a given standard permits or requires a net

presentation and when it is considered that the conditions embodied in these standards are not fulfilled.

Changes to the above judgments and/or estimates could have a significant effect on the Entity's

financial position and results.

c. Estimated useful lives, residual values and depreciation methods - The Entity periodically reviews

the estimates prepared for the useful lives, residual values and depreciation methods used for flight

equipment components, adaptations, improvements and equipment. The effect of estimate changes is

recognized prospectively. Estimate changes can have a significant effect on the Entity's financial

position and results.

d. Impairment of long-lived assets in use - The Entity reviews the book values of long-lived assets in use

to determine indications of impairment. If indications of impairment are detected, it estimates the

recoverable amount, which includes the estimated fair value of the future cash flows generated by the

asset (or cash-generating unit) and their fair value. The fair value of future cash flows is based on

management's projection of future transactions, which are discounted by using a pretax interest rate

that reflects the evaluation of the amount that would be realized on the market given the value of

money over time and the specific risks related to the asset (or cash-generating unit). Management's

evaluations have not indicated any impairment of long-lived tangible and intangible assets. Changes to

these estimates or their underlying assumptions could result in asset impairment with a significant

effect on the Entity's financial position and results.

6. Cash and cash equivalents

2014 2013

Cash and bank deposits $ 1,341,091 $ 1,995,543

Cash equivalents - Investment funds 1,019,192 626,952

$ 2,360,283 $ 2,622,495

7. Accounts receivable

2014 2013

Trade accounts receivable $ 241,578 $ 180,714

Credit cards 65,401 86,252

Sundry debtors 145,927 138,653

Officers and employees 10,009 7,817

$ 462,915 $ 413,436

26

8. Prepaid expenses

2014 2013

Aircraft fuel (1) $ 227,883 $ 217,330

Aircraft insurance 129,255 182,304

Prepaid insurance 2,104 5,666

Other 6,536 1,683

365,778 406,983

Prepaid expenses long term (2) 1,200,016 1,192,760

Total $ 1,565,794 $ 1,599,743

(1) The Entity modified its agreements for the acquisition of fuel by prepaying Aeropuertos y Servicios

Auxiliares, S. A., based on the previous months’ consumption.

(2) It had a contractual obligation, for the acquisition of 20 aircrafts.

9. Flight equipment, leasehold improvements and furniture and equipment

2014 2013

Flight equipment and simulator $ 7,798,888 $ 4,329,463

Leasehold improvements 526,194 422,091

Communication and airport operating equipment 268,605 231,786

Furniture and computer equipment 231,371 189,694

Transportation equipment 20,417 21,586

Land 5,111 5,111

8,850,586 5,199,731

Flight and other equipment in finance lease 5,614,613 4,848,914

Depreciation and amortization (1,991,021) (1,360,338)

$ 12,474,178 $ 8,688,307

a.

January 1, 2014 Acquisitions Disposals December 31, 2014

Cost:

Flight equipment and simulator $ 4,329,463 $ 3,578,618 $ (109,193) $ 7,798,888

Leasehold improvements 422,091 221,082 (116,979) 526,194

Communication and airport

operating equipment 231,786 190,089 (153,270) 268,605

Furniture and computer

equipment 189,694 41,677 - 231,371

Transportation equipment 21,586 443 (1,612) 20,417

Finance lease 4,848,914 765,699 - 5,614,613

Land 5,111 - - 5,111

Total $ 10,048,645 $ 4,797,608 $ (381,054) $ 14,465,199

27

January 1, 2014

Depreciation

expense Disposals December 31, 2014

Depreciation:

Flight equipment and simulator $ (793,181) $ (478,229) $ 1,916 $ (1,269,494)

Leasehold improvements (49,408) (18,376) - (67,784)


operating equipment (64,468) (30,957) - (95,425)


equipment (53,689) (36,465) - (90,154)

Finance lease (385,004) (65,380) - (450,384)

Transportation equipment (14,588) (4,535) 1,343 (17,780)

Total $ (1,360,338) $ (633,942) $ 3,259 $ (1,991,021)

b. c. January 1, 2013 Acquisitions Disposals December 31, 2013

Cost:

Flight equipment and simulator $ 4,433,457 $ 984,439 (1,088,433) $ 4,329,463

Leasehold improvements 317,316 104,775 - 422,091


operating equipment 203,571 28,215 - 231,786


equipment 84,681 105,013 - 189,694

Transportation equipment 18,488 3,098 - 21,586

Finance lease 3,989,838 859,076 - 4,898,914

Land 4,806 305 - 5,111

Total $ 9,052,157 $ 2,084,921 $ (1,088,433) $ 10,048,645

January 1, 2013

Depreciation

expense Disposals December 31, 2013

Depreciation:

Flight equipment and simulator $ (588,531) $ (204,650) $ - $ (793,181)

Leasehold improvements (40,833) (8,575) - (49,408)


operating equipment (39,066) (25,402) - (64,468)


equipment (33,511) (20,178) - (53,689)

Finance lease (203,937) (181,067) - (385,004)

Transportation equipment (9,181) (5,407) - (14,589)

Total $ (915,059) $ (445,279) $ - $ (1,360,338)

10. Other assets

2014 2013

Payment of duties $ 141,380 $ 141,380

Aviotek technical assistance 10,397 -

$ 151,777 $ 141,380

28

11. Deposits on aircraft leases

2014 2013

For rental of aircraft and engines $ 416,662 $ 328,490

For leases of buildings and other 133,059 133,249

$ 549,721 $ 461,739

12. Notes payable to financial institutions

2014 2013

Notes payable Mexican pesos

Note payable in Mexican pesos, which bears interest payable

on a monthly basis at the Mexican interbank equilibrium

interest rate (TIIE) plus 2.70 basis (1) $ 600,000 $ 800,000



interest rate (TIIE) plus 2.65 basis (2) 403,333 513,333



interest rate (TIIE) plus 2.50 basis (3) 700,000 -









interest rate (TIIE) plus 5.00 basis points (6) 48,821 122,052



interest rate (TIIE) plus 5.00 basis points (7) 106,000 133,929



interest rate (TIIE) plus 2.35 basis points (8) 128,226 -



interest rate (TIIE) plus 2.35 basis points (9) 36,651 -

29

2014 2013

Notes payable US dollars

Finance lease obligation for flight equipment accruing interest

at a fixed rate (10) 6,677,938 3,972,565

Note payable in U.S. dollars, which bears interest payable on

a quarterly basis at LIBOR rate plus 1.5 basis (11) 1,969,790 1,656,347

Bears interest payable on a monthly basis at LIBOR plus 0.95

points (12) 1,329,400 1,306,520

Note payable in U.S. Dollars, which bears interest payable on

a monthly basis at the LIBOR rate plus 6.00 (effective

weighted average interest rate of 6.26%) (13) - 326,630

Note payable in U.S. Dollars, which bears interest payable on

a monthly basis at the LIBOR rate plus 6.00 (effective

weighted average interest rate of 6.26%) (14) 58,939 65,326

Note payable in U.S. Dollars, which bears interest payable

quarterly at LIBOR rate plus 0.5 basis (15) 1,127,212 1,136,957

Total notes payable to financial institutions 13,505,814 10,457,678

Less - Short-term portion 6,911,742 5,204,175

$ 6,594,072 $ 5,253,503

The loans are guaranteed by the shareholders of the Entity.

(1) On December 4, 2012, the Entity signed with Nacional Financiera, SNC, Banking Institution

Development, Directorate Trust (NAFIN), acting as trustee of Trust No. 80660, for $1,000,000 payable

in 60 monthly installments of $16.667 pesos from January 21, 2013.

(2) On August 10, 2012, the Entity signed with NAFIN, acting as trustee of Trust No. 80660, for$550,000

payable in 60 monthly installments of $9,167 pesos from September 20, 2013.

(3) On August 6, 2014, the Entity signed with NAFIN, acting as trustee of Trust No. 80660, for $750,000

payable in 60 monthly installments of $12,500 pesos from September 22, 2014.

(4) On May 18, 2012, the Entity executed an unsecured loan contract with Banco Nacional de Comercio

Exterior, S.N.C. (Bancomext) for $320,000 pesos, payable in 84 monthly installments of $3,810 from

June 18, 2012.

(5) This loan contract was executed on December 14, 2011 with Banco Inbursa for $293,998, payable in

60 monthly installments of $4,900 from January 2, 2012.

(6) The unsecured loan contract executed on August 28, 2009 with Banco Nacional de Comercio Exterior

(Bancomext), will be settled through 18 monthly payments of $16,667 pesos as of March 2010. On

August 12, 2011, the Entity executed a new loan contract with Bancomext, which will be settled

through 48 monthly payments of $ 6,102 as of September 2011.

30

(7) On March 18, 2013, the Entity executed an unsecured loan contract with Bancomext for $150,000

pesos, payable in 84 monthly installments of $2,000.

(8) The unsecured loan contract was signed on March 21, 2014 with the Banco Nacional de Comercio

Exterior, SNC (Bancomext) payable in 24 monthly installments.

(9) The unsecured loan contract was signed on June 21, 2014 with the Banco Nacional de Comercio

Exterior, SNC (Bancomext) payable in 24 monthly installments.

(10) At December 31, 2014, minimum payments derived from finance leases are as follows:

Total minimum lease obligations $ 4,881,998

Current portion of obligations 1,795,939

Current value of obligations $ 6,677,937

(11) On January 29, 2010, a loan contract was executed with JP Morgan for US$ 149,200, with short-term

settlement. In 2012 two loan contracts were executed with JP Morgan, one of them for US$70,015,

within two years and US$64,054, within one year.

(12) On December 27, 2014 a note payable was signed for $75,000 with JP Morgan with short-term

settlement.

(13) On December 28, 2013 a note payable was signed for $100,000 with JP Morgan with short-term

settlement.

(14) On October 4, 2010, a subsidiary contracted an unsecured loan with Banco Inbursa, S. A. Institución

de Banca Múltiple, Grupo Financiero Inbursa for US$ 8,000, loan principal will be settled through six

annual payments of US$ 1,000, together with a payment of US$ 2,000, when the loan matures on

October 4, 2017.

(15) On December 15, 2010, a subsidiary executed a loan contract for six promissory notes with CitiBank,

N. A. for approximately US$ 48.5 million; this amount becomes payable when requested by the

financial institution. In addition this subsidiary executed a new loan contract for $28.0 million, payable

in May 2014.

Interest rates at December 31, 2014 and 2013 are as follows:

Rate Currency 2014 2013

TIIE (28 days) Mexican pesos 3.50% 4.80%

LIBOR (1 month) U.S. dollars 0.18% 0.23%

13. Financial instruments

a. Significant accounting polices

The details of the significant accounting policies and methods adopted (including recognition criteria,

valuation bases and the bases for recognition of revenues and expenses) for each class of financial

asset, financial liability and equity instruments are disclosed in Note 4.

31

b. Categories of financial instruments

The main categories of financial instruments are:

2014 2013

Financial assets

Cash and cash equivalents $ 2,360,283 $ 2,622,495

Loans and receivables

Accounts receivable 462,915 413,436

Due from related parties - 11,207

Prepaid maintenance 3,328,996 2,355,717

Deposits on aircraft leases 549,721 461,739

Financial liabilities

At amortized cost:

Notes payable to financial institutions 13,505,814 10,457,678

Accounts payable 1,007,623 599,285


c. Financial risk management objetives

The Entity’s Corporate Treasury function provides services to the business, co-ordinates access to

domestic and international financial markets, monitors and manages the financial risks relating to the

operations of the Entity through internal risk reports which analyze exposures by degree and

magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other

price risk), credit risk.

The Entity seeks to minimize the effects of these risks by using derivative financial instruments to

hedge risk exposures. The use of financial derivatives is governed by the Entity’s policies approved by

the board of directors, which provide written principles on foreign exchange risk, interest rate risk,

credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment

of excess liquidity. Compliance with policies and exposure limits is reviewed by the internal auditors

on a continuous basis. The Entity does not enter into or trade financial instruments, including

derivative financial instruments, for speculative purposes.

The Corporate Treasury function reports quarterly to the Entity’s risk management committee, an

independent body that monitors risks and policies implemented to mitigate risk exposures.

d. Price risk

As the Entity's main operating cost involves fuel, it is exposed to fluctuations affecting jet fuel prices.

The Entity's strategy focuses on seeking protection from significant and unexpected oil price increases,

while maintaining its competitiveness in the event of price decreases. To fulfill these objectives, it

evaluates the possibility of contracting derivative financial instruments, primarily fuel purchase

options however has hedged the price advances delivering fuel supplier based on previous

consumption.

Based on the decrease of open positions involving fuel purchase options at December 31, 2014 and

2013, the Entity's sensitivity to fluctuating oil prices does not have a significant effect on its results and

stockholders' equity.

32

e. Foreign currency risk

The Entity essentially obtains its revenues in Mexican pesos. However, given that it also performs

transactions in foreign currency, mainly US dollars, to finance and lease aircraft, engines, information

systems, airport services maintenance and insurance payments, among others, it is subject to

fluctuations in the peso-dollar exchange rate.

The strategy employed to manage this risk centers on monitoring active and passive positions

denominated in US dollars, while seeking the optimum level of exchange rate risk exposure

established by the Treasury area. Likewise, the Entity periodically evaluates the possibility of

contracting derivative financial instruments, while also analyzing hedge costs and the characteristics of

financial instruments which are regularly available on the market. The Entity does not currently have

hedges based on derivative financial instruments.

Note 17 indicates the Entity's foreign currency positions at December 31, 2014 and 2013, together with

the exchange rates in effect at those dates and the transactions performed during the years ended

December 31, 2014 and 2013.

A devaluation/revaluation of 1 peso per dollar, which represents management's evaluation of the

possible change in the exchange rate of these currencies, would represent an increase/decrease in the

Entity 's results and stockholders' equity of approximately $102,000 for the years ended December 31,

2014 and 2013.

The above sensitivity analysis is performed based on the position of financial instruments denominated

in US dollars at December 31, 2014 and 2013; however, it may not represent the exchange rate risk of

the period due to the variance of the Entity's net position in that currency.

f. Interest rate risk

The Entity has limited its interest rate exposure because all its aircraft capital leases are contracted at a

fixed rate. Other loans contracted with financial institutions to acquire aircraft and working capital are

subject to variable interest rates. However, although the Entity maintains cash equivalents and

variable-rate instruments, given the low materiality of these amounts as regards its financial statement,

it considers the interest rate risk to be insignificant.

When contracting a financial liability, the Entity analyzes the possibility of contracting a fixed or

variable rate by considering contractual requirements, market rate trends and the cost of contracting

fixed rates, among other elements.

Note 12 details the loans contracted with financial instruments at December 31, 2014, December 31,

2013.

An increase/decrease of 100 TIIE rate basis points, which represents management's evaluation of the

possible change to this rate, would result in a decrease/increase of the Entity's results and stockholders'

equity of approximately $15,171 and $19,933 for the years ended December 31, 2014 and 2013,

respectively.

An increase/decrease of 50 LIBOR rate basis points, which represents management's evaluation of the

possible change to this rate, would result in a decrease/increase of the Entity's results and stockholders'

equity of approximately $15,027 and $42,322 for the years ended December 31, 2014 and 2013,

respectively.

33

The above sensitivity analyses are performed based on the portion of variable-rate financial

instruments at December 31, 2014 and 2013. However, they may not represent the Entity's interest rate

risk of the period due to the variance of balances subject to this exposure.

g. Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in

financial loss to the Entity. The Entity has adopted a policy of only dealing with creditworthy

counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk

of financial loss from defaults. The Entity only transacts with entities that are rated the equivalent of

investment grade and above. This information is supplied by independent rating agencies where

available and, if not available, the Entity uses other publicly available financial information and its

own trading records to rate its major customers. The Entity’s exposure and the credit ratings of its

counterparties are continuously monitored and the aggregate value of transactions concluded is spread

amongst approved counterparties. Credit exposure is controlled by counterparty limits that are

reviewed and approved by the risk management committee annually.

The credit risk derived from cash and cash equivalents, credit card accounts receivable, maintenance

advances and guarantee deposits is limited because the Entity has the policy of only performing

transactions with parties with high credit ratings and acknowledged prestige.

Accounts receivable are mainly composed by accounts receivable from customers and credit cards. In

the case of customers, the Entity has implemented credit approval and follow-up processes.

Regarding to credit cards, are Entities with high credit ratings, for which received payment within 24

hours and 14 days. Interest is not charged on accounts receivable.

h. Liquidity risk

The Entity's main source of liquidity is the cash generated by its transactions. Furthermore, in the past,

it has also resorted to the capital contributions of its controlling stockholders and sales contracts

embodying lease obligations to finance aircraft.

As Finance Management is ultimately responsible for managing the Entity's liquidity, it establishes

working capital control and follow-up policies which enable it to administer short, medium and long-

term financing requirements. Cash flow statements are periodically prepared to manage risk and

maintain adequate reserves; likewise, the Entity also contracts credit lines and plans its investments.

Note 12 details the financing contracted by the Entity and its maturities. The following table indicates

the contractual maturities of the Entity's financial liabilities; it was prepared based on undiscounted

cash flows at the initial date on which payment could be requested. This table also includes principal

and interest payments, which were determined by using the TIIE and LIBOR spot rates in effect at

December 31, 2014.

December 31, 2014

Less than

1 year

More than 1

year and less

than 3

More than 3

years and less

than 5

More than

5 years Total

Notes payable to

financial

institutions $ 9,460,201 $ 3,687,515 $ 295,272 $ - $ 13,442,988

Accounts payable 1,007,623 - - - 1,007,623

Other accounts

payable and

accrued expenses 619,768 - - - 619,768

Total $ 11,087,592 $ 3,687,515 $ 295,272 $ - $ 15,070,379

34

i. Fair value of financial instruments

Fair value of financial instruments recorded at their applied cost

The Entity's main financial instruments are valued at their applied cost because they are

composed by accounts receivable and liabilities considered at their applied cost. With the

exception of loans contracted with financial institutions, management considers that the book

values of these financial assets and liabilities reflect their fair values given their nature and

short-term maturities. Furthermore, the Entity also considers that maintenance advances reflect

their fair value because the credit risk of the counterparties to which these advances were paid

has not changed.

At December 31, 2014 and 2013, respectively the fair value of loans contracted with financial

institutions is estimated at approximately $13,442,988 and $11,356,001, respectively.

Fair value valuation techniques and assumptions

The fair value of financial assets and liabilities is determined in the following manner:

The fair value of financial assets and liabilities with standard terms and conditions and

which are traded on liquid active markets are determined based on quoted market prices.

The fair value of other assets and liabilities is calculated by using generally accepted

price determination models based on the analysis of undiscounted cash flows.

The fair value of loans contracted with financial institutions was specifically determined by

utilizing a revenue approach and discounting the contractual cash flows of these liabilities at the

current rates estimated by the Entity. These current rates were calculated by considering the

loans most recently contracted by the Entity with financial institutions and which were adjusted

according to the specific conditions of each loan and the respective guarantees. Accordingly,

the Entity utilized the 5.12%, 7.7% rates for loans denominated in Mexican pesos, loans

denominated in US dollars guaranteed by aircraft and unsecured loans denominated in US

dollars, respectively. This valuation is considered as Level 3 according to the hierarchy

described below.

Fair value hierarchy

The Entity classifies the fair value valuations recognized in the statement of changes in

financial position by using three hierarchical levels based on valuation data. When a valuation

utilizes information from different levels, the overall valuation is classified at the lowest level

of the relevant data:

Level 1: fair value valuations are those derived from the prices (unadjusted) quoted on

active markets for liabilities or other identical assets;

Level 2: fair value valuations are those derived from indicators other than the quoted

prices included in Level 1, which are observable for the asset or liability, whether

directly (i.e., as prices) or indirectly (i.e., derived from prices); and

Level 3: fair value valuations are those generated by valuation techniques which include

indicators for assets and liabilities that are not based on observable market information

(unobservable indicators).

35

14. Employee benefits

a. Net period cost for obligations resulting from the seniority premiums and retirement payments was

$1,656 and $2,314, in 2014 and 2013.

This plan also provides seniority premium benefits, which consist of a lump sum payment of12 days’

wage for each year worked, calculated using the most recent salary, not to exceed twice the minimum

wage established by law. The related liability and annual cost of such benefits are calculated by an

independent actuary on the basis on formulas defined in the plans using the projected unit credit

method.

Other disclosures are considered unimportant in terms of their nature and amount.

15. Provision of maintenance and retirement conditions

2 0 1 4

Balances as of

January 1 , 2014 Increase

Maintenance

realized (1)

Balances as of

December 31 ,

2014

Short

-term

Long

-term

$ 1,444,173 $ 775,865 $ - $ 2,220,038 $ 510,609 $ 1,709,429

2 0 1 3

Balances as of

January 1 , 2013 Increase

Maintenance

realized (1)

Balances as of

December 31 ,

2013

Short

-term

Long

-term

$ 1,119,632 $ 324,541 $ - $ 1,444,173 $ 332,160 $ 1,112,013

(1) Given the life and flight cycles and other conditions of aircraft and equipment subject to maintenance,

the Bank has not performed maintenance in the periods presented in accordance with the contractual

obligations of the leases.

16. Stockholders’ equity

a. Common stock is as follows:

Number of shares

December 31, 2014 December 31, 2013

Fixed capital

Series I 10,000 10,000

Variable capital

Series II 628,230 628,230

Series III 1,593,308 1,593,308

Series IV 2,500,000 2,500,000

Series V 5,868,900 5,868,900

Series VI 14,305,082 14,305,082

Series VII 6,226,380 6,226,380

Series IX 474,090 474,090

Total 31,605,990 31,605,990

36

b. Capital stock is as follows:

December 31, 2014 December 31, 2013

Fixed capital

Series I $ 10,000 $ 10,000

Variable capital

Series II - -

Series III - -

Series IV 100,000 100,000

Series V 92,545 92,545

Series VI 94,875 94,875

Series VII 592,580 592,580

Series IX 10,000 10,000

Total $ 900,000 $ 900,000

c. Common stock is composed by shares at no par value; variable capital is unlimited.

d. Stockholders' equity, except restated paid-in capital and tax retained earnings, will be subject to

income tax at the rate in effect when the dividend is distributed. Any tax paid on this distribution may

be credited against annual and estimated income taxes of the year in which the tax on dividends is paid

and the following two fiscal years.

17. Foreign currency balances and transactions

a. As of December 31, the foreign currency monetary position is as follows:

2014 2013

U.S. dollars:

Monetary assets US 427,737 US 370,600

Monetary liabilities (862,241) (702,945)

Net monetary asset position US (434,504) US (332,345)

Equivalent in Mexican pesos $ (6,402,330) $ (4,342,155)

b. Transactions denominated in foreign currency were as follows:

2014 2013

Aircraft leasing US 194,553 US 162,966

Information systems US 19,602 US 15,707

Airport services US 17,674 US 16,310

Maintenance US 78,170 US 69,395

Insurance payment US 3,963 US 5,004

Jet fuel US 32,477 US 27,196

Publicity US 6,487 US 7,158

Personnel training US 2,921 US 2,663

Sales commission US 3,706 US 3,165

Freight US 5,150 US 7,748

Honorarium US 7,508 US 1,762

Divers US 5,518 US 6,343

37

c. Mexican peso exchange rates in effect at the dates of the consolidated financial position and at the date

of issuance of these consolidated financial statements were as follows:

2014 2013 April 30, 2015

U.S. dollar 14.7348 13.0652 15.2043

18. Balances with related parties

a. Balances with related parties are as follows:

2014 2013

Due from related parties:

Grupo Galem, S. A. de C. V. $ - $ 11,207

Compensation management personnel

Compensation to directors and other key management during the period was as follows:

2014 2013

Short term benefits $ - $ 70,415

19. Income taxes

The Entity is subject to ISR and through December 31, 2013, to ISR and IETU.

ISR -The rate was 30% in 2014 and 2013 and as a result of the new 2014 ISR law (2014Tax Law), the rate

will remain at 30% in 2014 and thereafter.

IETU – IETU was eliminated as of 2014; therefore, up to December 31, 2013, this tax was incurred both on

revenues and deductions and certain tax credits based on cash flows from each year. The rate was 17.5%.

The current income tax is the greater of ISR and IETU up to 2013.

a. The income tax (benefit) expense is as follows:

2014 2013

Income tax $ 15,955 $ -

Deferred tax (135,470) 64,797

Income tax $ (119,515) $ 64,797

b. The effective tax rate differs from the statutory rate the, primarily for permanent differences such as

nondeductible expenses.

38

c. The main items that give rise to a deferred ISR asset are:

2014 2013

Deferred tax assets:

Tax loss carry forwards $ 1,036,495 $ 828,215

Provision of maintenance and retirement conditions 666,011 433,252


Other accounts payable 185,930 65,450

Employee benefits and other deferred liabilities 1,787 1,290

Deferred tax assets 2,124,216 1,486,081

Deferred tax assets (liabilities):

Inventories (469,738) (357,828)

Other assets (44,338) (39,191)

Prepaid maintenance (1,016,699) (706,715)

Flight equipment, leasehold improvements (396,548) (223,802)

Concession (9,272) (2,045)

Deferred tax liabilities (1,936,595) (1,329,581)

Valuation estimate deferred income tax assets (168,328) (272,677)

Deferred tax asset (liability) $ 19,293 $ (116,177)

d. The benefits of restated tax loss carryforwards for which the deferred ISR asset has been recognized,

can be recovered subject to certain conditions. Expiration dates and restated amounts as of December

31, 2014, are:

Year of expiration 2014

2017 $ 141,572

2018 1,035,203

2019 119,661

2022 386,741

2023 1,150,712

2024 621,098

$ 3,454,987

20. Operating leases

a. The Entity has entered into leasing contracts for 24 aircraft and 15 engines as of December 31, 2014,

with different lease periods. The maximum maturity will be in 2021. In some cases, the Entity has the

right to exercise the option to extend the terms of the leases.

The lease agreements are secured by collateral cash deposits, and establish certain requirements for

the Entity, the most important are:

1. Keep records, licenses and permits required by the competent aviation authority, making the

related payments.

2. Maintain the equipment according to the respective program.

3. Insure the equipment in accordance with the amounts and risks set forth in each lease.

4. Provide financial information.

5. Meet the technical conditions for the return of aircraft.

39

The Entity also leases the land on which the maintenance base and other facilities are built, which are

in federal areas. The contract has no maturity date.

b. The spaces at airports are leased to different airport Entitys.

The future minimum payments for operating leases are:

Year Real estate leases Aircraft Engines

2015 $ 48,286 $ 1,375,501 $ 149,905

2016 48,286 1,306,170 66,990

2017 48,286 1,209,385 35,057

2018 48,286 1,188,446 15,391

2019 48,286 1,073,657 15,391

$ 241,430 $ 6,153,159 $ 282,734

These amounts are determined based on the lease amounts and exchange rates known as of end each

year.

The total lease expense is as follows:

2014 2013

Aircraft $ 1,293,512 $ 1,100,174

Engines 218,774 176,087

1,512,286 1,276,261

Real estate 100,115 59,519

$ 1,612,401 $ 1,335,780

21. Segment information

The Entity assigns resources and evaluates profitability as a single business unit. While the governance entity

with the maximum authority for making the Entity's operating decisions reviews income information based on

different Entitys (such as national and foreign transactions, routes, etc.), the Entity's operating expenses and

assets are fully reported, meaning that it only has one operating segment for reporting purposes according to

IFRS 8, Operating segments.

The income received from foreign customers in specific countries is insignificant. Income is classified as

generated abroad based on the point of departure or arrival of the route in question. Noncurrent assets (other

than financial assets, deferred income taxes and employee benefits) are primarily located in Mexico, while

those located abroad are insignificant.

22. Authorization of the issuance of the financial statements

On April 30, 2015, the issuance of the consolidated financial statements was authorized by Lic. Luis

Alejandro Beristain Mercado, Chief Finance Officer. These consolidated financial statements are subject to

approval at the ordinary stockholders’ meeting, where they may be modified, based on provisions set forth by

Mexican General Corporate Law.

* * * * * *

Documents

ABC Aerolíneas, S. A. de C. V., and Subsidiaries Aerolíneas, S. A. de C. V., and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2014 and 2013, and