United states securities and exchange commission

Loan Agreements

The revolving credit facility with Banco Santander México and Bancomext, dated July 27, 2011 as amended and restated on August 1, 2013 and as further amended on February 28, 2014 and November 27, 2014, under which we are a guarantor, provides financing for pre-delivery payments in connection with our purchase of nineteen A320 aircraft. On August 25, 2015, we entered into an additional amendment to such loan agreement to finance pre-delivery payments of eight additional A320 aircraft. Finally, we entered into one further amendment to this loan agreement on November 30, 2016, to finance the pre-delivery payments for the twenty-two remaining A320 aircraft under the Airbus purchase agreement.

The aggregate principal amount of this revolving line is for up to U.S. $199.6 million, of which U.S. $113.1 million is provided by Banco Santander México and U.S. $86.5 million by Bancomext. This revolving credit facility bears annual interest at three-month LIBOR plus a spread according to the contractual conditions of each disbursement in a range of 1.99 to 2.25 percentage points. The final maturity is on May 31, 2021. Any principal repaid may be re-borrowed until October 31, 2020. This revolving line of credit may limit our ability to, among others, declare and pay dividends in the event that we fail to comply with the payment terms thereunder, dispose of certain assets, incur indebtedness and create certain liens.

In December 2016, we entered into two short-term working capital facilities: the first with Bank of America México, S.A. Institución de Banca Múltiple in the amount of U.S. $15.0 million, bearing annual interest at one-month LIBOR plus a spread of 1.60 percentage points, and the other with Banco Nacional de México S.A. in the amount of Ps.406.3 million, bearing annual interest at TIIE 28 days plus a spread of 0.80 percentage points (the Interbank Equilibrium Interest Rate ( tasa de interés interbancaria de equilibrio ) or the TIIE).

As of December 31, 2016, we were current with principal and interest payments as well as in compliance with the covenants under our revolving credit facility and short-term working capital facilities.

C. Research and Development, Patents and Licenses, Etc.

We have registered the trademark “Volaris” with the trademark office in Mexico and the United States. We have also registered several additional trademarks and slogans with the trademark office in Mexico.

We operate software products under licenses from our vendors, including Jeppesen Systems AB and Navitaire LLC. Under our agreements with Airbus, we use Airbus’ proprietary information to maintain our aircraft.

D. Trend Information

See Item 5: “Operating and Financial Review and Prospects—Operating Results—Trends and Uncertainties Affecting our Business”

E. Off-Balance Sheet Arrangements

None of our operating lease obligations are reflected on our statements of financial position. We are responsible for all maintenance, insurance and other costs associated with operating these aircraft; however, we have not made any residual value guarantee to our lessors.

 

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F.	Tabular Disclosure of Contractual Obligations

The following table sets forth certain contractual obligations as of December 31, 2016:

 

		Contractual Obligations Payments due by Period
		Total				Less than 1 year				1 to 3 years				3 to 5 years				More than 5 years
		(In thousands of pesos)
Debt (1)			1,994,283				1,051,237				785,022				158,024				—
Operating lease obligations (2)			35,700,045				4,795,923				9,297,224				8,666,500				12,940,398
Flight equipment, spare engines and spare parts purchase obligations (3)			6,515,893				1,615,828				4,369,175				530,890				—
Total future payments on contractual obligations			44,210,221				7,462,988				14,451,421				9,355,414				12,940,398

 

(1)	Includes scheduled interest payments.
(2)	Does not include maintenance deposit payments because they depend on the utilization of the aircraft.
(3)	Our contractual purchase obligations consist primarily of aircraft and engine acquisitions through manufacturers and aircraft leasing companies. In December 2011, we signed an amendment to our purchase agreement with Airbus for an additional order of 44 A320 family aircraft for delivery between 2014 and 2020.

Committed expenditures for these aircraft, spare engines, spare parts and related flight equipment, including estimated amounts for contractual price escalations of pre-delivery payments, will be approximately Ps.6.5 billion from 2017 to 2020.

In 2017, we expect our capital expenditures, excluding pre-delivery payments, to be Ps.1.8 billion, consisting primarily of aircraft parts and rotable spare parts, construction and improvements to leased assets, and major maintenance costs (leasehold improvements to flight equipment recorded into rotable spare parts furniture and equipment, net).

 

G.	Safe Harbor

Not applicable.

 

ITEM 6

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.	Directors and Senior Management

Board of Directors

Our by-laws provide that the board of directors be comprised of no more than 21 members and their corresponding alternates, in which at least 25% of the members and their corresponding alternates are required to be independent pursuant to the Mexican Securities Market Law. A determination about independence must be made by our shareholders and it may be challenged by the CNBV. As of the date of this annual report, our board of directors is comprised of 11 principal members, of which 45.45% are independent and three of which have been appointed by our Series B shareholders.

Under our by-laws, Series B shareholders will have the right to appoint three directors as long as the Series B shares represent at least 12% of Volaris’ outstanding capital stock. If the Series B shares, which are convertible into Series A Shares, represent less than 12% of our outstanding capital stock, the right to appoint directors by Series B shareholders will be based on the Mexican Securities Market Law.

Under our by-laws and the Mexican Securities Market Law, any shareholder or group of shareholders representing 10% of Volaris’ outstanding capital stock, have the right to appoint one director for each such 10% ownership stake.

Set forth below are the name, age, position and biographical description of each of our directors as of the date of this report. The business address of our directors is that of our principal office.

 

Name		Age		Title		Alternate*
Alfonso González Migoya		72		Independent Director and Chairman of the Board
Brian H. Franke		53		Director		Andrew Broderick
William A. Franke		80		Director		John R. Wilson
Harry F. Krensky		53		Director		Carlos Miguel Mendoza Valencia
Roberto José Kriete Ávila		64		Director		Rodrigo Salcedo Moore
Stanley L. Pace		63		Independent Director

 

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Name		Age		Title		Alternate*
William Dean Donovan		55		Independent Director		Rodolfo Montemayor Garza
Enrique Javier Beltranena Mejicano		54		Director		Marco Baldocchi Kriete
José Luis Fernández Fernández		57		Independent Director		José Carlos Silva Sánchez-Gavito
Joaquín Alberto Palomo Déneke		66		Independent Director		José Carlos Silva Sánchez-Gavito
John A. Slowik		66		Independent Director		José Carlos Silva Sánchez-Gavito

 

*	Alternate directors are authorized to act on behalf of their respective directors in the event of such directors’ inability to attend board meetings.