Important Notice This Offering Is Available Only

IMPORTANT NOTICE

THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QUALIFIED INSTITUTIONAL BUYERS (“QIBs”) UNDER RULE 144A OR (2) NON-U.S. PERSONS OUTSIDE OF THE U.S. UNDER REGULATION S (AND, IF INVESTORS ARE RESIDENT IN A MEMBER STATE OF THE EUROPEAN ECONOMIC AREA, A QUALIFIED INVESTOR)

IMPORTANT: You must read the following before continuing. The following applies to the Preliminary Offering Circular following this page, and you are therefore advised to read this carefully before reading, accessing or making any other use of the Preliminary Offering Circular. In accessing the Preliminary Offering Circular, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access.

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE U.S. OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE U.S. OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE LAWS OF OTHER JURISDICTIONS.

THE FOLLOWING PRELIMINARY OFFERING CIRCULAR MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.

Confirmation of your Representation: In order to be eligible to view this Preliminary Offering Circular or make an investment decision with respect to the securities, investors must be either (1) Qualified Institutional Buyers (“QIBs”) (within the meaning of Rule 144A under the Securities Act) or (2) non-U.S. persons (within the meaning of Regulation S under the Securities Act) outside the U.S.; provided that investors resident in a Member State of the European Economic Area must be a qualified investor (within the meaning of Article 2(1)(e) of Directive 2003/71/EC and any relevant implementing measure in each Member State of the European Economic Area). This Preliminary Offering Circular is being sent at your request and by accepting the e-mail and accessing this Preliminary Offering Circular, you shall be deemed to have represented to us that (1) you and any customers you represent are either (a) QIBs or (b) not a U.S. person and that the electronic mail address that you gave us and to which this Preliminary Offering Circular has been delivered is not located in the U.S. (and if you are resident in a Member State of the European Economic Area, you are a qualified investor) and (2) that you consent to delivery of such Preliminary Offering Circular by electronic transmission.

You are reminded that this Preliminary Offering Circular has been delivered to you on the basis that you are a person into whose possession this Preliminary Offering Circular may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver this Preliminary Offering Circular to any other person.

By accessing this Preliminary Offering Circular, you shall be deemed to have confirmed and represented to us that you are not a ‘retail client’ as defined in section 761G of the Corporations Act 2001 (Cth).

The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where such offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the initial purchasers or any affiliate of the initial purchasers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the initial purchasers or such affiliate on behalf of the Company in such jurisdiction.

This Preliminary Offering Circular has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently neither Goldman, Sachs & Co. (“Goldman Sachs”) nor any person who controls it nor any director, officer, employee nor agent of it or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Preliminary Offering Circular distributed to you in electronic format and the hard copy version available to you on request from Goldman Sachs. Subject to Completion. Dated November 18, 2015. CONFIDENTIAL

e notes or an 6US$50,000,000 Virgin Australia Holdings Limited 8.50% Senior Notes due 2019

Virgin Australia Holdings Limited (“Virgin Australia” or the “Company”) is offering US$50,000,000 of its 8.50% Senior Notes due 2019 (the “New Notes”). The New Notes are being offered under an indenture (the “Indenture”) pursuant to which the Company issued, on November 20, 2014, US$300,000,000 aggregate principal amount of its 8.50% Senior Notes due 2019 (collectively, the “Initial Notes” and, together with the New Notes, the “Notes”). The New Notes and the Initial Notes will be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. The New Notes have the same CUSIP, ISIN and Common Code numbers as, and are fungible with, the Initial Notes (except that any New Notes offered and sold in compliance with Regulation S will have temporary CUSIP, ISIN and Common Code numbers during a 40-day distribution compliance period commencing on the date of issuance of the New Notes and ending on , 2015). The Initial Purchaser (as defined herein) is offering the New Notes inside the United States to qualified institutional buyers (“QIBs”) in reliance on Rule 144A (“Rule 144A”) under the United States Securities Act of 1933, as amended (the “Securities Act”). In addition, the Initial Purchaser, through its selling agents, is offering the New Notes outside the United States to non-U.S. persons in reliance on Regulation S (“Regulation S”) under the Securities Act (the “Offering”). Virgin Australia will pay interest on the New Notes on May 15 and November 15 of each year. The first such payment will be made on May 15, 2016. The New Notes will mature on November 15, 2019. Virgin Australia may redeem the New Notes, in whole or in part at any time, at the redemption price set forth in this offering circular. See “Description of Notes—Redemption—Optional Redemption.” The New Notes will be guaranteed (the “Note Guarantees”) by certain of Virgin Australia’s subsidiaries (collectively, the “Guarantors”), subject to certain exclusions including, among others, the Velocity Sub-Group (as defined herein), Virgin Australia International Operations Pty Ltd, certain specified special purpose vehicles and certain additional immaterial subsidiaries. See also “Business—Corporate Restructure”. The New Notes will be Virgin Australia’s senior unsecured obligations and the Note Guarantees will be the senior unsecured obligations of each Guarantor. The New Notes and the Note Guarantees will rank pari passu in right of payment with Virgin Australia’s and each Guarantor’s respective existing and future senior indebtedness and senior in right of payment to Virgin Australia’s and each Guarantor’s respective future subordinated indebtedness. The New Notes and the Note Guarantees will be effectively subordinated to Virgin Australia’s and each Guarantor’s respective existing and future secured indebtedness to the extent of the value of the collateral securing such obligations. The New Notes will also be structurally subordinated to all existing and future indebtedness of, and other obligations and preferred stock of, Virgin Australia’s subsidiaries that do not guarantee the New Notes (other than indebtedness and other obligations owed to Virgin Australia), including the Velocity Sub-Group, Virgin Australia International Operations Pty Ltd, certain specified special purpose vehicles and certain additional immaterial subsidiaries. The net proceeds of this Offering will be used to provide Virgin Australia with additional U.S. dollar liquidity coverage and to meet future U.S. dollar financing obligations. See “Use of Proceeds.” If Virgin Australia experiences certain kinds of changes of control, it may be required to make an offer to purchase the Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. See “Description of Notes—Certain Covenants—Change of Control Offer to Purchase.” New Notes sold to QIBs in reliance on Rule 144A will be evidenced by a global note deposited with a custodian for and registered in the name of a nominee of The Depository Trust Company (“DTC”). Except as described herein, beneficial interests in the global note will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its direct and indirect participants. Any New Notes sold pursuant to Regulation S will be evidenced by one or more separate global notes. Virgin Australia does not intend to apply for listing of the New Notes on any securities exchange or for inclusion of the New Notes in any automated quotation system. See “Risk Factors” beginning on page 30 to read about important factors you should consider before buying the New Notes.

Offering Price for the New Notes: %, plus accrued interest from November 15, 2015 Interest on the New Notes will accrue from November 15, 2015. Purchasers will be required to pay accrued interest totaling US$ , or US$ per US$1,000 principal amount of New Notes, from and including November 15, 2015 to but excluding , 2015, the date the Company expects to deliver the New Notes.

The New Notes have not been and will not be registered under the Securities Act and are being offered and sold in the United States only to QIBs in reliance on Rule 144A under the Securities Act and to certain non-U.S. persons in transactions outside the United States in reliance on Regulation S under the Securities Act. Prospective purchasers that are QIBs are hereby notified that the seller of the New Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. The New Notes are not transferable except in accordance with the restrictions described under “Notice to Investors.”

The Initial Purchaser expects to deliver the New Notes through the facilities of DTC against payment in New York, New York on , 2015 (the “Closing Date”).

Goldman, Sachs & Co. The information in this preliminary offering circular is not complete and may be changed. This preliminary offering circular is not an offer to sell th offer to buy the notes in any jurisdiction where the offer or sale is not permitted. Offering circular dated , 2015. Virgin Australia Global Network Source: Virgin Australia as at October 31, 2015. Source: Virgin TABLE OF CONTENTS

Page Notice to Investors ...... ii Enforceability of Civil Liabilities...... iv Available Information ...... iv Cautionary Statement Regarding Forward-Looking Statements...... v Presentation of Financial and Other Information...... vii Exchange Rate Information ...... viii Australian Exchange Control Restrictions ...... ix Summary...... 1 Risk Factors ...... 30 Use of Proceeds ...... 55 Capitalization...... 56 Ratio of Earnings to Fixed Charges ...... 58 Selected Financial and Operating Information ...... 59 Management’s Discussion and Analysis of Financial Condition and Results of Operations. . . . . 64 Business...... 86 Industry...... 114 Directors ...... 124 Management ...... 130 Principal Shareholders...... 131 Certain Relationships and Related Party Transactions...... 132 Description of Other Financing Arrangements ...... 133 Description of Notes...... 137 Certain U.S. Federal Income Tax Considerations ...... 186 Certain Australian Tax Considerations ...... 190 Certain ERISA Considerations ...... 194 Plan of Distribution ...... 195 Transfer Restrictions ...... 201 Legal Matters ...... 204 Independent Auditors ...... 204 Index to the Consolidated Financial Statements of Virgin Australia Holdings Limited ...... F-1

You should rely only on the information contained in this offering circular. None of Virgin Australia, the Initial Purchaser or The Bank of New York Mellon, as trustee (the “Trustee”) has authorized any person (including any dealer, salesman or broker) to provide you with any information or represent anything about it or this Offering that is not contained in this offering circular. If given or made, any such other information or representation should not be relied upon as having been authorized by Virgin Australia, the Initial Purchaser or the Trustee. You should assume that the information contained in this offering circular is accurate only as at the date hereof or as at the date the information is otherwise stated to be provided and is subject to change, completion or amendment without notice.

i NOTICE TO INVESTORS This offering circular is confidential. You are authorized to use this offering circular solely for the purpose of considering the purchase of the New Notes issued pursuant to this Offering, as described in this offering circular. Virgin Australia and certain of its affiliates and agents and other sources identified herein have provided the information contained in this offering circular. In this offering circular, all references to “we,” “us,” “our,” “Virgin Australia,” the “Group,” the “Virgin Australia Group” and similar designations refer to Virgin Australia Holdings Limited and its subsidiaries, or, as the context requires, Virgin Australia International Holdings Pty Ltd and its subsidiaries (being companies in which the Virgin Australia Group holds an equity interest as further described in “Summary—Corporate Structure”). The “Virgin Australia Brand” refers to products and services operated under “Virgin Australia” branding, which excludes product and service offerings of Tigerair Australia (as defined below) and the frequent flyer rewards program in which Virgin Australia holds a 65% interest (“Velocity”). “Tigerair Australia” refers to Tiger Airways Australia Pty Limited, in which Virgin Australia owns a 100% interest, and its subsidiary. The “Tigerair Australia Brand” refers to products and services operated by Tigerair Australia or, as the context requires, Tiger International Number1 Pty Ltd, under “Tigerair” branding. The “Velocity Sub-Group” refers to Velocity Frequent Flyer Holdco Pty Ltd, together with each of its subsidiaries Velocity Frequent Flyer 1 Pty Ltd, Velocity Frequent Flyer 2 Pty Ltd, Velocity Rewards Pty Ltd, as trustee of the Loyalty Trust, Velocity Frequent Flyer Pty Ltd, the Loyalty Trust and any other subsidiary of Velocity Frequent Flyer Holdco Pty Ltd. The “Virgin Group” refers to Virgin Group Limited and its subsidiaries. Neither the Initial Purchaser named herein nor the Trustee makes any representation or warranty, expressed or implied, as to the accuracy or completeness of the information in this offering circular, and nothing contained in this offering circular is, or will be relied upon as, a promise or representation by the Initial Purchaser or the Trustee. You may not reproduce or distribute this offering circular, in whole or in part, and you may not disclose any of the contents of this offering circular or use any information herein for any purpose other than considering the purchase of the New Notes. You agree to the foregoing by accepting delivery of this offering circular.

The New Notes are being offered in reliance on exemptions from registration under the Securities Act for offers and sales of securities that do not involve a public offering. The New Notes have not been and will not be registered under the Securities Act or any other securities laws. Prospective investors that are QIBs are hereby notified that sellers of the New Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A thereunder. Each person receiving this offering circular acknowledges that (i) such person has been afforded an opportunity to request and to review, and has received, all additional information considered by it to be necessary to verify the accuracy of, or to supplement, the information contained herein, (ii) such person has not relied on the Initial Purchaser or the Trustee, or any person affiliated with the Initial Purchaser or the Trustee in connection with any investigation of the accuracy of such information or its investment decision, and (iii) no person has been authorized to give any information or to make any representation concerning Virgin Australia, its affiliates or the New Notes (other than as contained herein and information given by duly authorized officers of Virgin Australia in connection with investors’ examination of Virgin Australia, its affiliates and the terms of this Offering) and, if given or made, any such other information or representation should not be relied upon as having been authorized by Virgin Australia, the Initial Purchaser or the Trustee. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF VIRGIN AUSTRALIA AND ITS AFFILIATES AND THE TERMS OF THIS OFFERING AND THE NEW NOTES, INCLUDING THE MERITS AND RISKS INVOLVED. THE NEW NOTES HAVE NOT BEEN RECOMMENDED BY ANY U.S. FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORI- TIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

ii THE NEW NOTES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRA- TION OR EXEMPTION THEREFROM. SEE “TRANSFER RESTRICTIONS.” INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. Prospective investors should not construe anything in this offering circular as legal, business or tax advice nor a recommendation or a statement of opinion, or a report of either of those things, that a prospective investor make a decision in relation to the New Notes nor as otherwise constituting “financial product advice” for the purposes of Part 7 of the Corporations Act 2001 (Cth) (the “Corporations Act”) of the Commonwealth of Australia (“Australia”). This offering circular does not take into account the objectives, financial situation or needs of any potential investor. Each prospective investor should consult its own advisors as needed to make its investment decision and to determine whether it is legally permitted to purchase the New Notes under applicable legal investment or similar laws or regulations. This offering circular has not been, and will not be, lodged with the Australian Securities and Investments Commission (“ASIC”) and is not, and does not purport to be, a document containing disclosure to investors for the purposes of Part 6D.2 or Part 7.9 of the Corporations Act. It is not intended to be used in connection with any offer for which such disclosure is required and does not contain all the information that would be required by those provisions if they applied. It is not to be provided to any ‘retail client’ as defined in section 761G of the Corporations Act. Virgin Australia is not licensed to provide financial product advice in respect of the New Notes. Cooling off rights do not apply to the acquisition of the New Notes.

In connection with this Offering, the Initial Purchaser may purchase and sell the New Notes in the open market. These transactions may include short sales, syndicate covering transactions and, outside Australia and in circumstances that could not reasonably be expected to affect the price at which the New Notes or any other securities are traded on any market in Australia, stabilizing transactions. If the Initial Purchaser commences any of these transactions, it may discontinue them at any time. See “Plan of Distribution” in this offering circular for further details. This offering circular contains summaries believed to be accurate with respect to certain documents, but reference is made to the actual documents for complete information. All such summaries are qualified in their entirety by such reference. Copies of certain documents referred to herein will be made available to prospective investors upon request to Virgin Australia. The distribution of this offering circular and the offering and sale of the New Notes in certain jurisdictions may be restricted by law. Virgin Australia and the Initial Purchaser require persons in whose possession this offering circular comes to inform themselves about and to observe any such restrictions. This offering circular does not constitute an offer of, or an invitation to purchase, any of the New Notes in any jurisdiction in which such offer or invitation would be unlawful.

Under Internal Revenue Service (“IRS”) standards of professional practice, certain tax advice that may be used to support the promotion or marketing of transactions or arrangements must meet requirements as to form and substance. To assure compliance with these standards, Virgin Australia informs you that (i) this offering circular is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties, (ii) this offering circular was written to support the promotion or marketing of the transactions and matters addressed herein, and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.

iii NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES ANNOTATED, 1955, AS AMENDED (“RSA 421-B”) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

ENFORCEABILITY OF CIVIL LIABILITIES Virgin Australia is a company existing under the laws of Australia. In addition, certain of Virgin Australia’s directors and officers and the independent auditors and certain legal counsel named in this offering circular reside outside the United States. A substantial portion of Virgin Australia’s assets, and some of the assets of Virgin Australia’s directors, officers, registered public accounting firm and certain legal counsel, are located outside the United States. Therefore, you may not be able to effect service of process within the United States upon these entities or persons so that you may enforce judgments of U.S. courts against them in the United States based on the civil liability provisions of the U.S. federal securities laws. There is doubt as to the enforceability in Australia in original actions or in actions for enforcement of judgments of U.S. courts (“U.S. Judgment”), of civil liabilities predicated upon the civil liability provisions of the federal or state securities laws of the United States. Also, corresponding U.S. Judgments (whether or not such judgments relate to U.S. federal securities laws) may or will not be enforceable in Australia in certain other circumstances, including where such judgments contravene local public policy, were obtained by fraud or duress, breach the rules of natural justice or general principles of fairness, are obtained in circumstances where the judgment debtor did not receive notice of the proceedings in sufficient time to enable the judgment debtor to defend, are not for a fixed or readily ascertainable sum, are rendered by a court that did not have jurisdiction according to the private international law rules of the local court, are subject to appeal, dismissal, stay of execution, an order under the Australian Foreign Proceedings (Excess of Jurisdiction) Act 1984 (Cth) has been made, or are otherwise not final and conclusive, or involve consequential, multiple or punitive damages or where the proceedings in such courts were of a penal nature, are in respect of taxes or any revenue law or foreign governmental interest, are in favor of the person other than the party applying for enforcement or are on a cause of action previously adjudicated. Also, enforcement of a U.S. Judgment in Australia would require that service of process in relation to the proceedings in connection with that U.S. Judgment had been properly effected in accordance with applicable Australian law.

AVAILABLE INFORMATION Virgin Australia’s corporate headquarters are located at 56 Edmondstone Road, Bowen Hills, Brisbane, Queensland, 4006, Australia. Virgin Australia is listed on the Australian Securities Exchange (the “ASX”). Information filed by Virgin Australia with the ASX or contained on Virgin Australia’s website is not incorporated into this offering circular by reference. None of Virgin Australia or any of the Guarantors is currently subject to the periodic reporting and other information requirements of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor do they expect to become subject to such requirements. For so long as any of the New Notes or the Note Guarantees are “restricted securities” within the meaning of Rule 144(a)(3)

iv under the Securities Act, and during any period in which Virgin Australia or any Guarantor is neither subject to Section 13(a) or 15(d) of the Exchange Act, nor exempt from reporting thereunder pursuant to Rule 12g3-2(b), Virgin Australia will furnish (or provide by means of a website posting) to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by any such holder or beneficial owner, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act in order to permit compliance with Rule 144A in connection with resale of such New Notes. This offering circular contains summaries of certain agreements that Virgin Australia and other parties have entered into or will enter into in connection with this Offering. The descriptions in this offering circular of these agreements are only summaries, do not purport to be complete and are subject to, or qualified in their entirety by reference to, these definitive agreements. Copies of the definitive agreements will be made available in accordance with the terms of the New Notes without charge to you by making a written request to Virgin Australia at the following address: Virgin Australia Holdings Limited 56 Edmondstone Road Bowen Hills, Brisbane, Queensland, 4006, Australia Attention: Company Secretary

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This offering circular may contain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward- looking statements include any statements that predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “plan,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will result,” or words or phrases of similar meaning. Any such forward-looking statements are not assurances of future performance and involve risks and uncertainties. Actual results may vary materially from anticipated results for a number of reasons, including those stated in Virgin Australia’s financial statements included in this offering circular or as stated in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this offering circular, and, including without limitation: • the highly competitive nature of the airline industry; • deeply discounted promotional fares and corporate discounting by Virgin Australia’s competitors; • a continuing loss position due to overcapacity and/or other factors; • losses from major safety or security incidents; • operational disruptions due to maintenance of Virgin Australia’s fleet, security incidents or other events; • Virgin Australia’s reliance on technology; • global economic and geopolitical conditions, including terrorist attacks and military conflicts; • Virgin Australia’s dependence on the strength of its brands; • strategic alliances not being reauthorized or renewed, and/or not delivering anticipated results; • epidemics, pandemics, severe weather conditions, natural disasters or other “Acts of God” that materially adversely affect Virgin Australia’s operations and the demand for air travel; • large liability claims for serious personal injury or death arising out of accidents or disasters; • increases in fuel cost or fluctuation in fuel prices; • the implications of Virgin Australia’s substantial indebtedness on its ability to fulfill its obligations under the Notes;

v • Virgin Australia’s ability to secure future funds and maintain adequate liquidity; • an increase in insurance costs; • the extensive and evolving nature of domestic and foreign aviation and climate change regulations; • changes in macroeconomic factors and governmental policy changes or decisions; • national and international infrastructure development; • variations in Virgin Australia’s operating results due to seasonality and other factors associated with the airline industry; • changes in slot allocations and increases in airport, transit and landing fees, along with charges and the costs that an airline must pay to ensure it has access to airports and air navigation and related services; • loss of key airport capacity; • Virgin Australia’s inability to expand its operations into new markets as easily as other airlines; • Virgin Australia’s dependence on its (largely unionized) workforce, and exposure to operational disruptions as a result of labor conflicts and industrial action; • Virgin Australia’s dependence on its executive officers and other key employees; • Virgin Australia’s dependence on key suppliers and service providers; • Virgin Australia’s exposure to counterparty credit risk, interest rate fluctuations and fluctuations in currency exchange rates; • changes in financial reporting requirements; • the effect of rapid expansion and changes in strategy on management information reporting resources; • not being able to grow Virgin Australia’s business either organically or through possible future strategic opportunities and acquisitions; • not realizing anticipated benefits from the acquisition of Tigerair Australia; • liquidity risks associated with credit card processing service providers; • fixed obligations which may limit operational and financial flexibility; • compliance with the covenants to which Virgin Australia is subject; • compliance with disclosure and other obligations as a listed company; • future acquisitions being blocked by the Australian Competition and Consumer Commission (the “ACCC”); • an alteration of strategy if Virgin Australia is acquired or a change of control occurs; • legal and arbitration proceedings; • ongoing data security and privacy protection compliance requirements; and • decreases in the supply of pilots. All forward-looking statements attributable to Virgin Australia are expressly qualified in their entirety by the cautionary statements above. The forward-looking statements contained in this offering circular represent Virgin Australia’s expectations as at the date of this offering circular (unless any other date is expressly referenced in this offering circular in relation to such information) and are subject to change after such date.

vi PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Presentation of Financial Information of Virgin Australia The consolidated financial information included in this offering circular has been derived from Virgin Australia’s consolidated financial statements as at and for the financial years ended June 30, 2015, 2014 and 2013. These financial statements were prepared in accordance with Australian Accounting Standards (“AAS”) as adopted by the Australian Accounting Standards Board (“AASB”). Virgin Australia’s consolidated financial statements comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Certain Differences Between AAS and IFRS and U.S. GAAP This offering circular includes financial statements and other financial information prepared and presented in accordance with AAS and IFRS and the discussion and analysis of Virgin Australia’s financial condition and results of operations is based on such financial statements and other financial information. IFRS and AAS differ materially from U.S. generally accepted accounting principles (“U.S. GAAP”). This offering circular does not include any reconciliation of the financial statements and other financial data to U.S. GAAP. Moreover, this offering circular does not include any narrative description of the differences between IFRS and AAS as compared to U.S. GAAP and no attempt has been made to identify or quantify the differences between IFRS and AAS and U.S. GAAP that might be applicable to the financial statements or other financial information contained in this offering circular. It is possible that reconciliation or other qualitative or quantitative analysis would identify material differences between the financial statements included herein and other financial information prepared under IFRS and AAS as compared to U.S. GAAP. You should consult your own accounting advisors for an understanding of the differences between IFRS and AAS as compared to U.S. GAAP and how those differences might affect the financial statements and other financial information in this offering circular.

Non-AAS Financial Measures This offering circular includes certain references to non-AAS financial measures such as operating segment earnings before net gain/(loss) on disposal/sale of assets, impairment losses, accelerated depreciation due to changes in useful lives of assets, business and capital restructure costs and transaction costs, share of net profits/(losses) of equity accounted investees, time value movement on cash flow hedges, unrealized ineffectiveness on cash flow hedges and non-designated derivatives, net finance costs, income tax benefit, costs associated with aircraft rentals and depreciation and amortization costs allocated to Virgin Australia’s reportable segments (“Operating Segment EBITDAR” or “Segment EBITDAR”); segment earnings before net gain/(loss) on disposal/sale of assets, impairment losses, accelerated depreciation due to changes in useful lives of assets, business and capital restructure costs and transaction costs, share of net profits/(losses) of equity accounted investees, time value movement on cash flow hedges, unrealized ineffectiveness on cash flow hedges and non-designated derivatives, net finance costs and income tax benefit (“Segment EBIT” and, aggregated across each of Virgin Australia’s reportable segments, “EBIT”); Segment revenue and income; net debt; operating margin; cost per available seat kilometer (“CASK”); underlying CASK; underlying loss before tax; underlying profit before tax; return on invested capital (“ROIC”); ROIC EBIT; underlying EBIT; weighted average cost of capital (“WACC”); invested capital; adjusted net debt; revenue per available seat kilometer (“RASK”); group yield; domestic yield; and financial leverage (“non-AAS”). Virgin Australia uses these financial measures to evaluate its performance, and this additional financial information is presented in this offering circular as an additional tool for investors to evaluate an investment in the New Notes. The additional information is not prepared in accordance with AAS and should be viewed as supplemental to Virgin Australia’s financial statements and other financial information prepared in accordance with AAS. Investors are cautioned not to place undue reliance on this information and should note that these measures, as calculated by Virgin Australia, may differ materially from similarly titled financial measures reported by other companies, including Virgin Australia’s competitors. These non-AAS measures should not be considered in isolation or construed as a substitute for measures in accordance with AAS. For a reconciliation of Operating

vii Segment EBITDAR to its most directly comparable AAS measure, see “Selected Financial and Operating Information,” for a reconciliation of net debt, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness,” for a reconciliation of underlying loss before tax, see “Summary—Overview,” and for a reconciliation of Virgin Australia’s underlying profit before tax, see “Summary—Recent Developments—Financial Results for the Three Months Ended September 30, 2015.”

Presentation of Industry Data Market data and certain industry forecasts used throughout this offering circular were obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable at the relevant time, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal surveys, market research and other publicly available information, while believed to be reliable, have not been independently verified, and none of Virgin Australia, the Initial Purchaser or the Trustee makes any representation as to the completeness or accuracy of such information. In particular, certain information on the Qantas Group (“Qantas”) has been provided, which has been derived from its public filings and investor presentations. Virgin Australia cannot assure you that any of the Qantas information is reliable or complete and none of Virgin Australia, the Initial Purchaser or the Trustee has verified the accuracy of any such information. Any estimates and forecasts contained in market data and industry publications involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.” Virgin Australia has accurately reproduced the market and industry data, and as far as Virgin Australia is aware and able to ascertain from internal surveys, market research, publicly available information and industry publications, no facts have been omitted which would render the reproduced information inaccurate or misleading.

Certain Conventions and Defined Terms Certain figures and percentages included in this offering circular have been subject to rounding adjustments. Accordingly, figures shown in the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. All references to “AUD,” “AU$” and “Australian dollars” refer to Australian dollars, being the legal currency for the time being of Australia; all references to “USD,” “US$” and “U.S. dollars” refer to U.S. dollars, being the legal currency for the time being of the United States; all references to “NZD”, “NZ$” and “NZ dollars” refer to New Zealand dollars, being the legal currency for the time being of New Zealand; and all references to “SGD” refer to Singapore dollars, being the legal currency for the time being of Singapore.

Trademarks and Trade Names Trademarks, service marks and trade names appearing in this offering circular are the property of their respective holders.

EXCHANGE RATE INFORMATION The majority of Virgin Australia’s revenue is earned and expenses are incurred in Australian dollars. In this offering circular, various exchange calculations between U.S. dollars and Australian dollars have been made based on the Bloomberg Composite: Australian Dollar Spot Historical Price (the “Bloomberg AU Composite”), expressed as U.S. dollars per AU$1.00. The Bloomberg AU Composite is a “best market” calculation, in which, at any point in time, the bid rate is equal to the highest bid rate of all contributing bank indications and the ask rate is set to the lowest ask rate offered

viii by these banks. The Bloomberg AU Composite is a mid-value rate between the applied highest bid rate and the lowest ask rate. None of Virgin Australia, the Initial Purchaser or the Trustee makes any representation that the Australian dollar or the U.S. dollar amounts referred to in this offering circular have been, could have been or could, in the future, be, converted into U.S. dollars or Australian dollars, as the case may be, at any particular rate, if at all. The table below shows the Bloomberg AU Composite for U.S. dollars per AU$1.00 for the periods indicated.

U.S. dollars per AU$1.00 Period End Average(1) High Low Year ended June 30, 2011...... 1.0710 0.9901 1.1012 0.8316 Year ended June 30, 2012...... 1.0238 1.0321 1.1081 0.9388 Year ended June 30, 2013...... 0.9138 1.0272 1.0625 0.9113 Year ended June 30, 2014...... 0.9433 0.9185 0.9708 0.8683 Year ended June 30, 2015...... 0.7707 0.8367 0.9708 0.7589 Month ended July 31, 2015 ...... 0.7308 0.7409 0.7645 0.7269 Month ended August 31, 2015 ...... 0.7113 0.7295 0.7418 0.7113 Month ended September 30, 2015 ...... 0.7018 0.7055 0.7197 0.6908 Month ended October 31, 2015 ...... 0.7138 0.7206 0.7362 0.7030 Through November 15, 2015...... 0.7127 0.7106 0.7186 0.7032

(1) The average rate for a year means the average of the closing rates of each business day during such year. The average rate for a month, or for any shorter period, means the average of the closing rates of each business day during such month or shorter period. The U.S. dollar per Australian dollar exchange rate on November 15, 2015 was US$0.7127 = AU$1.00. The above rates may differ from the actual rates used in the preparation of the financial statements and other financial information appearing in this offering circular. Fluctuations in the value of the Australian dollar relative to the U.S. dollar may have a significant effect on the translation into U.S. dollars of Virgin Australia’s Australian dollar assets, liabilities, revenue and expenses, and may continue to do so in the future. For further information on the impact of fluctuations in exchange rates on Virgin Australia’s operations, see “Risk Factors—Risks Relating to Virgin Australia’s Business—Fluctuations in currency exchange rates could have a material adverse effect on Virgin Australia’s financial condition and results of operations.” In addition, in this offering circular various exchange calculations between New Zealand dollars and Australian dollars have been made based on the Bloomberg Composite: New Zealand Dollar Spot Historical Price, expressed as New Zealand dollars per AU$1.00 (the “Bloomberg NZ Composite”), and various exchange calculations between Singapore dollars and Australian dollars have been made based on the Bloomberg Composite: Singapore Dollar Spot Historical Price, expressed as Singapore dollars per AU$1.00 (the “Bloomberg SG Composite”).

AUSTRALIAN EXCHANGE CONTROL RESTRICTIONS The Charter of the United Nations Act 1945 (Cth) of Australia (the “1945 Act”) prohibits certain transactions involving assets which are deemed, consistent with a decision of the United Nations Security Council, to be freezable with, or on behalf of, certain listed or proscribed persons or entities. The assets deemed to be frozen under the 1945 Act are: • assets listed by the Minister for Foreign Affairs under section 15 of the 1945 Act; • assets owned or controlled by persons or entities listed by the Minister for Foreign Affairs under section 15 of the 1945 Act; • assets derived or generated from assets mentioned in the above paragraphs; and

ix • assets owned or controlled by persons or entities proscribed by the Governor-General in regulations made under section 18 of the 1945 Act. The Autonomous Sanctions Act 2011 (Cth) of Australia (the “2011 Act”) enables Australia to make regulations, in the absence of a resolution of the United Nations Security Council, imposing sanctions on certain proscribed persons or entities, or preventing the use of or dealing with assets. Targeted financial sanctions are imposed under the 2011 Act and require the approval of the Minister for Foreign Affairs to be obtained with respect to certain foreign currency transactions and monetary orders connected with a person or entity proscribed from time to time under those regulations. Traditionally persons, entities or assets listed or proscribed under the 1945 Act or the 2011 Act (or under the previous applicable regulations, the Australian Banking (Foreign Exchange) Regulations 1959) are persons, entities or assets against which the United Nations Security Council or the Commonwealth of Australia has imposed economic or political sanctions. The Australian Department of Foreign Affairs and Trade maintains a list of persons and entities having a proscribed connection subject to these restrictions which is available to the public at the following website: http://www.dfat.-gov.au/icat/UNSC_financial_sanctions.html. This website is referenced for informa- tional purposes only and the information contained therein is not incorporated by reference into this offering circular. Save for the restrictions outlined above, and save for certain licensing and reporting requirements applicable to persons engaged in certain businesses in Australia involving dealing in currencies, Australia does not impose restrictions on the conversion of Australian dollars into U.S. dollars at market-determined rates.

x SUMMARY This summary highlights selected information from this offering circular and may not contain all of the information that is important to you. For more complete information about this Offering, the New Notes and the Virgin Australia Group, you should read this entire offering circular, including the “Risk Factors” section.

Overview Virgin Australia is Australia’s second largest airline group and provides access to over 450 destinations worldwide. For the financial year ended June 30, 2015, Virgin Australia carried 22.3 million passengers and currently operates, on average, 3,400 weekly scheduled flights under the Virgin Australia Brand and up to 500 flights per week under the Tigerair Australia Brand (now wholly- owned by Virgin Australia following the Tigerair Minority Acquisition (as defined below)) to 48 destinations in Australia and 16 international destinations. Virgin Australia believes it has a strong brand and an excellent service offering which, coupled with Velocity, the award-winning frequent flyer rewards program in which Virgin Australia holds a 65% interest, underpin its aim to become Australia’s airline of choice. As at November 15, 2015, Virgin Australia had a market capitalization of AU$1.6 billion. The Australian aviation market is uniquely positioned, as Australia is an isolated island continent with long distances between capital cities and limited feasible forms of alternative transport. The 706 kilometer journey between Australia’s two most densely populated capital cities, Sydney and Melbourne, represented the fourth busiest route globally, based on total number of seats per month flown in both directions for the period of the month ended January 31, 2015 to the month ended October 31, 2015. Australian passenger year-on-year growth has been relatively consistent over the last ten years, with domestic passenger numbers growing at a compound annual growth rate (“CAGR”) of 4.2% and international passenger numbers growing at a CAGR of 5.5% from 2004 to 2014. Virgin Australia competes in the “two-player” Australian domestic aviation market with the Qantas Group, through its full service mainline Virgin Australia Brand and low-cost Tigerair Australia Brand. Virgin Australia has a strong position in this market, with the Virgin Australia Brand and Tigerair Australia Brand accounting for a 36% Australian domestic capacity market share (measured by Available Seat Kilometers (“ASKs”)) for the financial year ended June 30, 2015.

Revenue and income (AU$4,749 million) mix Shareholder composition as at for the financial year ended June 30, 2015 November 16, 2015

Tigerair Velocity Australia 5% 6%

Public 16% Air New Zealand 26% Virgin Australia Virgin Group International 10% 23% Virgin Australia Domestic 66% Singapore Airlines Etihad 23% 25%

Source: Company filings Source: Computershare Virgin Australia has adopted a “capital light” international strategy through its strategic alliances with Air New Zealand Limited (“Air New Zealand”), Delta Air Lines, Inc. (“Delta Air Lines”), Etihad Airways P.J.S.C. (“Etihad Airways”) and Singapore Airlines Limited (“Singapore Airlines”), as well as codeshare and interline agreements with other international airlines. In the Australian international aviation market, Virgin Australia and its alliances had a combined 26% market passenger share for the

1 month ended June 30, 2015. The Virgin Australia Brand’s domestic mainline acts as a feeder network to the broader international network, making Virgin Australia strategically important to its major alliance partners in terms of maintaining and growing their share of the Australian international passenger airline market. Virgin Australia has been supported by its four principal shareholders, the Virgin Group Limited (the “Virgin Group”), Air New Zealand, Etihad Airways and Singapore Airlines, which collectively own approximately 84% of the shares in Virgin Australia with the remaining shares owned by public shareholders. The Virgin Australia Brand has undergone a significant transformation from a low-cost carrier to a premium full service carrier as a result of the successful implementation of various business strategies. The Game Change Program, launched in 2010, permitted Virgin Australia to diversify revenue by entering the corporate and government markets and developing a presence in the regional regular public transport (“RPT”) and the low-cost budget markets through the acquisition of Skywest Airlines Pte Ltd (“Skywest”) in April 2013 and the initial 60% acquisition of Tigerair Australia in July 2013. Virgin Australia subsequently acquired the remaining 40% of Tigerair Australia in February 2015. In 2012, Virgin Australia launched the second phase of the Game Change Program, known as the Game On initiative, which fast-tracked the Game Change Program by delivering business efficiencies to maintain Virgin Australia’s low-cost structure, building a transformational loyalty business through the addition of 2.1 million new Velocity members since the launch of the Game On initiative, improving in-flight and on-the-ground services and enhancing frontline training and development for Virgin Australia’s staff. Virgin Australia is now focused on the Virgin Vision 2017 strategy, with the goal to capitalize on growth business opportunities through increased Velocity membership, improved charter and cargo revenues and continuing the Tigerair Australia transformation program. Renewed focus will also be placed on enhancing yield through further diversification of revenue and strengthening existing alliance partnerships. Finally, the Virgin Vision 2017 strategy will extend the business efficiency program implemented under the Game On initiative. Through the successful completion of the Game Change Program and the recent launch of Virgin Vision 2017, Virgin Australia has established a global network, offering access to over 450 global destinations through its operations and strategic alliances. Virgin Australia and its subsidiaries currently operate a young fleet of 160 aircraft, including A330, A320, B777, B737, E190, ATR72-500/600, Fokker 100 and Fokker 50 aircraft. The average age of the aircraft in Virgin Australia’s fleet, including Tigerair Australia (and excluding the aircraft in Virgin Australia Regional Airlines’ fleet principally used for charter operations) was 5.6 years as at June 30, 2015. For additional information on Virgin Australia’s fleet see “Business—Virgin Australia’s Operations—Fleet overview.” Together with various business efficiency initiatives and a “capital light” international network, this young, modern, fuel-efficient fleet underpins Virgin Australia’s low-cost base as a competitive advantage. For the financial year ended June 30, 2015, Virgin Australia generated total revenue and income of AU$4.7 billion, Operating Segment EBITDAR of AU$618.4 million, an underlying loss before tax(1) of AU$49.1 million and a statutory loss after tax of AU$93.8 million. For the financial year ended June 30, 2015, Virgin Australia’s ASKs increased by 9.0% compared to the previous year(2). Performance for the financial year ended June 30, 2015 was a significant improvement on the prior corresponding period with a statutory loss after tax improvement of AU$260.0 million. These financial results were driven by a significant turnaround of Virgin Australia’s domestic business, an improved performance from Tigerair Australia and strong growth in Velocity earnings, which reflects the current positive trajectory of the Virgin Australia Group. For further information on Virgin Australia’s financial performance, see

(1) Underlying loss before tax is a non-AAS measure that represents statutory loss before tax of AU$163.3 million, excluding the impact of restructuring and transaction costs and impairment losses of AU$70.2 million, share of losses from equity- accounted investees of AU$16.6 million and hedging and financial instruments costs of AU$27.4 million. This is a measure used by management and Virgin Australia’s Board to assess the financial performance of Virgin Australia. (2) For the financial year ended June 30, 2015, the above metric includes Tigerair Australia’s operating statistics from October 17, 2014 to June 30, 2015. Had Tigerair Australia’s operating statistics been fully consolidated for each of the financial years ended June 30, 2014 and June 30, 2015, the ASK growth would have been 1.6%.

2 “Selected Financial and Operating Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Virgin Australia’s consolidated financial statements and the notes thereto included elsewhere in this offering circular. During the financial year ended June 30, 2015, Virgin Australia completed two strategic transactions: the sale of a 35% minority interest in Velocity Frequent Flyer Holdco Pty Ltd (“Velocity Holdco”) (such sale transaction is referred to as the “Velocity Transaction”) and the acquisition of the remaining 40% of Tigerair Australia that it did not previously own (the “Tigerair Minority Acquisition”). For further information, see “Business—Virgin Australia’s Operations—Loyalty Program—Velocity” and “Business—Virgin Australia’s Operations—Tigerair Australia.”

Business Strengths

Virgin Australia has a strong position in the “two-player” domestic market and the growing international market. Australia is an isolated island continent with long distances between capital cities and limited feasible alternative transport. The Australian domestic aviation market, from which Virgin Australia derived 72% of its revenue and income (excluding inter-segment revenue) in the financial year ended June 30, 2015, is a market with attractive passenger growth, recording a CAGR of 4.2% in passenger numbers for the ten year period to December 31, 2014. Over the same period, domestic passenger numbers in the United States grew by 0.5%, while the United Kingdom contracted by 1.1%. Australian passenger growth is underpinned by aviation routes which rank among the busiest in the world, with the Sydney-Melbourne route the fourth busiest globally, based on total number of seats per month flown in both directions during the period of the month ended January 31, 2015 to the month ended October 31, 2015. The Australian international market recorded a steady increase with a CAGR of 5.5% in passenger numbers for the ten year period to December 31, 2014, driven by Australia’s geographical isolation and developed aviation infrastructure.

Australian domestic passengers (millions) International passengers (excluding (Calendar years 2004–2014) passengers transiting Australia) (millions) (Calendar years 2004–2014)

2004 - 2014 CAGR: 4.2% 2004 - 2014 CAGR: 5.5% 31.3 33.1 56.1 57.1 57.3 29.6 53.3 53.8 26.8 28.2 49.9 49.8 24.4 46.7 22.8 23.5 43.7 20.9 21.5 40.7 19.4 37.8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Bureau of Infrastructure, Transport and Regional Economics Virgin Australia and Qantas are the two multi-branded airline groups that are strongly represented in all major markets (domestic corporate and government, domestic leisure, budget, charter and cargo) of the Australian domestic airline industry. The Virgin Australia Brand and Tigerair Australia Brand captured 36% of domestic capacity market share (measured by ASKs) for the financial year ended June 30, 2015, with Qantas Group brands (including Qantas mainline, Jetstar Airways and QantasLink) capturing approximately 62%. During June 2015, Virgin Australia’s alliance network, including Virgin Australia, Air New Zealand, Delta Air Lines, Etihad Airways and Singapore Airlines, captured 26% of passengers in the international airline market with Qantas alliances capturing 37% of passengers.

3 Australian domestic capacity share Australian international by airline (Financial year ended market share by passengers carried June 30, 2015) (Month ended June 30, 2015)

Other Virgin Australia 1.5% Qantas Group Group 62.3% Virgin Australia 36.2%(1) 7.7% Air New Zealand 5.9% 6.3% Singapore Virgin Australia Other Airlines Shareholders 36.7% 8.8% Qantas Delta and Alliances ~26.1% 41.6% 0.6% Etihad 30.4% 2.7%

LAN Jetstar Qantas 0.4% 20.7% 15.9% China Eastern 1.0% Emirates Jetstar 10.1% 9.7%

Qantas Alliances ~37.2%(2)

Source: Company filings, Bureau of Infrastructure, Transport and Regional Economics

Virgin Australia’s strong brand and competitive customer product and service offering underpin its aim to become Australia’s airline of choice. Virgin Australia believes it has a strong brand, with core values that include quality customer service and innovation. Virgin Australia has a Four Star ranking according to Skytrax and was ranked as the world’s 16th best airline at the 2015 Skytrax World Airline Awards. Virgin Australia is one of the most respected brands in Australia, as evidenced by the Australia’s Most Reputable (“AMR”) 2015 Corporate Reputation Index, which ranked Virgin Australia third highest in the aviation sector behind alliance partner Air New Zealand, and fifteenth among Australia’s other most reputable brands, including Toyota Motor Corporation, Nestle´ Australia, JB HI-FI, Australia Post and Qantas. The Virgin Australia Brand’s full-service product offering includes a Business Class offering (with roll out of a premium cabin refit on Virgin Australia’s wide-body fleet (Airbus A330 and Boeing 777) having commenced in August 2015), Velocity frequent flyer offering, new airport lounges and leading in-flight Wi-Fi entertainment technology. The Virgin Australia Brand has developed a competitive advantage in its quality customer service offering, evidenced by a number of the leading industry awards it has received, including: • 2015 Hay Group/BOSS Most Respected Company; • 2015 Skytrax World Airline Award for the Best Airline Staff Service in the Australia-Pacific Region (awarded for the fifth consecutive year); • 2015 Randstad Award for Australia’s Most Attractive Employer; • 2014 Conde Nast Reader’s Choice Awards: World’s Best Airlines for Business Travelers, number 10 (number 1 in Australia); • 2014 Travel Trade Gazette Travel Awards for Best Pacific Airline; • 2014 Australian Financial Review Award for Most Respected Companies, number 1 in aviation sector and number 6 in Australia;

4 • Roy Morgan Customer Satisfaction Award for Domestic Airline of the Year for 2012 and Domestic Business Airline of the Year for 2013; and • 2013 Customer Service Institute of Australia Award for Domestic Airline of the Year. The Guest Satisfaction Tracker external research confirmed that the domestic arm of Virgin Australia achieved record levels of satisfaction with the end-to-end customer experience, domestic Business Class service and the lounge experience in respect of the period July 2014 to June 2015. Tigerair Australia also achieved an 11% point increase in customer satisfaction from 64% in July 2014 to 75% in June 2015. Customer preference for the Virgin Australia Brand is further demonstrated by Virgin Australia’s rapid penetration into the higher yielding corporate and government markets, with revenue from these markets increasing from 10% of Virgin Australia Brand’s domestic revenue base for the financial year ended June 30, 2010 to greater than 25% of Virgin Australia Brand’s domestic revenue base for the financial year ended June 30, 2015. Virgin Australia has shown strong on time service delivery performance for the financial year ended June 30, 2015, with the Virgin Australia Brand’s domestic operations outperforming Qantas’ mainline domestic operations since October 2014. Tigerair Australia averaged 84.7% on time service delivery for the six months from January 1, 2015 to June 30, 2015, which was above Jetstar’s average of 82.4% for the period.

On time performance by Mainline brand On time performance by Budget brand (Financial year ended June 30, 2015)(1) (Financial year ended June 30, 2015)(1)

% % 92 90 Virgin Australia Tigerair Australia Brand 90 Qantas brand 85 88

Jetstar 86 80

82 75 0 0 Jul-14 Sep-14Nov-14 Jan-15 Mar-15 May-15 Jul-15 Jul-14 Sep-14Nov-14 Jan-15 Mar-15 May-15 Jul-15

Source: Bureau of Infrastructure, Transport and Regional Economics

(1) In accordance with the Bureau of Infrastructure, Transport and Regional Economics definitions, flight departure is counted as “on time” if the aircraft departs the gate within 15 minutes of the scheduled departure time shown in the carrier’s schedule. On time performance by Mainline brand refers to the departure on time performance results of Virgin Australia Brand designated domestic services (Virgin Australia and Virgin Australia Regional Airlines), which averaged 87.9% for the financial year ended June 30, 2015, and those of Qantas brand designated domestic services (Qantas and QantasLink), which averaged 87.2% for the financial year ended June 30, 2015.

5 Velocity’s reputation for innovation and customer service is evidenced by the number of industry awards and recognition it has received, including: • 2015 Freddie Awards: Program of the Year, Best Customer Service and Best Redemption Ability within the Middle East/Asia/Oceania region airline category; • 2015 IdeaWorks’ SwitchFly survey: Best Reward Seat Availability in the Asia Pacific region and the third best in the world; • 2014 Freddie Awards: Program of the Year, Best Customer Service, Best Promotion, Best Redemption Ability and Best Elite Program, within the Middle East/Asia/Oceania region airline category; • 2013 Loyalty Innovation Awards: acclaimed for innovative initiatives; and • 2015 AusBT Awards: best frequent flyer program for Australian business travelers. In October 2014, Virgin Australia completed the sale of a 35% stake in Velocity Holdco for gross proceeds of AU$336.0 million to Affinity Equity Partners (“Affinity”), a leading Asia-Pacific based investment firm and fund manager with over US$7 billion of funds under management. Strategically, this joint venture is enabling Velocity to accelerate its growth by providing it access to additional capital and leveraging Affinity’s experience in driving rapid and sustainable growth in investments. For a discussion of Velocity, its anticipated distribution policy and other factors to consider in assessing the importance of the Velocity business to the Virgin Australia Group, see “Risk Factors—Risks Relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness,” “Selected Financial and Operating Information” and “Business—Virgin Australia’s Operations—Loyalty Program—Velocity—Virgin Aus- tralia and Affinity Joint Venture in relation to the Velocity Business.” In July 2015, Velocity Frequent Flyer Pty Ltd acquired Torque Solutions (Australia) Pty Ltd (“Torque Data”) a data analytics company, enabling the business to significantly expand its capabilities in the data and analytics field and support its ongoing growth.

Virgin Australia has a low-cost base driven by a young, modern, fuel-efficient fleet and a “capital light” international network model. Virgin Australia has a disciplined low-cost culture which has created a significant competitive advantage over Qantas, with an estimated 22% cost per available seat kilometer (“CASK”) advantage in the domestic market for the financial year ended June 30, 2015. Virgin Australia’s low-cost competitive advantage is partially driven by a younger and more fuel-efficient fleet. The average age of the aircraft in Virgin Australia’s fleet including Tigerair Australia (and excluding the aircraft in Virgin Australia Regional Airlines’ fleet principally used for charter operations) was 5.6 years as at June 30, 2015. Qantas’ narrowbody fleet age for the same period was greater than 7 years according to its public filings.

6 Domestic CASK(1) comparison (Financial year ended June 30, 2015)(1)

-22% 16 Qantas Domestic CASK is 22% 14 higher

CASK (¢) 6

0 Qantas Virgin Australia

Source: Calculated from Qantas and Virgin Australia results presentations and annual reports for the financial year ended June 30, 2015

(1) CASK comparison has been performed between Qantas and Virgin Australia domestic segments based on published company filings (including annual reports and results presentations) and operating statistics. CASK is a non-AAS measure. For Virgin Australia, CASK is derived from Segment revenue and income less total Segment EBIT for the Virgin Australia domestic segment divided by ASKs of the domestic regular passenger transport business. Segment revenue and income and Segment EBIT are defined in Note 5 to the consolidated financial statements for Virgin Australia for the financial year ended June 30, 2015. For Qantas, CASK is derived from Total segment revenue and other income less Underlying EBIT for the Qantas domestic segment divided by ASKs of the domestic regular passenger transport business. Total segment revenue and other income and Underlying EBIT are defined in Note 3(c) to the consolidated financial statements for Qantas for the financial year ended June 30, 2015.

Proportion of narrowbody aircraft (Financial year ended June 30, 2015)

Narrow-body Wide-body Turboprop

16.4% 14.0% 7.0% 19.7%

79.0% 63.9%

Qantas Virgin Australia

7 by AU$200 million in August 2015, above the initial AU$1 billion target, due to the cost program tracking ahead of schedule. In the three financial years to June 30, 2015, Virgin Australia exceeded targets by delivering cumulative productivity gains of over AU$500 million. For more information on the business efficiency program see, “—Business Strategy—Game On (2012—2014).” Virgin Australia’s “capital light” international network is based on the establishment of strategic alliances with major international airlines Air New Zealand, Delta Air Lines, Etihad Airways and Singapore Airlines. These alliances provide Virgin Australia access to its strategic alliance partners’ inventory of international destinations.

Virgin Australia has a strong and supportive shareholder base. Virgin Australia’s three strategic airline shareholders, Air New Zealand, Singapore Airlines and Etihad Airways collectively owned approximately 74% of Virgin Australia’s issued share capital as at November 16, 2015 and have collectively invested approximately AU$1 billion in Virgin Australia to date, with relevant ownership and activity details set forth below.

Air New Zealand Etihad Airways Singapore Airlines % Ownership in Virgin Australia(1) ...... 25.9% 25.1% 22.8% Geographic segment revenue(2) ...... AU$587m(3) N/A AU$1,408m(4) Virgin Australia codeshare services per week(5) . 3,509 930 2,029 ACCC alliance authorization expiry ...... October 2018 February 2016(6) December 2016 International passenger market share(7) ...... 6.3% 2.7% 8.8%

(1) Ownership as at November 16, 2015. (2) Air New Zealand represents operating revenue by area of original sale attributed to Australia and Pacific Islands for the twelve months ended June 30, 2015. Singapore Airlines represents revenue by area of original sale attributed to South West Pacific for the twelve months ended March 31, 2015. Etihad Airways not available due to limited public disclosure. (3) Converted to AUD based on the Bloomberg NZ Composite exchange rate on November 15, 2015 of NZ$1.0896 = AU$1.00. (4) Converted to AUD based on the Bloomberg SG Composite exchange rate on November 15, 2015 of SGD$1.0156 = AU$1.00. (5) As at October 31, 2015. (6) On October 30, 2015 the ACCC issued a draft determination proposing to re-authorise this alliance for a further five years. The final determination is expected in January 2016. (7) Bureau of Infrastructure, Transport and Regional Economics scheduled operator market share by total passengers in June 2015. Virgin Australia believes that its frequent flyer base and alliance network are strategically important to Air New Zealand, Etihad Airways and Singapore Airlines in terms of maintaining and growing their share of the Australian international passenger airline market.

Strategic Importance of Virgin Australia to Air New Zealand, Etihad Airways and Singapore Airlines Virgin Australia’s alliances with Air New Zealand, Etihad Airways and Singapore Airlines deliver key benefits to its strategic airline shareholders. The alliance between Virgin Australia and Air New Zealand (the “Trans-Tasman alliance”) represents a significant portion of Air New Zealand’s revenues. The Australian and Pacific Islands regions represented 22% of Air New Zealand’s revenues for the financial year ended June 30, 2015. The Trans-Tasman alliance represents Air New Zealand’s third largest geographic exposure outside of the New Zealand domestic market.

8 Air New Zealand total revenue by segment (Financial year ended June 30, 2015)

Domestic passenger Other revenue revenue 26.5% 16.5%

International Tasman & Pacific passenger Islands passenger revenue revenue 34.8% 22.2%

Source: Air New Zealand 2015 annual results presentation Virgin Australia believes that Australia is an important source of traffic for both Etihad Airways and Singapore Airlines passengers going to and from the Middle East and Asia, respectively. Passenger traffic that transits through Virgin Australia’s Australian hubs and on to other global destinations, particularly Europe, is also of importance to Singapore Airlines and Etihad Airways. Virgin Australia believes that the alliance agreements with these airlines provide them with access to feeder passenger traffic from Virgin Australia’s domestic network to travel on Singapore Airlines and Etihad Airways international flight services, permitting Singapore Airlines and Etihad Airways to effectively compete in the Australian international market with Cathay Pacific and Emirates, airlines that each have an alliance relationship with Qantas. Virgin Australia believes that its premium products and services across its domestic network also offer an attractive end-to-end solution for Virgin Australia’s alliance partners, ensuring that inbound international passengers traveling to and within Australia are directed to an alliance partner, codeshare service or Virgin Australia’s domestic services. Given Virgin Australia’s strategic importance to each of Air New Zealand, Etihad Airways and Singapore Airlines, each of these three airline shareholders has consistently demonstrated financial support for Virgin Australia: • In August 2013, the three strategic airline shareholders collectively provided an AU$90.0 million shareholder loan (which was undrawn by Virgin Australia and subsequently terminated); • In November and December 2013, each of the three strategic airline shareholders fully sub- underwrote and purchased their entitlements in Virgin Australia’s AU$350.0 million entitlement (or rights) offer; • In July 2014, each of Air New Zealand, Etihad Airways and Singapore Airlines appointed their respective Chief Executive Officers as members of Virgin Australia’s board of directors (the “Board”), noting that Etihad Airways’ Chief Executive Officer resigned, and was replaced by Bruno Matheu, Chief Operating Officer, Equity Partners, in February 2015. Following the appointments, Air New Zealand and Singapore Airlines began equity accounting their Virgin Australia investment; and • Between 2013 and 2015, each of the three strategic airline shareholders increased its shareholding in Virgin Australia. Virgin Australia believes that each strategic airline shareholder is in a position of financial strength. According to their respective public filings, Air New Zealand and Singapore Airlines are significantly capitalized and have strong liquidity positions as set forth below.

9 Air New Zealand Etihad Airways Singapore Airlines Market capitalization(1)...... AU$2,904m(2) N/A AU$12,405m(3) FY2015 Cash balance ...... AU$1,159m(4) N/A AU$5,033m(5)

(1) Market capitalization equivalent to share price of NZ$2.82 per share, for Air New Zealand, and SGD$10.83 per share, for Singapore Airlines, multiplied by outstanding shares as at November 15, 2015. (2) Converted to AUD based on the Bloomberg NZ Composite exchange rate on November 15, 2015 of NZ$1.0896 = AU$1.00. (3) Converted to AUD based on the Bloomberg SG Composite exchange rate on November 15, 2015 of SGD$1.0156 = AU$1.00. (4) Air New Zealand cash balance as at June 30, 2015. Converted to AUD based on the Bloomberg NZ Composite exchange rate on June 30, 2015 of NZ$1.1394 = AU$1.00. (5) Singapore Airlines cash balance as at March 31, 2015. Converted to AUD based on the Bloomberg SG Composite exchange rate on March 31, 2015 of SGD1.0439 = AU$1.00.

Business Strategy Over the past five years, Virgin Australia’s key business strategies have been aimed at transforming Virgin Australia from a low-cost carrier to a premium carrier and capitalizing on the resulting competitive advantages, underpinned by its key alliances and partnerships with some of the world’s leading airlines. These strategies have been achieved through the successful implementation of the Game Change Program and the Game On initiative. Virgin Australia is now focused on Virgin Vision 2017, with the aim of becoming Australia’s favorite airline group by the end of the financial year ending June 30, 2017.

Game Change Program (2010–2012) In 2010, Virgin Australia launched the Game Change Program, a business strategy aimed at transforming Virgin Australia from a low-cost carrier to a premium carrier. Virgin Australia achieved the following six fundamental goals in the Game Change Program: • Diversified revenue—Virgin Australia achieved its goal of entering the less volatile and price sensitive corporate and government markets, which now represent over 25% of its domestic revenue base. • Created a global network—Virgin Australia now offers access to over 450 global destinations through its operations and its strategic alliances and partnerships. • Accessed growth and expansion markets—Virgin Australia fast tracked its presence in the growing regional RPT, charter market through the acquisition of Skywest and in the budget leisure market through the acquisition of the initial 60% of Tigerair Australia. • Maintained cost advantage—Virgin Australia maintained a disciplined cost culture despite continuing investment in improving product and customer satisfaction, with an underlying unit cost reduction of 6.4% (excluding fuel and foreign exchange) in the financial year ended June 30, 2015. • Upgraded product and services—Virgin Australia updated its product and service offerings through the launch of Business Class on its domestic network, the re-launch of Velocity and the initiation of a number of technological, security and other improvements for customers and staff. • Invested in its people—Virgin Australia received the 2015 Skytrax World Airline Award for Best Airline Staff Service in the Australia-Pacific region (awarded for the fifth consecutive year) and the 2015 Randstad Award for Australia’s Most Attractive Employer (having ranked second in Australia in both 2014 and 2013 and also having been named the Most Attractive Aviation Sector Employer in 2013).

10 Game On (2012–2014) In August 2012, Virgin Australia transitioned to the Game On initiative, which was scheduled to be fully completed by June 30, 2015. Virgin Australia focused on fast-tracking the Game Change Program and the Game On initiative and, in August 2014, announced the successful completion of both initiatives. The Game On initiative was designed to capitalize on the competitive advantages achieved under the Game Change Program and diversify Virgin Australia’s revenue base through focus on the following key strategic pillars: • Implementing a business efficiency program—Virgin Australia has delivered additional efficiencies in productivity gains through its business efficiency program, which focused on achieving improved efficiency benchmarks, including fuel efficiency and aircraft utilization. By focusing on a number of key areas, which included, among other things, labor cost management, group fleet optimization, network optimization and process and group procurement improvements, Virgin Australia was able to deliver cumulative productivity benefits of AU$514 million in the three years to June 30, 2015, with annualized run rate benefits in the financial year ended June 30, 2015 of AU$135 million, and cumulative annual run rate benefits in the three years to June 30, 2015 of AU$345 million. • Building a transformational loyalty business—Virgin Australia has increased Velocity membership and engagement, adding 2.1 million new members since the Game On initiative was launched, resulting in one of the widest retail offerings of any loyalty program in Australia. • Increasing access to global markets—Virgin Australia has expanded its global reach by increasing codeshare and interline revenue. • Further enhancing the guest experience through in-flight innovation and on-the-ground service—Virgin Australia has provided further innovative customer products and services. • Enhancing Virgin Australia’s people and service excellence—Virgin Australia has continued to enhance frontline training and development for staff.

Virgin Vision 2017 (current) Following the early completion of the Game Change Program and the Game On initiative, Virgin Australia announced its new three year strategy, Virgin Vision 2017. Under Virgin Vision 2017, Virgin Australia’s focus is to become Australia’s favorite airline group. Virgin Vision 2017 aims to maximize Virgin Australia’s potential by diversifying and extracting value from the business (including through organic growth and possible future strategic opportunities and acquisitions), consolidating the benefits from the Game Change Program and Game On initiative, setting a new standard in customer experience to drive stable future revenue streams and enabling Virgin Australia to deliver sustainable profitability.

11 Virgin Australia

VAA Charter Cargo Velocity Tigerair

Set a new standard in Breaking monopoly New dedicated Growing coalition Competitive offer and customer experience markets business partners service

Targeting ~30% Targeting AU$200m+ Targeting AU$150- Targeting membership domestic revenue Targeting profitability revenue AU$200m revenue 7 million+ from corp. and govt.

Become Australia’s favorite airline group

Virgin Vision 2017 will focus on the following key areas: • Capitalize on business diversification and growth opportunities— • Velocity: Virgin Australia intends to grow membership to more than 7 million members, diversify Velocity’s partner mix, increase partner numbers and strengthen member engagement. • Charter: Virgin Australia plans to significantly increase the revenue from Virgin Australia’s charter business by the financial year ending June 30, 2017 to more than AU$200 million. • Cargo: Virgin Australia launched its cargo division (“Virgin Australia Cargo”) on July 1, 2015. • Tigerair Australia: Virgin Australia will continue the Tigerair Australia transformation program by further improving customer satisfaction, driving incremental revenue growth, delivering cost synergies and developing an efficient operating platform and network footprint to achieve profitability by the financial year ending June 30, 2016 (ahead of initial targets). • Drive yield enhancement—Virgin Australia seeks to increase corporate and government domestic revenue to 30% of domestic revenue base by June 30, 2017 and increase interline and codeshare revenue through the strengthening and expanding of existing alliance partnerships. • AU$1.2 billion cost program—Virgin Australia plans to expand the business efficiency program introduced under the Game Change Program to target AU$1.2 billion in cumulative productivity gains from the launch of the Game On initiative in 2012 to June 30, 2017, through enhanced procurement, improved productivity and streamlined operations. This target was increased by AU$200 million in August 2015, as a result of the program achieving gains ahead of schedule.

12 • Optimize the balance sheet—Virgin Australia aims to optimize the balance sheet by reducing financial leverage and increasing the return on invested capital (“ROIC”). Virgin Australia is targeting a ROIC equal to its weighted average cost of capital (“WACC”) in the near term, and exceeding its WACC in the longer term.(1) • New standard in customer experience—Virgin Australia will continue to place a strong focus on products and services to set a new standard in customer experience, including through a premium cabin refit on its wide-body aircraft (Airbus A330 and Boeing 777). The new premium product has commenced roll-out on the Airbus A330 aircraft, which primarily operate on the key Australian Trans-Continental routes, and features space to multi-task, enhanced privacy and direct aisle access, a fully-flat bed, a personal 16 inch touch-screen entertainment and restaurant-quality dining on demand. • Develop people to their full potential—Virgin Australia seeks to increase staff engagement and enablement by developing and supporting its people to be their best.

Corporate Information Virgin Australia is listed on the ASX and currently trades under the symbol “VAH”. Virgin Australia is a corporation organized under the laws of Australia and its corporate headquarters are located at 56 Edmondstone Road, Bowen Hills, Brisbane, Queensland, 4006, Australia. Virgin Australia maintains a website at www.virginaustralia.com. The information on or accessible through Virgin Australia’s website is not incorporated by reference into, and does not constitute a part of, this offering circular.

Recent Developments

Virgin Australia Cargo launch On July 1, 2015, Virgin Australia officially launched Virgin Australia Cargo, a key part of its Virgin Vision 2017 strategy, with the intention of enabling Virgin Australia to more effectively compete in the domestic and short-haul international cargo market. Virgin Australia Cargo will offer more than 3,400 flights per week through access to Virgin Australia’s extensive domestic and international network across Australia and the Asia-Pacific region. During the financial year ended June 30, 2015, Virgin Australia implemented an enhanced IT system, which Virgin Australia believes will enable Virgin Australia Cargo to optimize cargo capacity and provide tracking and customized reporting to customers. Virgin Australia Cargo will provide services for a range of customers including major freight distributors, corporate shippers and individuals. Virgin Australia believes that the new division represents a major growth opportunity for Virgin Australia.

(1) All metrics in Virgin Australia’s targeted return framework are calculated on an underlying basis. ROIC is a non-AAS measure and is defined as ROIC EBIT divided by invested capital, and represents a measure of Virgin Australia’s underlying loss before tax as a percentage of invested capital. ROIC EBIT is a non-AAS measure derived from underlying EBIT, adding back rentals on aircraft operating leases, and adjusting for a notional depreciation on the capitalized value of aircraft leases (seven times annual operating lease cost), or approximately 4% per annum. This metric provides an indication of underlying earnings assuming all aircraft were owned by Virgin Australia. Underlying EBIT is a non-AAS measure and is defined as statutory loss before tax excluding the impact of restructuring and transaction costs, share of equity accounted losses from associates, impact of hedging and financial instruments and net interest expense. This is a measure used by management and Virgin Australia’s Board to assess the financial performance of Virgin Australia. Invested capital is a non-AAS measure that provides an indication as to the invested capital within Virgin Australia, and is derived from adding average adjusted net debt and total equity as reported in the consolidated statement of financial position. WACC is a non-AAS measure that estimates the pre-tax weighted average cost of capital for Virgin Australia, using an estimated 60 to 40 debt to equity split. Virgin Australia estimates its cost of capital as 10% for each of the financial years ended June 30, 2015 and June 30, 2014.

13 Torque Data acquisition On July 1, 2015, Velocity Frequent Flyer Pty Ltd completed the acquisition of Torque Data, a data analytics company, for consideration of AU$4.8 million (consisting of cash and convertible notes), enabling the Velocity business to significantly expand its capabilities in the data and analytics field and support its ongoing growth.

International network restructure On August 7, 2015, Virgin Australia announced a plan to optimize its international network with the aim of delivering improved fleet utilization and meeting customer demand on key Trans-Tasman and short-haul international routes. Under the plan, Virgin Australia will withdraw from certain under- performing short-haul international routes to Denpasar and Phuket beginning March 23, 2016 and February 1, 2016, respectively, and increase capacity to meet demand on certain short-haul international routes to New Zealand, Fiji and the Solomon Islands. It is planned that from March 23, 2016, flights under the “Tigerair” brand will be offered in the short-haul international market initially between Denpasar and each of Adelaide, Melbourne and Perth. Commencement of these short-haul international routes is subject to regulatory and operational approvals.

Fleet Virgin Australia has continued to invest in its fleet, taking delivery of four new Boeing 737-800 aircraft (each operating under the Virgin Australia brand) and one new Airbus A320-200 (operating under the Tigerair brand) since June 30, 2015. Two Boeing 737-800 aircraft have been retired in this same period.

14 Virgin Australia’s underlying CASK excluding fuel and foreign exchange(2) continued to decline for Q1FY16 compared to Q1FY15. See “—Business Strengths—Virgin Australia has a low cost base driven by a young, modern, fuel-efficient fleet and a capital-light international network model”. The overall results for Q1FY16 reflect improved financial performance and continued growth in high yield passengers. Tigerair Australia recorded earnings before interest and tax of AU$0.4 million for Q1FY16, an improvement of AU$20.2 million on a standalone basis on Q1FY15. This result was driven by significant improvements in unit revenues and cost efficiencies. The interim financial information presented above is preliminary and was derived from Virgin Australia’s internal management reports. No assurance can be given that changes will not be made to such financial information as a result of any audit or review conducted on financial information that includes these results as Virgin Australia’s financial statements as at and for the six months ended December 31, 2015 are finalized. See “Risk Factors” and “Cautionary Statement Regarding Forward- Looking Statements.”

Corporate Structure The following diagram illustrates the structure of the corporate group headed by Virgin Australia, which will be the issuer of the New Notes. All subsidiaries indicated below are subsidiaries of Virgin Australia. Each wholly-owned subsidiary of Virgin Australia will be a restricted subsidiary (a “Restricted Subsidiary”) unless otherwise indicated. Virgin Australia and each of the Restricted Subsidiaries together constitute the “Restricted Group.” The New Notes will be guaranteed by certain of Virgin Australia’s Restricted Subsidiaries (other than Virgin Australia International Operations Pty Ltd, certain specified special purpose vehicles and certain additional immaterial subsidiaries). See also “Business—Corporate Restructure”. For the financial year ended June 30, 2015, subject to the calculation methodology described herein, the subsidiaries of Virgin Australia that are not Guarantors (the “Non-Guarantors”) generated 2% of Virgin Australia’s consolidated revenue and income, and 27% of Virgin Australia’s consolidated net loss after tax, and reduced Virgin Australia’s consolidated Operating Segment EBITDAR by 5%. As at June 30, 2015, the Non-Guarantors held 2% of Virgin Australia’s total consolidated assets and 11% of Virgin Australia’s total consolidated liabilities. (In contrast, as at June 30, 2014, the Non-Guarantors held 7% of Virgin Australia’s total consolidated liabilities, the greater proportion as at June 30, 2015 being attributable primarily to the incurrence of third party indebtedness by the Velocity Sub-Group and also to the growth in the Velocity program during the financial year ended June 30, 2015. See “Risk Factors—Risks Relating to the Notes—The Notes will be structurally subordinated to all liabilities of Virgin Australia’s subsidiaries that are not Guarantors”, “Description of Other Financing Arrange- ments—Velocity Syndicated Facility”, “Business—Virgin Australia’s Operations—Loyalty Program— Velocity” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Revenue and Income—Other Ancillary Revenue—Loyalty Program”). If issued as at June 30, 2015, the New Notes would have been and, once issued, will be structurally subordinate to such liabilities. For purposes of the above calculations in respect of consolidated revenue and income, consolidated net loss after tax and consolidated Operating Segment EBITDAR, revenue and income, expenses and income tax attributable to Virgin Australia Airlines (NZ) Limited are recognized as revenue and income, expenses and income tax relating to the Guarantors, on the basis that Virgin Australia Airlines (NZ) Limited was an operating entity for much of the financial year ended June 30, 2015 and its operations are now conducted by other Guarantors. See “Business—Corporate

(2) Underlying CASK excluding fuel and foreign exchange is a non-AAS measure derived from consolidated revenue less consolidated EBIT (which reflects Segment EBIT aggregated across each of Virgin Australia’s reportable segments) excluding fuel, hedging gains/(losses) on fuel and foreign exchange gains/(losses) on non-fuel costs divided by ASKs in respect of the regular passenger transport business (including ASKs in respect of Tigerair Australia). The results of Tigerair Australia are not included in the underlying CASK calculation in respect of Q1FY15.

15 Restructure”. In addition, for purposes of the above measures, assets and liabilities associated with aeronautic finance facilities are recognized as assets and liabilities of the Company or the relevant Guarantor or Guarantors (rather than as assets and liabilities of the relevant special purpose vehicle). Velocity Holdco, together with each of its subsidiaries Velocity Frequent Flyer 1 Pty Ltd, Velocity Frequent Flyer 2 Pty Ltd, Velocity Rewards Pty Ltd, as trustee of the Loyalty Trust, Velocity Frequent Flyer Pty Ltd, the Loyalty Trust and any other subsidiary of Velocity Holdco are collectively referred to as the “Velocity Sub-Group.” As previously disclosed, the Velocity Sub-Group owns Virgin Australia’s frequent flyer program, Velocity, and does not own or rent any aircraft or have other assets apart from the frequent flyer business. Each member of the Velocity Sub-Group, CPU Share Plans Pty Limited, as trustee of the Key Employee Performance Plan Trust (through which shares of Virgin Australia subject to vesting under Virgin Australia’s key employee performance plan are held), the Key Employee Performance Plan Trust, Virgin Tech Pty Ltd and Virgin Samoa Limited will be an unrestricted subsidiary (each, an “Unrestricted Subsidiary”) and thus not subject to any of the covenants in the indenture (the “Indenture”) governing the New Notes. See “Risk Factors—Risks Relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness.” Virgin Australia currently holds a 65% interest in the Velocity Sub-Group. As at June 30, 2014, the Velocity Sub-Group was 100% indirectly owned by Virgin Australia and was consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2014. On August 28, 2014, Virgin Australia executed documents for the sale of a 35% minority interest in Velocity Holdco for gross proceeds of AU$336.0 million. The sale of this 35% interest closed on October 22, 2014. Virgin Australia has retained control of the Velocity Sub-Group and, as a result, the Velocity Sub-Group continues to be consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2015. Accordingly, the 35% interest held by Affinity is accounted for as a non-controlling interest and the results attributed to Affinity from October 22, 2014 are shown as net profit/(loss) attributable to non-controlling interests in Virgin Australia’s consolidated statement of profit or loss, directly below the net profit/(loss) attributable to the owners of Virgin Australia. For the financial year ended June 30, 2015, the statutory profit after tax attributable to non-controlling interests (representing Affinity’s ownership in the Velocity Sub-Group) was AU$17.0 million. See “Selected Financial and Operating Information”. The Velocity business accounted for a material portion of Virgin Australia’s consolidated EBITDAR for each of the financial years ended June 30, 2015 and June 30, 2014. Going forward, the contribution of the Velocity business to Virgin Australia’s consolidated EBITDAR will vary after giving effect to the performance of Virgin Australia and the Velocity Sub-Group as well as the impact of the Tigerair Minority Acquisition (including any losses incurred by Tigerair Australia in future periods). For a discussion of Velocity, its anticipated distribution policy and other factors to consider in assessing the Velocity Sub-Group’s importance to the Virgin Australia Group, see “Risk Factors—Risks Relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness,” “Selected Financial and Operating Information” and “Business—Virgin Australia’s Operations—Loyalty Program—Velocity—Virgin Aus- tralia and Affinity Joint Venture in relation to the Velocity Business.” For the financial year ended June 30, 2015, the Unrestricted Subsidiaries generated 2% of Virgin Australia’s consolidated revenue and income and 22% of Virgin Australia’s consolidated net loss after tax, and reduced Virgin Australia’s consolidated Operating Segment EBITDAR by 3%. As at June 30, 2015, the Unrestricted Subsidiaries held 2% of Virgin Australia’s total consolidated assets and 11% of Virgin Australia’s total consolidated liabilities.

16 Corporate Structure

Guarantor Group at Closing Virgin Australia Virgin Australia Holdings Limited International Virgin Australia Holdings Limited US$300m Initial Notes (Issuer) Operations Pty Ltd³ (Issuer) and US$50m New Notes 1 share

Virgin Australia Virgin Australia Affinity Equity 2,210,197,600 shares International Airlines Holdings Pty Partners5 Holdings Pty Ltd¹ Ltd2 65% 35%

Virgin Australia Velocity Frequent VAH Newco No.1 VAH Newco No.2 VB Leaseco Virgin Australia International Flyer Holdco Pty Ltd Pty Ltd Pty Ltd Airlines Pty Ltd The Trust Company Airlines Pty Ltd Pty Ltd³ (Australia) Limited 60% Tiger Airways Tiger International Other Velocity Australia A.C.N. 098 904 262 Number1 Pty Ltd Subsidiaries³ Pty Limited⁶ Pty Ltd

Virgin Australia Virgin Australia Tiger Airways Virgin Australia Airlines (NZ) Other Other Airlines (SE Asia) Australia Regional LImited Subsidiaries³ Subsidiaries4 Pty Ltd SPV Pty Ltd Airlines Pty Ltd Other Subsidiaries³ Other Other Subsidiaries³ Subsidiaries³ Unrestricted Restricted Subsidiaries Group at Closing Subsidiaries

(1) Virgin Australia International Holdings Pty Ltd (“VAIH”) conducts Virgin Australia’s international operations. Despite Virgin Australia holding minimal issued share capital in VAIH, Virgin Australia is regarded as controlling VAIH for operational and accounting consolidation purposes. (2) Virgin Australia Airlines Holdings Pty Ltd is the holding company for the non-international arms of the Virgin Australia business which include the domestic operations (conducted principally through Virgin Australia Airlines Pty Ltd, Virgin Australia Regional Airlines Pty Ltd and Tigerair Australia), aircraft financing vehicles, the Velocity Frequent Flyer business and other investments. (3) Non-Guarantor subsidiaries include special purpose aircraft financing vehicles and other entities that cannot provide guarantees due to contractual or legal limitations, immaterial subsidiaries and certain subsidiaries designated as unrestricted, including Velocity Frequent Flyer Holdco Pty Ltd and its subsidiaries. (4) Unrestricted Subsidiaries include immaterial subsidiaries and the Key Employee Performance Plan Trust (through which shares of Virgin Australia subject to vesting under Virgin Australia’s key employee performance plan are held). (5) Affinity Equity Partners has 35% economic interest and Virgin Australia Airlines Holdings Pty Ltd has 65% economic interest, each through convertible notes. (6) The remaining 40% of Tiger Airways Australia Pty Limited is owned by TA Holdco (Singapore) Pte. Ltd., a wholly-owned subsidiary of Virgin Australia Airlines Holdings Pty Ltd.

17 THE OFFERING The summary below describes the principal terms of the New Notes and the Note Guarantees. Certain of the terms and conditions described below are subject to important limitations and exceptions. The “Description of Notes” section of this offering circular contains a more detailed description of the terms and conditions of the New Notes.

Issuer ...... Virgin Australia Holdings Limited. Notes Offered...... US$50,000,000 aggregate principal amount of 8.50% Senior Notes due 2019. The New Notes will be issued as additional notes under the Indenture, dated as of November 20, 2014, and as supplemented from time to time. Pursuant to the Indenture, the Issuer has previously issued US$300,000,000 aggregate principal amount of 8.50% Senior Notes due 2019. The New Notes and the Initial Notes will be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. The New Notes have identical terms and conditions as the Initial Notes, other than the issue date and issue price. The New Notes have the same CUSIP, ISIN and Common Code numbers as, and are fungible with, the Initial Notes (except that any New Notes offered and sold in compliance with Regulation S will have temporary CUSIP, ISIN and Common Code numbers during a 40-day distribution compliance period commencing on the date of issuance of the New Notes). The New Notes will trade fungibly except for New Notes offered and sold in compliance with Regulation S, which will trade fungibly after the 40-day distribution compliance period. Upon completion of the offering of the New Notes, the aggregate principal amount of outstanding Notes will be US$350,000,000. Maturity Date ...... November 15, 2019. Issue Price ...... % of the principal amount of the New Notes, plus accrued and unpaid interest from November 15, 2015 to , 2015. Purchasers will be required to pay accrued interest totaling US$ , or US$ per US$1,000 principal amount of New Notes, from and including November 15, 2015 to, but excluding , 2015, the date the Issuer expects to deliver the New Notes. Interest and Payment Dates ...... Interest on the New Notes will accrue at a rate of 8.50% per annum on the principal amount from the date of original issuance of the Notes, payable semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15, 2016. Guarantors...... The New Notes will be fully and unconditionally guaranteed by certain of Virgin Australia’s subsidiaries, subject to certain exclusions including, among others, Virgin Australia International Operations Pty Ltd, certain specified special purpose vehicles and certain additional immaterial sub-

18 sidiaries. See also “Business—Corporate Restructure”. Each member of the Velocity Sub-Group, CPU Share Plans Pty Limited, as trustee of the Key Employee Performance Plan Trust, the Key Employee Performance Plan Trust, Virgin Tech Pty Ltd and Virgin Samoa Limited will be an Unrestricted Subsidiary and, as a result, will not provide a guarantee of Virgin Australia’s obligations under the New Notes. See “Description of Notes—The Note Guarantees.” Ranking ...... The New Notes and the Note Guarantees will rank pari passu in right of payment with all of Virgin Australia’s and the Guarantors’ respective existing and future senior indebtedness and senior in right of payment to all of Virgin Australia’s and the Guarantors’ respective future senior subordinated and subordinated indebtedness. The New Notes and the Note Guarantees will be effectively subordinated to all of Virgin Australia’s and the Guarantors’ respective existing and future secured indebtedness to the extent of the value of the assets securing those obligations. The New Notes will also be structurally subordinate to all indebtedness of Virgin Australia’s subsidiaries that do not guarantee the New Notes. These subsidiaries include the Velocity Sub-Group, Virgin Australia International Opera- tions Pty Ltd, specified special purpose vehicles and certain additional immaterial subsidiaries. For the financial year ended June 30, 2015, subject to the calculation methodology described herein, the Non-Guar- antors generated 2% of Virgin Australia’s consolidated revenue and income and, 27% of Virgin Australia’s consolidated net loss after tax, and reduced Virgin Australia’s consolidated Operating Segment EBITDAR by 5%. As at June 30, 2015, the Non-Guarantors held 2% of Virgin Australia’s total consolidated assets and 11% of Virgin Australia’s total consolidated liabilities. (In contrast, as at June 30, 2014, the Non-Guarantors held 7% of Virgin Australia’s total consolidated liabilities, the greater proportion as at June 30, 2015 being attributable primarily to the incurrence of third party indebtedness by the Velocity Sub- Group, and also to the growth in the Velocity program during the financial year ended June 30, 2015. See “Risk Factors—Risks Relating to the Notes—The Notes will be structurally subordinated to all liabilities of Virgin Australia’s subsidiaries that are not Guarantors”, “Description of Other Financing Arrangements—Velocity Syndicated Facility”, “Business—Virgin Australia’s Operations—Loyalty Pro- gram—Velocity” and “Management’s Discussion and Ana- lysis of Financial Condition and Results of Operations— Revenue and Income—Other Ancillary Revenue—Loyalty Program”). If issued as at June 30, 2015, the New Notes would have been and, once issued, will be structurally subordinate to such liabilities. For purposes of the above calculations in respect of consolidated revenue and

19 income, consolidated net loss after tax and consolidated Operating Segment EBITDAR, revenue and income, expenses and income tax attributable to Virgin Australia Airlines (NZ) Limited are recognized as revenue and income, expenses and income tax relating to the Guaran- tors, on the basis that Virgin Australia Airlines (NZ) Limited was an operating entity for much of the financial year ended June 30, 2015 and its operations are now conducted by other Guarantors. See “Business—Corporate Restruc- ture”. In addition, for purposes of the above measures, assets and liabilities associated with aeronautic finance facilities are recognized as assets and liabilities of the Company or the relevant Guarantor or Guarantors (rather than as assets and liabilities of the relevant special purpose vehicle). The Velocity Sub-Group owns Virgin Australia’s frequent flyer program and does not own or rent any aircraft or have other assets apart from the frequent flyer business. As at the Closing Date, all of Virgin Australia’s subsidiaries other than the members of the Velocity Sub-Group, CPU Share Plans Pty Limited, as trustee of the Key Employee Performance Plan Trust, the Key Employee Performance Plan Trust, Virgin Tech Pty Ltd and Virgin Samoa Limited will be Restricted Subsidiaries. See “Risk Factors—Risks Relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness.” Virgin Australia currently holds a 65% interest in the Velocity Sub-Group. As at June 30, 2014, the Velocity Sub-Group was 100% indirectly owned by Virgin Australia and was consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2014. On August 28, 2014, Virgin Australia executed documents for the sale of a 35% minority interest in Velocity Holdco for gross proceeds of AU$336.0 million. The sale of this 35% interest closed on October 22, 2014. Virgin Australia has retained control of the Velocity Sub- Group and, as a result, the Velocity Sub-Group continues to be consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2015. Accordingly, the 35% interest held by Affinity is accounted for as a non-controlling interest and the results attributed to Affinity from October 22, 2014 are shown as net profit/(loss) attributable to non-controlling interests in Virgin Australia’s consolidated statement of profit or loss, directly below the net profit/(loss) attributable to the owners of Virgin Australia. For the financial year ended June 30, 2015, the statutory profit after tax attributable to non- controlling interests (representing Affinity’s ownership in the

20 Velocity Sub-Group) was AU$17.0 million. See “Selected Financial and Operating Information”. The Velocity business accounted for a material portion of Virgin Australia’s consolidated EBITDAR for each of the financial years ended June 30, 2015 and June 30, 2014. Going forward, the contribution of the Velocity business to Virgin Australia’s consolidated EBITDAR will vary after giving effect to the performance of Virgin Australia and the Velocity Sub-Group as well as the impact of the Tigerair Minority Acquisition (including any losses incurred by Tigerair Australia in future periods). For a discussion of Velocity, its anticipated distribution policy and other factors to consider in assessing the Velocity Sub-Group’s importance to the Virgin Australia Group, see “Risk Factors— Risks Relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness,” “Selected Financial and Operating Information” and “Busi- ness—Virgin Australia’s Operations—Loyalty Program— Velocity—Virgin Australia and Affinity Joint Venture in relation to the Velocity Business” and “—Corporate Structure.” For the financial year ended June 30, 2015, the Unrest- ricted Subsidiaries generated 2% of Virgin Australia’s consolidated revenue and income and 22% of Virgin Australia’s consolidated net loss after tax, and reduced Virgin Australia’s consolidated Operating Segment EBIT- DAR by 3%. As at June 30, 2015, the Unrestricted Subsidiaries held 2% of Virgin Australia’s total consolidated assets and 11% of Virgin Australia’s total consolidated liabilities. For the avoidance of doubt, none of Virgin Australia Airlines Holdings Pty Ltd, Virgin Australia Airlines Pty Ltd, Virgin Australia International Holdings Pty Ltd or Virgin Australia International Airlines Pty Ltd may be designated as an Unrestricted Subsidiary. Optional Redemption ...... Virgin Australia may, at its option, redeem the Notes, in whole or in part at any time, at a redemption price equal to the greater of (1) 100% of the principal amount of the Notes being redeemed and (2) a make whole amount, if any, plus in either case accrued and unpaid interest, if any, to (but not including) the redemption date. See “Description of Notes—Redemption—Optional Redemption.” Tax Redemption ...... If, as a result of certain tax law changes, Virgin Australia would be obligated to pay additional amounts in respect of withholding taxes, and such obligation cannot be avoided by taking reasonable measures available to Virgin Aus- tralia, it may redeem the Notes in whole, but not in part, at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, and all additional amounts, if

21 any, then due or becoming due to (but not including) the redemption date. See “Description of Notes—Redemp- tion—Tax Redemption.” Change of Control Offer ...... In the event of a specified change of control, each holder of Notes may require Virgin Australia to repurchase its Notes in whole or in part at a repurchase price of 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to (but not including) the repurchase date. See “Description of Notes—Certain Covenants— Change of Control Offer to Purchase” and “Risk Fac- tors—Risks Relating to the Notes—Virgin Australia may not be able to satisfy its obligations to holders of the Notes upon a change of control.” Additional Amounts...... Except as otherwise required by applicable law, all payments made by or on behalf of Virgin Australia or a Guarantor under or with respect to the Notes or any Note Guarantee will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties or other governmental charges imposed or levied by a Tax Jurisdiction (as defined herein). In the event of any such withholding or deduction, Virgin Australia or any applicable Guarantor will, subject to certain exceptions, pay such additional amounts as may be necessary so that the net amount the holders receive after such withholding or deduction will equal the amount that the holders would have received without such withholding or deduction. See “Description of Notes—Additional Amounts.” Certain Covenants ...... The New Notes will be issued under an Indenture (which is the same Indenture that governs the Initial Notes) containing covenants that, among other things, will restrict the ability of Virgin Australia and its Restricted Subsidiaries to: • pay dividends, redeem or repurchase stock or make other distributions or restricted payments; • repay subordinated indebtedness; • make certain loans and investments; • incur indebtedness or issue preferred stock; • merge, consolidate or sell assets; • undergo certain change of control transactions; and • designate subsidiaries as unrestricted. These covenants will be subject to a number of significant exceptions, qualifications and “baskets.” For more detail regarding these exceptions, qualifications and “baskets,” see “Description of Notes—Certain Covenants.” In addition, the Notes lack a “cross-default” event of default, a “judgment” default event of default and some covenants typically found in other comparably rated debt

22 securities. See “Risk Factors—Risks Relating to the Notes.” Use of Proceeds ...... The net proceeds from this Offering will be approximately US$48.0 million (or AU$67.4 million, based on the Bloomberg AU Composite U.S. dollar per Australian dollar exchange rate on November 15, 2015 of US$0.7127 = AU$1.00) after deducting the commissions payable to the Initial Purchaser and estimated offering expenses. See “Use of Proceeds.” Virgin Australia intends to use the net proceeds from this Offering to build additional U.S. dollar liquidity coverage and meet ongoing U.S. dollar financing obligations. Book-Entry Form ...... The New Notes will be issued in book-entry form and will be represented by global certificates deposited with, or on behalf of, DTC and registered in the name of a nominee of DTC. Beneficial interests in any of the New Notes will be shown on, and transfers will be effected only through, records maintained by DTC, and any such interest may not be exchanged for certificated securities, except in limited circumstances described herein. See “Description of Notes—Form and Settlement; Book-Entry System.” Transfer Restrictions ...... The New Notes have not been and will not be registered under the Securities Act or any other U.S. securities laws. Accordingly, the New Notes are being offered (i) in the United States only to persons who are QIBs, in reliance on Rule 144A or (ii) to certain non-U.S. persons in transactions outside the United States in reliance on Regulation S. No prospectus or other disclosure document (as defined in the Corporations Act) in relation to the New Notes has been or will be lodged with the ASIC or the ASX. Accordingly the New Notes may not be offered for issue, sale or purchase in Australia (including by an offer or invitation received in Australia) unless (i) the (a) minimum aggregate consideration payable by each offeree is at least AU$500,000 (or its equivalent in an alternative currency) (disregarding moneys lent by the offeror or its associates); or (b) offer otherwise does not (other than by reason of section 708(14) or section 708A of the Corporations Act) require disclosure to investors under Part 6D.2 or 7.9 of the Corporations Act; (ii) the offer is not made to a person in Australia who is a “retail client” for the purposes of section 761G of the Corporations Act; (iii) such action complies with all applicable laws, regulations and directives (including, without limitation, the licensing requirements in Chapter 7 of the Corporations Act); and (iv) such action does not require any documents to be lodged with ASIC. The New Notes are not transferable except in accordance with the restrictions described in this offering circular. See “Transfer Restrictions.”

23 Certain Tax Matters ...... Holders are urged to consult their own tax advisors with respect to the tax consequences of purchasing, owning and disposing of the New Notes. See “Certain U.S. Federal Income Tax Considerations” and “Certain Australian Tax Considerations.” Trustee ...... The Trustee for the Notes is The Bank of New York Mellon. Governing Law...... The Indenture and the New Notes will be governed by the laws of the State of New York.

You should refer to the section entitled “Risk Factors” and other information included in this offering circular for an explanation of certain risks of investing in the New Notes.

24 SUMMARY FINANCIAL AND OPERATING INFORMATION The following tables present Virgin Australia’s summary consolidated financial and operating data for each of the financial years presented. The summary consolidated financial data as at June 30, 2015, 2014 and 2013 and for the financial years ended June 30, 2015, 2014 and 2013 has been derived from, and is qualified in its entirety by reference to, Virgin Australia’s financial statements included elsewhere in this offering circular. The financial information presented below as at, and for the financial years ended, June 30, 2014 and 2013 has been restated due to changes in accounting policies. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Accounting Policies and Critical Accounting Judgments.” The consolidated financial statements have been prepared in a manner consistent with Virgin Australia’s accounting policies in accordance with AAS as adopted by the AASB and the Corporations Act, which differs in certain significant respects from U.S. GAAP. The consolidated financial statements comply with IFRS as issued by the IASB. AAS and IFRS differ in certain significant respects from generally accepted accounting principles in other countries, including the United States. See “Presentation of Financial and Other Information—Certain Differences Between AAS and IFRS and U.S. GAAP.” The summary consolidated financial and operating data should be read in conjunction with the sections in this offering circular captioned “Presentation of Financial and Other Information—Certain Conventions and Defined Terms,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Virgin Australia’s consolidated financial statements and the accompanying notes thereto included elsewhere in this offering circular. The results of operations for the historical periods included in the following tables are not necessarily indicative of the results to be expected for future periods. In addition, see “Risk Factors—Risks Relating to Virgin Australia’s Business” for a discussion of risk factors that could impact Virgin Australia’s future financial condition and results of operations.

Summary Financial Data

As at June 30, AU$ millions 2015 2014(1) 2013(2) Balance sheet data: Cash and cash equivalents...... 1,028.5 783.8 580.5 Total current assets...... 1,586.0 1,234.9 981.7 Total assets ...... 5,779.6 4,679.3 4,547.1 Total current liabilities ...... 2,299.8 1,920.6 1,814.4 Total debt(3) ...... 2,762.2 1,950.7 1,889.9 Total liabilities ...... 4,758.8 3,631.2 3,445.8 Total equity...... 1,020.8 1,048.1 1,101.3 Total equity and liabilities ...... 5,779.6 4,679.3 4,547.1

25 Year ended June 30, AU$ millions 2015(4) 2014(1) 2013(2) Profit or loss data: Revenue and income:(5) Domestic ...... 3,310.0 3,157.8 2,951.6 International ...... 1,112.4 1,149.8 1,121.1 Velocity(6) ...... 238.4 201.2 — Tigerair Australia...... 284.1 — — Corporate and eliminations ...... (195.7) (202.2) (52.4) Total revenue and income ...... 4,749.2 4,306.6 4,020.3 Operating expenditure: Aircraft operating lease expenses...... 290.0 274.2 246.3 Airport charges, navigation and station operations ...... 917.0 792.3 710.0 Contract and other maintenance expenses ...... 155.2 189.0 189.9 Commissions and other marketing and reservations expenses . . . . 363.1 330.6 256.5 Fuel and oil ...... 1,191.6 1,208.7 1,125.9 Labor and staff related expenses ...... 1,118.8 1,041.4 976.1 Impairment loss...... — 56.9 — Other expenses from ordinary activities ...... 464.2 433.6 391.7 Depreciation and amortization ...... 275.4 267.8 272.1 Ineffective cash flow hedges and non-designated derivatives (gains)/losses...... 27.4 38.5 (49.1) Net operating expenditure ...... 4,802.7 4,633.0 4,119.4 Share of net (losses)/profits of equity accounted investees(4). . . . (16.6) (48.7) 0.1 Loss before related income tax benefit and net finance costs. . . (70.1) (375.1) (99.0) Finance income...... 39.7 13.3 20.0 Finance costs ...... (132.9) (119.7) (70.7) Net finance costs ...... (93.2) (106.4) (50.7) Statutory loss before tax ...... (163.3) (481.5) (149.7) Income tax benefit ...... 69.5 127.7 51.6 Statutory loss after tax ...... (93.8) (353.8) (98.1) Statutory loss after tax attributable to owners of the Company . . . . (110.8) (353.8) (98.1) Statutory profit after tax attributable to non-controlling interests(7) . . 17.0 — — Cash flow data: Net cash from/(used in) operating activities ...... 218.1 (7.7) 123.3 Net cash used in investing activities ...... (572.9) (174.7) (558.7) Net cash from financing activities ...... 580.9 380.3 196.4 Net cash inflow/(outflow) ...... 226.1 197.9 (239.0) Cash and cash equivalents at July 1 ...... 783.8 580.5 802.6 Exchange rate changes ...... 18.6 5.4 16.9 Cash and cash equivalents at June 30 ...... 1,028.5 783.8 580.5 Other data: Operating Segment EBITDAR(8) ...... 618.4 394.5 445.8 Net debt(9) ...... 1,733.7 1,166.9 1,309.4 Acquisition of property, plant and equipment ...... (577.3) (360.2) (439.2) Operating margin(10) ...... (1.5%) (8.7%) (2.5%) Financial leverage(11) ...... 5.9x 7.5x 6.4x

(1) From July 1, 2014, Virgin Australia early adopted the new financial instruments accounting standard AASB 9 Financial Instruments (2013, 2010 and 2009) (“AASB 9”). As a result of early adoption, comparative amounts as at, and for the financial year ended, June 30, 2014 have been restated. Details of the impact of the restatement can be found in Note 3(v)(i) to Virgin Australia’s financial statements for the financial year ended June 30, 2015. The comparative information for the financial year ended June 30, 2013 has not been restated.

26 (2) In the financial year ended June 30, 2014, the accounting policy in respect of major maintenance relating to operating leased aircraft was changed. As a result of this change in policy, comparative amounts as at, and for the financial year ended, June 30, 2013 have been restated. Details of the restatement can be found in Note 3(b) to Virgin Australia’s financial statements for the financial year ended June 30, 2014. (3) Defined as current and non-current interest-bearing liabilities. (4) On October 16, 2014, Virgin Australia gained control of Tigerair Australia under the share purchase agreement between Tiger Airways, VAH Newco No. 1 Pty Ltd and Virgin Australia (“Tigerair Australia Share Purchase Agreement”). For the financial year ended June 30, 2015, Virgin Australia consolidated Tigerair Australia’s financial results and position from October 17, 2014 to June 30, 2015. On July 8, 2013, Virgin Australia acquired the initial 60% interest in Tigerair Australia from Tiger Airways. For the period from July 8, 2013 to June 30, 2014 and the period from July 1, 2014 to October 16, 2014, the financial results of Tigerair Australia are reflected in Share of net (losses)/profits of equity accounted investees. (5) During the financial year ended June 30, 2015, management re-assessed its operating segments, and the allocation of corporate costs among segments as a result of broader changes within the business. For the financial years ended June 30, 2015 and June 30, 2014, Domestic revenue and income comprised revenue and income from Virgin Australia’s domestic operations. For the financial year ended June 30, 2013, Domestic revenue and income comprised revenue and income from Virgin Australia’s domestic operations and Velocity. For the financial years ended June 30, 2015 and June 30, 2014, Corporate and eliminations include those corporate costs that could not be reasonably allocated to segments plus eliminations required to eliminate intercompany balances. Corporate and eliminations for the financial year ended June 30, 2013 only include those eliminations required to eliminate intercompany balances. The comparative segment information for the financial year ended June 30, 2014 has been restated in Virgin Australia’s financial statements for the financial year ended June 30, 2015. The comparative segment information for the financial year ended June 30, 2013 has not been restated. (6) Velocity is operated by the Velocity Sub-Group. Prior to the completion of the sale of the 35% minority interest in Velocity Holdco to Affinity, various agreements were entered into by entities controlled by Virgin Australia to confirm the terms and conditions of arrangements between the parties on an arm’s-length basis. Comparative segment information for the financial year ended June 30, 2014 has been restated in Virgin Australia’s financial statements for the financial year ended June 30, 2015, on the basis that these agreements were in place from July 1, 2013 to provide comparability between the reporting periods. The comparative segment information for the financial year ended June 30, 2013 has not been restated. (7) Virgin Australia currently holds a 65% interest in the Velocity Sub-Group. As at June 30, 2014, the Velocity Sub-Group was 100% indirectly owned by Virgin Australia and was consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2014. On August 28, 2014, Virgin Australia executed documents for the sale of a 35% minority interest in Velocity Holdco for gross proceeds of AU$336.0 million. The sale of this 35% interest closed on October 22, 2014. Virgin Australia has retained control of the Velocity Sub-Group and, as a result, the Velocity Sub-Group continues to be consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2015. Accordingly, the 35% interest held by Affinity is accounted for as a non-controlling interest and the results attributed to Affinity from October 22, 2014 are shown as net profit/(loss) attributable to non-controlling interests in Virgin Australia’s consolidated statement of profit or loss, directly below the net profit/(loss) attributable to the owners of Virgin Australia. See “Business—Virgin Australia’s Operations—Loyalty Program—Velocity.” (8) Virgin Australia defines Operating Segment EBITDAR as earnings before net finance costs, tax, depreciation, amortization, aircraft rentals, time value movement on cash flow hedges and unrealized ineffectiveness on cash flow hedges and non- designated derivatives gains/losses, share of net losses/profits of equity accounted investees, business transformation and capital restructure costs, and impairment losses. Operating Segment EBITDAR is not a measure of operating performance or liquidity under AAS and IFRS and, as used in this offering circular, is not necessarily comparable to similarly titled measures used by other companies. Virgin Australia believes that Operating Segment EBITDAR may be useful to potential investors in assessing its operating performance and as an indicator of its ability to service or incur indebtedness, make capital expenditures and finance working capital requirements. Operating Segment EBITDAR is also a measure frequently used by analysts to measure and compare the performance of companies that operate in Virgin Australia’s industry. The items excluded from Operating Segment EBITDAR are significant in assessing Virgin Australia’s operating results and liquidity. Therefore, Operating Segment EBITDAR should not be considered in isolation from or as an alternative to operating (loss)/ profit, cash provided by operating activities or cash flow data prepared in accordance with AAS and IFRS.

27 A reconciliation of Operating Segment EBITDAR to the statutory loss after tax is set forth below:

Year ended June 30, AU$ millions 2015 2014(a) 2013(b) Statutory loss after tax ...... (93.8) (353.8) (98.1) Adjustments: Aircraft rentals ...... 277.1 253.5 223.1 Depreciation and amortization ...... 275.4 267.0 265.8 Time value movement on cash flow hedges and unrealized ineffectiveness on cash flow hedges and non-designated derivatives (gains)/losses ...... 27.4 38.5 (49.1) Business transformation and capital restructure costs(c) ...... 92.0 105.0 105.1 Impairment losses(d) ...... — 56.9 — Share of net losses/(profits) of equity accounted investees ...... 16.6 48.7 (0.1) Net finance costs...... 93.2 106.4 50.7 Income tax (benefit) ...... (69.5) (127.7) (51.6) Operating Segment EBITDAR...... 618.4 394.5 445.8

(a) Refer to footnote (1) directly above. (b) Refer to footnote (2) directly above. (c) As disclosed in Note 5 and 6 to Virgin Australia’s financial statements for the financial years ended June 30, 2015 and 2014, respectively (including business and capital restructure costs and transaction costs, net gain/(loss) on disposal/sale of assets and accelerated depreciation due to changes in useful lives of assets). For the financial year ended June 30, 2015, the amount represents costs associated with fleet initiatives, the International improvement plan, broader strategic initiatives with Virgin Vision 2017 and net loss on the disposal of assets. For the financial year ended June 30, 2014, this amount represents costs associated with the Game Change Program, capital restructure costs, costs associated with the integration of Skywest, accelerated depreciation due to changes in useful lives of assets and net loss on disposal of assets. For the financial year ended June 30, 2013, the amount represents costs related to the transition to SabreSonic, the acquisition of Skywest and other costs, accelerated depreciation due to changes in useful lives of assets and net loss on the sale of assets. (d) For further detail see “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Operating Expenditure—Impairment Loss.” (9) Defined as current and non-current interest-bearing liabilities less cash and cash equivalents as at June 30 of the relevant financial year. (10) Defined as loss before related income tax benefit and net finance costs divided by total revenue and income. (11) Financial leverage is a non-AAS measure and is defined as the ratio of adjusted net debt to Segment EBITDAR. Adjusted net debt is a non-AAS measure derived by taking interest bearing liabilities less cash and adding 7 times annual rentals on aircraft operating leases. Segment EBITDAR is a non-AAS measure as detailed in Note 5 to the Virgin Australia consolidated financial statements for the financial year ended June 30, 2015. It is used by management and Virgin Australia’s Board as a measure to assess the financial performance of Virgin Australia and its individual segments.

28 Summary Operating and Financial Highlights The following table sets forth summary operating and financial highlights of Virgin Australia’s performance derived from Virgin Australia’s annual reports and other internal sources for the periods indicated.

Year ended June 30, 2015(1) 2014 2013 Traffic and capacity(2) Revenue passenger kilometers (RPK)...... billions 35.8 33.1 31.3 Available seat kilometers (ASK) ...... billions 46.0 42.2 41.8 Revenue load factor ...... % 77.8 78.4 75.6 Passengers carried ...... millions 22.3 20.0 19.3 Financial(2) Yield—Passenger revenue per RPK ...... cents 11.6 11.4 11.1 Passenger revenue per ASK ...... cents 8.7 8.5 8.4 Fuel cost per ASK ...... cents 2.6 2.9 2.7 Labor cost per ASK...... cents 2.6 2.5 2.3 Operations Total employees ...... 10,241 9,425 8,423 Average fleet age(3) ...... yrs 5.6 4.8 4.2 Punctuality(4)—Domestic operations ...... % 87.9 84.0 80.8 Punctuality(4)—International Operations ...... % 77.4 73.9 76.9 Cancellation Rates—Domestic operations ...... % 1.8 1.5 1.6 Cancellation Rates—International operations . . . . % 0.6 0.8 1.2

(1) For the financial year ended June 30, 2015, the above metrics include Tigerair Australia results and position from October 17, 2014 to June 30, 2015. (2) These figures exclude Virgin Australia’s Charter operations. (3) The 2015, 2014 and 2013 figures do not include the aircraft in Virgin Australia Regional Airlines’ fleet principally used for charter operations. The 2015 figure includes the fleet operated by Tigerair Australia. (4) Defined as the percentage of flights that departed within 15 minutes of the scheduled departure time and do not include Virgin Australia’s Charter operations or Tigerair Australia.

29 RISK FACTORS An investment in the New Notes involves certain risks. You should carefully consider the risks described below, as well as the other information included in this offering circular, before making an investment decision. Virgin Australia’s business, financial condition or results of operations, or the value and other attributes of the New Notes could be materially adversely affected by any of these risks, as well as other risks of which Virgin Australia is not currently aware or which it currently deems to be immaterial. The market price of the New Notes could decline due to any of these risks or other factors, and you may lose all or part of your investment.

Risks Relating to Virgin Australia’s Business Certain of the principal risks which may affect Virgin Australia’s business or its general financial condition or both are set forth below.

The airline industry is extremely competitive and Virgin Australia faces competition from other airlines as well as from alternative means of transportation. The airline industry is highly competitive and Virgin Australia competes with a number of other airlines on almost all of its routes. Competitive intensity varies across different routes depending on the number and nature of competitors operating on any route, the applicable regulatory environment and associated barriers to entry, such as operating licenses, capital requirements, infrastructure availability and the availability of take-off and landing slots. Virgin Australia may face increased competition as a result of the expansion of existing airlines, the consolidation or formation of alliances between airlines and new airlines entering or potentially entering the market. Virgin Australia may also continue to face increasing competition from other modes of transportation, including road and rail travel, as transport infrastructure facilities improve. Some of Virgin Australia’s international competitor airlines have access to larger and less expensive sources of funding which enable them to become more competitive. In addition, the Australian domestic aviation market is dominated by Australia’s largest airline, Qantas. Qantas has an established position in all markets of the Australian domestic aviation market, including domestic corporate (premium offering), domestic leisure, budget (low-cost offering) and regional RPT and charter services. Qantas also has an established market position in the international aviation market and is able to leverage alliances and partnerships with a number of international airline partners. Further, Qantas has announced the implementation of a substantial cost reduction program which, to the extent successfully implemented, will allow Qantas to become more competitive. To the extent Virgin Australia is unable to effectively compete with its peers, including Qantas, it would have a material adverse effect on Virgin Australia’s operating and financial results.

Virgin Australia could be subject to substantial increases in the incidence of deeply discounted promotional fares and corporate discounting by its competitors. Virgin Australia operates in many markets characterized by high levels of price competition. Virgin Australia faces increased revenue risk as a result of the competitive nature of the airline industry. Aggressive pricing or capacity increases by Virgin Australia’s competitors in domestic and international aviation markets can affect Virgin Australia’s revenue and yield performance. As the airline industry is characterized by low profit margins and high fixed costs, a decision to match competitors’ fares to maintain passenger traffic may result in reduced yields which, in turn, may have a significant effect on Virgin Australia’s operating and financial results. As the costs of operating any particular flight do not vary significantly with the number of passengers carried, a relatively small change in the number of passengers or in fare pricing or traffic mix may have a material adverse effect on Virgin Australia’s operating and financial results.

30 Virgin Australia has incurred a loss over the last three financial years and this loss position may continue or may increase over subsequent periods. Virgin Australia incurred a statutory loss after tax of AU$98.1 million for the financial year ended June 30, 2013, a larger statutory loss after tax of AU$353.8 million for the financial year ended June 30, 2014 and a statutory loss after tax of AU$93.8 million for the financial year ended June 30, 2015. Furthermore, Tigerair Australia has also incurred losses in the last several years and, from October 17, 2014, Tigerair Australia’s results have been reflected on a consolidated basis in Virgin Australia’s financial statements. In recent years, domestic capacity in the Australian aviation market has exceeded passenger demand, resulting in a reduction in both domestic passenger load factors and revenue yields. Coupled with weak consumer sentiment and the costs associated with the carbon tax, such overcapacity has had a negative impact on industry profitability. Virgin Australia has implemented several programs to reduce costs, including within the Game Change Program. Through its Virgin Vision 2017 strategy, Virgin Australia has been working to expand upon the business efficiency program introduced under the Game Change Program to target AU$1.2 billion in cumulative productivity gains by June 30, 2017. However, there is no assurance that Virgin Australia will be able to attain or increase profitability or that the desired business efficiencies will be realized. If Virgin Australia is unable to effectively manage costs, or if there remains overcapacity in the Australian domestic aviation market, Virgin Australia may continue to operate at a loss or this loss position may increase in subsequent financial periods.

Virgin Australia is exposed to the risk of losses from major safety or security incidents. The occurrence of or failure to prevent or respond to a major safety or security incident relating to Virgin Australia or Tigerair Australia could have a material adverse effect on Virgin Australia’s reputation, operations and financial performance. Losses associated with these types of incidents may involve not only the costs associated with the repair or replacement of damaged or lost aircraft and their temporary or permanent loss from service, but also claims by affected passengers, owners of the aircraft and third parties or loss of reputation which would negatively impact future revenue generating capability. Although Virgin Australia maintains liability insurance, there can be no assurance that Virgin Australia’s insurance coverage will be sufficient to cover all such losses. Further, if the Australian or relevant international aviation safety regulatory bodies determine that Virgin Australia could not operate its services safely as a result of a safety or security incident, Virgin Australia could lose its regulatory approval or operational licenses which, in an extreme case, could result in the grounding of the Virgin Australia fleet. An aircraft accident or any security or safety related incident involving a partner airline with which Virgin Australia has a codeshare arrangement might be associated with Virgin Australia by the public, and could potentially cause Virgin Australia to suffer reputational damage (and associated losses), even if none of its aircraft are involved. Further, aircraft accidents or similar incidents involving another airline could impact general passenger confidence and lead to a reduced demand for air travel, which in turn could adversely impact Virgin Australia, particularly if the accident or incident involved an aircraft type used by Virgin Australia. Failure to prevent or respond effectively to a major safety or security incident could have a material adverse effect on Virgin Australia’s financial and operating performance.

Virgin Australia is exposed to operational disruptions due to maintenance of its fleet, security incidents or other events. Virgin Australia’s business is highly dependent upon its ability to operate without interruption at a number of core airports. Delays or disruptions in service at any of these airports, including those due to security or other incidents, weather conditions, power failure, the unavailability of sufficient personnel or resources, or other causes beyond the control of Virgin Australia, such as industrial action by workers not employed by Virgin Australia, including baggage handlers, security or customs personnel or air traffic controllers, could have a material adverse impact on Virgin Australia, its business, results of operations and financial condition. Such events may also give rise to claims against Virgin Australia.

31 Virgin Australia’s fleet requires both regularly scheduled maintenance work and also, from time to time, unscheduled maintenance work, which may cause operational disruption. On occasion, airframe manufacturers or regulatory authorities, or both, may require mandatory or recommended modifications to be made across a particular fleet which may necessitate the temporary grounding of a particular type of aircraft. There is also the possibility that a particular aircraft type may be grounded by regulatory authorities pending investigation into actual or perceived defects or safety issues. This may cause operational disruption to and impose significant costs on Virgin Australia, especially if the modifications are required on an aircraft type on which Virgin Australia is highly dependent.

Virgin Australia is dependent on uninterrupted operation of its processing systems, including SabreSonic, and any failure of critical information technology systems could have a material adverse effect on its business. Virgin Australia relies heavily on technology, including computer and telecommunications equipment and software and internet-based systems, to operate its business, generate revenues and reduce costs. Virgin Australia’s ability to manage ticket sales, receive and process reservations, manage its network and perform other critical business operations is dependent on the efficient and uninterrupted operation of computer, internet and communication systems, including the SabreSonic online reservation and ticketing system (“SabreSonic”). The failure of SabreSonic or another system on which Virgin Australia is substantially dependent would have a material adverse effect on Virgin Australia’s business and operations. On October 17, 2015, Tigerair Australia successfully migrated from Tiger Airways’ reservations platform to its own Navitaire reservations platform, the technology platform formerly used by Virgin Australia. Tigerair Australia relies heavily on technology, including computer and telecommunications equipment and software and internet-based systems, to operate its business. The new platform is utilised by a number of low-cost carriers and successful implementation of the Navitaire system is critical to the ongoing turnaround of the Tigerair Australia business. Any failure to successfully imbed the Navitaire system could have a material adverse effect on Tigerair Australia’s business operations and financial performance and, ultimately, on Virgin Australia’s business and operations. In addition, computer and communications technology systems and associated infrastructure may be vulnerable to disruption, power outages, acts of sabotage, computer viruses, fires and other events. While Virgin Australia invests in technology initiatives, including security initiatives and disaster recovery plans, these measures may not be adequate or implemented properly and there can be no assurance of efficient and uninterrupted operation of these systems and associated infrastructure. Any such technology systems failure, disruption or misuse, whether by Virgin Australia or a third party could adversely affect Virgin Australia’s operations and have a material adverse effect on its financial condition and results of operations.

Virgin Australia is exposed to global and domestic economic conditions. Virgin Australia’s operating results are sensitive to global economic conditions. Demand for air travel depends on general global and domestic economic conditions, employment levels, consumer and business confidence and the availability of consumer credit. See “Industry—Domestic Passenger Aviation Market Overview”. Economic conditions may also impact Virgin Australia’s operating costs, fuel costs and the cost and availability of capital and supplies required by Virgin Australia. In addition, due to the long lead-times associated with purchasing aircraft, changes in economic conditions may result in Virgin Australia having either too much or too little capacity at the time future aircraft orders are delivered. Airline fares and passenger demand have fluctuated significantly in the past and may fluctuate significantly in the future. Generally, the airline industry tends to experience significant adverse financial results during economic downturns, as passengers often choose to reduce their travel or reduce the price they are willing to pay for travel during such times. Depressed economic conditions,

32 whether in Australia, in other areas serviced by Virgin Australia or elsewhere throughout the world, may therefore have a material adverse effect on Virgin Australia’s financial and operating performance.

Geopolitical conditions, including terrorist attacks and military conflicts, could have an adverse impact on Virgin Australia’s business. The airline industry is exposed to political instability. Local, regional and international political conditions in markets served by Virgin Australia could affect its business. In addition, the occurrence of terrorist attacks, attempted terrorist attacks (whether domestic or international and whether involving Virgin Australia or another airline or no airline at all) or military conflicts worldwide could adversely affect Virgin Australia. The adverse consequences of terrorist attacks, and the threat of such attacks, or government advisory alerts about such potential threats, including limitations on the availability or amount of insurance coverage, increases in premiums and increased costs associated with security precautions and may add to fuel costs if alternative longer routes are required to be adopted for safety reasons. Further, increasingly restrictive security precautions, such as those relating to the content of carry-on baggage, passenger identification requirements and passenger screening procedures, could also have a material adverse effect on passenger demand for air travel generally. Any resulting reduction in passenger revenues or increases in costs or both would have a material adverse effect on Virgin Australia’s financial and operating performance.

Virgin Australia is dependent on the strength of its brands. Virgin Australia licenses certain brands from the Virgin Group, including “Virgin Australia.” The “Tigerair” brand is licensed from Tiger Airways Holdings Limited (“Tiger Airways”). Virgin Australia’s brands have significant commercial value and damage to these brands would impact Virgin Australia’s business as Virgin Australia relies on its brands’ positive recognition to help attract and retain passengers, employees and investors both domestically and internationally. There is no guarantee that any brand license will be renewed upon its expiration or on terms that are favorable to Virgin Australia. In addition, if Virgin Australia breaches a material term of a brand license and the breach is not remedied, there would be a risk of termination of the relevant brand license. The strong reputation of the Virgin Group brand (the “Virgin Group Brand”) is not under Virgin Australia’s control and can be adversely affected by the actions of members of the Virgin Group or other licensees that are not affiliated with or controlled by Virgin Australia. In addition, due to the high profile of the Virgin Group Brand internationally, Virgin Australia is susceptible to negative or inaccurate commentary on the Virgin Group Brand or organizations associated with the international Virgin Group Brand, which may, in turn, harm Virgin Australia’s image and reputation. Losing the right to use the Virgin Group Brand, being required to modify its use of the Virgin Group Brand, a change in the perception of the Virgin Group Brand or damage to the Virgin Group Brand could have a material adverse effect on Virgin Australia’s business. The reputation of the “Tigerair” brand is not under Virgin Australia’s control and can be adversely affected by the actions of Tiger Airways or other licensees that are not affiliated with or controlled by Virgin Australia. Tigerair Australia and, ultimately, Virgin Australia are susceptible to negative or inaccurate commentary on the “Tigerair” brand or organizations associated with the “Tigerair” brand, which may, in turn, harm the image and reputation of Tigerair Australia and, ultimately, Virgin Australia. Losing the right to use the “Tigerair” brand, being required to modify use of the “Tigerair” brand, a change in the perception of the “Tigerair” brand or damage to the “Tigerair” brand could have a material adverse effect on Tigerair Australia’s business and, ultimately, on Virgin Australia’s business. In addition, Virgin Australia’s ability to expand its operations under the Virgin brand to include new non-domestic destinations is, in some circumstances, subject to Virgin Group consent, which may place limitations on future expansion plans. Tigerair Australia’s operations under the “Tigerair” brand are also subject to certain restrictions under its license agreement with Tiger Airways. For more

33 information about Virgin Australia’s ability to expand its operations see “—Virgin Australia cannot expand its operations into new markets as easily as other airlines.”

Virgin Australia faces risks that its strategic alliances may not be reauthorized or renewed or deliver the anticipated results. The development and maintenance of alliances and other strategic relationships is critical to Virgin Australia’s business and strategy. Virgin Australia has key strategic alliances with Air New Zealand, Delta Air Lines, Etihad Airways and Singapore Airlines. These strategic alliances are complemented by key partnerships with, among others, Hawaiian Airlines, Virgin Atlantic and Virgin America. Through these strategic alliances and partnerships, Virgin Australia’s passengers have greater access to an international network with increased options for routes available to them, stop-overs and fare types, greater access to airport lounges and opportunities to earn frequent flyer points. Further, cooperation with strategic alliance partners on scheduling and pricing is possible only in prescribed circumstances and in accordance with anti-trust immunity. Each of the strategic alliances and reciprocal frequent flyer program agreements is subject to termination by either party upon the happening of certain events of insolvency, material default and other specified events and conditions. For more information on Virgin Australia’s strategic alliances and partnerships see “Business—Virgin Australia’s Operations— Strategic alliances and partnerships.” Virgin Australia’s strategic alliances with Air New Zealand, Delta Air Lines, Etihad Airways and Singapore Airlines require ongoing authorization from the ACCC and the equivalent regulator in the home country of the strategic alliance partner. Authorization is typically granted for between three and five years. The authorization process in Australia is public and can take a significant amount of time (each previous alliance authorization has taken approximately six months or longer to be approved). There is a risk that the ACCC or the equivalent regulator in the home country of each strategic alliance partner or both may choose not to reauthorize a key strategic alliance for a number of reasons, including if aviation market conditions have changed since the previous authorization was granted. It is also possible that the ACCC or such regulator will impose new or additional conditions on a partnership or alliance in connection with reauthorization which can add additional costs and operational burdens on Virgin Australia’s business. For example, the Air New Zealand authorization is conditional on compliance with obligations concerning a number of routes between Australia and New Zealand. See “Business—Government and Regulatory Matters—Competition regulation in Australia.” In addition, because Virgin Australia’s alliances with Delta Air Lines and Air New Zealand are revenue sharing joint ventures, a loss of one of these alliances could have a direct and adverse effect on Virgin Australia’s revenues. Should one or more of Virgin Australia’s strategic alliances or key partnerships be terminated or not be renewed, or should an alliance not be reauthorized by the ACCC or the equivalent regulator in the home country of each strategic alliance partner, the termination, non- renewal or unsuccessful reauthorization could have a material adverse effect on Virgin Australia’s business, results of operations, financial condition and prospects. Further, no assurance can be given that Virgin Australia’s alliances or partner airlines will perform in line, from an operational perspective, with Virgin Australia’s expectations, which could result in a significant variation in the amount of transfer payments or receipts payable by or to Virgin Australia, and, in turn, could adversely affect Virgin Australia’s results of operations and financial condition.

Epidemics, pandemics, severe weather conditions, natural disasters or other “Acts of God” could materially adversely affect Virgin Australia’s operations and the demand for air travel. External events may cause a significant network disruption to the airline industry. Epidemics and pandemics (such as Ebola, Severe Acute Respiratory Syndrome (“SARS”) and Avian Influenza-type viruses), natural disasters (such as volcanic ash, floods and earthquakes), severe weather conditions or other “Acts of God” (whether on a regional or global scale) could have a material adverse effect on the airline industry, resulting in substantial reductions in or cancellations of bookings and flights in the affected region and, more generally, reducing overall demand for Virgin Australia’s services. For example, a significant number of Virgin Australia’s operations involve flights to and from Queensland,

34 where the tropical cyclone and associated wide spread flooding that affected Queensland from the end of December 2010 through January 2011 significantly impacted Virgin Australia’s domestic operations and revenues. Similarly, the 2003 outbreak of SARS was linked to air travel early in its development and had a severe impact on the aviation industry, as evidenced by a sharp reduction in passenger bookings, cancellation of many flights and employee layoffs. More generally, if external events were to weaken the demand for air travel or materially affect airline operations for a period of time, it could have a material adverse effect on Virgin Australia’s financial and operating performance for the relevant financial year. This is especially the case because the occurrence and timing of such events, together with the reaction of aviation authorities to such events, cannot be predicted or controlled by Virgin Australia.

Virgin Australia’s business is subject to large liability claims for serious personal injury or death arising out of accidents or disasters. Due to the nature of its core operating business, Virgin Australia may be subject to liability claims arising out of accidents or disasters involving aircraft on which Virgin Australia’s passengers and staff are traveling or at facilities operated by Virgin Australia. An accident or other incident involving aircraft belonging to Virgin Australia or otherwise associated with the Virgin Australia Brand, such as codeshare flights, could involve significant potential claims by injured passengers or others for personal injury, death or damage to property in addition to the cost of the repair or replacement of damaged aircraft and its consequential temporary or permanent loss from service. While Virgin Australia’s liability is capped in some instances by applicable legislation and Virgin Australia maintains insurance to mitigate risks associated with these types of liability claims, there can be no assurance that Virgin Australia’s insurance coverage will be sufficient to cover one or more large claims and any shortfall may be material and could have a material adverse effect on Virgin Australia’s financial condition and results of operations. Additionally, even if fully insured against liability claims associated with any particular incident, if the incident involves an aircraft operated by, or on behalf of, Virgin Australia, it could cause a public perception that the Virgin Australia Brand is less safe or reliable than other airlines, which would harm Virgin Australia’s reputation and business and, in turn, could have a material adverse effect on Virgin Australia’s financial condition and results of operations.

Virgin Australia is exposed to risks associated with aviation fuel price trends. Fuel costs constitute the largest percentage of the total operating costs of Virgin Australia. Aviation fuel has been, and is expected to remain, subject to significant price volatility. Prices for aviation fuel are strongly correlated to the price of petroleum and are influenced by a number of factors, including political events, war or the threat of war and the impact on pricing of the coordinated supply decisions of the Organization of Petroleum Exporting Countries producer cartel. As a result, volatility in the price of oil and petroleum products can have a material impact on Virgin Australia’s operating results. For each of the financial years ended June 30, 2015 and June 30, 2014, fuel and oil costs amounted to 25% and 26% of Virgin Australia’s net operating expenditure, respectively. Price risks relating to fuel and oil are partially hedged through the purchase of oil derivatives in forward markets which can generate a profit or a loss. If Virgin Australia is exposed to significant price volatility or changes in prices for aviation fuel or both, there can be no assurance that Virgin Australia’s hedging practices will effectively protect against these price risks or that any increases will be partially or fully offset by passing portions of these costs on to passengers and/or by cost reductions, nor can Virgin Australia predict the movement of either short or long-term aviation fuel prices. After taking into account the quantity of fuel expected to be consumed and before taking into account the management of fuel price risk, Virgin Australia estimates that an increase in the price of fuel by AU$10.00 per barrel would have the effect of increasing Virgin Australia’s operating expenditure by approximately AU$94.6 million for the financial year ending June 30, 2016. Management of fuel

35 price risk involves passing on a portion of increased fuel costs to customers and hedging. Although Virgin Australia may seek to pass on at least a portion of the cost of increased fuel prices to its customers, it is not always able to do so. Hedging defers the impact of changes to fuel prices; however, no assurance can be given that the hedging strategy that Virgin Australia chooses to employ will be effective. To the extent Virgin Australia is unable to effectively hedge or offset these price risks, they could have a material adverse effect on Virgin Australia’s financial performance.

Due to the capital intensive nature of the airline industry, Virgin Australia has incurred substantial indebtedness. The airline industry is capital intensive and, as a result, Virgin Australia has incurred indebtedness and capital commitments (primarily with respect to aircraft) to finance its material capital expenditure requirements. As a consequence, a substantial portion of existing borrowings is secured on Virgin Australia’s assets. At June 30, 2015, Virgin Australia and its subsidiaries had current and non-current interest bearing liabilities of AU$2,762.2 million, including interest bearing liabilities in respect of third party indebtedness incurred by the Velocity Sub-Group with a carrying value of AU$213.7 million at that date. See “Description of Other Financing Arrangements.” The cash flow generated by the Velocity Sub-Group may not be available to service the indebtedness of members of the Restricted Group. See “Risk Factors—Risks Relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness.” Virgin Australia’s indebtedness could have important consequences. For example, it could reduce Virgin Australia’s ability to grow its business through capital expenditures and acquisitions, reduce working capital, limit Virgin Australia’s flexibility in planning for, or reacting to, changes in its business industry or the general economy, place Virgin Australia at a disadvantage compared to its competitors that have less debt and limit Virgin Australia’s ability to borrow additional funds or pay down existing debt. Any of the foregoing could have a material adverse effect on Virgin Australia’s business, financial condition and results of operations.

Virgin Australia has substantial future financing needs and may not be able to obtain sufficient funds in a timely manner, on acceptable terms or at all to provide adequate liquidity and to finance necessary operating and capital expenditures. Virgin Australia has substantial future financing needs. Virgin Australia’s ability to finance ongoing operations, committed aircraft orders and future fleet growth plans are vulnerable to various factors including financial market conditions. A failure to obtain adequate financing to meet necessary operating and capital expenditures would have a material adverse effect on Virgin Australia’s financial condition and results of operations. Virgin Australia faces a number of challenges in its business that are common within the airline industry, including in relation to economic conditions, foreign exchange rates, increased competition from domestic and international carriers, labor issues, volatile fuel prices and contractual covenants to maintain deposit cash collateral with third parties. In addition, Virgin Australia has significant fixed financial obligations, including commitments to purchase aircraft, and its ability to meet these commitments will be contingent on its operating performance, cash flow and ability to source capital on commercially acceptable terms or at all. Virgin Australia’s liquidity may be adversely impacted by these and other factors and risks identified in this offering circular. As part of Virgin Australia’s efforts to meet such challenges and to support its business strategy, significant liquidity and significant operating and capital expenditures are and will in the future be required. There can be no assurance that Virgin Australia will be able to obtain financing on acceptable terms (or at all) to refinance certain maturing debt, provide adequate liquidity, finance the operating and capital expenditures necessary to its

36 ongoing operations and support its business strategy if cash flows from operations and cash on hand are insufficient.

Increases in insurance costs or a reduction in insurance coverage could have an adverse effect on Virgin Australia’s business. Virgin Australia insures its fleet, at a minimum, in accordance with financing, contractual and legislative requirements. However, Virgin Australia’s ability to secure the desired policies or policies required under its various aircraft financings or leasing obligations is dependent on the availability of such insurance policies. These policies must be renewed at regular intervals and may be subject to renewal on less favorable terms. In addition, these policies stipulate a number of exclusions and conditions under which the insurers may terminate policies or deny coverage. The airline industry is exposed to the risk that in the future insurance coverage for aviation related risks will become too expensive or too difficult to obtain. For example, future terrorist attacks or acts of sabotage, especially if they were to be directed against air traffic, or the occurrence of other incidents such as a natural or man-made disaster, could result in insurance coverage for aviation risks becoming more expensive or certain risks becoming uninsurable or both. There can be no assurance that the amount of insurance coverage, if any, available to Virgin Australia in the future, especially upon the occurrence of a man-made or natural disaster, including the loss of one or more of Virgin Australia’s aircraft for any reason, would be adequate to cover the resulting losses. Any shortfall may be material and could have an adverse effect on Virgin Australia’s financial condition and results of operation.

Virgin Australia is subject to extensive regulation of both its aviation and broader business activities. Airlines are subject to extensive regulatory requirements. Virgin Australia is subject not only to Australian law and regulation, but also to the laws and regulations of other countries, international organizations and international, bilateral and multilateral treaties. The scope of such laws and regulations include, among other things, international traffic rights, airport operation and access, the environment (including noise abatement and carbon emissions), civil aviation safety requirements, workplace health and safety regulation, licensing, competition, passenger protection, ticket pricing, privacy and tax. For further information on applicable safety regulation see “Business—Virgin Australia’s Operations—Safety—Safety regulation.” Additional laws, regulations, taxes and airport rates and charges, including significant increases in charges imposed directly on passengers, such as the Australian Government’s Passenger Movement Charge, proposed or established from time to time could significantly increase the cost of airline operations or reduce revenues by, among other things, reducing demand for air travel. For example, changes in flight duty and rest requirement rules or the minimum required flight crew to passenger ratios could result in a material increase in Virgin Australia’s employment-related costs. Similarly, new laws and regulations may change the way in which Virgin Australia is able to charge passengers for certain items, such as booking and service fees. These changes may lead to a material loss of revenue if such fees cannot be separately charged and are not able to be offset by fare increases. See “Business—Government and Regulatory Matters—Proposed regulation of payment card surcharging arrangements”. Virgin Australia cannot fully anticipate all changes that may be made in the future, nor the possible adverse impact of such changes. Virgin Australia’s ability to comply with such regulations is key to maintaining its operational and financial performance. If Virgin Australia is unable to fully comply with future regulations, or if the cost of compliance with new regulations is significant and Virgin Australia is unable to pass such costs on to its passengers, there may be a material adverse effect on Virgin Australia’s financial and operating performance.

37 Virgin Australia may be exposed to risks associated with climate change regulation. Various international, national and regional regulatory approaches are being taken to address climate change. On July 1, 2012, the Australian federal government introduced a carbon price mechanism that imposed a fixed price on carbon emissions generated domestically. Legislation was passed on July 17, 2014 to end the carbon price mechanism effective June 30, 2014. Following the passage of legislation on October 31, 2014, the Australian federal government is implementing an alternative climate change policy, known as Direct Action. Direct Action includes a government Emissions Reduction Fund to purchase Australian-based greenhouse gas emissions reductions and abatement at auctions. This presents an opportunity for businesses to be paid for their emissions reductions and abatement, so does not in itself present a risk to Virgin Australia. Direct Action will also apply a “safeguard” baseline mechanism to apply to large emitters from July 1, 2016. This mechanism will apply to facilities with direct emissions of 100,000t carbon dioxide equivalent (CO2-e) per annum or more. On this basis, the “safeguard” baseline mechanism may apply to Virgin Australia. If baselines are exceeded then carbon units would need to be surrendered or penalties would apply, thus imposing costs. The effect that Direct Action may have on Virgin Australia and the aviation industry is still to be determined. It is broadly expected that international and domestic regulation of climate change issues will increase over time and will likely involve increasing costs applied to greenhouse gas emissions. Internationally, the International Civil Aviation Organization (“ICAO”) is overseeing efforts to address greenhouse gas emissions from international aviation. In the event an international emissions trading scheme or a carbon offsetting scheme for airlines is introduced, Virgin Australia may be liable for additional costs in relation to its carbon emissions for all international flights which, at present, cannot be accurately assessed. Climate change regulation in Australia or other countries and regions may limit Virgin Australia’s operational flexibility and increase costs. In addition, passenger attitudes regarding environmental and climate issues may also change, which may lead to a reduced demand for air travel, including if ticket prices are increased by such regulation. These risks associated with climate change regulation could have a material adverse effect on Virgin Australia’s financial condition and results of operations.

Virgin Australia is exposed to macroeconomic factors and governmental policy changes or decisions, which could have an adverse impact on its business. Macroeconomic decisions and other government policy changes may impact taxes, duties, superannuation levies or other charges to which Virgin Australia is subject, which could have a material adverse effect on its financial condition and results of operations. Examples include the Australian carbon price and the alternative Direct Action approach, discussed above at “—Virgin Australia may be exposed to risks associated with climate change regulation,” and changes to legislated curfews that restrict operations at some airports during certain times to provide noise relief to residents surrounding the relevant airports. Australian federal legislation, for example, currently limits take-offs and landings at Sydney Airport between 11:00pm and 6:00am by restricting passenger jet flights from operating during this time. Certain markets in which Virgin Australia operates are subject to government regulation which limits capacity or restricts market entry, or both. For example, capacity is limited under the Australia- Indonesia bilateral air services agreement and some domestic intrastate routes have market entry restrictions. Relaxation of such restrictions, while creating growth opportunities for Virgin Australia, could increase competition and therefore have a negative impact on Virgin Australia’s margins and result in a material adverse effect on its financial condition and results of operations. Furthermore, Virgin Australia’s ability to enter new markets and manage its growth strategy may be impeded as a result of government regulations that restrict Virgin Australia’s entry into new markets.

38 The airline industry relies upon and is exposed to national and international infrastructure development. Virgin Australia is dependent on and may be affected by infrastructure decisions or changes in infrastructure policy by governments, regulators or other entities outside its control. For example, in June 2013, Brisbane Airport Corporation Pty Limited (“BAC”), the owner of the Brisbane Airport, and Virgin Australia reached an agreement to enhance Virgin Australia’s facilities at the Brisbane Airport. The agreement contemplates, among other things, a series of major upgrades to the Virgin Australia- leased area at the domestic terminal, ongoing runway access for the next ten years, support for the development of the new parallel runway and the purchase by BAC and lease-back to Virgin Australia of the maintenance hangar used by Virgin Australia. If construction of the new parallel runway is delayed or if other necessary infrastructure changes are not completed at this airport, Virgin Australia’s future operations at the Brisbane Airport may be disrupted, which could have a material adverse effect on Virgin Australia’s financial condition and results of operations. In addition, if the governing bodies of other airports important to Virgin Australia’s operations do not make appropriate infrastructure decisions when needed, it could adversely affect Virgin Australia’s ability to operate at that airport and have a material adverse effect on its financial and operating performance. Further, if the governing bodies of other airports make or implement decisions to improve infrastructure, the resulting expense requirements may have an adverse effect on Virgin Australia’s financial condition and results of operations.

Virgin Australia’s operating results historically fluctuate due to seasonality and other factors associated with the airline industry. Virgin Australia has historically experienced greater demand for its services in the second half of the calendar year and lower demand in the first half of the calendar year. This demand pattern is principally a result of the greater number of peak leisure travel periods occurring during the second half of the calendar year and traditionally lower business-related travel in January. Virgin Australia has substantial fixed costs that do not meaningfully fluctuate with passenger demand in the short term.

Slot allocations can affect the competitiveness and financial condition of airlines. Slot allocations can affect the competitiveness and financial condition of airlines. Airport slots are rights allocated to an entity by an airport, government agency or other agency granting the slot user the right to schedule a landing or departure during a specific time period. Slot allocations are based on a number of factors and, for many airports, airlines are required to participate in an application process to secure slot allocations at the particular airport. While the International Air Transport Association (“IATA”) has established best industry practice guidelines (based on such criteria as environmental issues and the appropriate use of slots) and a policy for worldwide application in relation to slot allocation and coordination, local regulation and legislation will override IATA’s procedures if such regulation or legislation exists. Virgin Australia operates at a number of congested and slot constrained airports, including some of the most important airports to its operations such as Sydney, Brisbane, Perth and Denpasar. A failure of Virgin Australia to secure slots for current and future flights will affect its ability to add additional flights to its existing schedules at the relevant airports and could lead to changes in flight schedules or reduced aircraft utilization, which in turn could adversely affect its operating and financial performance.

Airport, transit and landing fees, along with charges and the costs that an airline must pay to ensure it has access to airports and air navigation and related services may increase. Virgin Australia is exposed to increases in airport, transit and landing fees, along with changes in air security policies, air traffic security costs and airport common use infrastructure upgrades. Airport, transit and landing fees and security charges or initiatives represent a significant operating cost to Virgin Australia and have an impact on its operations.

39 Australia’s major airports are privatized, and airport operators hold significant power in negotiating prices for airport services with airlines under the Australian government’s approach to price monitoring. With airport charges representing one of Virgin Australia’s largest expenditures, there is a risk that Virgin Australia’s cost base will be negatively impacted in the future under the current regulatory regime. If Virgin Australia is unable to pass on any increases in charges, fees or other costs to its passengers, it could have a material adverse effect on Virgin Australia’s business and financial and operating performance.

Virgin Australia may be exposed to the loss of key airport capacity. Virgin Australia is exposed to the loss of capacity at its core airports, including the Brisbane, Sydney and Melbourne airports, and at other airports where it flies to and from. Factors affecting such capacity, on either a short or long-term basis, could have a material adverse effect on Virgin Australia’s financial condition and results of operations. The complete or partial loss or temporary closure of any terminal or other substantial facilities at Virgin Australia’s core airports—for instance due to fire, collapse of the building, major air crash at the site, a terrorist or similar security incident, significant construction or labor strikes—would result in the disruption of Virgin Australia’s operations and could have a material adverse effect on Virgin Australia and its partners’ business, financial condition and results of operations.

Virgin Australia cannot expand its operations into new markets as easily as other airlines. Virgin Australia cannot expand its operations into new markets as easily as some other airlines because of some restrictions imposed on it by brand and other agreements entered into with the Virgin Group and other partner or affiliated airlines and, in the case of Tigerair Australia, with Tiger Airways. The trademark licenses for Virgin Australia’s business limit the trademarks which may be used by Virgin Australia domestically and internationally. The trademark licenses and certain other agreements also place some restrictions on the international routes which may be flown by Virgin Australia, as well as the provision of other air transport services if the prior consent from the other party is not secured. To the extent Virgin Australia is unable to secure consent and expand its operations relative to its competitors, it could have an adverse effect on future revenue generation and the growth of Virgin Australia’s business. Tigerair Australia’s operations under the “Tigerair” brand are also subject to certain restrictions under its license agreement with Tiger Airways.

Virgin Australia is dependent on its employees, many of whom are unionized, and Virgin Australia may not be able to maintain labor costs at sustainable levels. Employee costs represent the second largest cost component of Virgin Australia’s business. Several unions represent many of Virgin Australia’s staff members, which has the potential to cause industrial disruption to Virgin Australia’s business operations. Collective bargaining through unions over renewal of employee terms and conditions takes place on a regular basis, with multiple negotiations currently taking place. In addition, labor conflicts or a breakdown in the bargaining process with Virgin Australia’s employees, including flight crew and ground operations employees, or workers not employed by Virgin Australia, including baggage handlers, could disrupt operations and adversely affect Virgin Australia’s business performance. Further, the increase in labor costs as a result of enterprise bargaining or union action could have an adverse effect on Virgin Australia’s financial condition and results of operations.

Virgin Australia is exposed to operational disruptions as a result of labor conflicts and industrial action. Virgin Australia is currently negotiating a number of its collective agreements. In addition, unions are increasingly relying on safety either as a basis for taking industrial action or as a cause of action in other industrial disputes. There can be no assurance, either during the bargaining process or at any

40 other time, that Virgin Australia will not experience strikes or other industrial action. Any drawn out industrial dispute which involves the prospect of industrial action could have a material adverse effect on Virgin Australia’s reputation and cause passengers to book with its competitors. In addition, by raising safety as an issue in industrial disputes, unions increase Virgin Australia’s exposure to reputational damage. Further, the impact of an increase in labor costs for any reason, including as a result of enterprise bargaining or union action, could have a material adverse effect on Virgin Australia’s financial condition and results of operations. Furthermore, strikes or other industrial action associated with Virgin Australia’s strategic alliances could negatively reflect on Virgin Australia to the extent that passengers booked on Virgin Australia’s codeshare or partner’s flights are affected by such strikes. Any labor dispute or work stoppage, including the threat of any labor dispute or work stoppage as a result of union action or otherwise, could have a material adverse effect on Virgin Australia’s financial condition and results of operations.

Virgin Australia is dependent on its executive officers and other key employees and could be materially adversely affected by substantial turnover. Virgin Australia is dependent on the experience and industry knowledge of its executive officers and other key employees to execute its strategy, including the Virgin Vision 2017 initiative. If Virgin Australia were to experience a substantial turnover in its leadership or other key employees, Virgin Australia’s business, financial condition and results of operations could be materially adversely affected. Additionally, Virgin Australia depends on its ability to attract and retain qualified key personnel with specified skill sets. No assurance can be given that it will be able to attract and retain such individuals as needed in the future. For more information on Virgin Australia’s key management personnel, including recent senior management changes, see “Management.”

Virgin Australia is dependent on key suppliers and service providers. Virgin Australia is dependent upon its ability to source, on favorable commercial terms, sufficient quantities and quality of plant, equipment, goods and services in a timely manner. These include plant, equipment, goods and services available at airports or from airport authorities or otherwise required for Virgin Australia’s operations, such as fuel, aircraft and related parts, aircraft maintenance services and IT and software products and services. This risk is increased in situations where there is a limited number of suppliers. For example Virgin Australia is dependent on The Boeing Company and Airbus S.A.S. as its primary suppliers for aircraft and aircraft-related items. The failure, refusal or inability of a supplier to provide plant, equipment, goods or services may arise as a result of a wide range of causes, which may be beyond Virgin Australia’s control. Any failure or inability of Virgin Australia to successfully source plant, equipment, goods and services, including by reason of a failure, refusal or inability of a supplier or service provider to source goods and services on terms and within the timeframes and quality and pricing levels acceptable to Virgin Australia, could have a material adverse effect on Virgin Australia’s business, financial condition and results of operations. Virgin Australia is dependent on a number of other third parties for certain principal material business needs and services including aircraft manufacturers, airport operators, airport authorities, aircraft lessors, airframe and engine manufacturers, aircraft fuel providers, aircraft maintenance providers, software and IT service providers, global distribution systems, credit card issuers and processing service providers, air traffic controllers, ground handlers, caterers, security personnel, check-in staff, call center services, baggage handlers and distributors and other general airport services. If these third parties are unable for any reason to continue to supply goods and services on terms acceptable to Virgin Australia, or at all, Virgin Australia may not be able to replace such third parties immediately or may be required to directly provide such goods and services. In addition, Virgin Australia may be unable to source alternative equivalent plant, equipment, goods and services in a timely manner due to the specialized nature of the supply or market. If one or more of these third party services were restricted or temporarily unavailable as a result of events such as strikes or technical

41 problems or were permanently unavailable or only available on uncommercial terms, or a service provider failed to provide services to the standard expected by Virgin Australia, or if lessors and airframe and engine manufacturers were to delay delivery of aircraft, make scheduled deliveries of aircraft late, or deliver goods which do not meet the standards and specifications contracted for, it could have a material adverse effect on Virgin Australia’s business, reputation, financial condition and results of operations.

Virgin Australia is exposed to credit risk of counterparties. Virgin Australia is exposed to credit risk to the extent of non-performance by its counterparties to settle financial assets and receivables. Treasury activities, including money market deposits, fuel hedging and foreign currency transactions, could lead to a concentration of different credit risks on the same counterparty. Virgin Australia is also exposed to credit risk to the extent of non-performance by its insurance counterparties. Failure of any of Virgin Australia’s counterparties, including aircraft manufacturers and aircraft lessors to whom deposits and prepayments have been made, could have a material adverse effect on Virgin Australia’s financial condition and results of operations.

Virgin Australia is exposed to interest rate fluctuations. Virgin Australia is exposed to increases in interest rates when its floating rate debt in a particular currency exceeds floating rate cash deposits in that currency or decreases in interest rates when its floating rate cash deposits in a particular currency exceed floating rate debt in that currency. As at June 30, 2015, US$260.6 million (15%) of Virgin Australia’s gross debt denominated in U.S. dollars was at a floating rate, which was partially offset by holding floating rate assets. A further US$377.8 million in aggregate notional amount in respect of Virgin Australia’s operating leases denominated in U.S. dollars was at a floating rate. 100% of Virgin Australia’s gross debt denominated in Australian dollars was at a floating rate, which was however fully offset by floating rate assets.

Fluctuations in currency exchange rates could have a material adverse effect on Virgin Australia’s financial condition and results of operations. Virgin Australia is exposed to currency risk on revenue, purchases and borrowings that are denominated in a currency other than the Australian dollar. Virgin Australia undertakes transactions in a number of foreign currencies, the most material of which are transactions denominated in U.S. dollars, including the purchase of fuel, aircraft, aircraft lease payments, the sale of airline passenger tickets and the repayment of U.S. dollar-denominated debt. A significant change in the value of the Australian dollar, to the extent Virgin Australia is unable to protect against currency risk, could have a material adverse effect on Virgin Australia’s financial condition and results of operations. In addition, the translation of foreign currency assets and liabilities on Virgin Australia’s balance sheet could, to the extent it is not offset, have a material adverse effect on Virgin Australia’s financial condition and results of operations. In order to protect against currency risk, Virgin Australia enters into Australian dollar-denominated fuel contracts and forward exchange contracts and option contracts to purchase currencies, other than Australian dollars, and to sell Australian dollars. These contracts hedge highly probable forecasted purchases for the ensuing financial periods. The contracts are timed to mature when the operating expenses or capital expenditures are expected to be incurred. Realized gains or losses on these contracts arise due to differences between the actual spot rates on settlement, the forward rates of the derivative contracts and the cost of option premiums paid. There can be no assurance that Virgin Australia’s hedging practices will effectively protect Virgin Australia against currency risk. To the extent Virgin Australia is unable to effectively hedge or offset these currency risks, they could have a material adverse effect on Virgin Australia’s financial performance.

42 Virgin Australia’s reported financial position and results will be affected by changes in financial reporting requirements. There is a risk that changes to accounting standards could have an impact on Virgin Australia’s accounting policies, financial position or its performance. Examples include: • The AASB has released exposure drafts of a new lease accounting standard. This standard proposes that a single lease accounting model will apply, such that assets and liabilities arising under all lease contracts will be recognized on balance sheet, with an annual expense reflecting depreciation on the leased asset and interest expense for leases with a lease term of more than 12 months. If adopted in its proposed form, this standard would require Virgin Australia to recognize aircraft and property assets, currently accounted for as operating leases, on its balance sheet unless the maximum possible lease term is no more than 12 months. • The AASB has released a new accounting standard AASB 15 Revenue from Contracts with Customers (“AASB 15”). AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and Interpretation 13 Customer Loyalty Programmes. AASB 15 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted. Virgin Australia has commenced development of a project plan to assess the impact of AASB 15. The impact of the above or similar changes in financial reporting requirements could have a material adverse effect on Virgin Australia’s financial condition and results of operations and financial metrics.

Virgin Australia’s management information reporting resources face significant demands from its rapid expansion and changes in strategy. Virgin Australia’s rapid expansion and changes in strategy, including the implementation of the Virgin Vision 2017, have placed and may continue to place significant demands on management information resources and financial and internal controls systems. Effective management of Virgin Australia’s growth will require, among other things, continued development and appropriate resourcing of its management information reporting systems and financial and internal controls. If Virgin Australia fails to successfully manage these aspects of its growth, this could have a material adverse effect on its financial condition.

Virgin Australia may not realize anticipated benefits from the Affinity acquisition of a minority interest in Velocity. On October 22, 2014, Virgin Australia sold a 35% minority interest in Velocity Holdco to Affinity. It is anticipated that the Velocity Transaction will assist Virgin Australia in driving accelerated growth in Velocity, one of the key goals of the Virgin Vision 2017 strategy. If the expected benefits of the joint venture are not realized fully or at all, or take longer to realize than expected, this may have a material adverse effect on Virgin Australia’s business strategy, financial condition and results of operations. For further information in relation to the Velocity joint venture, including in respect of exit arrangements, see “Business—Virgin Australia’s Operations—Loyalty Program—Velocity—Virgin Australia and Affinity Joint Venture in relation to the Velocity Business.” In relation to the factors to consider in assessing the Velocity Sub-Group’s importance to the Virgin Australia Group, see also “Summary—Corporate Structure”, “Risk Factors—Risks relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness,” “Selected Financial and Operating Information” and “Business— Virgin Australia’s Operations—Loyalty Program—Velocity—Virgin Australia and Affinity Joint Venture in relation to the Velocity Business.”

43 Virgin Australia may not realize anticipated benefits from the acquisition of Tigerair Australia. Virgin Australia acquired a 60% interest in Tigerair Australia in July 2013, through the formation of a joint venture with Tiger Airways. On February 6, 2015, Virgin Australia completed the acquisition of the remaining 40% of Tigerair Australia from Tiger Airways. Following the Tigerair Minority Acquisition, Tigerair Australia has and will continue to operate under a separate low-cost business model, with the “Tigerair” brand. It is anticipated that the Tigerair Minority Acquisition will assist Tigerair Australia in realizing economies of scale and other benefits by leveraging the resources of Virgin Australia. If the acquisition of Tigerair Australia does not fully deliver the anticipated benefits, including synergies through shared functions and a stronger presence in the low-cost travel market in Australia, or such benefits are delayed, the costs associated with the acquisition may exceed the realized benefits. If the expected benefits of the acquisition of Tigerair Australia are not realized fully or at all, or take longer to realize than expected, this may have a material adverse effect on Virgin Australia’s business strategy, financial condition and results of operations.

Virgin Australia’s reported financial position and results may be impacted by future acquisitions or divestments. At each reporting date, Virgin Australia is required to make judgments, estimates and assumptions in order to assess the carrying value of significant asset and liability balances. Moreover, in addition to organic growth, Virgin Australia evaluates potential strategic opportunities and selective acquisitions as they are presented. There can be no assurance that the anticipated benefits of any such strategic opportunities or acquisitions will be fully or timely realized. In addition, there is a risk that future acquisitions or divestments could impact these judgments, estimates and assumptions and result in Virgin Australia making different assessments as to the carrying value of relevant assets and liabilities. Any such changes could have a material adverse effect on relevant financial metrics and/or on Virgin Australia’s financial condition and results of operations and could result in write-downs and impairment charges in future periods.

Virgin Australia is exposed to liquidity risks associated with credit card processing service providers. Virgin Australia has various card acceptance and processing agreements with companies that process customer credit card transactions in relation to the sale of air travel and other services. Certain of these agreements require restricted cash to be held to cover total forward sales for some forms of payment. In addition, certain of Virgin Australia’s agreements allow the processing companies, under certain conditions, to hold an amount of Virgin Australia’s cash (referred to as a “hold-back”) equal to some or all of the advance ticket sales that have been processed by that company, but for which Virgin Australia has not yet provided the air transportation. These hold-back requirements can be modified at the discretion of the processing companies upon the occurrence of specific events, including material adverse changes in Virgin Australia’s financial condition. An increase in the current holdback requirements could have an adverse effect on Virgin Australia’s financial condition and results of operations.

Virgin Australia’s substantial indebtedness and other obligations could impair its financial flexibility, competitive position and financial condition and could prevent it from fulfilling its obligations under the Notes. Virgin Australia has a substantial amount of indebtedness and other obligations. See “Capitalization.” Virgin Australia and its subsidiaries may be able to incur substantial additional indebtedness in the future because the terms of the Notes and Virgin Australia’s other existing indebtedness do not prohibit Virgin Australia and its subsidiaries from doing so, within certain limits. An inability to generate sufficient cash flow to satisfy its debt obligations, or to refinance its obligations on commercially reasonable terms, could have a material adverse effect on Virgin Australia’s business, financial condition and results of operations.

44 Virgin Australia’s substantial indebtedness and other obligations could have other important consequences for investors in the Notes. For example, they: • may make it more difficult for Virgin Australia to satisfy its obligations under its indebtedness, including the Notes; • may limit its ability to obtain additional funding for working capital, capital expenditures, acquisitions, investments, integration costs, and general corporate purposes, and adversely affect the terms on which such funding can be obtained; • require it to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness and other obligations, thereby reducing the funds available for other purposes; • make Virgin Australia more vulnerable to economic downturns, industry conditions and catastrophic external events; and • limit its ability to respond to business opportunities and to withstand operating risks that are customary in the industry. If new indebtedness is added to Virgin Australia’s and its subsidiaries’ current debt levels, the related risks that Virgin Australia and its subsidiaries now face could intensify. As at June 30, 2015, Virgin Australia had available and undrawn AU$107.6 million under several credit facilities. As at November 15, 2015, Virgin Australia had AU$65.2 million available and undrawn under various facilities (based on the Bloomberg AU Composite U.S. dollar per Australian dollar exchange rate on November 15, 2015 of US$0.7127 = AU$1.00).

Virgin Australia has a substantial level of fixed obligations which may limit operational and financial flexibility. Virgin Australia has a significant amount of fixed obligations, including debt, aircraft leases and financings, aircraft purchase commitments, leases and developments of airport and other facilities and other cash obligations. As a result of the substantial fixed costs associated with these obligations: • a decrease in revenues results in a disproportionately greater percentage decrease in earnings; • Virgin Australia may not have sufficient liquidity to fund all of its fixed obligations if its revenues decline or costs increase; and • Virgin Australia may have to use its working capital to fund its fixed obligations instead of funding general corporate requirements, including capital expenditures. These obligations also impact Virgin Australia’s ability to obtain additional financing, if needed, and its flexibility in the conduct of its business, which could materially adversely affect its liquidity, results of operations and financial condition.

Certain financing arrangements could significantly limit Virgin Australia’s operating and financial flexibility. Virgin Australia’s failure to comply with its contractual obligations could result in a variety of material adverse consequences. Some of the financing and other major agreements to which Virgin Australia is a party contain provisions that affect the repayment profile, amount of security posted or applicable interest rates in respect of such arrangements, based on, among other things, liquidity and asset values. Some of the financing and other major agreements to which Virgin Australia may, in the future, become a party, including the Indenture, may contain provisions that impact the terms under which future borrowings may be obtained. Current and future arrangements may affect and, in some cases, significantly limit or prohibit, among other things, the manner in which Virgin Australia may structure or operate its business, including by limiting Virgin Australia’s ability to: • maintain or improve its liquidity; • incur indebtedness; • create liens; • sell assets;

45 • pay dividends; • make capital expenditures; and • engage in acquisitions, mergers or restructurings or a change of control. These requirements may limit Virgin Australia’s operating and financial flexibility, which could materially and adversely affect Virgin Australia’s ability to operate its business and its profitability. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Notes—Certain Covenants” and “Description of Other Financing Arrangements.”

Virgin Australia is subject to disclosure and other obligations as a listed company. Virgin Australia is listed on the ASX. In this capacity, Virgin Australia has obligations under the ASX Listing Rules, including disclosing material information on the ASX. Failure to properly disclose information regarding Virgin Australia’s financial position and performance may lead to claims by shareholders in a class action for damages for the loss allegedly caused by the reduction in Virgin Australia’s share price. If insurance is not available or is not adequate to cover Virgin Australia for this risk, a claim could have a material adverse effect on Virgin Australia’s financial condition and results of operations.

Virgin Australia faces risks that future acquisitions may be blocked by the ACCC or that undertakings may be required. Any future acquisitions by Virgin Australia of a competitor or potential competitor’s operations related to Australia will likely require merger clearance from the ACCC. There is a risk that the ACCC will oppose any such acquisition or will require Virgin Australia to provide court enforceable undertakings (which may include a requirement to divest certain parts of its business) in order to approve the acquisition. Even if the acquisition is approved by the ACCC there is a risk that delay caused by seeking approval may jeopardize the acquisition. For further information on competition regulation in Australia see “Business—Government and Regulatory Matters—Competition regulation in Australia.”

Virgin Australia’s strategic direction may be altered if it is acquired or a change of control occurs. A number of international airlines hold large shareholdings in Virgin Australia. If one or more of these shareholders, or any other person or company, acquires Virgin Australia or increases its shareholdings to initiate a change of control of Virgin Australia, Virgin Australia may be required to unwind a number of its strategic alliances or amend or terminate material contracts relating to its business operations. Such an acquisition or increase in shareholding could have a material adverse effect on Virgin Australia’s strategic direction, financial condition and results of operations.

Virgin Australia faces risks from legal and arbitration proceedings. From time to time, Virgin Australia is involved in lawsuits and claims, the majority of which arise as a consequence of the normal course of its business and out of its relationships with employees, staff, public bodies, passengers and suppliers, as well as out of industrial activities. The results of such lawsuits and claims can be uncertain and cannot therefore be precisely determined. No assurance can be given that any provisions made in relation to any ongoing investigations, legal and/or arbitration proceedings will be sufficient should any of the investigations or proceedings have a negative outcome for Virgin Australia. A negative outcome in any investigation or claim could have a material adverse effect on Virgin Australia’s financial condition and results of operations.

46 Virgin Australia’s three largest shareholders may withdraw support. Virgin Australia’s three largest shareholders have previously provided additional share capital and loan facilities to Virgin Australia. If any of these shareholders do not provide similar support in the future if required by Virgin Australia, it may result in an adverse effect on Virgin Australia’s business, financial condition and results of operations.

Ongoing data security and privacy protection compliance requirements could increase costs, and any significant data breach or breach of privacy laws could harm Virgin Australia’s business, financial condition or results of operations. Virgin Australia’s business requires the appropriate and secure utilization of customer and other sensitive information. Virgin Australia cannot be certain that advances in criminal capabilities (including cyber-attacks or cyber intrusions over the Internet, malware, computer viruses and the like) will not compromise or breach the technology protecting the networks that access and store sensitive information. Virgin Australia is required to comply with the Australian Privacy Principles under the Privacy Act 1988 (Cth) (the “Privacy Act”) and, relevantly, is required to take reasonable steps to protect personal information it holds from misuse, interference and loss, as well as unauthorized access, modification or disclosure. Under the Privacy Act, Virgin Australia is responsible for the acts or omissions of its overseas service providers. In addition, commercial partners, including credit card issuers and credit card processing service providers, impose data security standards that must be met. Failure to comply with these legislative obligations and other standards (including credit card payment standards), may result in penalties, fines, the mandatory adoption of enforceable undertakings, adverse publicity and the commencement of civil proceedings against Virgin Australia, any of which may have an adverse effect on Virgin Australia’s business, financial condition and results of operations.

The supply of pilots to the airline industry may become limited. The hiring of pilots is contingent on those pilots holding the necessary credentials and meeting the requirements for the role. If more robust pilot qualification standards are introduced, there may be a decrease in eligible pilots available for hiring. Pilot shortages may result in increased training costs and a shortage of pilots available to conduct operations. This could have an adverse effect on Virgin Australia’s financial condition and results of operations.

Risks Relating to the Notes

The Notes and the Note Guarantees are unsecured and effectively subordinated to Virgin Australia’s and the Guarantors’ secured debt. The Notes will be senior unsecured obligations of Virgin Australia, and each Note Guarantee will be a senior unsecured obligation of the applicable Guarantor. The Notes and the Note Guarantees will be pari passu in right of payment with all of Virgin Australia’s and the Guarantors’ existing and future senior indebtedness. However, the Notes and the Note Guarantees are not secured and are therefore effectively subordinated to all of Virgin Australia’s and the Guarantors’ existing and future secured debt to the extent of the collateral securing such debt. As at June 30, 2015, after giving effect to the offering of the New Notes, Virgin Australia and its consolidated subsidiaries would have had AU$2,829.6 million of indebtedness and capital lease obligations, of which AU$2,314.9 million would have been secured indebtedness. As at June 30, 2015, Virgin Australia had undrawn borrowing capacity under several credit facilities of AU$107.6 million. As at November 15, 2015, Virgin Australia had AU$65.2 million available and undrawn under various facilities (based on the Bloomberg AU Composite U.S. dollar per Australian dollar exchange rate on November 15, 2015 of US$0.7127 = AU$1.00). In the event of any distribution of Virgin Australia’s or the Guarantors’ assets in any winding-up, liquidation, compromise, arrangement, or other insolvency process, holders of secured claims will have priority over the holders of the Notes or Note Guarantees in respect of those assets that are subject to

47 their security. Once the secured creditors and any unsecured creditors who have priority pursuant to section 556 of the Corporations Act have been paid in full, the remaining assets of Virgin Australia and the Guarantors will be distributed ratably among the ordinary unsecured creditors including the holders of the Notes and the Note Guarantees. In any of the foregoing events, Virgin Australia and each of the Guarantors cannot assure you that there will be sufficient assets to satisfy any outstanding debt under the Notes. As a result, holders of Notes may receive less than holders of secured indebtedness.

If Virgin Australia defaults in its obligations to pay its other indebtedness, Virgin Australia may not be able to make payments on the Notes. A failure by Virgin Australia to comply with its contractual obligations (including restrictive financial and other covenants), to pay its indebtedness and fixed costs or to post collateral (including under financing agreements, fair value tests under aircraft lease agreements or under fuel hedging arrangements) could result in a variety of material adverse consequences, including a default under Virgin Australia’s indebtedness, the withholding of credit card proceeds by the credit card processing service providers and the exercise of remedies by Virgin Australia’s creditors, lessors and other co- contracting parties, and such defaults could trigger additional defaults under other indebtedness or agreements. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be immediately due and payable, together with accrued and unpaid interest, and Virgin Australia could be forced into administration, liquidation or other formal insolvency process. If Virgin Australia’s operating performance declines, it may need to seek waivers from the holders of such indebtedness to avoid being in default. If Virgin Australia breaches its covenants under its indebtedness, it may not be able to obtain a waiver from the holders of such indebtedness on terms acceptable to Virgin Australia or at all. If this occurs, Virgin Australia would be in default under such indebtedness and the holders of such indebtedness and lenders could exercise their rights as described above, and Virgin Australia could be forced into administration, liquidation or other formal insolvency process. A default under the agreements governing certain of Virgin Australia’s existing or future indebtedness (including the revolving credit facility and the indentures governing the Virgin Australia Class A, B, C and D Enhanced Equipment Notes, Series 2013-1, issued on October 22, 2013 (the “EENs”)) and the remedies sought by the holders of such indebtedness could make Virgin Australia unable to pay principal of, or premium, if any, and interest on the Notes and substantially decrease the market value of the Notes.

The Notes will be structurally subordinated to all liabilities of Virgin Australia’s subsidiaries that are not Guarantors. Not all of Virgin Australia’s subsidiaries will guarantee the Notes, and holders of the Notes will lose the benefit of a particular guarantee if it is released under certain circumstances described under “Description of Notes—The Note Guarantees.” In the event of any winding up, liquidation, compromise, arrangement, or other insolvency process in respect of any of Virgin Australia’s Non-Guarantor subsidiaries, the claims of all creditors of Virgin Australia’s Non-Guarantor subsidiaries (including trade creditors) will need to be satisfied in full from the assets of those entities before any assets are made available for distribution to Virgin Australia as shareholder. As a result, the Notes will be structurally subordinated to the prior payment of all of the liabilities of Virgin Australia’s Non-Guarantor subsidiaries. In particular, each member of the Velocity Sub-Group, CPU Share Plans Pty Limited, as trustee of the Key Employee Performance Plan Trust, the Key Employee Performance Plan Trust, Virgin Tech Pty Ltd and Virgin Samoa Limited will be an Unrestricted Subsidiary and, as a result, will not provide a guarantee of Virgin Australia’s obligations under the Notes. For the financial year ended June 30, 2015, subject to the calculation methodology described herein, Virgin Australia’s Non-Guarantor subsidiaries generated 2% of Virgin Australia’s consolidated revenue and income and, 27% of Virgin Australia’s consolidated net loss after tax, and reduced Virgin Australia’s consolidated Operating Segment EBITDAR by 5%. As at June 30, 2015, the Non-Guarantor subsidiaries held 2% of Virgin Australia’s total consolidated assets and 11% of Virgin

48 Australia’s total consolidated liabilities. (In contrast, as at June 30, 2014, the Non-Guarantor subsidiaries held 7% of Virgin Australia’s total consolidated liabilities, the greater proportion as at June 30, 2015 being attributable primarily to the incurrence of third party indebtedness by the Velocity Sub- Group, and also to the growth in the Velocity program during the financial year ended June 30, 2015. See “Risk Factors—Risks Relating to the Notes—The Notes will be structurally subordinated to all liabilities of Virgin Australia’s subsidiaries that are not Guarantors”, “Description of Other Financing Arrangements—Velocity Syndicated Facility”, “Business—Virgin Australia’s Operations—Loyalty Program—Velocity” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Revenue and Income—Other Ancillary Revenue—Loyalty Program”). If issued as at June 30, 2015, the New Notes would have been and, once issued, will be, structurally subordinate to such liabilities. For purposes of the above calculations in respect of consolidated revenue and income, consolidated net loss after tax and consolidated Operating Segment EBITDAR, revenue and income, expenses and income tax attributable to Virgin Australia Airlines (NZ) Limited are recognized as revenue and income, expenses and income tax relating to the Guarantors, on the basis that Virgin Australia Airlines (NZ) Limited was an operating entity for much of the financial year ended June 30, 2015 and its operations are now conducted by other Guarantors. See “Business—Corporate Restructure”. In addition, for purposes of the above measures, assets and liabilities associated with aeronautic finance facilities are recognized as assets and liabilities of the Company or the relevant Guarantor or Guarantors (rather than as assets and liabilities of the relevant special purpose vehicle). The Non-Guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due pursuant to the Notes or to make any funds available, whether by dividends, loans, distributions or other payments. See also “—Risks Relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness.”

The Notes lack a “cross-default” event of default, a “judgment default” event of default and some covenants typically found in other comparably rated debt securities, including some of Virgin Australia’s debt securities, and the covenants that are included in the Notes are subject to significant exceptions and “baskets.” The Notes lack the protection of a “cross-default” event of default, a “judgment default” event of default and several other restrictive covenants typically associated with comparably rated debt securities, including covenants restricting the following: • sale of assets and the use of proceeds therefrom; • sale-leaseback transactions; • liens; • issuing subordinated debt not subordinated to the Notes and the Note Guarantees; • transactions with affiliates; and • dividend and other payment restrictions affecting subsidiaries. In addition, the covenants that are included in the Notes are subject to significant exceptions, qualifications and “baskets.” As a result, Virgin Australia and its Restricted Subsidiaries may engage in a number of transactions which could increase the risks associated with their substantial indebtedness.

Australian insolvency laws may impair the enforcement of remedies under the Notes. Insolvency proceedings in relation to Virgin Australia or the Guarantors will be governed by Australian insolvency laws. Australian insolvency laws differ from the insolvency laws of the United States and certain other jurisdictions.

49 In particular, the voluntary administration procedure under Chapter 5 of the Corporations Act provides for potential reorganization of an insolvent company pursuant to a deed of company arrangement, and each differ significantly from Chapter 11 of the U.S. Bankruptcy Code. Accordingly, if Virgin Australia or the Guarantors were to become insolvent, the treatment and ranking of holders of the Notes or Note Guarantees, their other creditors and shareholders under Australian law may be different from the treatment and ranking of those parties if the insolvency proceedings were subject to the bankruptcy laws of the United States or certain other jurisdictions. See “Description of Notes—Certain Australian Considerations.”

The ability to claim under any Note Guarantee following the insolvency of a Guarantor may be materially adversely affected by Australian insolvency laws. The Guarantors are organized under the laws of Australia and, therefore, insolvency proceedings with respect to such Guarantors would likely proceed under, and be governed by, Australian insolvency law, including the Corporations Act. Australian insolvency law differs from the insolvency laws of the United States. Accordingly, the treatment and ranking of holders of a Note Guarantee and the creditors and shareholders of the relevant Guarantor under Australian law may be different from the treatment and ranking of those parties if the insolvency of a Guarantor were subject to the bankruptcy laws of the United States or certain other jurisdictions. For example, certain procedures (such as administration under the Corporations Act) provide for a moratorium on (among other things) enforcement of creditors’ rights. In such a case, a deed of company arrangement may be entered in to, which can bind all creditors of the relevant company so as to limit their rights to those set out in the deed. Under Australian law, if an order to wind up were made against a Guarantor and a liquidator was appointed, the liquidator would have the power, among other things, to investigate the validity of past transactions, including guarantees of the obligations of others, and may seek various court orders, including orders for the repayment of money and to void certain transactions entered into prior to the winding up of the relevant Guarantor. Such transactions may include, without limitation, transactions entered into within specified periods prior to the winding up that a court considers uncommercial or transactions entered into within specified periods prior to the winding up that had the effect of preferring a creditor or creditors or otherwise defeating, delaying or interfering with the rights of other creditors. Furthermore, laws in the nature of fraudulent conveyance laws, equitable subordination principles and other similar provisions and principles have been enacted or exist for the protection of creditors in Australia under which a Note Guarantee may be set aside, subordinated or otherwise avoided, including as a result of the application of laws in relation to the duties of directors to act in good faith and for proper purposes. To the extent that a Note Guarantee is voided or otherwise held to be voidable or unenforceable, any direct claims against a Guarantor could be lost or limited, and the payments previously received from that Guarantor under such Note Guarantee may be required to be returned. See “Description of Notes—Certain Australian Considerations.”

Virgin Australia may not be able to satisfy its obligations to holders of the Notes upon a change of control. Upon the occurrence of a change of control, each holder of the Notes will have the right to require Virgin Australia to purchase the Notes at a price equal to 101% of the principal amount thereof. Virgin Australia’s failure to purchase, or to give notice of purchase of, the Notes would be a default under the Indenture and any such default could result in a default under certain of Virgin Australia’s other indebtedness. In addition, a change of control may constitute an event of default under Virgin Australia’s other indebtedness, thereby giving the holders of such other indebtedness the right to

50 accelerate such indebtedness. Any of Virgin Australia’s future debt agreements may contain similar provisions. If a change of control occurs, Virgin Australia may not have enough assets to satisfy all obligations under the Notes and its other indebtedness. Upon the occurrence of a change of control, Virgin Australia could seek to refinance the Notes or such other indebtedness or obtain a waiver from you as a holder of the Notes or from the holders of such other indebtedness. However, Virgin Australia may not be able to obtain a waiver or refinance its indebtedness on commercially reasonable terms, if at all.

The ability of holders of Notes to require Virgin Australia to repurchase Notes as a result of a disposition of “substantially all” assets may be uncertain. The definition of change of control in the Indenture includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of Virgin Australia’s and its subsidiaries’ assets, taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require Virgin Australia to repurchase such Notes as a result of a sale, transfer, conveyance or other disposition of less than all of Virgin Australia’s and its subsidiaries’ assets, taken as a whole, to another person or group may be uncertain.

Holders of the New Notes will not be entitled to registration or similar rights. Virgin Australia does not currently intend to register the New Notes under applicable securities laws, and there are restrictions on your ability to transfer or resell the New Notes. The New Notes are being offered and sold pursuant to an exemption from registration under the Securities Act and applicable state securities laws and Virgin Australia does not currently intend to register the New Notes or to offer to exchange the New Notes for Notes registered under the Securities Act. The holders of the New Notes will not be entitled to require Virgin Australia to register the Notes for resale or otherwise. Therefore, you may transfer or resell the New Notes in the United States only in a transaction registered under or exempt from the registration requirements of the Securities Act and applicable U.S. state securities laws. Therefore, you may be required to bear the risk of your investment for an indefinite period of time. See “Transfer Restrictions” and “Notice to Investors.”

Your ability to transfer the New Notes may be limited by the absence of an active trading market, and an active trading market may not develop or be maintained for the New Notes and the New Notes may never trade together with the Initial Notes. The New Notes are a new issue of securities for which there is no established trading market. In addition, any New Notes offered and sold in compliance with Regulation S will have different CUSIP, ISIN and Common Code numbers than the Initial Notes during a 40-day distribution compliance period commencing on the date of issuance of the New Notes and ending on , 2015. The Initial Purchaser has advised Virgin Australia that it currently makes a market in the Initial Notes and that it or its affiliates currently intend to make a market in the New Notes, as permitted by applicable laws and regulations; however, the Initial Purchaser is not obligated to make a market in the New Notes, and it may discontinue its market-making activities at any time without notice. Therefore, an active market for the New Notes may not develop or, if one does develop, it may not continue. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the New Notes. The market, if any, for the Notes may experience similar disruptions and any such disruptions may adversely affect the prices at which you may sell your New Notes. In addition, subsequent to their initial issuance, the New Notes may trade at discounts from their initial offering price, depending upon prevailing interest rates, the market for similar notes, Virgin Australia’s financial and operating performance and other factors. Virgin Australia does not intend to apply for a listing of the New Notes on any securities exchange or any automated dealer quotation system.

51 Virgin Australia may be unable to repay the Notes at maturity. At maturity, the entire outstanding principal amount of the Notes, together with accrued and unpaid interest, will become due and payable. Virgin Australia may not have the funds to fulfill these obligations or the ability to refinance these obligations. If the maturity date occurs at a time when other arrangements prohibit Virgin Australia from repaying the Notes, Virgin Australia would try to obtain waivers of such prohibitions from the lenders and holders under those arrangements, or Virgin Australia could attempt to refinance the borrowings that contain the restrictions. In these circumstances, if Virgin Australia cannot obtain such waivers or refinance these borrowings, Virgin Australia would be unable to repay the Notes.

Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness. Unrestricted Subsidiaries will not be subject to the covenants under the Indenture. Unrestricted Subsidiaries may enter into financing arrangements that limit their ability to make loans or other payments to fund payments in respect of the Notes. Accordingly, Virgin Australia may not be able to rely on the cash flow or assets of Unrestricted Subsidiaries to pay any of our indebtedness, including the Notes. In addition, certain of Virgin Australia’s existing subsidiaries, including each member of the Velocity Sub-Group, CPU Share Plans Pty Limited, as trustee of the Key Employee Performance Plan Trust, the Key Employee Performance Plan Trust, Virgin Tech Pty Ltd and Virgin Samoa Limited, will be an Unrestricted Subsidiary on the Closing Date. The Unrestricted Subsidiaries will not be subject to the covenants under the Indenture, which means, among other things, that the Unrestricted Subsidiaries will be able to incur an unlimited amount of indebtedness subject to any agreements currently in place. For the financial year ended June 30, 2015, the Unrestricted Subsidiaries generated 2% of Virgin Australia’s consolidated revenue and income and 22% of Virgin Australia’s consolidated net loss after tax, and reduced Virgin Australia’s consolidated Operating Segment EBITDAR by 3%. As at June 30, 2015, the Unrestricted Subsidiaries held 2% of Virgin Australia’s total consolidated assets and 11% of Virgin Australia’s total consolidated liabilities. The Velocity Sub-Group owns Virgin Australia’s frequent flyer program and does not own or rent any aircraft or have other assets apart from the frequent flyer business. Virgin Australia currently holds a 65% interest in the Velocity Sub-Group, each of the members of which are Unrestricted Subsidiaries. As at June 30, 2014, the Velocity Sub-Group was 100% indirectly owned by Virgin Australia and was consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2014. On August 28, 2014, Virgin Australia executed documents for the sale of a 35% minority interest in Velocity Holdco for gross proceeds of AU$336.0 million. The sale of this 35% interest closed on October 22, 2014. Virgin Australia has retained control of the Velocity Sub-Group and, as a result, the Velocity Sub-Group continues to be consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2015. Accordingly, the 35% interest held by Affinity is accounted for as a non-controlling interest and the results attributed to Affinity from October 22, 2014 are shown as net profit/(loss) attributable to non-controlling interests in Virgin Australia’s consolidated statement of profit or loss, directly below the net profit/(loss) attributable to the owners of Virgin Australia. See “Selected Financial and Operating Information”. The Velocity business accounted for a material portion of Virgin Australia’s consolidated EBITDAR for each of the financial years ended June 30, 2015 and June 30, 2014. Going forward, the contribution of the Velocity business to Virgin Australia’s consolidated EBITDAR will vary after giving effect to the performance of Virgin Australia and the Velocity Sub-Group as well as the impact of the Tigerair Minority Acquisition (including any losses incurred by Tigerair Australia in future periods). The Notes will be structurally subordinate to any additional indebtedness incurred by the Velocity Sub-Group in the future. In addition, the terms of any such new indebtedness may restrict the ability of the Velocity

52 Sub-Group to pay dividends to Virgin Australia. For a discussion of Velocity, its anticipated distribution policy and other factors to consider in assessing the Velocity Sub-Group’s importance to the Virgin Australia Group, see “Summary—Corporate Structure”, “Selected Financial and Operating Information” and “Business—Virgin Australia’s Operations—Loyalty Program—Velocity—Virgin Australia and Affinity Joint Venture in relation to the Velocity Business.” Velocity Holdco has its own board of directors, initially consisting of directors appointed by Virgin Australia and Affinity. The mutual consent of each of the Velocity Holdco directors is required to approve distributions of earnings to Velocity Holdco’s shareholders, Virgin Australia Airlines Holdings Pty Ltd (which is a Restricted Subsidiary) and Affinity. While it is anticipated that both Virgin Australia and Affinity would support the distribution of Velocity Sub-Group earnings that are not required to be deployed in the Velocity business, in the absence of consent from Affinity, Virgin Australia’s share in the earnings of the Velocity Sub-Group will not be able to be distributed to the Restricted Group. The net income of the Velocity Sub-Group will only be included in the consolidated net income of the Restricted Group (and factored into the Restricted Group’s consolidated EBITDAR and fixed charge coverage ratio) to the extent of the amount of dividends or similar distributions paid in cash by Velocity Holdco to Virgin Australia Airlines Holdings Pty Ltd. See “Description of Notes—Certain Definitions— Consolidated Net Income.” See also “—The Notes will be structurally subordinated to all liabilities of Virgin Australia’s subsidiaries that are not Guarantors.”

Changes in Virgin Australia’s credit rating could adversely affect the market price or liquidity of the Notes. Credit rating agencies continually revise their ratings for the companies that they follow, including Virgin Australia. The credit rating agencies also evaluate the airline industry as a whole and may change their credit ratings for Virgin Australia based on their overall view of the industry. Virgin Australia cannot be sure that credit rating agencies will maintain their initial ratings on the Notes. A negative change in Virgin Australia’s ratings could have an adverse effect on the market for and price of the Notes.

An adverse rating of the Notes may cause their trading price to fall and could result in increased interest and other financial expenses related to future borrowings. A rating agency may assign a rating that is lower than the rating expected by the holders of the Notes. Rating agencies also may lower ratings on the Notes or any of Virgin Australia’s other debt in the future. If rating agencies assign a lower-than-expected rating or reduce, or indicate that they may reduce, their ratings of Virgin Australia’s debt in the future, the trading price of the Notes could significantly decline. A decision by a rating agency to downgrade the rating of the Notes in the future could result in increased interest and other financial expenses relating to Virgin Australia’s future borrowings and could restrict Virgin Australia’s ability to obtain additional financing on satisfactory terms, if at all. In addition, any downgrade could restrict Virgin Australia’s access to, and negatively impact the terms of, trade credit extended to Virgin Australia by its vendors.

The credit ratings assigned to the Notes may not reflect all risks of an investment in the Notes. The credit ratings assigned to the Notes reflect the rating agencies’ assessments of Virgin Australia’s ability to make payments on the Notes when due. Consequently, real or anticipated changes in these credit ratings will generally affect the market value of the Notes. These credit ratings, however, may not reflect the potential impact of risks related to the structure, market or other factors related to the value of the Notes.

53 Virgin Australia’s ability to access the debt capital markets may be impaired because of Virgin Australia’s credit ratings. The New Notes will be rated below investment grade. Because of these ratings, in the future Virgin Australia may not be able to sell its debt securities or borrow money in such amounts, at the times, at lower interest rates or upon more favorable terms and conditions than might otherwise be available to Virgin Australia if its debt were rated investment grade. The below investment grade credit rating of the Notes may make it more difficult for Virgin Australia to obtain future debt financing. In addition, future debt security issuances or other borrowings may be subject to further negative terms, including limitations on indebtedness or similar restrictive covenants, particularly if Virgin Australia’s ratings decline further. Virgin Australia’s credit ratings are influenced by some important factors not entirely within its control, including, but not limited to, foreign exchange rates, fuel costs, demand for air travel, contagious illnesses, economic conditions, Virgin Australia’s regulatory environment and other factors discussed in this offering circular. Virgin Australia has historically had substantial liquidity needs in the operation of its business; consequently, Virgin Australia’s credit ratings could impair its ability to obtain sufficient liquidity to operate in the normal course of business. Moreover, because the kinds of events and contingencies that impair Virgin Australia’s credit ratings and its ability to access the debt capital markets are often the same kinds of events and contingencies that could cause it to seek to raise additional capital on a non-ordinary course, urgent basis, Virgin Australia may not be able to issue debt securities or borrow money upon acceptable terms, or at all, at the times at which it may most need additional capital.

Virgin Australia will not be required to file reports with the U.S. Securities and Exchange Commission (“SEC”) as a result of this Offering. The Indenture will contain periodic reporting requirements that will be different and less burdensome than would be applicable if Virgin Australia had agreed to register the New Notes following the closing of the Offering. Virgin Australia will not be required to file periodic reports or other information with the SEC as a result of this Offering. The Indenture will not require Virgin Australia to file periodic reports or other information with the SEC and holders of the Notes will only be entitled to receive reports as described in “Description of Notes—Certain Covenants—Reports and Other Information.” These reports will be more limited than if Virgin Australia were subject to the reporting requirements of the Exchange Act.

Because Virgin Australia’s management will have broad discretion over the use of the net proceeds from this Offering, you may not agree with how the proceeds are used and the proceeds may not be invested successfully. Virgin Australia intends to use the net proceeds of this Offering to build additional U.S. dollar liquidity coverage and meet future U.S. dollar financing obligations, and therefore, management will have broad discretion as to the use of the offering proceeds. Accordingly, you will be relying on the judgment of Virgin Australia’s management and Board in respect of the use of these proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for Virgin Australia.

Virgin Australia may choose to redeem the Notes when prevailing interest rates are relatively low. Virgin Australia may choose to redeem the Notes from time to time as discussed in “Description of Notes—Redemption—Optional Redemption,” especially when prevailing interest rates are lower than the rate borne by the Notes. If prevailing rates are lower at the time of redemption, you would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the Notes being redeemed. The redemption right also may adversely impact your ability to sell your Notes as the optional redemption date or period approaches.

54 USE OF PROCEEDS Virgin Australia estimates that the aggregate net proceeds from the sale of the New Notes, after deducting the commissions payable to the Initial Purchaser and estimated offering expenses, will be US$48.0 million (or AU$67.4 million, based on the Bloomberg AU Composite U.S. dollar per Australian dollar exchange rate on November 15, 2015 of US$0.7127 = AU$1.00). Virgin Australia intends to use the net proceeds from the sale of the New Notes to build additional U.S. dollar liquidity coverage and meet ongoing U.S. dollar financing obligations.

55 CAPITALIZATION The following tables set forth Virgin Australia’s cash and cash equivalents and current interest- bearing liabilities and capitalization (non-current interest-bearing liabilities and equity) as at June 30, 2015, on an actual basis and on an adjusted basis to give effect to the issuance of the New Notes pursuant to this Offering, after deducting commissions payable to the Initial Purchaser and estimated offering expenses. You should read this table together with “Selected Financial and Operating Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements of Virgin Australia and the related notes thereto included elsewhere in this offering circular.

Cash and cash equivalents and current interest-bearing liabilities

As at June 30, 2015 AU$ millions Actual As Adjusted Cash and cash equivalents(1)(2) ...... 1,028.5 1,095.9 Unsecured interest-bearing liabilities—current ...... (34.1) (34.1) Secured interest-bearing liabilities—current(3) 5.00% Class A EENs due 2023 ...... (91.0) (91.0) 6.00% Class B EENs due 2020 ...... (27.4) (27.4) 7.125% Class C EENs due 2018...... (35.6) (35.6) 8.50% Class D EENs due 2016...... (24.1) (24.1) Other ...... (228.1) (228.1) Total interest-bearing liabilities—current ...... (440.3) (440.3) Total...... 588.2 655.6

Capitalization

As at June 30, 2015 AU$ millions Actual As Adjusted Unsecured interest-bearing liabilities—non-current Finance lease liabilities, maturing from 2018 to 2047...... 26.6 26.6 8.5% Notes due 2019 ...... 386.6 386.6 8.5% Notes due 2019 offered hereby(2) ...... — 67.4 Secured interest-bearing liabilities—non-current 5.00% Class A EENs due 2023 ...... 405.3 405.3 6.00% Class B EENs due 2020 ...... 92.0 92.0 7.125% Class C EENs due 2018...... 96.2 96.2 8.50% Class D EENs due 2016...... 30.4 30.4 Other aeronautic finance facilities, maturing from 2015 to 2027 ...... 1,068.7 1,068.7 Other ...... 216.1 216.1 Total debt—non-current ...... 2,321.9 2,389.3 Equity...... 1,020.8 1,020.8 Total capitalization(4)...... 3,342.7 3,410.1

(1) Assumes commissions payable to the Initial Purchaser and estimated offering expenses of US$2.0 million (or AU$2.8 million, based on the Bloomberg AU Composite U.S. dollar per Australian dollar exchange rate on November 15, 2015 of US$0.7127 = AU$1.00). (2) Assumes that the proceeds of the Offering, as reduced by commissions payable to the Initial Purchaser and estimated offering expenses, are converted to AUD based on the Bloomberg AU Composite U.S. dollar per Australian dollar exchange rate on November 15, 2015 of US$0.7127 = AU$1.00. (3) Represents principal payments of EENs occurring within one year and other current secured interest-bearing liabilities.

56 (4) Total capitalization corresponds to the sum of non-current interest-bearing liabilities and equity. In addition, as at June 30, 2015, Virgin Australia had undrawn borrowing capacity under credit facilities of AU$107.6 million as follows:

As at June 30, AU$ millions 2015 2014 2013 Standby letters of credit and bank guarantees ...... 14.3 13.9 23.3 Aeronautic finance facilities ...... 72.9 9.5 14.5 Bank loans...... 20.4 24.8 — Loan from associate ...... — 9.8 3.3 Finance lease liabilities ...... — — — 107.6 58.0 41.1 There has been no material change in Virgin Australia’s capitalization since June 30, 2015, except as disclosed in this offering circular. For further information, see “Description of other Financing Arrangements”. The “As Adjusted” column does not reflect transactions occurring after June 30, 2015, including the acquisition of Torque Data completed on July 1, 2015, as described in “Summary—Recent Developments—Torque Data acquisition,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Torque Data Acquisition.”

57 RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the ratio of earnings to fixed charges of Virgin Australia and its consolidated subsidiaries for each of the financial years ended June 30, 2015, 2014 and 2013. The ratio represents the number of times that fixed charges are covered by earnings. Earnings are calculated as income (loss) before income taxes and discontinued operations plus fixed charges less capitalized interest. Fixed charges consist of interest expense, including amortization of debt discount and issuance costs, a portion of operating lease expense, which is deemed to be representative of an interest factor, and capitalized interest.

As at June 30, 2015 2014 2013 Ratio of earnings to fixed charges ...... (a) (b) (c)

(a) For the financial year ended June 30, 2015, earnings were not sufficient to cover fixed charges by AU$176.7 million. (b) For the financial year ended June 30, 2014, earnings were not sufficient to cover fixed charges by AU$458.1 million. The ratio of earnings to fixed charges has been calculated based on financial information for the financial year ended June 30, 2014, as restated in Virgin Australia’s financial statements for the financial year ended June 30, 2015. (c) For the financial year ended June 30, 2013, earnings were not sufficient to cover fixed charges by AU$159.3 million. The ratio of earnings to fixed charges has been calculated based on financial information for the financial year ended June 30, 2013, as restated in Virgin Australia’s financial statements for the financial year ended June 30, 2014 There has been no material change in Virgin Australia’s ratio of earnings to fixed charges since June 30, 2015, except as disclosed in this offering circular.

58 SELECTED FINANCIAL AND OPERATING INFORMATION The following tables present Virgin Australia’s selected consolidated financial and operating data for each of the financial years presented. The selected consolidated financial data as at June 30, 2015, 2014 and 2013 and for the financial years ended June 30, 2015, 2014 and 2013 has been derived from, and is qualified in its entirety by reference to, Virgin Australia’s financial statements included elsewhere in this offering circular. The financial information presented below as at, and for the financial years ended June 30, 2014 and 2013 has been restated due to changes in accounting policies. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Accounting Policies and Critical Accounting Judgments.” The consolidated financial statements have been prepared in a manner consistent with Virgin Australia’s accounting policies in accordance with AAS as adopted by the AASB and the Corporations Act, which differs in certain significant respects from U.S. GAAP. The consolidated financial statements comply with IFRS as issued by the IASB. AAS and IFRS differ in certain significant respects from generally accepted accounting principles in other countries, including the United States. See “Presentation of Financial and Other Information—Certain Differences Between AAS and IFRS and U.S. GAAP.” The selected consolidated financial and operating data should be read in conjunction with the sections in this offering circular captioned “Presentation of Financial and Other Information—Certain Conventions and Defined Terms,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Virgin Australia’s consolidated financial statements and the accompanying notes thereto included elsewhere in this offering circular. The results of operations for the historical periods included in the following tables are not necessarily indicative of the results to be expected for future periods. In addition, see “Risk Factors—Risks Relating to Virgin Australia’s Business” for a discussion of risk factors that could impact Virgin Australia’s future financial condition and results of operations.

59 Selected Financial Data As at June 30, AU$ millions 2015 2014(1) 2013(2) Balance sheet data: Cash and cash equivalents ...... 1,028.5 783.8 580.5 Total current assets ...... 1,586.0 1,234.9 981.7 Total assets ...... 5,779.6 4,679.3 4,547.1 Total current liabilities...... 2,299.8 1,920.6 1,814.4 Total debt(3) ...... 2,762.2 1,950.7 1,889.9 Total liabilities ...... 4,758.8 3,631.2 3,445.8 Total equity ...... 1,020.8 1,048.1 1,101.3 Total equity and liabilities ...... 5,779.6 4,679.3 4,547.1 Year ended June 30, 2015(4) 2014(1) 2013(2) Profit or loss data: Revenue and income:(5) Domestic...... 3,310.0 3,157.8 2,951.6 International ...... 1,112.4 1,149.8 1,121.1 Velocity(6) ...... 238.4 201.2 — Tigerair Australia ...... 284.1 — — Corporate and eliminations ...... (195.7) (202.2) (52.4) Total revenue and income...... 4,749.2 4,306.6 4,020.3 Operating expenditure: Aircraft operating lease expenses ...... 290.0 274.2 246.3 Airport charges, navigation and station operations...... 917.0 792.3 710.0 Contract and other maintenance expenses...... 155.2 189.0 189.9 Commissions and other marketing and reservations expenses ...... 363.1 330.6 256.5 Fuel and oil ...... 1,191.6 1,208.7 1,125.9 Labor and staff related expenses...... 1,118.8 1,041.4 976.1 Impairment loss ...... — 56.9 — Other expenses from ordinary activities ...... 464.2 433.6 391.7 Depreciation and amortization ...... 275.4 267.8 272.1 Ineffective cash flow hedges and non-designated derivatives (gains)/losses...... 27.4 38.5 (49.1) Net operating expenditure ...... 4,802.7 4,633.0 4,119.4 Share of net (losses)/profits of equity accounted investees(4) ...... (16.6) (48.7) 0.1 Loss before related income tax benefit and net finance costs ...... (70.1) (375.1) (99.0) Finance income ...... 39.7 13.3 20.0 Finance costs ...... (132.9) (119.7) (70.7) Net finance costs...... (93.2) (106.4) (50.7) Statutory loss before tax ...... (163.3) (481.5) (149.7) Income tax benefit...... 69.5 127.7 51.6 Statutory loss after tax ...... (93.8) (353.8) (98.1) Statutory loss after tax attributable to owners of the Company ...... (110.8) (353.8) (98.1) Statutory profit after tax attributable to non-controlling interests(7)...... 17.0 — — Cash flow data: Net cash from/(used in) operating activities ...... 218.1 (7.7) 123.3 Net cash used in investing activities ...... (572.9) (174.7) (558.7) Net cash from financing activities ...... 580.9 380.3 196.4 Net cash inflow/(outflow) ...... 226.1 197.9 (239.0) Cash and cash equivalents at July 1 ...... 783.8 580.5 802.6 Exchange rate changes ...... 18.6 5.4 16.9 Cash and cash equivalents at June 30 ...... 1,028.5 783.8 580.5 Other data: Operating Segment EBITDAR(8) ...... 618.4 394.5 445.8 Net debt(9)...... 1,733.7 1,166.9 1,309.4 Acquisition of property, plant and equipment ...... (577.3) (360.2) (439.2) Operating margin(10)...... (1.5%) (8.7%) (2.5%) Financial leverage(11) ...... 5.9x 7.5x 6.4x

60 (1) From July 1, 2014, Virgin Australia early adopted the new financial instruments accounting standard AASB 9. As a result of early adoption, comparative amounts as at, and for the financial year ended, June 30, 2014 have been restated. Details of the impact of the restatement can be found in Note 3(v)(i) to Virgin Australia’s financial statements for the financial year ended June 30, 2015. The comparative information for the financial year ended June 30, 2013 has not been restated. (2) In the financial year ended June 30, 2014, the accounting policy in relation to major maintenance relating to operating leased aircraft was changed. As a result of this change in policy, comparative amounts as at, and for the financial year ended, June 30, 2013 have been restated. Details of the restatement can be found in Note 3(b) to Virgin Australia’s financial statements for the financial year ended June 30, 2014. (3) Defined as current and non-current interest-bearing liabilities. (4) On October 16, 2014, Virgin Australia gained control of Tigerair Australia under the Tigerair Australia Share Purchase Agreement. For the financial year ended June 30, 2015, Virgin Australia consolidated Tigerair Australia’s financial results and position from October 17, 2014 to June 30, 2015. On July 8, 2013, Virgin Australia acquired the initial 60% interest in Tigerair Australia from Tiger Airways. For the period from July 8, 2013 to June 30, 2014 and the period from July 1, 2014 to October 16, 2014, the financial results of Tigerair Australia are reflected in Share of net (losses)/profits of equity accounted investees. (5) During the financial year ended June 30, 2015, management re-assessed its operating segments, and the allocation of corporate costs among segments as a result of broader changes within the business. For the financial years ended June 30, 2015 and June 30, 2014, Domestic revenue and income comprised revenue and income from Virgin Australia’s domestic operations. For the financial year ended June 30, 2013, Domestic revenue and income comprised revenue and income from Virgin Australia’s domestic operations and Velocity. For the financial years ended June 30, 2015 and June 30, 2014, Corporate and eliminations include those corporate costs that could not be reasonably allocated to segments plus eliminations required to eliminate intercompany balances. Corporate and eliminations for the financial year ended June 30, 2013 only include those eliminations required to eliminate intercompany balances. The comparative segment information for the financial year ended June 30, 2014 has been restated in Virgin Australia’s financial statements for the financial year ended June 30, 2015. The comparative segment information for the financial year ended June 30, 2013 has not been restated. (6) Velocity is operated by the Velocity Sub-Group. Prior to the completion of the sale of the 35% minority interest in Velocity Holdco to Affinity, various agreements were entered into by entities controlled by Virgin Australia to confirm the terms and conditions of arrangements between the parties on an arm’s-length basis. Comparative segment information for the financial year ended June 30, 2014 has been restated in Virgin Australia’s financial statements for the financial year ended June 30, 2015, on the basis that these agreements were in place from July 1, 2013 to provide comparability between the reporting periods. The comparative segment information for the financial year ended June 30, 2013 has not been restated. (7) Virgin Australia currently holds a 65% interest in the Velocity Sub-Group. As at June 30, 2014, the Velocity Sub-Group was 100% indirectly owned by Virgin Australia and was consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2014. On August 28, 2014, Virgin Australia executed documents for the sale of a 35% minority interest in Velocity Holdco for gross proceeds of AU$336.0 million. The sale of this 35% interest closed on October 22, 2014. Virgin Australia has retained control of the Velocity Sub-Group and, as a result, the Velocity Sub-Group continues to be consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2015. Accordingly, the 35% interest held by Affinity is accounted for as a non-controlling interest and the results attributed to Affinity from October 22, 2014 are shown as net profit/(loss) attributable to non-controlling interests in Virgin Australia’s consolidated statement of profit or loss, directly below the net profit/(loss) attributable to the owners of Virgin Australia. See “Business—Virgin Australia’s Operations—Loyalty Program—Velocity.” (8) Virgin Australia defines Operating Segment EBITDAR as earnings before net finance costs, tax, depreciation, amortization, aircraft rentals, time value movement on cash flow hedges and unrealized ineffectiveness on cash flow hedges and non- designated derivatives gains/losses, share of net losses/profits of equity accounted investees, business transformation and capital restructure costs, and impairment losses. Operating Segment EBITDAR is not a measure of operating performance or liquidity under AAS and IFRS and, as used in this offering circular, is not necessarily comparable to similarly titled measures used by other companies. Virgin Australia believes that Operating Segment EBITDAR may be useful to potential investors in assessing its operating performance and as an indicator of its ability to service or incur indebtedness, make capital expenditures and finance working capital requirements. Operating Segment EBITDAR is also a measure frequently used by analysts to measure and compare the performance of companies that operate in Virgin Australia’s industry. The items excluded from Operating Segment EBITDAR are significant in assessing Virgin Australia’s operating results and liquidity. Therefore, Operating Segment EBITDAR should not be considered in isolation from or as an alternative to operating (loss)/ profit, cash provided by operating activities or cash flow data prepared in accordance with AAS and IFRS.

61 A reconciliation of Operating Segment EBITDAR to the statutory loss after tax is set forth below:

(a) Refer to footnote (1) directly above. (b) Refer to footnote (2) directly above. (c) As disclosed in Note 5 and 6 to Virgin Australia’s financial statements for the financial years ended June 30, 2015 and 2014, respectively (including business and capital restructure costs and transaction costs, net gain/(loss) on disposal/sale of assets and accelerated depreciation due to changes in useful lives of assets). For the financial year ended June 30, 2015, the amount represents costs associated with fleet initiatives, the International improvement plan, broader strategic initiatives with Virgin Vision 2017 and net loss on the disposal of assets. For the financial year ended June 30, 2014, this amount represents costs associated with the Game Change Program, capital restructure costs, costs associated with the integration of Skywest, accelerated depreciation due to changes in useful lives of assets and net loss on the disposal of assets. For the financial year ended June 30, 2013, the amount represents costs related to the transition to SabreSonic, the acquisition of Skywest and other costs, accelerated depreciation due to changes in useful lives of assets and net loss on the sale of assets. (d) For further detail see “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Operating Expenditure—Impairment Loss.” (9) Defined as current and non-current interest-bearing liabilities less cash and cash equivalents as at June 30 of the relevant financial year. (10) Defined as loss before related income tax benefit and net finance costs divided by total revenue and income. (11) Financial leverage is a non-AAS measure and is defined as the ratio of adjusted net debt to Segment EBITDAR. Adjusted net debt is a non-AAS measure derived by taking interest bearing liabilities less cash and adding 7 times annual rentals on aircraft operating leases. Segment EBITDAR is a non-AAS measure as detailed in Note 5 to the Virgin Australia consolidated financial statements for the financial year ended June 30, 2015. It is used by management and Virgin Australia’s Board as a measure to assess the financial performance of Virgin Australia and its individual segments.

62 Selected Operating and Financial Highlights The following table sets forth selected operating and financial highlights of Virgin Australia’s performance derived from Virgin Australia’s annual reports and other internal sources for the periods indicated.

63 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with Virgin Australia’s selected consolidated financial and operating data and the financial statements included elsewhere in this offering circular. This discussion and analysis contains forward-looking statements that reflect Virgin Australia’s current views with respect to future events and its financial performance. Virgin Australia’s actual results may differ materially from those anticipated in these forward-looking statements as a result of any number of factors, including those set forth under “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements” and “Selected Financial and Operating Information.” This discussion and analysis also contains certain non-AAS financial measures which may differ from similarly titled measures and calculations used by others and, accordingly, are not meant to be a substitution for recorded amounts presented in conformity with AAS or IFRS nor should such amounts be considered in isolation. See “Presentation of Financial and Other Information—Non-AAS Financial Measures.” Virgin Australia has prepared its financial statements in accordance with AAS adopted by the AASB and the Corporations Act. The consolidated financial statements comply with IFRS, as issued by the IASB. AAS and IFRS differ in certain significant respects from generally accepted accounting principles in other countries, including the United States. See “Presentation of Financial and Other Information— Certain Differences Between AAS and IFRS and U.S. GAAP.”

Recent Developments

Virgin Australia Cargo Launch On July 1, 2015, Virgin Australia officially launched Virgin Australia Cargo (“Virgin Australia Cargo”), a key part of its Virgin Vision 2017 strategy, with the intention of enabling Virgin Australia to more effectively compete in the domestic and short-haul international cargo market. Virgin Australia Cargo will offer more than 3,400 flights per week through access to Virgin Australia’s extensive domestic and international network across Australia and the Asia-Pacific region. During the financial year ended June 30, 2015, Virgin Australia implemented an enhanced IT system, which Virgin Australia believes will enable Virgin Australia Cargo to optimize cargo capacity and provide tracking and customized reporting to customers. Virgin Australia Cargo will provide services for a range of customers including major freight distributors, corporate shippers and individuals. Virgin Australia believes that the new division represents a major growth opportunity for Virgin Australia. See “Business—Virgin Australia’s Operations—Virgin Australia Cargo.”

Torque Data Acquisition On July 1, 2015, Velocity Frequent Flyer Pty Ltd completed the acquisition of Torque Data, a data analytics company, for consideration of AU$4.8 million (consisting of cash and convertible notes), allowing the Velocity business to significantly expand its capabilities in the data and analytics field and support its ongoing growth.

International Network Restructure On August 7, 2015, Virgin Australia announced a plan to optimize its international network with the aim of delivering improved fleet utilization and meeting customer demand on key Trans-Tasman and short-haul international routes. Under the plan, Virgin Australia will withdraw from certain under- performing short-haul international routes to Denpasar and Phuket beginning March 23, 2016 and February 1, 2016, respectively, and increase capacity to meet demand on certain short-haul international routes to New Zealand, Fiji and the Solomon Islands. It is planned that from March 23, 2016, flights under the “Tigerair” brand will be offered in the short-haul international market initially between Denpasar and each of Adelaide, Melbourne and Perth. Commencement of these short-haul international routes is subject to regulatory and operational approvals.

64 Fleet Virgin Australia has continued to invest in its fleet, taking delivery of four new Boeing 737-800 aircraft (each operating under the Virgin Australia brand) and one new Airbus A320-200 (operating under the Tigerair brand) since June 30, 2015. Two Boeing 737-800 aircraft have been retired in this same period.

Financial Results for the Three Months Ended September 30, 2015 For the three months ended September 30, 2015 (“Q1FY16”), Virgin Australia reported an underlying profit before tax(1) of AU$8.5 million, an improvement of AU$53.5 million on the three months ended September 30, 2014 (“Q1FY15”). Taking into account 100% of Tigerair Australia performance on a like-for-like basis, this represents an improvement of AU$73.3 million over Q1FY15. Statutory profit after tax was AU$1.7 million for Q1FY16, an improvement of AU$60.8 million on Q1FY15. Group yield, which is a non-AAS measure derived from Virgin Australia’s total consolidated revenue and income divided by revenue passenger kilometers (“RPKs”) in relation to all regular passenger transport businesses, for Q1FY16 continued to increase compared to Q1FY15. Domestic yield, which is a non-AAS measure derived from Virgin Australia domestic Segment revenue and income divided by RPKs in relation to the Virgin Australia domestic segment regular passenger transport business, for Q1FY16 also increased compared to Q1FY15. Virgin Australia’s underlying CASK excluding fuel and foreign exchange(2) continued to decline for Q1FY16 compared to Q1FY15. See “—Business Strengths—Virgin Australia has a low cost base driven by a young, modern, fuel-efficient fleet and a capital-light international network model”. The overall results for Q1FY16 reflect improved financial performance and continued growth in high yield passengers. Tigerair Australia recorded earnings before interest and tax of AU$0.4 million for Q1FY16, an improvement of AU$20.2 million on a standalone basis on Q1FY15. This result was driven by significant improvements in unit revenues and cost efficiencies. The interim financial information presented above is preliminary and was derived from Virgin Australia’s internal management reports. No assurance can be given that changes will not be made to such financial information as a result of any audit or review conducted on financial information that includes these results as Virgin Australia’s financial statements as at and for the six months ended December 31, 2015 are finalized. See “Risk Factors” and “Cautionary Statement Regarding Forward- Looking Statements.”

Significant Accounting Policies and Critical Accounting Judgments The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors believed to be reasonable under the circumstances. Actual results may differ from these estimates. Virgin Australia’s significant accounting policies and a summary of the critical accounting estimates and judgments that are made in preparing the financial

(1) Underlying profit before tax is a non-AAS measure that represents, in relation to Virgin Australia, statutory profit/(loss) before tax, excluding the impact of restructuring and transaction costs and impairment losses, share of losses from equity accounted investees and hedging and financial instruments costs, aggregating to AU$9.1 million. This is a measure used by management and Virgin Australia’s Board to assess the financial performance of Virgin Australia. (2) Underlying CASK excluding fuel and foreign exchange is a non-AAS measure derived from consolidated revenue less consolidated EBIT (which reflects Segment EBIT aggregated across each of Virgin Australia’s reportable segments) excluding fuel, hedging gains/(losses) on fuel and foreign exchange gains/(losses) on non-fuel costs divided by ASKs in respect of the regular passenger transport business (including ASKs in respect of Tigerair Australia). The results of Tigerair Australia are not included in the underlying CASK calculation in respect of Q1FY15.

65 statements are set out in Notes 3 and 4 to Virgin Australia’s financial statements for the financial year ended June 30, 2015. 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 and in any future periods affected. From July 1, 2014, Virgin Australia early adopted AASB 9. AASB 9 introduces a new hedge accounting model to simplify hedge accounting requirements. AASB 9 introduces more principle-based requirements allowing more risk management activities to qualify for hedge accounting and therefore matching the timing of the profit or loss on the hedge instruments with the profit or loss on the underlying exposures. Virgin Australia has achieved this through component hedges (jet fuel component) and deferral of the time value on option-based contracts to the option time value reserve until maturity of the contract. Component hedges and option-based contracts are both commonly used in managing fuel price risk across the aviation industry. AASB 9 also improves and simplifies the approach for the classification and measurement of financial assets and liabilities. The impact of early adopting AASB 9 had no material impact on classification and measurement. The early adoption of AASB 9 has been applied retrospectively as permitted by the transitional provisions of AASB 9. Comparative amounts disclosed for the financial year ended June 30, 2014 have been restated where appropriate. Comparative information for the financial year ended June 30, 2013 has not been restated. During the financial year ended June 30, 2014, Virgin Australia elected to change the method of accounting for major maintenance of operating leased aircraft parts and end of lease obligations. Under the new policy, where Virgin Australia is obligated under its operating leases to pay an amount upon return of the aircraft based on either use or condition, a provision is recognized at inception of the lease for the present value of the expected payment, with a corresponding asset, reflecting the maintenance components within the lease payments. The asset is then amortized on a straight-line basis over the life of the lease. The provision is accreted to the expected payment at the end of the lease with interest expense recognized in profit and loss. The cost of major cyclical maintenance and modifications incurred subsequently are capitalized as a leasehold improvement and depreciated over the shorter of the remaining lease term period or the time to the next major maintenance event. Where leasehold improvements are made to aircraft at inception of the lease, restoration provisions are also recognized at inception. Maintenance reserve payments made to the lessor are recognized in the consolidated statement of financial position as an other financial asset where recoverable. Unrecoverable reserve payments are treated as a component of lease expense and recognized over the term of the lease. The change in accounting policy has been applied retrospectively and the comparative amounts disclosed for the financial year ended June 30, 2013 have been restated where appropriate.

Factors Affecting Results of Operations Virgin Australia’s business, results of operations and financial condition have been, and are expected to continue to be, affected by a number of factors and risks, many of which are beyond its control. The key factors affecting Virgin Australia’s results of operations and business performance are the global demand for air travel, competition, fuel prices, interest rates and exchange rates.

Revenue and Income Virgin Australia’s revenue and income is primarily comprised of airline passenger revenue, other ancillary revenues, and other income items which are described further below. The following table sets forth the composition of revenue and income and contribution as a percentage of total revenue and income for the financial years ended June 30, 2015, 2014, and 2013, respectively.

66 Year ended June 30, AU$ millions 2015(1)(2) 2014(1)(2) 2013(1) Domestic ...... 3,310.0 70% 3,157.8 73% 2,951.6 73% International...... 1,112.4 23% 1,149.8 27% 1,121.1 28% Velocity ...... 238.4 5% 201.2 5% — — Tigerair Australia ...... 284.1 6% — — — — Corporate and eliminations ...... (195.7) (4%) (202.2) (5%) (52.4) (1%) Total revenue and income ...... 4,749.2 100% 4,306.6 100% 4,020.3 100% Additional Split: Airline passenger revenue ...... 3,999.0 84% 3,603.0 84% 3,461.0 86% Other ancillary revenue ...... 707.0 15% 683.8 16% 526.8 13% Other income and net foreign exchange gains ...... 43.2 1% 19.8 — 32.5 1% Total revenue and income ...... 4,749.2 100% 4,306.6 100% 4,020.3 100%

(1) During the financial year ended June 30, 2015, management re-assessed its operating segments, and the allocation of corporate costs among segments as a result of broader changes within the business. For the financial years ended June 30, 2015 and June 30, 2014, Domestic revenue and income comprised revenue and income from Virgin Australia’s domestic operations. For the financial year ended June 30, 2013, Domestic revenue and income comprised revenue and income from Virgin Australia’s domestic operations and Velocity. For the financial years ended June 30, 2015 and June 30, 2014, Corporate and eliminations include those corporate costs that could not be reasonably allocated to segments plus eliminations required to eliminate intercompany balances. Corporate and eliminations for the financial year ended June 30, 2013 only include those eliminations required to eliminate intercompany balances. The comparative segment information for the financial year ended June 30, 2014 has been restated in Virgin Australia’s financial statements for the financial year ended June 30, 2015. The comparative segment information for the financial year ended June 30, 2013 has not been restated. (2) On October 16, 2014, Virgin Australia gained control of Tigerair Australia under the Tigerair Australia Share Purchase Agreement. For the financial year ended June 30, 2015, Virgin Australia consolidated Tigerair Australia’s financial results and position from October 17, 2014 to June 30, 2015. On July 8, 2013, Virgin Australia acquired the initial 60% interest in Tigerair Australia from Tiger Airways. For the period from July 8, 2013 to June 30, 2014 and the period from July 1, 2014 to October 16, 2014, the financial results of Tigerair Australia are reflected in Share of net (losses)/profits of equity accounted investees.

Airline Passenger Revenue Airline passenger revenue comprises revenue from passenger ticket sales through Virgin Australia’s domestic and international operations and the operations of Tigerair Australia and is recognized when carriage is performed. Domestic revenue primarily consists of revenue from Australian domestic flights using Virgin Australia’s fleet of Boeing 737 aircraft, Airbus A320 and A330 aircraft, ATR72-500/600 aircraft, and Embraer E190 aircraft. Other domestic revenues are derived from charter services provided by Virgin Australia using its fleet of Airbus A320 and Fokker 100 and 50 aircraft. International revenue consists of Trans-Pacific, Abu Dhabi, Trans-Tasman, Pacific Island and Southeast Asia flights, using a mix of Boeing 777 and 737 aircraft. Virgin Australia derives other passenger revenues from fuel surcharges, airport landing surcharges, security surcharges and baggage charges. Revenue is recognized in the consolidated statement of profit or loss when the service is provided. Airline passenger revenue received in advance is carried forward in the consolidated statement of financial position as unearned revenue. In addition, Virgin Australia is a party to various alliance arrangements. Revenue under these arrangements is recognized in the consolidated statement of profit or loss when Virgin Australia performs the service or otherwise fulfills all relevant contractual commitments. As further described below, in analyzing its passenger revenue performance, Virgin Australia reviews not only the total amount of revenues but also other metrics, in particular yield, which helps measure the profitability of its routes. Metrics that Virgin Australia uses to analyze passenger revenues include the following: • capacity, or the number of seats offered, is measured in terms of ASK; • traffic, or the number of seats utilized by fare-paying passengers, is measured in terms of RPK;

67 • revenue load factor, or the percentage of Virgin Australia’s capacity that is utilized by fare- paying passengers, is calculated by dividing RPK by ASK; • passengers carried; and • yield measures the amount of revenue earned for each RPK, and is calculated by dividing passenger revenues by RPK. The table below sets forth the metrics described above for the financial years ended June 30, 2015, 2014 and 2013.

Year ended June 30, 2015(1)(2) 2014(2) 2013(2) Capacity—available seat kilometers (ASK) (billions) ...... 46.0 42.2 41.8 Traffic—revenue passenger kilometers (RPK) (billions) ...... 35.8 33.1 31.3 Revenue load factor (%)...... 77.8 78.4 75.6 Unit—passengers carried (millions) ...... 22.3 20.0 19.3 Yield—passenger revenue per RPK (cents)...... 11.6 11.4 11.1

(1) For the financial year ended June 30, 2015, the above metrics include Tigerair Australia results and position from October 17, 2014 to June 30, 2015. (2) These results exclude Virgin Australia’s Charter operations.

Other Ancillary Revenue Other ancillary revenue comprises revenue earned from the provision of other airline related services, including aircraft charter revenue, freight revenue, on-board sales, booking related revenue and tickets sold and not used for transportation, in addition to revenue earned through Velocity. Other ancillary revenue is recognized in profit or loss at the time the service is provided or upon determination that the service has not occurred or is not expected to occur. Other ancillary revenue generated 14.9%, 15.9% and 13.1% of total revenue and income for the financial years ended June 30, 2015, 2014 and 2013, respectively.

Loyalty Program Virgin Australia defers revenue relating to the issuance of points to members in Velocity. For redemptions for services provided by Virgin Australia, revenue is deferred and recognized in profit or loss when carriage is performed. The amount of revenue deferred is calculated using assumptions regarding the fair value of reward points. The fair value of the reward points is reduced to reflect points that are expected to lapse under the rules of Velocity. For redemptions relating to third parties, revenue is recognized in profit or loss as other ancillary revenue when points are redeemed. The receipt of cash from third parties above the fair value of the redemption is recognized immediately in profit or loss. See also “Business—Virgin Australia’s Operations—Loyalty Program—Velocity.”

Credit Vouchers Credit vouchers are issued as a form of refund or compensation for events such as delayed or overbooked flights. Revenue from the redemption of credit vouchers is recognized in profit or loss as other ancillary revenue when the service is complete, or when the credit voucher is no longer expected to be redeemed by the customer based on an analysis of historical non-redemption rates or upon expiry. Expected redemption rates are reviewed and reassessed at each reporting date. Any reassessment of the expected redemption rates in a particular period will affect the revenue recognized from non-redemption or expiry of credit vouchers.

68 Operating Expenditure The table below sets forth Virgin Australia’s operating expenditure by category for the financial years ended June 30, 2015, 2014 and 2013, respectively.

Year ended June 30, AU$ millions 2015(1) 2014(2) 2013 Fuel and oil ...... 1,191.6 1,208.7 1,125.9 Labor and staff related expenses ...... 1,118.8 1,041.4 976.1 Airport charges, navigation and station operations ...... 917.0 792.3 710.0 Other expenses from ordinary activities ...... 464.2 433.6 391.7 Commissions and other marketing and reservations expenses...... 363.1 330.6 256.5 Aircraft operating lease expenses...... 290.0 274.2 246.3 Impairment loss ...... — 56.9 — Depreciation and amortization ...... 275.4 267.8 272.1 Contract and other maintenance expenses ...... 155.2 189.0 189.9 Ineffective cash flow hedges and non-designated derivatives (gains)/losses...... 27.4 38.5 (49.1)

Fuel and Oil For the financial year ended June 30, 2015, Virgin Australia’s jet fuel and oil costs amounted to AU$1,191.6 million, 24.8% of its net operating expenditure, representing the single largest portion of its operating costs. Prices for jet fuel are volatile, strongly correlated to the price of petroleum and are influenced by a number of factors, including political events, war or the threat of war, and the coordinated pricing decisions of producer cartels such as the Organization of the Petroleum Exporting Countries. Volatility of these prices can have a material impact on Virgin Australia’s business, financial condition and results of operations. The following table sets forth Virgin Australia’s fuel and oil costs for the financial years ended June 30, 2015, 2014 and 2013:

Year ended June 30, 2015 2014 2013 Fuel and oil costs as a percent of net operating expenditure (%) . . 24.8 26.1 27.3 Fuel and oil costs as a percent of total revenue and income (%) . . 25.1 28.1 28.0 Virgin Australia, like many other airlines, passes on a portion of its fuel costs to its customers by including a fuel surcharge as part of the price of air transportation. Due to the competitive nature of the airline industry, Virgin Australia does not expect to be able to pass all increases in aircraft fuel costs on to its customers in the form of higher airfares without having an adverse effect on customer demand for its services. To the extent Virgin Australia is unable to pass these costs on to customers for any reason, its total profits could be adversely affected. Virgin Australia engages in various hedging transactions with financial institutions to reduce its exposure to jet fuel price volatility, including commodity swap contracts, option contracts and other fuel related derivative contracts. These cash flow hedges are designated at the group level as hedges of price risk on specific volumes of future jet fuel consumption and have the effect of making Virgin Australia’s effective purchase price of aircraft fuel approximately equal to the average of the levels at which it has hedged the jet fuel exposure in the market. Due to the period over which Virgin Australia

69 hedges jet fuel, the actual impacts of hedging could span up to two financial years. As a result of Virgin Australia’s hedging arrangements, even if market prices for aircraft fuel were to fall in the future, Virgin Australia may not be able to reduce its fuel costs in a timely manner to take advantage of the lower prices. Based on market conditions as at June 30, 2015, Virgin Australia estimates that an AU$30 per barrel (“bbl”) increase/(decrease) in the price of fuel (with no change in refining margin) would have increased/(decreased) equity and profit or loss (before tax) by the amounts shown below. This analysis assumes that all other variables remain constant and is based on the designated hedge relationships as at June 30, 2015.

AU$ millionsCarrying AU$30/bbl increase AU$30/bbl decrease June 30, 2015 amount Profit/(Loss) Equity Profit/(Loss) Equity Net financial liability Derivative liability...... (31.9) (0.7) 140.0 — (126.9) As at June 30, 2015, Virgin Australia had entered into fuel hedging contracts representing approximately 75% of its projected aviation fuel requirements for the financial year ending June 30, 2016. For more information regarding Virgin Australia’s hedging activities with respect to fuel prices, see “—Quantitative and Qualitative Disclosure about Market Risk—Fuel Price.”

Labor and Staff Related Expenses Labor and staff expenses primarily consist of compensation and benefits for Virgin Australia’s employees. For the financial years ended June 30, 2015 and 2014, employee costs were Virgin Australia’s second largest operating expense, accounting for 23.3% and 22.5% of its net operating expenditure, respectively. The acquisition of Tigerair Australia has seen staff numbers increase from 9,425 total employees in 2014 to 10,241 in 2015.

Airport Charges, Navigation and Station Operations Airport charges consist primarily of airport and security fees and landing fees, while navigation fees consist of routing taxes and other fees related to navigation paid to various air traffic controllers. Landing fees are determined through negotiations between industry and airport organizations and vary depending on the maximum take-off weight of the aircraft type.

Other Expenses from Ordinary Activities Other expenses from ordinary activities consist primarily of overhead expenses such as information technology, consulting, administration, outsourcing, insurance costs, on-board services such as catering and charges for the use of aircraft services provided by other operators. Virgin Australia also incurred expenses in the financial years ended June 30, 2015, 2014 and 2013 in connection with business transformation initiatives.

Commissions and Other Marketing and Reservations Expenses Commissions and other marketing and reservations expenses principally comprise costs incurred by Virgin Australia in the course of collecting passenger bookings and revenue for fares such as commission and credit card charges, in addition to expenditure on marketing, royalty fees and other corporate sponsorship activities.

Aircraft Operating Lease Expenses Aircraft operating lease expenses comprise aircraft and engine operating lease expenses including the gains and losses on designated hedging arrangements that are directly related to these items.

70 Impairment Loss Virgin Australia did not recognize impairment losses for the financial year ended June 30, 2015. For the financial year ended June 30, 2014, Virgin Australia recorded impairment losses of AU$56.9 million. Of this amount, AU$5.7 million related to a writedown of aircraft to net fair value that were actively being marketed for sale. The remaining AU$51.2 million impairment loss was recorded for the international business as a reflection of the challenging Asia Pacific international trading conditions, which resulted in a greater than anticipated decline in short-haul international revenues.

Depreciation and Amortization Virgin Australia depreciates assets from the date they are installed and are ready for use, or in respect of internally constructed assets, from the time construction is completed and the asset held is ready for use. Depreciation methods, useful lives and residual values are reviewed at each reporting date. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Charges resulting from accelerated depreciation due to changes in the useful lives of assets are included within the total depreciation and amortization expense shown in the consolidated statement of profit or loss. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount exceeds its estimated recoverable amount. The cost of major cyclical maintenance on owned aircraft is capitalized to the carrying value of the aircraft as incurred and amortized over the period to the next scheduled heavy maintenance. Any remaining carrying amount of the cost of the previous inspection is derecognized at such time. Major cyclical maintenance and modifications to operating leased aircraft capitalized are depreciated over the remaining lease term period. Finance leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that Virgin Australia will obtain ownership by the end of the lease term.

Contract and Other Maintenance Expenses Aircraft maintenance expenses primarily include expenses related to parts procured and outsourcing costs, as well as maintenance costs. Routine maintenance costs relating to Virgin Australia’s owned fleet, including annual airframe checks, is written off to profit or loss as incurred. During the financial year ended June 30, 2014, Virgin Australia reassessed its accounting for major maintenance of operating leased engines, airframes, landing gear and auxiliary power units, including the end of lease obligations to return the aircraft in the condition specified by the lessor. Virgin Australia previously recognized provisions for the estimated future costs of major maintenance, calculated by reference to the estimated rectification cost. Provisions were also made for end of lease obligations to return the aircraft in the condition specified by the lessor. Provisions were recognized net of reserve payments made to the lessor which were available to be drawn down. The costs of major maintenance were recognized against the provision when incurred. Following the assessment of this policy against those applied by industry participants in conjunction with the Board announcement in November 2013 of its intention to work with major airline shareholders for future Board representation with appropriate protocols, Virgin Australia elected to change the method of accounting for major maintenance of leased aircraft parts and end of lease obligations on June 30, 2014. Under the new policy, where Virgin Australia is obligated under its operating leases to pay an amount upon return of the aircraft based on either use or condition, a provision is recognized at inception of the lease for the present value of the expected payment, with a corresponding asset, reflecting the maintenance components within the lease payments. The asset is then amortized on a straight-line basis over the life of the lease. The provision is accreted to the expected payment at the end of the lease with interest expense recognized in profit and loss. The cost

71 of major cyclical maintenance and modifications incurred subsequently are capitalized as a leasehold improvement and depreciated over the shorter of the remaining lease term period or the time to the next major maintenance event. Where leasehold improvements are made to aircraft at inception of the lease, restoration provisions are also recognized at inception. Maintenance reserve payments made to the lessor are recognized in the consolidated statement of financial position as an other financial asset where recoverable. Unrecoverable reserve payments are treated as a component of lease expense and recognized over the term of the lease. Virgin Australia believes the change in accounting policy provides more relevant and reliable information, better reflects the present obligations arising under the lease agreements and achieves closer alignment with the policies adopted by other industry participants. Comparative information for the financial year ended June 30, 2013 has been restated as a consequence of this change in accounting policy.

Foreign Exchange Risk Virgin Australia is exposed to foreign exchange risk on transactions denominated in foreign currencies, including the cost of purchasing fuel, aircraft, aircraft lease payments, the sale of airline passenger tickets and U.S. dollar-denominated borrowings. In order to protect against exchange rate movements, Virgin Australia enters into Australian dollar-denominated fuel contracts as well as forward exchange contracts and option contracts to purchase U.S. dollars. Virgin Australia’s primary foreign exchange exposure is to the U.S. dollar. Based on market conditions as at June 30, 2015, Virgin Australia estimates that a 10% appreciation/(depreciation) of the Australian dollar against the U.S. dollar would have increased/(decreased) equity and profit or loss (before tax) by the amounts shown below. This analysis assumes that all other variables remain constant.

AU$ millionsCarrying US$10% increase in AU$ US$10% decrease in AU$ June 30, 2015 Amount Profit/(Loss) Equity Profit/(Loss) Equity Financial assets Non-derivative financial asset . . . . 801.5 (58.1) (14.7) 71.0 18.0 Derivative asset...... 36.9 — (54.6) — 67.1 Financial liabilities Non-derivative financial liability. . . (2,329.8) 46.6 165.2 (57.0) (201.9) For more information regarding foreign exchange risk and Virgin Australia’s related hedging strategy, see “—Quantitative and Qualitative Disclosure about Market Risk—Foreign Currency Exchange Rate Fluctuations.”

Hedge Accounting From July 1, 2014, Virgin Australia early adopted AASB 9, which allows for component hedges (jet fuel component) and the deferral of time value on option-based contracts. The change in accounting policy has been applied retrospectively and the comparative amounts disclosed for the financial year ended June 30, 2014 have been restated where appropriate. Comparative information for the financial year ended June 30, 2013 has not been restated.

Results of Operations The following table summarizes Virgin Australia’s results of operations for the periods indicated which are derived from Virgin Australia’s financial statements included elsewhere in this offering circular. See “Presentation of Financial and Other Information.”

72 Summary Consolidated Statement of Profit or Loss Data

Year ended June 30, AU$ millions 2015(1)(2) 2014(2)(3) 2013(3) Revenue and income ...... 4,749.2 4,306.6 4,020.3 Net operating expenditure ...... 4,802.7 4,633.0 4,119.4 Loss before tax...... (163.3) (481.5) (149.7) Income tax benefit ...... 69.5 127.7 51.6 Loss after tax ...... (93.8) (353.8) (98.1)

(1) On October 16, 2014, Virgin Australia gained control of Tigerair Australia under the Tigerair Australia Share Purchase Agreement. For the financial year ended June 30, 2015, Virgin Australia consolidated Tigerair Australia’s financial results and position from October 17, 2014 to June 30, 2015. (2) The financial information for the financial years ended June 30, 2015 and 2014 noted above reflect the change in accounting policy in respect of financial instruments which introduced a new hedge accounting model. The comparative information for the financial year ended June 30, 2014 has been restated in the financial statements for the financial year ended June 30, 2015. The comparative information for the financial year ended June 30, 2013 has not been restated. See “—Significant Accounting Policies and Critical Accounting Judgments” and “—Foreign Exchange Risk.” (3) The financial information for the financial years ended June 30, 2014 and 2013 noted above reflect the change in accounting policy in respect of major maintenance relating to operating leased aircraft. The comparative information for the financial year ended June 30, 2013 has been restated in the financial statements for the financial year ended June 30, 2014. See “—Significant Accounting Policies and Critical Accounting Judgments.”

2015 Compared to 2014

Revenue and Income Revenue and income increased 10.3% to AU$4,749.2 million for the financial year ended June 30, 2015 from AU$4,306.6 million in the prior corresponding period. This increase is partly due to gaining control of 100% of Tigerair Australia on October 16, 2014. Tigerair Australia contributed AU$284.1 million of revenue from October 17, 2014 to June 30, 2015. For the period from July 8, 2013 to June 30, 2014, the results of Tigerair Australia were equity accounted and are not included in the above revenue and income amount. Increased revenues were also driven by both an improvement of 3.5% in passenger revenue per ASK and yield growth of 5.2% in the domestic operations of the Virgin Australia Brand driven by growth in the corporate and government, charter, interline and codeshare sectors. Tigerair Australia also achieved revenue per ASK growth of 8.5%. International revenues decreased by 3.3% with passenger revenue per ASK declining by 2.8% for the financial year as a result of increased competitive pressure, particularly in the South East Asian and long-haul markets. Virgin Australia is implementing a comprehensive improvement plan for the international business. See “—Recent Developments—International network restructure.” Revenue load factor for the Virgin Australia Group decreased to 77.8% for the financial year ended June 30, 2015 from 78.4% in the prior corresponding period, notwithstanding an increase in Tiger Australia’s revenue load factor by 1.8% over the same period. Yield increased by 2.0% compared with the prior corresponding period, primarily driven by a change in customer mix. Management continuously assesses future obligations in relation to credit vouchers. As a consequence of reviewing historical issued and expired credit vouchers, revenue was impacted by a reassessment of credit voucher redemption rates resulting in a decrease in revenue of AU$4.5 million for the financial year ended June 30, 2015, compared to a decrease in revenue of AU$8.1 million in the prior corresponding period. The continuous assessment of unearned passenger revenue obligations and historical trends of non-attendance rates resulted in an increase in non-show revenue of AU$3.0 million for the financial year ended June 30, 2015 compared to an increase of AU$3.5 million in the prior corresponding period. Non-show revenue is recognized where a guest pays for a flight but fails to travel. The annual review of the unused points liability in respect of Velocity conducted during the financial year ended June 30, 2015 resulted in a decrease in program revenue of AU$6.4 million for the financial year ended June 30, 2015, compared to an increase in revenue of AU$3.3 million in the prior corresponding period.

73 Fuel and Oil Costs Fuel and oil costs decreased by 1.4% to AU$1,191.6 million for the financial year ended June 30, 2015 from AU$1,208.7 million in the prior corresponding period. This decrease was due to lower average fuel costs in 2015, notwithstanding the increase in capacity and increase in ASKs of 9.0% from the prior corresponding period due to the consolidation of Tigerair Australia.

Labor and Staff Related Expenses Labor and staff related expenses increased by 7.4% to AU$1,118.8 million for the financial year ended June 30, 2015 from AU$1,041.4 million in the prior corresponding period. This increase was primarily the result of the consolidation of Tigerair Australia’s employee and associated labor expenses from October 17, 2014.

Airport Charges, Navigation and Station Operations Airport charges and navigation costs increased by AU$124.7 million, or 15.7%, to AU$917.0 million for the financial year ended June 30, 2015 from AU$792.3 million in the prior corresponding period, principally due to port rate changes to reflect additional occupancy and greater services provided in several key ports, coupled with an increase in passengers traveling during the financial year ended June 30, 2015. For the financial year ended June 30, 2015, Virgin Australia carried 22.3 million passengers, an increase of 11.5% on the 20.0 million passengers carried in the prior financial year.

Other Expenses from Ordinary Activities Other expenses from ordinary activities increased by 7.1% to AU$464.2 million for the financial year ended June 30, 2015 from AU$433.6 million in the prior corresponding period, principally due to business transformation and capital restructure costs, and continual improvements in respect of on- board service offerings relating to in-flight catering and entertainment.

Commissions and Other Marketing and Reservations Expenses Commissions and other marketing and reservations expenses increased by 9.8% to AU$363.1 million for the financial year ended June 30, 2015 from AU$330.6 million in the prior corresponding period, as a consequence of higher revenues and Virgin Australia’s revenue growth strategy of increasing the number of sales channels.

Aircraft Operating Lease Expenses Aircraft operating lease expenses increased by 5.8% to AU$290.0 million for the financial year ended June 30, 2015 from AU$274.2 million in the prior corresponding period. These costs increased as a result of the expansion of the leased aircraft fleet in connection with the integration of the Tigerair Australia operations, fleet optimization aimed at generating long-term cost efficiencies and a declining AUD/USD exchange rate.

Depreciation and Amortization Depreciation and amortization increased by 2.8% to AU$275.4 million for the financial year ended June 30, 2015 from AU$267.8 million in the prior corresponding period. This increase is due to higher amounts of depreciation associated with the recognition of maintenance components of leases as assets. These assets are amortized on a straight-line basis over the life of the lease. During the financial year ended June 30, 2015, changes in the useful lives of certain software assets based on the intended use of these items resulted in a AU$7.4 million decease to amortization expense for the financial year ended June 30, 2015. In addition, the useful lives of certain leasehold

74 improvements and aircraft and aeronautic related assets changed based on the intended use of these items resulting in a AU$6.6 million decrease to depreciation expense for the year.

Contract and Other Maintenance Expenses Contract and other maintenance expenses decreased by 17.9% to AU$155.2 million for the financial year ended June 30, 2015 from AU$189.0 million in the prior corresponding period. This decrease was primarily a result of Virgin Australia’s cost reduction program, which included insourcing of certain line maintenance activities and contract re-negotiations.

Ineffective Cash Flow Hedges and Non-Designated Derivatives (Gains)/Losses Virgin Australia recorded net ineffective cash flow hedges and non-designated derivatives losses of AU$27.4 million for the financial year ended June 30, 2015, compared to losses of AU$38.5 million in the prior corresponding period. As stated earlier, Virgin Australia changed its accounting policy in respect of financial instruments which introduced a new hedge accounting model in 2015. This change in policy resulted in prior period Ineffective Cash Flow Hedges and Non-Designated Derivatives (Gains)/Losses being restated from AU$41.1 million to AU$38.5 million. The loss suffered in the financial year ended June 30, 2015 was largely attributed to premium costs associated with option contracts used to hedge fuel price risk and the unwinding of unrealized fuel and currency hedging gains from the prior financial period. Ineffectiveness recognized on unrealized movements is expected to significantly reduce in future periods due to the early adoption of AASB 9 from July 1, 2014.

Taxation The income tax benefit on continuing operations for the financial year ended June 30, 2015 was AU$69.5 million. The balance of deferred tax assets at June 30, 2015 was AU$216.6 million compared to deferred tax assets of AU$146.9 million at June 30, 2014. The balance of deferred tax assets at June 30, 2015 is substantially attributable to tax losses carried forward, which increased from AU$396.6 million at June 30, 2014 to AU$549.0 million at June 30, 2015. The net deferred tax asset balance at June 30, 2014 was offset by deferred tax liabilities, which increased from AU$349.2 million at June 30, 2014 to AU$444.1 million at June 30, 2015.

Acquisition of Remaining 40% Interest in Tigerair Australia On July 8, 2013, Virgin Australia acquired 60% of the shares and voting interests in Tigerair Australia from Tiger Airways for AU$35.0 million. As Virgin Australia was considered to have joint control of Tigerair Australia for accounting purposes, Tigerair Australia’s results were not (prior to October 17, 2014) consolidated by Virgin Australia, but were accounted for by applying the equity method. Tigerair Australia generated losses in the period during which Virgin Australia had joint control. These losses were applied to reduce the investment in Tigerair Australia and thereafter applied to reduce a loan receivable from Tigerair Australia. See “—2014 Compared to 2013—Acquisition of 60% Interest in Tigerair Australia” On February 6, 2015, Virgin Australia completed the acquisition of the remaining 40% interest in Tigerair Australia from Tiger Airways for a price of AU$1.00. Virgin Australia gained control of Tigerair Australia on October 16, 2014 and therefore consolidated the Tigerair Australia financial results and position from October 17, 2014. For the period October 17, 2014 to June 30, 2015, Tigerair Australia contributed revenue of AU$284.1 million and net loss after tax of AU$5.2 million to Virgin Australia’s results. If the acquisition had occurred on July 1, 2014, management estimates Tigerair Australia would have contributed additional revenue of AU$130.0 million and additional net loss of AU$11.4 million to Virgin Australia’s results. In determining these pro forma amounts, Virgin Australia’s management has assumed that the

75 fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same had the acquisition occurred on July 1, 2014. The directors of Virgin Australia consider these pro forma numbers to represent an approximate measure of the performance of the combined group and do not provide a reference point for comparison to future periods. For the financial year ended June 30, 2015, Tigerair Australia generated a net loss after tax of AU$33.7 million, compared to AU$77.4 million in the prior corresponding period. The following table sets forth information with respect to the reconciliation of Tigerair Australia’s net loss after tax for the financial years ended June 30, 2015 and 2014 as disclosed the financial statements of Virgin Australia for the financial year ended June 30, 2015 included elsewhere in this offering circular.

Year ended June 30, AU$ millions 2015 2014 Loss from continuing operations(1) ...... (28.5) (77.4) Net loss after tax for the period of consolidation by Virgin Australia(2)(3). (5.2) — Net loss after tax...... (33.7) (77.4)

(1) On July 8, 2013, Virgin Australia acquired the initial 60% interest in Tigerair Australia from Tiger Airways. For the period from July 8, 2013 to June 30, 2014 and the period from July 1, 2014 to October 16, 2014, the financial results of Tigerair Australia are reflected in Share of net (losses)/profits of equity accounted investees. As disclosed in Note 18(c)(ii) to Virgin Australia’s financial statements for the financial year ended June 30, 2015, Virgin Australia’s equity accounted share of Tigerair Australia’s losses was AU$17.1 million and AU$46.1 million for the financial years ended June 30, 2015 and 2014, respectively. Loss from continuing operations disclosed in the above table represents 100% of Tigerair Australia’s financial results. (2) On October 16, 2014, Virgin Australia gained control of Tigerair Australia under the Tigerair Australia Share Purchase Agreement. Virgin Australia consolidated 100% of Tigerair Australia’s financial results and position from October 17, 2014 to June 30, 2015. As disclosed in Note 6 to Virgin Australia’s financial statements for the financial year ended June 30, 2015, Tigerair Australia’s net loss after tax for the period October 17, 2014 to June 30, 2015 was AU$5.2 million. (3) As disclosed in Note 9(d) to Virgin Australia’s financial statements for the financial year ended June 30, 2015, tax losses of AU$14.0 million were recognized as an income tax benefit subsequent to the Tigerair Minority Acquisition. Under the terms of the share purchase agreement, the Tigerair Australia shareholder loans with Virgin Australia and Tiger Airways were forgiven. Virgin Australia had impaired the loan receivable from Tigerair Australia as a result of accounting for losses of Tigerair Australia during the period of joint control. At the acquisition date, the carrying amount of the loan receivable was AU$39.1 million. AASB 3 Business Combinations requires a gain or loss to be recognized, measured as the amount by which the loan receivable from Tigerair Australia is favorable or unfavorable compared to the fair value of the loan. The fair value of the loan was assessed to be AU$60.9 million, resulting in a gain of AU$21.8 million which has been recognized in finance income. The fair value attributed to the loan receivable results in an adjustment to the consideration reported. This reflects the fact that, in effect, Virgin Australia was paid an amount to settle the loan and simultaneously paid an equal and offsetting amount as purchase consideration in order to arrive at the contractual total cash consideration of AU$1.00.

2014 Compared to 2013

Revenue and Income Revenue and income increased 7.1% to AU$4,306.6 million for the financial year ended June 30, 2014 from AU$4,020.3 million in the prior corresponding period. This increase was mainly due to increased yields on domestic routes stemming from higher prices and ticket sale volumes in addition to the full financial year impact of the consolidation of revenues from the Skywest business. Following the integration of the Skywest business, positive performance from the charter business also contributed to an increase in charter revenue during the financial year ended June 30, 2014. Revenue load factor increased to 78.4% for the financial year ended June 30, 2014 from 75.6% in the prior corresponding period. Yield increased by 2.6% compared with the prior corresponding period, primarily driven by a change in customer mix and improved access to global distribution channels following the introduction of the SabreSonic booking system in January 2013.

76 Management continuously assesses future obligations in relation to credit vouchers. As a consequence of reviewing historical issued and expired credit vouchers, revenue was impacted by a reassessment of credit voucher redemption rates resulting in a decrease in revenue of AU$8.1 million for the financial year ended June 30, 2014, compared to an increase in revenue of AU$8.0 million in the prior corresponding period. The continuous assessment of unearned passenger revenue obligations and historical trends of non-attendance rates resulted in an increase in non-show revenue of AU$3.5 million for the financial year ended June 30, 2014 compared to an increase of AU$11.1 million in the prior corresponding period. Non-show revenue is recognized where a guest pays for a flight but fails to travel. The annual review of the unused points liability in respect of Velocity conducted during the financial year ended June 30, 2014 resulted in an increase in program revenue of AU$3.3 million for the financial year ended June 30, 2014, compared to an increase in revenue of AU$14.6 million in the prior corresponding period.

Fuel and Oil Costs Fuel and oil costs increased by 7.4% to AU$1,208.7 million for the financial year ended June 30, 2014 from AU$1,125.9 million in the prior corresponding period. This was due to higher average fuel costs in 2014 and the increase in capacity, reflective of increased ticket sales and route expansion in line with Virgin Australia’s Game Change Program (in particular as a consequence of the integration of the Skywest regional and charter operations), as well as increases in Virgin Australia ASKs of 1%.

Labor and Staff Related Expenses Labor and staff related expenses increased by 6.7% to AU$1,041.4 million for the financial year ended June 30, 2014 from AU$976.1 million in the prior corresponding period. This increase was primarily the result of having a full financial year of Skywest employee and associated labor expenses in the financial year ended June 30, 2014. Skywest was acquired in April 2013.

Airport Charges, Navigation and Station Operations Airport charges and navigation costs increased by AU$82.3 million, or 11.6%, to AU$792.3 million for the financial year ended June 30, 2014 from AU$710.0 million in the prior corresponding period, principally due to port rate changes to reflect additional occupancy and greater services provided in several key ports, coupled with an increase in passengers traveling during the financial year ended June 30, 2014.

Other Expenses from Ordinary Activities Other expenses from ordinary activities increased by 10.7% to AU$433.6 million for the financial year ended June 30, 2014 from AU$391.7 million in the prior corresponding period, principally due to business transformation and capital restructure costs and improvements in on-board service offerings in order to provide in-flight catering and entertainment services to passengers on Virgin Australia flights.

Commissions and Other Marketing and Reservations Expenses Commissions and other marketing and reservations expenses increased by 28.9% to AU$330.6 million for the financial year ended June 30, 2014 from AU$256.5 million in the prior corresponding period, as a consequence of Virgin Australia’s revenue growth strategy of increasing the number of sales channels.

Aircraft Operating Lease Expenses Aircraft operating lease expenses increased by 11.3% to AU$274.2 million for the financial year ended June 30, 2014 from AU$246.3 million in the prior corresponding period. These costs increased

77 as a result of the expansion of the leased aircraft fleet in connection with the integration of the Skywest regional and charter operations and fleet optimization with the aim of generating long-term cost efficiencies.

Depreciation and Amortization Depreciation and amortization decreased by 1.6% to AU$267.8 million for the financial year ended June 30, 2014 from AU$272.1 million in the prior corresponding period. This decrease was partially due to a change in the useful lives of certain software assets based on the intended use of these items. The net impact of these changes resulted in a AU$4.8 million decrease in amortization expense for the financial year ended June 30, 2014. Changes in the use of certain assets in the prior corresponding period resulted in asset devaluations and subsequent accelerated depreciation totaling AU$0.8 million for the financial year ended June 30, 2014 compared to AU$6.3 million in the prior corresponding period.

Contract and Other Maintenance Expenses Contract and other maintenance expenses decreased by 0.5% to AU$189.0 million for the financial year ended June 30, 2014 from AU$189.9 million in the prior corresponding period. As noted earlier, Virgin Australia changed its accounting policy for major maintenance relating to operating leased aircraft in 2014. This change in policy also resulted in prior corresponding period contract and other maintenance expenses being restated from AU$222.2 million to AU$189.9 million.

Ineffective Cash Flow Hedges and Non-Designated Derivatives (Gains)/Losses As noted earlier, Virgin Australia changed its accounting policy in respect of financial instruments, which introduced a new hedge accounting model, in the financial year ended June 30, 2015. This change in policy resulted in ineffective cash flow hedges and non-designated derivatives losses for the financial year ended June 30, 2014 being restated from AU$41.1 million to AU$38.5 million. The comparative information for the financial year ended June 30, 2013 has not been restated. Based on the change in policy, Virgin Australia recorded net ineffective cash flow hedges and non- designated derivatives losses of AU$38.5 million for the financial year ended June 30, 2014, compared to gains of AU$49.1 million in the prior corresponding period. The financial year ended June 30, 2013 benefited from both a return of jet fuel prices exceeding hedged levels and unrealized gains generated from ineffective hedging relationships. The 2014 loss was largely attributed to the realization of the prior financial year unrealized gains from ineffective hedge relationships maturing in the financial year ended June 30, 2014. This was partially offset by oil prices continuing to climb above hedged levels on non-designated derivatives.

Taxation As noted earlier, Virgin Australia changed its accounting policy in respect of financial instruments in the financial year ended June 30, 2015. This change in policy resulted in income tax benefit on continuing operations for the financial year ended June 30, 2014 being restated from AU$128.5 million to AU$127.7 million. The comparative information for the financial year ended June 30, 2013 has not been restated. The balance of deferred tax assets at June 30, 2014 was AU$146.9 million compared to nil net deferred tax assets and a net deferred tax liability of AU$7.0 million at June 30, 2013. The primary driver of this was the increase in tax losses carried forward, which increased from AU$258.0 million at June 30, 2013 to AU$396.6 million at June 30, 2014. The net deferred tax asset balance at June 30, 2014 was offset by deferred tax liabilities, which increased from AU$327.0 million at June 30, 2013 to AU$349.2 million at June 30, 2014.

78 Acquisition of 60% Interest in Tigerair Australia On July 8, 2013, Virgin Australia acquired a 60% interest in Tigerair Australia from Tiger Airways. The acquisition has enabled Virgin Australia to secure a presence in the low-cost travel market to complement the premium and leisure position of its core business. Virgin Australia acquired the 60% interest in Tigerair Australia for cash consideration of AU$35.0 million. In addition Tigerair Australia will pay Tiger Airways an additional cash payment of AU$5.0 million if Tigerair Australia achieves certain financial performance targets by the 2018 calendar year. Due to the completion of the Tigerair Minority Acquisition, the additional cash payment of AU$5.0 million was no longer payable. Prior to the Tigerair Minority Acquisition, Virgin Australia worked with Tiger Airways and Tigerair Australia to overhaul revenue and accounting systems, develop the management team, improve asset utilization and enhance the operational platform. Management’s focus from the financial year ended June 30, 2014 was on successful execution of the transformation program to achieve profitability in the financial year ending June 30, 2017. For the financial year ended June 30, 2014, Virgin Australia’s share of net losses from its ownership interest in Tigerair Australia was AU$46.1 million. This loss has been recognized against the value of the original investment in Tigerair Australia, as well as against loans provided by Virgin Australia to Tigerair Australia, and was based on loss from continuing operations and other comprehensive income of Tigerair Australia for the period from July 8, 2013 to June 30, 2014 of AU$77.4 million and AU$0.5 million, respectively. The loss from continuing operations of Tigerair Australia for the period from July 8, 2013 to June 30, 2014 included revenue and income of AU$336.3 million. This revenue was not consolidated into Virgin Australia’s revenue and income for the financial year ended June 30, 2014 but formed part of Virgin Australia’s share of equity accounted losses for the period from July 8, 2013 to June 30, 2014. Subsequent to the financial year ended June 30, 2014, Virgin Australia announced and completed the acquisition of the remaining 40% of Tigerair Australia that it did not previously own. See “—2015 Compared to 2014—Acquisition of Remaining 40% Interest in Tigerair Australia.”

Seasonality Generally, the revenues from and profitability of Virgin Australia’s flights reach their highest levels during October, November and December. The post-Christmas holiday period is usually accompanied by a decrease in Virgin Australia’s passenger numbers, load factor and revenues. Given Virgin Australia’s high proportion of fixed costs, this seasonality tends to cause profitability to vary significantly between each half year. Historically, Virgin Australia’s results of operations for each half year ending on December 31 have been stronger than its result for the second half of the financial year.

Liquidity and Capital Resources Virgin Australia’s capital and liquidity needs principally relate to meeting working capital requirements, the purchase or lease of aircraft, product investment, debt servicing, maintenance costs of operating leased aircraft and the lease of airport property and other facilities. As at June 30, 2015, Virgin Australia had AU$440.3 million and AU$2,321.9 million of current and non-current interest- bearing liabilities, respectively. Virgin Australia’s available liquidity is subject to change as market and general economic conditions evolve. Decreases in liquidity could result from lower than expected cash flows from operations, including decreases caused by lower demand for airline tickets and higher operating costs such as increased fuel costs. In addition, any potential acquisitions in which all or a portion of the consideration is payable in cash could have a significant effect on Virgin Australia’s liquidity. Virgin Australia’s liquidity could also be impacted by its ability to refinance existing debt, raise additional debt and the associated terms of such debt. Virgin Australia has substantial commitments for capital expenditures, including the acquisition of new aircraft and related spare engines. As at June 30, 2015, commitments payable for the acquisition

79 of property, plant and equipment, including aircraft and aeronautic related assets totaled AU$4,333.4 million as a result of Virgin Australia’s firm commitments to purchase 60 aircraft scheduled for delivery from June 30, 2015 through June 30, 2023. Virgin Australia also had options to purchase an additional four aircraft. See “—Capital Expenditures.” Virgin Australia expects to make future aircraft acquisitions using a variety of funding sources, including traditional asset backed loans advanced by financial institutions, capital market instruments, operating leases (both direct and by way of sale-and-leaseback), finance leases and export credit agency supported funding. Virgin Australia meets its capital and liquidity needs mainly from cash flow from operations, loans from financial institutions, shareholders and capital market instruments, together with aircraft and other asset leasing arrangements. As at June 30, 2015, Virgin Australia had cash and cash equivalents of AU$1,028.5 million, an increase of 31.2% over Virgin Australia’s cash and cash equivalents of AU$783.8 million at June 30, 2014. As at June 30, 2015, Virgin Australia had the ability to borrow AU$107.6 million under unutilized finance facilities. For further information, see "Description of Other Financing Arrangements".

Cash Flows The table below summarizes Virgin Australia’s cash flows for the financial years ended June 30, 2015, 2014 and 2013. Year ended June 30, AU$ millions 2015 2014 2013(1) Net cash from/(used in) operating activities ...... 218.1 (7.7) 123.3 Net cash used in investing activities ...... (572.9) (174.7) (558.7) Net cash from financing activities ...... 580.9 380.3 196.4 Net increase/(decrease) in cash and cash equivalents ...... 226.1 197.9 (239.0) Cash and cash equivalents at July 1...... 783.8 580.5 802.6 Effect of exchange rate fluctuations...... 18.6 5.4 16.9 Cash and cash equivalents at June 30...... 1,028.5 783.8 580.5

(1) The comparative information for the financial year ended June 30, 2013 has been restated in Virgin Australia’s financial statements for the financial year ended June 30, 2014 due to a change in accounting policy in respect of major maintenance relating to operating leased aircraft. For the financial year ended June 30, 2015, net cash from operating activities was AU$218.1 million. The increase of AU$225.8 million compared to net cash used in operating activities in the financial year ended June 30, 2014 of AU$7.7 million was primarily attributable to an increase in cash receipts from customers of AU$395.0 million and a reduction in cash paid for business transformation expenses of AU$26.1 million. Offsetting these favorable variances was an increase in cash payments to suppliers and employees of AU$170.0 million and an increase in net finance costs paid of AU$25.3 million. Net cash used in investing activities for the financial year ended June 30, 2015 was AU$572.9 million, an increase of AU$398.2 million from the prior corresponding period. The investing cashflows for the financial year ended June 30, 2015 principally comprised the acquisition of property, plant and equipment amounting to AU$577.3 million, the acquisition of intangible assets amounting to AU$60.3 million, payment of other deposits amounting to AU$72.9 million which relate mainly to capitalized maintenance reserve payments, partially offset by proceeds of AU$147.4 million from the sale of property, plant and equipment. Net cash from financing activities in the financial year ended June 30, 2015 was AU$580.9 million, an increase of AU$200.6 million from the prior corresponding period. The financing cashflows for the financial year ended June 30, 2015 principally comprised of net proceeds from borrowings amounting to AU$875.8 million and gross proceeds from the sale of a 35% interest in Velocity to Affinity amounting to AU$336.0 million. This was partially offset by repayments on existing borrowings amounting to AU$525.4 million, the redemption of convertible notes amounting to AU$74.7 million and the equity distribution to Affinity of AU$17.8 million.

80 For the financial year ended June 30, 2014, the confluence of excess market capacity in the Australian domestic market and a declining industry revenue profile, weak consumer sentiment and continued economic uncertainty resulted in net cash used in operating activities of AU$7.7 million. The decrease compared to net cash from operating activities in the year ended June 30, 2013 was primarily attributable to an increase in cash used for operating activities in the normal course of business of AU$103.9 million and the use of cash for payment of business transformation and capital restructure costs of AU$108.6 million. Net cash used in investing activities for the financial year ended June 30, 2014 was AU$174.7 million, a decrease of AU$384.0 million from the prior corresponding period. The 2014 investing cashflows principally comprised the acquisition of property, plant and equipment amounting to AU$360.2 million, the acquisition of a 60% interest in Tigerair Australia amounting to AU$35.0 million in cash and net loans to Tigerair Australia of AU$48.3 million, the acquisition of intangible assets amounting to AU$72.4 million, offset by proceeds of AU$376.8 million from the sale of property, plant and equipment. Sale of property, plant and equipment principally comprised sale- and-leaseback transactions of aircraft and aeronautic related assets undertaken by Virgin Australia. Net cash from financing activities in 2014 was AU$380.3 million, principally comprising net proceeds from the November and December 2013 capital raising of AU$348.5 million and proceeds from borrowings amounting to AU$1,041.4 million, of which AU$975.8 million were repaid. In the financial year ended June 30, 2013, net cash from operating activities was AU$123.3 million. This result includes the impact of the change in the operating lease maintenance accounting policy as retrospectively applied to 2013. This change increased cash from operating cash flows by AU$62.7 million and increased cash used in investing activities by AU$62.7 million.

Capital Expenditures Virgin Australia’s capital expenditures are principally related to the acquisition of aircraft, equipment, major maintenance expenditure capitalized on leased aircraft, property and investments in information systems. Virgin Australia has funded its capital expenditures principally by asset-backed loans and sale-and-leaseback arrangements with aircraft lessors. The following table sets forth information with respect to Virgin Australia’s capital expenditures for the financial years ended June 30, 2015, 2014 and 2013: Year ended June 30, AU$ millions 2015 2014 2013(1) Additions for property, plant and equipment(2)...... 615.0 367.4 436.4 Additions for intangibles(2) ...... 60.7 73.7 127.1 Additions ...... 675.7 441.1 563.5 Disposals ...... 168.2 366.0 54.3 Net additions and disposals ...... 507.5 75.1 509.2

81 Total capital expenditure in the financial year ended June 30, 2014 amounted to AU$441.1 million. This was comprised of AU$277.8 million of fleet related expenditures (aircraft, aircraft progress payments, spare parts, modifications and refurbishments), AU$49.0 million related to non-fleet property and equipment, AU$40.6 million of work in progress property, plant and equipment assets and AU$73.7 million related to intangible assets such as software and contract intangibles. During the course of the financial year ended June 30, 2014, Virgin Australia took delivery of three Boeing 737-800 aircraft (all of which are leased). Virgin Australia also took delivery of one leased ATR72-600 aircraft and one leased A330-200 aircraft in the financial year ended June 30, 2014.

Indebtedness As at June 30, 2015, Virgin Australia had AU$2,762.2 million in outstanding debt, which comprises the current and non-current portions of its interest-bearing liabilities. For further information, see "Description of Other Financing Arrangements". Management monitors Virgin Australia’s indebtedness in the context of maintaining a strong capital base in order to maintain investor, creditor and market confidence and to sustain future development of the business. Virgin Australia also monitors cash flow to net interest cover. Virgin Australia recognizes that it has flexibility to delay or minimize capital expenditures (which is a major use of cash) in difficult times to reduce financial risk. In view of the uncertain financial markets, macroeconomic conditions and the level of competition in the aviation industry both domestically and internationally, focusing on cash generation and contingent sources of liquidity remains a priority. As at June 30, 2015 and 2014, Virgin Australia’s outstanding cash and cash equivalents and total interest-bearing liabilities were as follows:

As at June 30, AU$ millions 2015 2014 Cash and cash equivalents ...... 1,028.5 783.8 Interest-bearing liabilities ...... 2,762.2 1,950.7 Net debt(1) ...... 1,733.7 1,166.9

(1) Net debt comprises the current and non-current portions of interest-bearing liabilities net of cash and cash equivalents.

Interest-Bearing Liabilities Virgin Australia’s short and long-term borrowings constitute the majority of its indebtedness and consist mainly of secured aeronautic finance facilities. As at June 30, 2015, 2014 and 2013, Virgin Australia’s total interest-bearing liabilities by currency denominated were as follows:

As at June 30, AU$ millions 2015 2014 2013 Loans by currency denomination...... 2,762.2 1,950.7 1,889.9 Australian dollar ...... 585.7 431.0 820.1 U.S. dollar ...... 2,176.5 1,515.5 1,060.5 NZ dollar...... — 4.2 9.3 For more information on Virgin Australia’s long-term borrowings see Note 23 to Virgin Australia’s financial statements for the financial year ended June 30, 2015 included elsewhere in this offering circular.

82 Terms and Debt Repayment Schedule The terms and debt schedule of Virgin Australia’s outstanding loans as at June 30, 2015 and 2014 were as follows:

Face value Carrying Year of Nominal interest Rate AU$ m amount AU$ m Currency maturity(1) 2015 2014 2015 2014 2015 2014 Secured loans Aircraft ...... AUD 2019–2020 3.32% 3.21% 289.0 346.0 285.6 343.5 Aircraft ...... USD 2015–2027 0.72%–8.50% 2.41%–8.50% 1,851.9 1,562.3 1,791.5 1,515.5 Other...... AUD 2016–2020 3.95%–5.30% 4.49% 249.1 24.1 237.8 24.1 Unsecured bank loans Other...... AUD 2016 4.45% 4.99% 34.0 33.9 34.0 33.9 Other...... USD 2019 8.50% — 392.1 385.0 — Loan from associate NZD 2014 — 6.68% — 4.2 — 4.2 (unsecured)...... Finance leases...... AUD 2018–2047 8.51%–13.00% 8.51%–13.00% 28.3 29.5 28.3 29.5 2,844.4 2,000.0 2,762.2 1,950.7

(1) Based on the calendar year.

Contractual Obligations and Commitments Virgin Australia’s aggregate long-term debt and capital commitments as at June 30, 2015 were as follows:

Payments Due by Period AU$ millions Total Less than 1 year 1-5 years after 5 years Loans...... 2,733.9 438.6 1,831.1 464.2 Finance leases ...... 28.3 1.7 4.5 22.1 Operating lease contracts...... 3,658.9 516.0 1,816.9 1,326.0 Capital expenditure commitments ...... 4,333.4 661.1 1,973.1 1,699.2 In accordance with normal industry practice, Virgin Australia is also responsible for maintenance costs of operating leased aircraft for the term of the lease.

Finance Leases Virgin Australia’s finance lease commitments principally relate to Australian airport facilities. Finance lease payments are payable in Australian dollars.

Operating Lease Contracts Virgin Australia leases as lessee property, plant and equipment, principally aircraft, under non- cancellable operating leases with terms that expire up to twelve years from June 30, 2015. Aircraft lease payments are payable in U.S. dollars. For more information on Virgin Australia’s operating lease expense commitments, see Note 30 to Virgin Australia’s financial statements for the financial year ended June 30, 2015 included elsewhere in this offering circular.

Capital Expenditure Commitments As at June 30, 2015 and June 30, 2014, commitments payable for the acquisition of property, plant and equipment, including aircraft and aeronautic related assets, contracted but not recognized as liabilities in Virgin Australia’s financial statements for the financial years ended June 30, 2015 and June 30, 2014, amounted to AU$4,333.4 million and AU$3,383.7 million, respectively. The majority of capital expenditure commitments are denominated in U.S. dollars, and as such the Australian dollar

83 equivalent commitments are subject to exchange rate movements. Virgin Australia has committed financing for aircraft deliveries in the financial year ending June 30, 2016.

Contingent Liabilities As at June 30, 2015 and June 30, 2014, Virgin Australia had provided bank guarantees and standby letters of credit to third parties of AU$127.3 million and AU$85.0 million, respectively, as guarantees of payment for fuel, aircraft lease security deposits and maintenance reserve deposits, non-aircraft operating lease commitments and other arrangements entered into with third parties. As at June 30, 2015 and June 30, 2014, Virgin Australia also had aircraft facilities guarantees outstanding of AU$272.9 million and AU$486.7 million, respectively.

Off-Balance Sheet Arrangements Virgin Australia’s primary off-balance sheet arrangements are its operating leases, which are summarized in the contractual obligations table below.

As at June 30, AU$ millions 2015 2014 Non-Cancellable Operating Lease Expense Commitments Commitments in relation to operating leases contracted for at the reporting date but not recognized as liabilities, payable: Within one year ...... 516.0 376.7 One year or later and no later than five years ...... 1,816.9 1,447.8 Later than five years...... 1,326.0 1,310.0 3,658.9 3,134.5

In accordance with normal industry practice, Virgin Australia is also responsible for maintenance costs of operating leased aircraft for the term of the lease.

Quantitative and Qualitative Disclosure about Market Risk Virgin Australia’s key market risks are in relation to fuel price risk, foreign exchange risk and interest rate risk. In relation to other risks which impact Virgin Australia, see Note 32 to Virgin Australia’s financial statements for the financial year ended June 30, 2015 included elsewhere in this offering circular.

Fuel Price Prices for jet fuel are volatile, strongly correlated to the price of petroleum and are influenced by a number of factors, including political events, war or the threat of war, and the impact of pricing of coordinated supply decisions of producer cartels such as the Organization of the Petroleum Exporting Countries. Volatility of these prices can have a material impact on Virgin Australia’s business, operations, financial condition and results of operations. Virgin Australia manages this exposure by using commodity swap contracts, option contracts and other fuel related derivative contracts. These contracts are designated as hedges of price risk on specific volumes of future jet fuel consumption. Virgin Australia’s risk management policy is to hedge, subject to limits determined by the Board, anticipated jet fuel consumption for current and subsequent financial years. Realized gains or losses on these contracts arise due to differences between the actual fuel prices on settlement, the forward rates of the derivative contracts and the cost of option premiums paid. Accordingly, as a result of Virgin Australia’s hedging arrangements, even if market prices for aircraft fuel were to fall in the future, Virgin Australia may not be able to reduce its fuel costs in a timely manner. For additional information on the effect an increase or decrease in fuel prices could have on Virgin Australia’s results of operations, see “—Operating Expenditure—Fuel and Oil” and “Risk Factors—Risks Relating to Virgin Australia’s Business—Virgin Australia is exposed to risks associated with aviation fuel price trends.”

84 Foreign Currency Exchange Rate Fluctuations Virgin Australia is exposed to foreign exchange risk on transactions denominated in foreign currencies, including the cost of purchasing fuel, aircraft, aircraft lease payments, the sale of airline passenger tickets and USD borrowings. In order to protect against foreign exchange rate movements, Virgin Australia enters into Australian dollar-denominated fuel contracts as well as foreign exchange forward and option contracts to purchase foreign currencies and sell Australian dollars. These contracts are hedging highly probable forecasted purchases for the current and ensuing financial periods and are timed to mature when the operating expenses or capital expenditure are expected to be incurred. Realized gains or losses on these contracts arise due to differences between the actual spot rates on settlement, the forward rates of the derivative contracts and the cost of option premiums paid. For additional information on the effect an increase or decrease in currency exchange rates could have on Virgin Australia’s results of operations, see “—Operating Expenditure—Foreign Exchange Risk.”

Interest Rate Fluctuations Virgin Australia holds both interest-bearing assets and interest-bearing liabilities. Income and operating cash flows of Virgin Australia are therefore subject to changes in market interest rates. Virgin Australia’s main interest rate risk arises from long-term borrowings, short-term borrowings and finance leases. Borrowings issued at variable rates expose Virgin Australia to cash flow interest rate risk. Borrowings issued at fixed rates expose Virgin Australia to fair value interest rate risk. Virgin Australia manages its cash flow interest rate risk by entering into fixed and floating rate debt and leasing arrangements. The residual exposure to floating interest rate risk is managed by holding floating rate assets to create a natural hedge and may include entering into floating-to-fixed interest rate swaps to hedge part of this exposure. Virgin Australia did not have any interest rate swaps as at June 30, 2015.

85 BUSINESS

Overview Virgin Australia is Australia’s second largest airline group and provides access to over 450 destinations worldwide. For the financial year ended June 30, 2015, Virgin Australia carried 22.3 million passengers and currently operates, on average, 3,400 weekly scheduled flights under the Virgin Australia Brand and up to 500 flights per week under the Tigerair Australia Brand (now wholly- owned by Virgin Australia following the Tigerair Minority Acquisition) to 48 destinations in Australia and 16 international destinations. Virgin Australia believes it has a strong brand and an excellent service offering, which coupled with Velocity, the award-winning frequent flyer rewards program in which Virgin Australia holds a 65% interest, underpin its aim to become Australia’s airline of choice. As at November 15, 2015, Virgin Australia had a market capitalization of AU$1.6 billion. The Australian aviation market is uniquely positioned, as Australia is an isolated island continent with long distances between capital cities and limited feasible forms of alternative transport. The 706 kilometer journey between Australia’s two most densely populated capital cities, Sydney and Melbourne, represented the fourth busiest route globally, based on total number of seats per month flown in both directions for the period of the month ended January 31, 2015 to the month ended October 31, 2015. Australian passenger year-on-year growth has been relatively consistent over the last ten years, with domestic passenger numbers growing at a CAGR of 4.2% and international passenger numbers growing at a CAGR of 5.5% from 2004 to 2014. Virgin Australia competes in the “two-player” Australian domestic aviation market with the Qantas Group, through its full service mainline Virgin Australia Brand and low-cost Tigerair Australia Brand. Virgin Australia has a strong position in this market with the Virgin Australia Brand and Tigerair Australia Brand accounting for a 36% Australian domestic capacity market share (measured by ASKs) for the financial year ended June 30, 2015.

Revenue and income (AU$4,749 million) mix Shareholder composition as at for the financial year ended June 30, 2015 November 16, 2015

Tigerair Velocity Australia 5% 6%

Public 16% Air New Zealand 26% Virgin Australia Virgin Group International 10% 23% Virgin Australia Domestic 66% Singapore Airlines Etihad 23% 25%

Source: Company filings Source: Computershare Virgin Australia has adopted a “capital light” international strategy through its strategic alliances with Air New Zealand, Delta Air Lines, Etihad Airways and Singapore Airlines, as well as codeshare and interline agreements with other international airlines. In the Australian international aviation market, Virgin Australia and its alliances had a combined 26% market passenger share for the month ended June 30, 2015. The Virgin Australia Brand’s domestic mainline acts as a feeder network to the broader international network, making Virgin Australia strategically important to its major alliance partners in terms of maintaining and growing their share of the Australian international passenger airline market. Virgin Australia has been supported by its four principal shareholders, the Virgin Group, Air New Zealand, Etihad Airways and Singapore Airlines, which collectively own approximately 84% of the shares in Virgin Australia, with the remaining shares owned by public shareholders.

86 The Virgin Australia Brand has undergone a significant transformation from a low-cost carrier to a premium full service carrier as a result of the successful implementation of various business strategies. The Game Change Program, launched in 2010, permitted Virgin Australia to diversify revenue by entering the corporate and government markets and developing a presence in the regional RPT and the low-cost budget markets through the acquisition of Skywest in April 2013 and the initial 60% acquisition of Tigerair Australia in July 2013. Virgin Australia subsequently acquired the remaining 40% of Tigerair Australia in February 2015. In 2012, Virgin Australia launched the second phase of the Game Change Program, known as the Game On initiative, which fast-tracked the Game Change Program by delivering business efficiencies to maintain Virgin Australia’s low-cost structure, building a transformational loyalty business through the addition of 2.1 million new Velocity members since the launch of the Game On initiative, improving in-flight and on-the-ground services and enhancing frontline training and development for Virgin Australia’s staff. Virgin Australia is now focused on the Virgin Vision 2017 strategy, with the goal to capitalize on growth business opportunities through increased Velocity membership, improved charter and cargo revenues and continuing the Tigerair Australia transformation program. Renewed focus will also be placed on enhancing yield through further diversification of revenue and strengthening existing alliance partnerships. Finally, the Virgin Vision 2017 strategy will extend the business efficiency program implemented under the Game On initiative. Through the successful completion of the Game Change Program and the recent launch of Virgin Vision 2017, Virgin Australia has established a global network, offering access to over 450 global destinations through its operations and strategic alliances. Virgin Australia and its subsidiaries currently operate a young fleet of 160 aircraft, including A330, A320, B777, B737, E190, ATR72-500/600, Fokker 100 and Fokker 50 aircraft. The average age of the aircraft in Virgin Australia’s fleet, including Tigerair Australia (and excluding the aircraft in Virgin Australia Regional Airlines’ fleet principally used for charter operations) was 5.6 years as at June 30, 2015. For additional information on Virgin Australia’s fleet, see “—Virgin Australia’s Operations—Fleet overview.” Together with various business efficiency initiatives and a “capital light” international network, this young, modern, fuel-efficient fleet underpins Virgin Australia’s low-cost base as a competitive advantage. For the financial year ended June 30, 2015, Virgin Australia generated total revenue and income of AU$4.7 billion, Operating Segment EBITDAR of AU$618.4 million, an underlying loss before tax(1) of AU$49.1 million and a statutory loss after tax of AU$93.8 million. For the financial year ended June 30, 2015, Virgin Australia’s ASKs increased by 9.0% compared to the previous year.(2) Performance for the financial year ended June 30, 2015 was a significant improvement on the prior corresponding period with a statutory loss after tax improvement of AU$260.0 million. These financial results were driven by a significant turnaround of Virgin Australia’s domestic business, an improved performance from Tigerair Australia and strong growth in Velocity earnings, which reflects the current positive trajectory of the Virgin Australia Group. For further information on Virgin Australia’s financial performance, see “Selected Financial and Operating Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Virgin Australia’s consolidated financial statements and the notes thereto included elsewhere in this offering circular.

87 Business Strengths

Australian domestic passengers (millions) International passengers (excluding (Calendar years 2004–2014) passengers transiting Australia) (millions) (Calendar years 2004–2014)

2004 - 2014 CAGR: 4.2% 2004 - 2014 CAGR: 5.5% 31.3 33.1 56.1 57.1 57.3 29.6 53.3 53.8 26.8 28.2 49.9 49.8 24.4 46.7 22.8 23.5 43.7 20.9 21.5 40.7 19.4 37.8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Bureau of Infrastructure, Transport and Regional Economics Virgin Australia and Qantas are the two multi-branded airline groups that are strongly represented in all major markets (domestic corporate and government, domestic leisure, budget, charter and cargo) of the Australian domestic airline industry. The Virgin Australia Brand and Tigerair Australia Brand captured 36% of domestic capacity market share (measured by ASKs) in the financial year ended June 30, 2015, with Qantas Group brands (including Qantas mainline, Jetstar Airways and QantasLink) capturing approximately 62%. During June 2015, Virgin Australia’s alliance network, including Virgin Australia, Air New Zealand, Delta Air Lines, Etihad Airways and Singapore Airlines, captured 26% of passengers in the international airline market, with Qantas alliances capturing 37% of passengers.

88 Australian domestic capacity share by Australian international market share airline (Financial year ended by passengers carried June 30, 2015) (Month ended June 30, 2015)

Other Virgin Australia 1.5% Qantas Group Group 62.3% Virgin Australia 36.2%(1) 7.7% Air New Zealand 5.9% 6.3% Singapore Virgin Australia Other Airlines Shareholders 36.7% 8.8% and Alliances Qantas Delta ~26.1% 41.6% 0.6% Etihad 30.4% 2.7%

LAN Jetstar Qantas 0.4 % 20.7% 15.9% China Eastern 1.0% Emirates Jetstar 10.1% 9.7%

Qantas Alliances ~37.2%(2)

Source: Company filings, Bureau of Infrastructure, Transport and Regional Economics

(1) Aggregate of Virgin Australia and Tigerair Australia’s capacity share in the chart does not equal 36.2% due to rounding. (2) Aggregate of Qantas alliances market share in the chart does not equal 37.2% due to rounding. Virgin Australia’s strong brand and competitive customer product and service offering underpin its aim to become Australia’s airline of choice. Virgin Australia believes it has a strong brand, with core values that include quality customer service and innovation. Virgin Australia has a Four Star ranking according to Skytrax and was ranked as the world’s 16th best airline at the 2015 Skytrax World Airline Awards. Virgin Australia is one of the most respected brands in Australia, as evidenced by the AMR 2015 Corporate Reputation Index, which ranked Virgin Australia third highest in the aviation sector behind alliance partner Air New Zealand, and fifteenth among Australia’s other most reputable brands, including Toyota Motor Corporation, Nestle´ Australia, JB HI-FI, Australia Post and Qantas. The Virgin Australia Brand’s full-service product offering includes a Business Class offering (with roll out of a premium cabin refit on Virgin Australia’s wide-body fleet (Airbus A330 and Boeing 777) having commenced in August 2015), Velocity frequent flyer offering, new airport lounges and leading in-flight Wi-Fi entertainment technology. The Virgin Australia Brand has developed a competitive advantage in its quality customer service offering, evidenced by a number of the leading industry awards it has received, including: • 2015 Hay Group/BOSS Most Respected Company; • 2015 Skytrax World Airline Award for the Best Airline Staff Service in the Australia-Pacific Region (awarded for the fifth consecutive year); • 2015 Randstad Award for Australia’s Most Attractive Employer; • 2014 Conde Nast Reader’s Choice Awards: World’s Best Airlines for Business Travelers, number 10 (number 1 in Australia); • 2014 Travel Trade Gazette Travel Awards for Best Pacific Airline; • 2014 Australian Financial Review Award for Most Respected Companies, number 1 in aviation sector and number 6 in Australia; • Roy Morgan Customer Satisfaction Award for Domestic Airline of the Year for 2012 and Domestic Business Airline of the Year for 2013; and • 2013 Customer Service Institute of Australia Award for Domestic Airline of the Year.

89 The Guest Satisfaction Tracker external research confirmed that the domestic arm of Virgin Australia achieved record levels of satisfaction with the end-to-end customer experience, domestic Business Class service and the lounge experience in respect of the period July 2014 to June 2015. Tigerair Australia also achieved an 11% point increase in customer satisfaction from 64% in July 2014 to 75% in June 2015. Customer preference for the Virgin Australia Brand is further demonstrated by Virgin Australia’s rapid penetration into the higher yielding corporate and government markets, with revenue from these markets increasing from 10% of Virgin Australia Brand’s domestic revenue base for the financial year ended June 30, 2010 to greater than 25% of Virgin Australia Brand’s domestic revenue base for the financial year ended June 30, 2015. Virgin Australia has shown strong on time service delivery performance for the financial year ended June 30, 2015, with the Virgin Australia Brand’s domestic operations outperforming Qantas’ mainline domestic operations since October 2014. Tigerair Australia averaged 84.7% on time service delivery for the six months from January 1, 2015 to June 30, 2015, which was above Jetstar’s average of 82.4% for the period.

On time performance by Mainline brand On time performance by Budget brand (Financial year ended June 30, 2015)(1) (Financial year ended June 30, 2015)(1)

% % 92 90 Virgin Australia Tigerair Australia Brand 90 Qantas brand 85 88

Jetstar 86 80

82 75 0 0 Jul-14 Sep-14Nov-14 Jan-15 Mar-15 May-15 Jul-15 Jul-14 Sep-14Nov-14 Jan-15 Mar-15 May-15 Jul-15

Source: Bureau of Infrastructure, Transport and Regional Economics

Virgin Australia has a leading frequent flyer program. Velocity, the award-winning frequent flyer rewards program in which Virgin Australia holds a 65% interest, facilitates retention by Virgin Australia of existing customers and the addition of new customers. Velocity membership has grown at a CAGR of 20% since 2010, increasing from 2.1 million members as at June 30, 2010 to 5.3 million members as at June 30, 2015. Virgin Australia believes this increase in membership has been driven by Velocity’s best in-class service offering and global coverage including affiliations with key global airline partners, hotels, credit card providers and car rental companies. Velocity’s reputation for innovation and customer service is evidenced by the number of industry awards and recognition it has received, including: • 2015 Freddie Awards: Program of the Year, Best Customer Service and Best Redemption Ability within the Middle East/Asia/Oceania region airline category; • 2015 IdeaWorks’ SwitchFly survey: Best Reward Seat Availability in the Asia Pacific region and the third best in the world;

90 • 2014 Freddie Awards: Program of the Year, Best Customer Service, Best Promotion, Best Redemption Ability and Best Elite Program, within the Middle East/Asia/Oceania region airline category; • 2013 Loyalty Innovation Awards: acclaimed for innovative initiatives; and • 2015 AusBT Awards: best frequent flyer program for Australian business travelers. In October 2014, Virgin Australia completed the sale of a 35% stake in Velocity Holdco for gross proceeds of AU$336.0 million to Affinity. Strategically, this joint venture is enabling Velocity to accelerate its growth by providing it access to additional capital and leveraging Affinity’s experience in driving rapid and sustainable growth in investments. See “—Loyalty Program—Velocity—Virgin Australia and Affinity Joint Venture in relation to the Velocity Business.” In July 2015, Velocity Frequent Flyer Pty Ltd acquired Torque Data, enabling the business to significantly expand its capabilities in the data and analytics field and support its ongoing growth.

Virgin Australia has a low-cost base driven by a young, modern, fuel-efficient fleet and a “capital light” international network model. Virgin Australia has a disciplined low-cost culture which has created a significant competitive advantage over Qantas, with an estimated 22% CASK advantage in the domestic market for the financial year ended June 30, 2015. Virgin Australia’s low-cost competitive advantage is partially driven by a younger and more fuel-efficient fleet. The average age of the aircraft in Virgin Australia’s fleet, including Tigerair Australia (and excluding the aircraft in Virgin Australia Regional Airlines’ fleet principally used for charter operations) was 5.6 years as at June 30, 2015. Qantas’ narrowbody fleet age for the same period was greater than 7 years according to its public filings.

Domestic CASK(1) comparison (Financial year ended June 30, 2015)(1)

-22% 16 Qantas Domestic CASK is 22% 14 higher

CASK (¢) 6

0 Qantas Virgin Australia

Source: Calculated from Qantas and Virgin Australia results presentations and annual reports for the financial year ended June 30, 2015

91 Proportion of narrowbody aircraft (Financial year ended June 30, 2015)

Narrow-body Wide-body Turboprop

16.4% 14.0% 7.0% 19.7%

79.0% 63.9%

Qantas Virgin Australia

Source: Calculated from Qantas and Virgin Australia results presentations and annual reports for the financial year ended June 30, 2015 Virgin Australia has introduced a number of initiatives that seek to improve efficiency and maintain its low-cost base. For example, in 2012 Virgin Australia launched a business efficiency program to create and maintain sustainable outcomes as its business continues to grow. Virgin Australia plans to expand the business efficiency program introduced under the Game Change Program to target AU$1.2 billion in cumulative productivity gains from the program’s initiation in 2012 to June 30, 2017, through enhanced procurement, improved productivity and streamlined operations. This target was increased by AU$200 million in August 2015, above the initial AU$1 billion target, due to the cost program tracking ahead of schedule. In the three financial years to June 30, 2015, Virgin Australia exceeded targets by delivering cumulative productivity gains of over AU$500 million. For more information on the business efficiency program see “—Business Strategy—Game On (2012—2014).” Virgin Australia’s “capital light” international network is based on the establishment of strategic alliances with major international airlines Air New Zealand, Delta Air Lines, Etihad Airways and Singapore Airlines. These alliances provide Virgin Australia access to its strategic alliance partners’ inventory of international destinations.

Air New Zealand Etihad Airways Singapore Airlines % Ownership in Virgin Australia(1) ...... 25.9% 25.1% 22.8% Geographic segment revenue(2) ...... AU$587m(3) N/A AU$1,408m(4) Virgin Australia codeshare services per week(5) . . 3,509 930 2,029 ACCC alliance authorization expiry...... October 2018 February 2016(6) December 2016 International passenger market share(7)...... 6.3% 2.7% 8.8%

92 (4) Converted to AUD based on the Bloomberg SG Composite exchange rate on November 15, 2015 of SGD$1.0156 = AU$1.00. (5) As at October 31, 2015. (6) On October 30, 2015 the ACCC issued a draft determination proposing to re-authorise this alliance for a further five years. The final determination is expected in January 2016. (7) Bureau of Infrastructure, Transport and Regional Economics scheduled operator market share by total passengers in June 2015. Virgin Australia believes that its frequent flyer base and alliance network are strategically important to Air New Zealand, Etihad Airways and Singapore Airlines in terms of maintaining and growing their share of the Australian international passenger airline market. Strategic Importance of Virgin Australia to Air New Zealand, Etihad Airways and Singapore Airlines The Trans-Tasman alliance represents a significant portion of Air New Zealand’s revenues. The Australian and Pacific Islands regions represented 22% of Air New Zealand’s revenues for the financial year ended June 30, 2015. The Trans-Tasman alliance represents Air New Zealand’s third largest geographic exposure outside of the New Zealand domestic market.

Air New Zealand total revenue by segment (Financial year ended June 30, 2015)

Domestic passenger Other revenue revenue 26.5% 16.5%

International Tasman & Pacific passenger Islands passenger revenue revenue 34.8% 22.2%

93 Share of passengers, Australia to Asia and Europe (Financial years ended June 30, 2012 to June 30, 2015)

40%

35% 33% 33% 32%

30% 26% 25%

19% 19% 20% 18% 16% 15%

10%

0% FY12 FY13 FY14 FY15 Qantas Alliance Virgin Australia Alliance

Source: Department of Immigration and Border Protection Virgin Australia believes that the alliance network delivers strategic value to its alliance partners which could not otherwise be established without substantial investment in time and money. Important elements of Virgin Australia’s alliance network include: • Alliance anti-trust benefits—The presence of the alliance partners has provided Virgin Australia with the ability to effectively coordinate network and pricing and save on the significant lead time commonly associated with securing anti-trust immunity. • Proprietary IT systems—Virgin Australia has invested over AU$100.0 million in its proprietary IT systems, including ticketing systems over the past three years. Alliance partners rely on Virgin Australia’s reservation platforms to process multi-sector journey tickets. • Loyalty offering—Velocity membership has increased to 5.3 million members (as at June 30, 2015), with members benefiting from the ability to earn and redeem points across the alliance network. • Airport lounges—Virgin Australia has recently completed a multi-million dollar expansion of airport lounges in Sydney, Melbourne, Brisbane, Canberra, Darwin and Alice Springs, with the Perth airport terminal expansion scheduled to open in late November 2015. • Airport slots—The strict regulation of airport slots in the Australian market has allowed the alliance partners to utilize Virgin Australia’s availability of take-off and landing slots. • Operating licenses—Route operating licenses form a significant barrier to entry in the aviation industry, highlighting the importance of the alliance partners’ global reach of destinations. Given Virgin Australia’s strategic importance to each of Air New Zealand, Etihad Airways and Singapore Airlines, each of these three airline shareholders has consistently demonstrated financial support for Virgin Australia: • In August 2013, the three strategic airline shareholders collectively provided an AU$90.0 million shareholder loan (which was undrawn by Virgin Australia and subsequently terminated);

94 • In November and December 2013, each of the three strategic airline shareholders fully sub- underwrote and purchased their entitlements in Virgin Australia’s AU$350.0 million entitlement (or rights) offer; • In July 2014, each of Air New Zealand, Etihad Airways and Singapore Airlines appointed their respective Chief Executive Officers as members of the Board, noting that Etihad Airways’ Chief Executive Officer resigned, and was replaced by Bruno Matheu, Chief Operating Officer, Equity Partners, in February 2015. Following the appointments, Air New Zealand and Singapore Airlines began equity accounting their Virgin Australia investment; and • Between 2013 and 2015, each of the three strategic airline shareholders increased its shareholding in Virgin Australia. Virgin Australia believes that each strategic airline shareholder is in a position of financial strength. According to their respective public filings, Air New Zealand and Singapore Airlines are significantly capitalized and have strong liquidity positions as set forth below.

Singapore Air New Zealand Etihad Airways Airlines Market capitalization(1) ...... AU$2,904m(2) N/A AU$12,405m(3) FY2015 Cash balance...... AU$1,159m(4) N/A AU$5,033m (5)

95 • Maintained cost advantage—Virgin Australia maintained a disciplined cost culture despite continuing investment in improving product and customer satisfaction, with an underlying unit cost reduction of 6.4% (excluding fuel and foreign exchange) in the financial year ended June 30, 2015. • Upgraded product and services—Virgin Australia updated its product and service offerings through the launch of Business Class on its domestic network, the re-launch of Velocity and the initiation of a number of technological, security and other improvements for customers and staff. • Invested in its people—Virgin Australia received the 2015 Skytrax World Airline Award for Best Airline Staff Service in the Australia-Pacific region (awarded for the fifth consecutive year) and the 2015 Randstad Award for Australia’s Most Attractive Employer (having ranked second in Australia in both 2014 and 2013 and also having been named the Most Attractive Aviation Sector Employer in 2013).

Game On (2012–2014) In August 2012, Virgin Australia transitioned to the Game On initiative, which was scheduled to be fully completed by June 30, 2015. Virgin Australia focused on fast-tracking the Game Change Program and the Game On initiative and, in August 2014, announced the successful completion of both initiatives. The Game On initiative was designed to capitalize on the competitive advantages achieved under the Game Change Program and diversify Virgin Australia’s revenue base through focus on the following key strategic pillars: • Implementing a business efficiency program—Virgin Australia has delivered additional efficiencies in productivity gains through its business efficiency program, which focused on achieving improved efficiency benchmarks, including fuel efficiency and aircraft utilization. By focusing on a number of key areas, which included, among other things, labor cost management, group fleet optimization, network optimization and process and group procurement improvements, Virgin Australia was able to deliver cumulative productivity benefits of AU$514 million in the three years to June 30, 2015, with annualized run rate benefits in the financial year ended June 30, 2015 of AU$135 million, and cumulative annual run rate benefits in the three years to June 30, 2015 of AU$345 million. • Building a transformational loyalty business—Virgin Australia has increased Velocity membership and engagement, adding 2.1 million new members since the Game On initiative was launched, resulting in one of the widest retail offerings of any loyalty program in Australia. • Increasing access to global markets—Virgin Australia has expanded its global reach by increasing codeshare and interline revenue. • Further enhancing the guest experience through in-flight innovation and on-the-ground service—Virgin Australia has provided further innovative customer products and services. • Enhancing Virgin Australia’s people and service excellence—Virgin Australia has continued to enhance frontline training and development for staff.

96 setting a new standard in customer experience to drive stable future revenue streams and enabling Virgin Australia to deliver sustainable profitability.

Virgin Australia

VAA Charter Cargo Velocity Tigerair

Set a new standard in Breaking monopoly New dedicated Growing coalition Competitive offer and customer experience markets business partners service

Targeting ~30% Targeting AU$200m+ Targeting AU$150- Targeting membership domestic revenue Targeting profitability revenue AU$200m revenue 7 million+ from corp. and govt.

Become Australia’s favorite airline group

Virgin Vision 2017 will focus on the following key areas: • Capitalize on business diversification and growth opportunities— • Velocity: Virgin Australia intends to grow membership to more than 7 million members, diversify Velocity’s partner mix, increase partner numbers and strengthen member engagement. • Charter: Virgin Australia plans to significantly increase the revenue from Virgin Australia’s charter business by the financial year ending June 30, 2017 to more than AU$200 million. • Cargo: Virgin Australia launched Virgin Australia Cargo on July 1, 2015. • Tigerair Australia: Virgin Australia will continue the Tigerair Australia transformation program by further improving customer satisfaction, driving incremental revenue growth, delivering cost synergies and developing an efficient operating platform and network footprint to achieve profitability by the financial year ending June 30, 2016 (ahead of initial targets). • Drive yield enhancement—Virgin Australia seeks to increase corporate and government domestic revenue to 30% of domestic revenue base by June 30, 2017 and increase interline and codeshare revenue through the strengthening and expanding of existing alliance partnerships. • AU$1.2 billion cost program—Virgin Australia plans to expand the business efficiency program introduced under the Game Change Program to target AU$1.2 billion in cumulative

97 productivity gains from the launch of the Game On initiative in 2012 to June 30, 2017, through enhanced procurement, improved productivity and streamlined operations. This target was increased by AU$200 million in August 2015, as a result of the program achieving gains ahead of schedule. • Optimize the balance sheet—Virgin Australia aims to optimize the balance sheet by reducing financial leverage and increasing the return on invested capital. Virgin Australia is targeting a ROIC equal to its WACC in the near term, and exceeding its WACC in the longer term.(1) • New standard in customer experience—Virgin Australia will continue to place a strong focus on products and services to set a new standard in customer experience, including through a premium cabin refit on its wide-body aircraft (Airbus A330 and Boeing 777). The new premium product has commenced roll-out on the Airbus A330 aircraft, which primarily operate on the key Australian Trans-Continental routes, and features space to multi-task, enhanced privacy and direct aisle access, a fully-flat bed, a personal 16 inch touch-screen entertainment and restaurant-quality dining on demand. • Develop people to their full potential—Virgin Australia seeks to increase staff engagement and enablement by developing and supporting its people to be their best.

Virgin Australia’s Operations Virgin Australia is a domestic and international passenger airline with an extensive domestic and international short- and long-haul network serviced through its own aircraft and those of its network alliance partners. Virgin Australia focuses on routes with high traffic volume where it has an established market position in order to improve its network and enable passengers to connect more conveniently to and from the major Australian and international airports that it services. Virgin Australia continuously reviews and revises its routes based on profitability analysis and customer demand. The following table sets forth Virgin Australia’s key operating statistics for the past three financial years:

Year ended June 30,(1) Unit 2015(2) 2014 2013(3) Passengers carried ...... millions 22.3 20.0 19.3 Available seat kilometers ...... billions 46.0 42.2 41.8 Revenue passenger kilometers ...... billions 35.8 33.1 31.3 Load factor ...... % 77.8 78.4 75.6

(1) The figures in this table exclude Virgin Australia’s Charter operations. (2) The figures for the financial year ended June 30, 2015 include Tigerair Australia’s operating statistics from October 17, 2014. (3) Virgin Australia’s acquisition of Skywest was completed in April 2013. Unless stated otherwise, the figures for 2013 in the above table do not include Skywest’s operations or the fleet operated by Tigerair Australia.

(1) All metrics in Virgin Australia’s targeted return framework are calculated on an underlying basis. Return on invested capital (or ROIC) is a non-AAS measure and is defined as ROIC EBIT divided by invested capital, and represents a measure of Virgin Australia’s underlying loss before tax as a percentage of invested capital. ROIC EBIT is a non-AAS measure derived from underlying EBIT, adding back rentals on aircraft operating leases, and adjusting for a notional depreciation on the capitalized value of aircraft leases (seven times annual operating lease cost), or approximately 4% per annum. This metric provides an indication of underlying earnings assuming all aircraft were owned by Virgin Australia. Underlying EBIT is a non- AAS measure and is defined as statutory loss before tax excluding the impact of restructuring and transaction costs, share of equity accounted losses from associates, impact of hedging and financial instruments and net interest expense. This is a measure used by management and Virgin Australia’s Board to assess the financial performance of Virgin Australia. Invested capital is a non-AAS measure that provides an indication as to the invested capital within Virgin Australia, and is derived from adding average adjusted net debt and total equity as reported in the consolidated statement of financial position. Weighted average cost of capital (or WACC) is a non-AAS measure that estimates the pre-tax weighted average cost of capital for Virgin Australia, using an estimated 60 to 40 debt to equity split. Virgin Australia estimates its cost of capital as 10% for each of the financial years ended June 30, 2015 and June 30, 2014.

98 The Virgin Australia Brand’s domestic operations service all major Australian cities and main regional ports for both corporate and leisure travel. The Virgin Australia Brand currently operates approximately 3,100 domestic scheduled flights and approximately 180 charter flights per week, connecting all major Australian airports. Virgin Australia maintains a focus on expanding its presence in regional Australia through the launch of new services, increased flight frequency and ongoing network optimization. Virgin Australia flies to 14 international short-haul destinations on its own aircraft departing from and arriving at airports within Southeast Asia, the Pacific and New Zealand, including Fiji, Auckland, Wellington and Denpasar. Virgin Australia’s international long-haul services consist of 14 flights per week to Los Angeles and 3 flights per week to Abu Dhabi. In addition to the routes directly flown by its own aircraft, Virgin Australia’s international short-haul and international long-haul network is strengthened by its strategic alliances and partnerships, which enable its customers to access over 450 destinations worldwide, including interline destinations. Tigerair Australia’s domestic operations focus on the budget leisure market, flying to a number of state capital cities and key leisure destinations. The Tigerair Australia Brand currently operates over 500 scheduled flights per week to 11 domestic destinations. From March 2016, it is planned that international services to Denpasar will commence under the “Tigerair” brand, subject to regulatory approvals.

Strategic alliances and partnerships Virgin Australia’s strategic alliances with Air New Zealand, Delta Air Lines, Etihad Airways and Singapore Airlines, and other international alliances, including with the Virgin Group, deliver key benefits to both Virgin Australia and Virgin Australia’s alliance partners. Strategic alliance relationships and other partnerships generate significant revenues for Virgin Australia’s domestic business. The depreciation in the Australian dollar has strengthened the revenue contribution of Virgin Australia’s alliances over recent months from inbound international passengers traveling to and within Australia on alliance partner, codeshare and domestic services. Conversely, Virgin Australia’s premium products and services across its domestic network offer an attractive end-to-end solution for Virgin Australia’s alliance partners, ensuring that inbound international passengers are directed to aligned rather than competitor services.

Air New Zealand The Air New Zealand alliance was launched in July 2011 and has driven strong growth in passenger numbers on Virgin Australia’s Trans-Tasman services. The alliance enables Virgin Australia to offer additional departure times and increased choice of flight times for Trans-Tasman travel. Virgin Australia has worked closely with Air New Zealand to optimize schedules for flights across the Tasman and offer reciprocal benefits to customers. For example, during New Zealand’s peak ski season (between July and September) in 2015, the alliance re-timed flights and increased services from Queenstown and Christchurch to Brisbane, Melbourne and Sydney. In 2015, the alliance also operated seasonal services from New Zealand to the Sunshine Coast in Queensland, and from Christchurch to Perth, building on the extensive comprehensive alliance network which now covers 25 destinations across New Zealand. During the financial year ended June 30, 2015, One Tasman Team, a joint alliance brand campaign, was launched in Australia and New Zealand to highlight the alliance’s extensive network across the Tasman. In addition, Air New Zealand opened a new lounge at Sydney International Airport, accessible to eligible Virgin Australia guests travelling across the Tasman and Pacific Island routes. In September 2013, the ACCC and the New Zealand Minister of Transport granted conditional authorization for Virgin Australia and Air New Zealand to continue their Australasian Airline Alliance Agreement and associated agreements until October 31, 2018.

99 Delta Air Lines The Delta Air Lines alliance received ACCC approval in December 2009 and U.S. Department of Transport approval in June 2011. The alliance enables Virgin Australia and Delta Air Lines to offer three Trans-Pacific services per day, improving its connection times and expanding its network with access to approximately 240 destinations across North America. In July 2013, Virgin Australia and Delta Air Lines expanded their codeshare cooperation to include Mexico, allowing passengers to fly from Australia to Cancun, Cozumel, Guadalajara, Mexico City, Puerto Vallarta and San Jose Del Cabo via Los Angeles under a Virgin Australia codeshare. In August 2015, the ACCC re-authorized the Delta Air Lines alliance until September 7, 2020.

Etihad Airways The Etihad Airways alliance received ACCC authorization in February 2011 and received “no objection” clearance from the United Arab Emirates Department of Transport in September 2010. Together, Virgin Australia and Etihad Airways currently offer 42 services a week from Australia to Abu Dhabi, enabling one-stop connections to the United Kingdom, Europe, the Middle East and North Africa. The alliance continues to expand and now covers codeshare destinations in, among other countries, the United Kingdom, France, Germany, Italy, Netherlands, Belgium, Greece, Ireland, Russia, Jordan, Oman, Kenya, Saudi Arabia and Lebanon. In August 2015, Virgin Australia submitted a reauthorization application for the Etihad Airways alliance. On October 30, 2015 the ACCC issued a draft determination by which it proposed to re-authorize the Virgin Australia and Etihad Airways alliance for a further five years, with the final determination expected in January 2016.

Singapore Airlines The Singapore Airlines alliance received ACCC authorization in December 2011 and authorization from the Singaporean Competition Commission in October 2011. Singapore Airlines began codesharing on Virgin Australia’s domestic services in February 2012 and Virgin Australia launched codeshare on Singapore Airlines’ international services in March 2012 to Singapore, China, South Africa and the United Kingdom. Virgin Australia and Singapore Airlines have since expanded their codeshare agreement to other destinations, including Vietnam, India, Malaysia, Japan, Thailand, Indonesia and a number of countries across Europe.

Other complementary international alliances including the Virgin Group Virgin Australia’s four strategic alliances are complemented by key partnerships with other airlines that provide for additional international leisure and business destinations. For instance, in October 2011, Virgin Australia launched codeshare on Hawaiian Airlines’ daily flight services between Sydney and Honolulu and on connecting services to the neighboring islands of Maui, Kauai and Hawaii. In July 2012, Virgin Australia commenced codesharing on Virgin America’s services from Los Angeles to eight destinations across the United States. In May 2014, South African Airways commenced codesharing on Virgin Australia’s Trans-Continental network. In October 2014, this alliance was expanded with Virgin Australia codesharing on South African Airways’ service from Perth to Johannesburg. The financial year ended June 30, 2015 marked the first full year of a new flying schedule for Virgin Samoa, the joint venture between the Virgin Australia Group and the Samoan government. The revised schedule better aligns capacity to the variation in passenger demand.

Interline agreements Interline agreements between airlines facilitate travel for passengers who require flights with more than one airline to reach their final destination. These standard industry agreements allow passengers to travel across the networks of multiple airlines with the convenience of a single reservation. Certain

100 interline agreements allow airlines to issue boarding passes and check baggage to the passenger’s final destination, alleviating the need for passengers to check in with multiple airlines. In addition to its strategic alliances and key partnerships, Virgin Australia also has interline arrangements with approximately 45 carriers for inbound and outbound traffic to or from Australia and New Zealand.

Strategic Importance of Virgin Australia to Major Alliance Partners

Singapore Airlines Delta Air Lines

Int’l passenger Int’l passenger 8.8% 0.6% market share(1) market share(1) Cash balance Cash balance 5,033 2,975 (A$m)(2) (A$m)(2)

Ownership in VA 23% Ownership in VA N/A

Delta Air Lines

Etihad Airways Singapore Airlines Etihad Airways Air New Zealand

Int’l passenger Int’l passenger (1) 2.7% Air New market share (1) 6.3% Zealand market share Cash balance Cash balance NA 1,159 (A$m) (A$m)(2)

Ownership in VA 24% Ownership in VA 26%

Source: Company filings, Bureau of Infrastructure, Transport and Regional Economics, Bloomberg

(1) As at June 30, 2015. Source: Bureau of Infrastructure, Transport and Regional Economics. (2) Air New Zealand cash balance as at June 30, 2015. Converted to AUD based on the Bloomberg NZ Composite exchange rate on June 30, 2015 of NZ$1.394 = AU$1.00. Delta Air Lines cash balance as at June 30, 2015. Converted to AUD based on the Bloomberg AU Composite exchange rate on June 30, 2015 of US$0.7707 = AU$1.00. Singapore Airlines cash balance as at March 31, 2015. Converted to AUD based on the Bloomberg SG Composite exchange rate on March 31, 2015 of SGD1.0439 = AU$1.00.

Fleet overview At June 30, 2015, Virgin Australia operated a fleet of 157 aircraft. For further information related to Virgin Australia’s capital expenditure in relation to its fleet and the financing of such expenditure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources,” “—Capital Expenditures” and “—Indebtedness—Capital expenditure commitments.” The average age of the aircraft in Virgin Australia’s fleet, including Tigerair Australia (and excluding the aircraft in Virgin Australia Regional Airlines’ fleet principally used for charter operations) was 5.6 years as at June 30, 2015. The relatively young age of its fleet enables Virgin Australia to recognize leading fuel efficiency and environmental performance, while providing its customers with a contemporary in-flight experience.

101 The following table sets forth the composition of Virgin Australia’s aircraft fleet for the periods indicated:

As at June 30, 2015 Aircraft type 2015 2014(1) Leased Owned E190...... 18 18 7 11 B737-700/800...... 77 74 37 40 A330-200 ...... 6 7 6 — B777-300ER ...... 5 5 1 4 ATR72-500/600 ...... 14 13 14 — Mainline fleet...... 120 117 65 55 Fokker 100 ...... 14 10 7 7 Fokker 50 ...... 8 8 — 8 A320-200 (Charter & Tigerair Australia) ...... 15 15 15 — Total Virgin Australia Group ...... 157 150 87 70

(1) While Tigerair Australia was not consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2014, the table includes 13 Tigerair Australia aircraft as at June 30, 2014. • The Embraer E190 aircraft is a short to mid-range aircraft with a seating capacity of approximately 98 passengers. The Embraer 190 aircraft in the Virgin Australia fleet are operated on its domestic routes, such as Melbourne-Canberra. The engine type on the Embraer 190 is the CF34-10. • The Boeing 737-700 aircraft is a mid-range aircraft with a typical seating capacity of 128 passengers. The Boeing 737-700 aircraft in the Virgin Australia fleet are operated on its domestic routes, such as Kalgoorlie-Perth. The engine type on the 737-700 is the CFMI CFM56-7B. • The Boeing 737-800 aircraft is a mid-range aircraft with a typical seating capacity of 176 passengers. The Boeing 737-800 aircraft in the Virgin Australia fleet are operated on many of its domestic routes, such as Brisbane-Sydney and Brisbane-Melbourne and its short- haul international routes, such as Sydney-Denpasar. The engine type on the 737-800 is the CFMI CFM56-7B. • The Airbus A330-200 aircraft is a medium to long-range aircraft with a typical seating capacity of 279 passengers. The Airbus A330-200 aircraft in the Virgin Australia fleet are operated on its Trans-Continental Perth routes, such as Sydney-Perth. The engine type on the Airbus A330-200 is the Rolls Royce Trent 772B. • The Boeing 777-300ER aircraft is a long-range aircraft with a seating capacity of 361 passengers. The Boeing 777-300ER aircraft in the Virgin Australia fleet are operated on its long-haul international routes, Brisbane-Los Angeles, Sydney-Abu Dhabi and Sydney-Los Angeles. The engine type on the B777-300ER is the GE90-115B. • The ATR72-500/600 aircraft is a short-range aircraft with a seating capacity of 68 passengers. The ATR72-500/600 aircraft in the Virgin Australia fleet are operated predominantly on its domestic regional routes, such as Sydney-Albury and also on the Sydney-Canberra route. The engine type on the ATR72-500/600 is the Pratt & Whitney Canada 127M. • The Airbus A320 aircraft is a medium-range aircraft with a maximum seating capacity of 180 passengers. The Airbus A320 is operated by Virgin Australia predominantly on charter routes, but also on certain domestic routes, such as Perth-Christmas Island. The Airbus A320 is also used by Tigerair Australia. The engine types on Virgin Australia’s two Airbus A320 aircraft are the International Aero Engines IAE V2500-A1 and IAE V2527-A5. The engine type on Tigerair Australia’s Airbus aircraft is the International Aero Engines IAE V2527-A5.

102 • The Fokker 100 aircraft is a short to mid-range aircraft with a seating capacity of 100 passengers. The Fokker 100 aircraft is operated by Virgin Australia on certain domestic routes, such as Perth-Broome. The engine type on Virgin Australia’s Fokker 100 aircraft is the Rolls-Royce Tay 650-15. • The Fokker 50 aircraft is a turboprop powered short-range aircraft with a maximum seating capacity of 48 passengers. The Fokker 50 aircraft is operated by Virgin Australia on certain domestic routes, such as Perth-Geraldton. The engine type on Virgin Australia’s Fokker 50 aircraft is the Pratt & Whitney Canada 125B. Virgin Australia is planning to dispose of its Fokker 50 aircraft in 2016. Virgin Australia has commenced the transition of its ATR72-500/600 fleet operating predominantly on domestic regional Australian routes, from the air operator’s certificate (see “—Virgin Australia’s Operations—Safety—Safety regulation”) of Virgin Australia Regional Airlines to that of the primary aircraft operating entity Virgin Australia Airlines Pty Ltd. The transitions commenced in September 2015, and are expected to complete by the end of the 2015 calendar year. The composition of Virgin Australia’s fleet is based on its medium-term and long-term fleet plans and is regularly reviewed by Virgin Australia. The composition of Virgin Australia’s fleet is also influenced by airport restrictions, passenger demand and regional requirements such as those relating to noise and exhaust levels. In making aircraft procurement, retirement or disposal decisions, Virgin Australia considers a number of factors, including aviation demand forecasts, current fleet capacity, current and future aircraft requirements, safety, operating efficiency, market demand for a particular aircraft type, capital structure, cash flow, purchase and leasing costs, tax, interest rates, the trade-off between the cost savings on fuel consumption with new aircraft versus the maintenance costs of aging aircraft, financing costs and depreciation expense of acquiring newer aircraft. Of Virgin Australia’s 157 aircraft as at June 30, 2015, 87 were subject to off-balance sheet operating leases and the remaining 70 were recorded on-balance sheet as either owned, or subject to debt financing, by Virgin Australia. The aircraft recorded on-balance sheet represent 45% of aircraft operated by the Virgin Australia Group for the financial year ended June 30, 2015, compared to 47% and 51% for the financial years ended June 30, 2014 and 2013, respectively. The decrease in owned ratio in the financial year ended June 30, 2015 primarily relates to the inclusion of 13 aircraft from Tigerair Australia, which are all subject to off-balance sheet operating leases, following the acquisition of the remaining 40% of Tigerair Australia.

Sales and marketing Virgin Australia believes that it has been successful in promoting its business and brand through a cohesive strategy covering public relations, sponsorships, events, advertising, and internet-based initiatives. In particular, Virgin Australia’s sponsorships include a significant number of sporting and cultural events such as the Australian Football League, Melbourne Fashion Festival, the Australian Chamber Orchestra and V8 Supercars. Virgin Australia’s general marketing strategy aims to support its business operations by building awareness of the Virgin Australia brand and promoting its products and services.

Loyalty Program—Velocity Velocity was originally launched in 2005 and was re-launched in August 2011 as part of the Game Change Program. It now offers global coverage, a range of new partners and unique benefits for members, including status benefits for Virgin Australia’s most frequent travelers. In 2012, Velocity became a dedicated business group within Virgin Australia, assisting in driving growth opportunities for the Group and enabling Velocity to become a leading loyalty program in Australia. Since its re-launch, Velocity membership has increased significantly. At June 30, 2015, Velocity had 5.3 million members, an increase of 0.8 million members from the previous financial year and 2.8

103 million members since re-launch as part of the Game Change Program in 2011. Over the period from June 30, 2010 to June 30, 2015, Velocity billings have grown at a CAGR of 28.6%. As part of Virgin Australia’s relationship with its strategic alliance partners and other partner airlines, including the Virgin Group, the frequent flyer programs of Virgin Australia and these partner airlines have been linked through bilateral and reciprocal agreements, giving members the opportunity to earn and redeem points on all strategic alliance partner and Virgin Group flights around the world. Points can be also earned by purchasing goods and services from Velocity’s network of non-airline partners, such as credit card issuers, retail merchants, hotels and car rental companies. Points accrued can then be redeemed for a variety of rewards, including air travel, upgrades and non-aircraft travel awards such as hotel stays, travel experiences and car hire. Velocity is comprised of a tiered structure of increasing status and associated benefits represented by Red, Silver, Gold and Platinum. Status benefits include priority check-in, global lounge access and complimentary baggage allowances and are supplemented by in-flight differentiation and recognition for Velocity members. Status and recognition are reciprocal across all four of Virgin Australia’s strategic alliance partners. Velocity has one of the widest retail offering of any loyalty program in Australia and was recognized in three categories in the Middle East/Asia/Ocean region at the 2015 Freddie Awards: Program of the Year, Best Customer Service and Best Redemption Ability. In addition, the IdeaWorks’ SwitchFly survey named Velocity as having the Best Reward Seat Availability in the Asia Pacific region and the second best in the world. On July 1, 2015, Velocity Frequent Flyer Pty Ltd acquired Torque Data, enabling the business to significantly expand its capabilities in the data and analytics field and support its ongoing growth.

Virgin Australia and Affinity Joint Venture in relation to the Velocity Business On October 22, 2014, Virgin Australia sold a 35% minority interest in Velocity Holdco to Affinity for gross proceeds of AU$336.0 million. The Velocity Transaction valued Velocity at an enterprise value of AU$960.0 million. It is anticipated that the Velocity Transaction will assist Virgin Australia in driving accelerated growth in Velocity’s business, one of the key goals of the Virgin Vision 2017 strategy. The Velocity Transaction was effected through the subscription by Virgin Australia Airlines Holdings Pty Ltd and an Affinity corporate vehicle for Australian dollar-denominated convertible notes (“Convertible Notes”) issued by Velocity Holdco. Under the terms of the Convertible Notes, the holders may elect to convert some or all of their Convertible Notes into ordinary shares in Velocity Holdco any time after five years or in other specified circumstances, including immediately prior to an exit from Velocity Holdco by Affinity, on a change of control event affecting Velocity Holdco (which excludes a change of control at the Virgin Australia level) or by mutual consent. Certain adjustments in respect of each holder’s Convertible Notes may be triggered in particular circumstances. Velocity Holdco has its own board of directors, which is responsible for making decisions regarding the business and investment plan of the Velocity business. Virgin Australia appointed a majority of the directors to the Velocity Holdco board and the chairman, and Affinity has the right to appoint a proportionate share of directors to the Velocity Holdco board. At the Velocity Holdco board level, voting on decisions is in accordance with the investment interests, apart from some special reserved matters, such as distributions, which will require mutual consent. See “Risk Factors—Risks Relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness.” See also “Risk Factors—Risks Relating to the Notes—The Notes will be structurally subordinated to all liabilities of Virgin Australia’s subsidiaries that are not Guarantors.” The arrangements provide for the Convertible Notes to remain in place for at least three years, with the potential for an exit after this period by way of a trade sale or initial public offering. Virgin Australia has a right of first offer in relation to Affinity’s stake in certain circumstances, and also has the

104 right to participate in connection with other exit mechanisms available to Affinity to the extent Virgin Australia does not pursue the right of first offer. See also “Risk Factors—Risks Relating to Virgin Australia’s Business—Virgin Australia may not realize anticipated benefits from the Affinity acquisition of a minority interest in Velocity.”

Virgin Australia’s accounting treatment of the Velocity Sub-Group As at June 30, 2014, the Velocity Sub-Group was 100% indirectly owned by Virgin Australia and was consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2014. On August 28, 2014, Virgin Australia executed documents for the sale of a 35% minority interest in Velocity Holdco for gross proceeds of AU$336.0 million. The sale of this 35% interest closed on October 22, 2014. Virgin Australia has retained control of the Velocity Sub-Group and, as a result, the Velocity Sub-Group will continue to be consolidated in Virgin Australia’s financial results and position. Accordingly, the 35% interest held by Affinity will be accounted for as a non- controlling interest and the results attributed to Affinity will be shown as net profit/(loss) attributable to non-controlling interests in Virgin Australia’s consolidated statement of profit or loss, directly below the net profit/(loss) attributable to the owners of Virgin Australia. For further information, see “Selected Financial and Operating Information.”

Tigerair Australia On July 8, 2013, Virgin Australia acquired a 60% interest in Tigerair Australia from Tiger Airways, forming a joint venture. The joint venture enabled Virgin Australia to secure a presence in the budget leisure market to complement the premium and leisure position of its core business. On October 16, 2014, Virgin Australia entered into a conditional agreement to acquire the remaining 40% of Tigerair Australia for AU$1.00, and gained control of Tigerair Australia on this date. Virgin Australia has consolidated Tigerair Australia’s financial results and position from October 17, 2014, in accordance with AASB 10 Consolidated Financial Statements. The transaction was completed on February 6, 2015. Tigerair Australia has and will continue to operate under a distinct business model, with the “Tigerair” brand. The Tigerair Australia transformation program aims to achieve profitability by the financial year ending June 30, 2016, by further improving customer satisfaction, driving incremental revenue growth, delivering cost synergies and developing an efficient operating platform and network footprint. This target was accelerated by one year from June 30, 2017, following the Tigerair Minority Acquisition. Short-haul international operations with services to Denpasar will be launched from March 2016 (subject to regulatory approvals). It is planned that three all-economy Boeing 737-800 aircraft will fly between Denpasar and Adelaide, Melbourne and Perth under the “Tigerair” brand.

Virgin Australia Cargo On July 1, 2015, Virgin Australia officially launched Virgin Australia Cargo, a key part of its Virgin Vision 2017 strategy, with the intention of enabling Virgin Australia to more effectively compete in the domestic and short-haul international cargo market. Virgin Australia Cargo will offer more than 3,400 flights per week through access to Virgin Australia’s extensive domestic and international network across Australia and the Asia-Pacific region. During the financial year ended June 30, 2015, Virgin Australia implemented an enhanced IT system, which Virgin Australia believes will enable Virgin Australia Cargo to optimize cargo capacity and provide tracking and customized reporting to customers. Virgin Australia Cargo will provide services for a range of customers including major freight distributors, corporate shippers and individuals. Virgin Australia believes that the new division represents a major growth opportunity for Virgin Australia.

105 Other services In addition to its passenger transportation business and Velocity, Virgin Australia has a number of other third party revenue streams, including the commissions from the sale of insurance, car hire and hotel bookings.

Procurement and outsourcing Virgin Australia’s principal raw material requirement is the jet fuel used by its aircraft fleet. At Virgin Australia’s core airports, jet fuel is sourced via competitive tenders from major international suppliers, namely (domestically) Shell, Caltex, Air BP and Exxon Mobil. At other airports Virgin Australia serves, the main jet fuel suppliers are Chevron (LAX), Pertamina (DPS), Pacific Energy (Pacific Islands), Petroleum Products Supplies (APW), Abu Dhabi National Oil Company (AUH) and Z Energy (parts of NZ). Virgin Australia obtains principal aircraft maintenance, in-flight catering and certain other specialist services at its core airports and other airports primarily through its wholly-owned subsidiary, Virgin Tech Pty Ltd, or through outsourcing to a number of service providers and suppliers, including GE Aviation, Air New Zealand Engineering Services, Aero-Care, Gate Gourmet Services and Alpha Flight Services. Virgin Australia has entered into long-term maintenance arrangements for its major engine types, which are designed to provide price certainty to Virgin Australia. Virgin Australia provides customer service support through its call center operations in Brisbane and through outsourcing to Sitel, which provides additional support for Virgin Australia’s customers from its operations in Manila. Virgin Australia’s procurement function is accountable for the procurement and commercial governance methodologies and processes across the Virgin Australia Group for all categories of external spend.

Safety

Safety regulation The Civil Aviation Safety Authority (“CASA”) is responsible for the safety regulation of Australian aircraft. CASA’s primary function is to conduct the safety regulation of civil air operations in Australia and the operation of Australian aircraft overseas. CASA possesses a wide variety of enforcement powers ranging from administrative action, such as suspending licenses, to commencing criminal prosecutions. The action taken by CASA will depend on the breach of the regulatory provisions and the perceived threat to the safety of aviation operations. An independent Australian statutory agency, the Australian Transport Safety Bureau (“ATSB”) is tasked with improving safety and public confidence in transport, including aviation, through investigating accidents and other safety occurrences, data recording, analysis and research and fostering safety awareness. The ATSB may undertake “no-blame” safety investigations and must cooperate with CASA’s investigations if requested. Australian airline safety regulation focuses on, among other things, the airline operating entity, whose fitness to operate is attested by an air operator’s certificate issued by CASA (“Air Operator’s Certificate”); the aircraft, which must be registered and whose fitness to fly is attested by a certificate of airworthiness issued by CASA; and, on a continuing basis, by maintenance in accordance with maintenance requirements performed by authorized maintenance providers.

Virgin Australia’s Safety Systems Virgin Australia’s first priority is to ensure a safe, secure and healthy environment for all customers, employees, contractors and visitors. Virgin Australia has a comprehensive and integrated

106 Safety Management System (“SMS”) that has been designed to ensure the proactive and systematic identification of risk across all operational divisions. Virgin Australia’s SMS provides a multi-layered approach to safety governance incorporating appropriate Management, Executive and Board oversight. The SMS sets out Virgin Australia’s safety policy and defines the processes by which the Virgin Australia Group of airlines manages risk as an integral part of its business. The SMS provides an integrated system for the management of operational and occupational safety and control and the reduction of security risks. Virgin Australia’s SMS is broadly based on the ICAO SMS structure. The ICAO standard focuses on four areas of safety management including: • established safety policy and objectives; • safety risk management; • safety assurance; and • safety promotion. The Virgin Australia SMS expands on the ICAO model to encompass security and occupational safety. Each function is supported by a Manager of Department to provide day-to-day oversight, direction and support including guidance and operational support to Operations Divisions and the broader business. Virgin Australia has also recently reviewed its SMS against IATA’s Six Point Safety Program and remains focused on improving operational safety through a number of key initiatives, including: • reducing operational risk; • enhancing quality and compliance by developing a strategy to support third party contractors; • advocating for improved aviation infrastructure and use of technology; • supporting the implementation of SMS across Virgin Australia’s key partners and providers; • supporting effective recruitment and training across operational and workplace safety; and • identifying and addressing emerging safety issues through effective and innovative safety communications. By promoting a strong safety culture throughout the network, Virgin Australia (excluding Virgin Australia Regional Airlines) recorded a year-on-year increase in the safety reporting rate of 3.2%, a 57.3% reduction in the lost-time injury frequency rate and an all injury rate reduction of 36.2% in the financial year ended June 30, 2015.

Location and facilities

Australia Virgin Australia’s corporate headquarters are located in Brisbane, Queensland, with a secondary corporate office in Sydney, New South Wales. In May 2014, Virgin Australia completed the sale and lease back of its Brisbane corporate headquarters to Charter Hall Direct Property Management Limited. Virgin Australia also has significant operations at each of Australia’s major airports, including Sydney, Melbourne, Brisbane and Perth. Offices, maintenance hangars and other support facilities used by Virgin Australia at these airports and other Australian airports at which it operates are generally held under long-term leases from the respective airport owners. In addition, Virgin Australia occupies space and airport desks under lease or license in airports throughout Australia.

107 International Virgin Australia has significant operations at each of New Zealand’s major international airports, including Auckland, Wellington, Christchurch and Queenstown. In addition to its New Zealand operations, Virgin Australia operates facilities at the Abu Dhabi International Airport, the Los Angeles International Airport—Tom Bradley International Terminal, where it also maintains a commercial sales team, and the Neural Ray International Airport in Denpasar, Indonesia.

Other Facilities In both Virgin Australia’s Australian and international locations, runway, ramp and terminal facilities are provided by airport operators that charge airlines for the use of such facilities, principally through landing, parking and passenger charges. Navigation charges are generally based on distance flown and weight of aircraft.

Technology In January 2013, Virgin Australia migrated to SabreSonic, a single integrated technology platform for managing reservations and ticketing, provided by Sabre Inc. and used by leading airline carriers around the world. SabreSonic provides a flexible customer sales and service solution by delivering revenue-generating and customer-focused capabilities. It is a fully functional, end-to-end technology solution that complies with all regulations and mandates. The migration to this platform delivered a number of benefits to Virgin Australia’s operations, including enhanced booking availability, enhanced customer recognition and integration with global distribution systems and partner airlines. The SabreSonic platform also provides improved security, disaster recovery and quality and timeliness of data for Virgin Australia. On October 17, 2015, Tigerair Australia successfully migrated from Tiger Airways’ reservations platform to its own version of Navitaire, the technology platform formerly used by Virgin Australia. The new platform is used by a number of low-cost carriers and is intrinsic to the turnaround activities of Tigerair Australia.

Employees At June 30, 2015, Virgin Australia (including in respect of Tigerair Australia) had more than 10,200 employees throughout Australia, New Zealand and the United States. The majority of Virgin Australia’s workforce is located in Brisbane, Sydney and Melbourne. Virgin Australia also works with third-party contractors in order to supplement certain insourced services. Virgin Australia is party to 15 different enterprise bargaining agreements (“EBAs”) that cover approximately 75% of Virgin Australia’s employees. Several of the EBAs are under current negotiations. Virgin Australia has not experienced any significant industrial action since inception. Virgin Australia continues to be recognized as a leading Australian employer. At the 2015 Randstad Awards, Virgin Australia was named Australia’s Most Attractive Employer, improving on the previous two years where it achieved second place. Virgin Australia was named the sixth most respected company in Australia by the Australian Financial Review and won the Skytrax World Airline Award for Best Airline Staff Service in the Australia Pacific region for the fifth consecutive year. Further, Virgin Australia seeks opportunities to identify and foster talent across its operations and has a range of programs designed to enhance the capability and skills of its employees. In the senior management levels, Virgin Australia uses a scorecard incentive program, which allows for additional payments to reward over-performance, as well as discretion to pay more or less in a given period. Virgin Australia is fully committed to gender equality with each gender equally represented in Virgin Australia’s total workforce at June 30, 2015. The number of women represented at Board level

108 increased during the financial year ended June 30, 2015, with the appointment of Ms Elizabeth Bryan AM as the new Chairman. There remains a continued focus across the Virgin Australia Group to increase female representation in senior management teams.

Superannuation Virgin Australia does not have a pension deficit or legacy pension liabilities. Virgin Australia is required to make superannuation contributions to various superannuation funds for the benefit of its employees in order to avoid a charge being imposed under Australian federal superannuation legislation. Virgin Australia makes these superannuation contributions on a defined contributions basis, which means it pays a fixed rate of contributions for each employee. Currently, this fixed contribution rate is 9.5% of an employee’s remuneration (subject to certain limits for high earners) and this rate will gradually increase over the next decade. In addition, Virgin Australia has additional superannuation obligations under some industrial agreements. For example, under the Virgin Australia Regional Airlines Pilots Enterprise Agreement 2015, superannuation contributions are required to be paid at 11.5%, up to the maximum cap required under federal superannuation legislation. Virgin Australia does not bear any investment risk and its contribution obligations are not affected by the investment performance of the superannuation funds to which it contributes for the benefit of its employees. Virgin Australia has no obligation to pay further contributions to a superannuation fund if, for example, the fund does not hold sufficient assets to support the benefits payable to members of the fund.

Government and Regulatory Matters

Domestic regulation Australia’s domestic, interstate airline industry was subject to economic regulation until 1990, when the Australian federal government abolished the policy that restricted market entry to two incumbent airlines. Deregulation resulted in increased competition among airlines, with consequential reduction in fares and growth in services. Under the current policy framework, most domestic interstate routes served by Virgin Australia are highly competitive. However, a number of intrastate routes in New South Wales, Queensland and Western Australia continue to be subject to regulation. Market entry to these routes is restricted to ensure that remote and regional communities have access to safe, regular and affordable air transport services. Although these state governments have indicated they favor deregulation, Virgin Australia is of the view that a number of regulated intrastate routes it currently serves in Western Australia are unlikely to support the introduction of competition at this time. Australian airlines are also required to comply with Australian laws and regulation, including in relation to competition, airports and air traffic control. See “—Competition regulation in Australia” and “—Virgin Australia’s Operations—Safety” for more information.

International regulation The international airline industry is subject to a high degree of regulation covering most aspects of airline operations. This framework governs commercial activity (for example, traffic rights, tariffs and access to airport slots) as well as operational standards (relating to areas such as safety, security, aircraft noise, immigration and passenger rights). The structure of the international regulation of airline operations originates from the Chicago Convention of 1944, to which nearly all countries are parties, including Australia. The Convention established the ICAO under the auspices of which rules establishing minimum operational standards are normally agreed on a multilateral basis. Airlines’ rights to fly over, or make stops in, foreign countries for technical reasons in operating their international scheduled services are generally derived from the International Air Services Transit Agreement of 1944, to which nearly all countries are parties, including Australia. However, rights to carry traffic between countries are normally agreed on a bilateral basis between governments.

109 Under Australia’s relevant air services arrangements, there are no material capacity restrictions for airlines operating between Australia and each of New Zealand and the United States. Although capacity available under the Australia-Indonesia bilateral agreement is limited, Virgin Australia holds sufficient capacity to support the growth of services on that route in the future.

Traffic rights Certain international traffic rights are held by subsidiaries of VAIH (“International Subsidiaries”). The traffic rights authorizing the International Subsidiaries’ carriage of passengers on particular international routes to and from Australia are provided in air services agreements between the Australian federal government and the governments of the foreign states concerned. It is the Australian federal government’s policy to negotiate capacity ahead of demand to accommodate the growth plans of airlines, both Australian and foreign, and to ensure that Australian airlines are able to increase their international services. Under some of these agreements, foreign governments have the right to deny the International Subsidiaries the right to operate services to and from their country if they are not satisfied that the International Subsidiaries are substantially owned and effectively controlled by Australian nationals.

Australian airport slot management The operation of Australia’s federal airports was privatized between 1997 and 2003 by selling long-term leases over the airport sites to private sector operators. Australian airport slot management is currently administered by Airport Coordination Australia. Australian slot management is based primarily on IATA Worldwide Slot Guidelines (“WSG”) which follow the principle that airlines typically retain allocated slots as long as they continue to comply with airline operating standards and the airline continues to operate these slots under the “use it or lose it” policy. There is currently limited excess peak slot capacity available in key capital cities, particularly in Sydney, Brisbane and Perth and, to a lesser extent, Melbourne. Infrastructure availability of terminals and gates is also constrained in peak times at all major Australian airports, particularly at Sydney Airport with access to terminals and gates largely approved under medium to long-term agreements. The combination of these factors limits the risk of new entrants into the Australian aviation market. The majority of Virgin Australia’s terminal gates at major airports are granted for exclusive or priority use, with a small number allocated as common use which Virgin Australia share with other airlines. Virgin Australia can retain its priority-use gates if it can be reasonably demonstrated that all gates are being used during the life of the agreement. Under contractual agreements, airports reserve the right to reallocate common use gates at major airports in the case of a new entrant into the domestic aviation market. Virgin Australia secured the majority of its terminal space and gates following the collapse of Ansett Australia in 2002 and has historically retained the rights to all of its allocated runway slots where required.

Competition regulation in Australia Australian competition (or anti-trust) law prohibits specific types of conduct including actual or potential competitors agreeing to fix prices, restrict output, allocate customers, suppliers or territories or rig bids; agreements which have the purpose, effect or likely effect, of substantially lessening competition; and the misuse of market power such as through conduct that eliminates or substantially damages a competitor. The competition legislation also deals with access to essential infrastructure services which cannot be economically reproduced by anyone. This regime has been applied previously to airports. Companies may apply to the ACCC, the Australian competition regulator, for an authorization of anti-competitive conduct on public benefit grounds (which may be granted subject to conditions) or may lodge a notification with the ACCC in respect of conduct which is known as exclusive dealing. In addition, where a merger or acquisition would or may have the effect of substantially lessening

110 competition, the ACCC may give formal or informal clearance to the transaction. The courts can impose significant penalties for breaches of the competition legislation. Virgin Australia has regularly dealt with the ACCC in order to obtain clearances for its acquisitions of 100% of Skywest and 100% of Tigerair Australia as well as for obtaining approvals for its strategic alliance with Air New Zealand, Etihad Airways and Singapore Airlines. See “—Virgin Australia’s Operations—Strategic alliances and partnerships.” Because the Australian airline industry is primarily serviced by Qantas and Virgin Australia, the ACCC is likely to continually monitor the market behavior of both airlines to ensure a competitive domestic airline industry is maintained.

Climate change regulation in Australia On July 1, 2012, the Australian federal government introduced a carbon price mechanism that imposed a fixed price on carbon emissions generated domestically. Legislation was passed on July 17, 2014 to end the carbon price mechanism effective June 30, 2014. Following the passage of legislation on October 31, 2014, the Australian federal government is implementing an alternative climate change policy, known as Direct Action. Direct Action includes a government Emissions Reduction Fund to purchase Australian-based greenhouse gas emissions reductions and abatement at auctions. This presents an opportunity for businesses to be paid for their emissions reductions and abatement. Direct Action will also apply a “safeguard” baseline mechanism to apply to large emitters from July 1, 2016. This mechanism will apply to facilities with direct emissions of 100,000t carbon dioxide equivalent (CO2-e) per annum or more. On this basis, the “safeguard” baseline mechanism may apply to Virgin Australia. If baselines are exceeded then carbon units would need to be surrendered or penalties would apply, thus imposing costs. Virgin Australia continues to engage with the Australian federal government on the design elements of the Emissions Reduction Fund; however, there remains significant uncertainty regarding the future of climate change regulation in Australia and the effect Direct Action and other relevant regulations may have on Virgin Australia and the aviation industry. It is broadly expected that international and domestic regulation of climate change issues will increase over time and will likely involve increasing costs applied to greenhouse gas emissions. For more information, see “Risk Factors—Risks Relating to Virgin Australia’s Business—Virgin Australia may be exposed to risks associated with climate change regulation.”

Proposed regulation of payment card surcharging arrangements The Australian federal government has indicated that it is monitoring payment card surcharging arrangements and intends to introduce a legislated ban on surcharges that exceed the reasonable costs faced by merchants in accepting cards. However, no specific legislative or regulatory changes have been published as yet, and the Australian federal government is still assessing the extent to which further legislative or regulatory action is required. Following specific recommendations in relation to payment card surcharging made in connection with the Financial System Inquiry (the “Murray Inquiry”) completed in December 2014, the Payments System Board of the Reserve Bank of Australia (“RBA”) has undertaken a detailed review of cards payments regulation, which review is anticipated to be completed by late November 2015. While the RBA is expected to issue draft proposals that would reduce the so called “interchange fees” that banks receive from merchants and address customer surcharging, it is not yet possible to predict the significance of any changes to card payments regulation on either Virgin Australia or the Australian aviation industry generally. See also “Risk Factors—Risks Relating to Virgin Australia’s Business— Virgin Australia is subject to extensive regulation of both its aviation and broader business activities.”

111 Corporate Restructure In 2012, Virgin Australia restructured its international and domestic businesses to ensure ongoing compliance with the Australian Air Navigation Act 1920 (Cth) (“ANA”) which limits foreign ownership of Australian international airlines to 49%. Virgin Australia’s restructuring was aimed at ensuring ongoing compliance with the ANA, while facilitating overseas institutional investment in Virgin Australia’s domestic business to improve the liquidity of Virgin Australia’s shares. The restructuring has not resulted in any changes in operations or for consumers and employees, as the airlines continue to operate under one integrated brand. The restructuring of Virgin Australia involved the creation of a new unlisted entity, VAIH, and the proportionate distribution of shares in VAIH to Virgin Australia shareholders, with Virgin Australia indirectly holding one share in VAIH. Under the new structure, VAIH, through its subsidiaries, holds international flying rights and Virgin Australia provides it with funding and operational support through long-term operating and funding agreements. VAIH has a majority independent board and its shares are administered under a trust structure. Virgin Australia’s subsidiary, Virgin Australia Airlines Pty Ltd, provides certain services to VAIH and its subsidiaries pursuant to an arm’s length services agreement. In early calendar year 2015, Virgin Australia commenced the restructure of the operations of its New Zealand arm (Virgin Australia Airlines (NZ) Limited). All of the aircraft from the Air Operator’s Certificate of Virgin Australia Airlines (NZ) Limited have been transitioned to the Air Operator’s Certificate of Virgin Australia Airlines Pty Ltd or Virgin Australia International Airlines Pty Ltd, and the remaining business assets of Virgin Australia Airlines (NZ) Limited, including all records, intellectual property, servicing and leasing contracts, goodwill and trade debt, have been transferred to the international limb of Virgin Australia (Virgin Australia International Airlines Pty Ltd). It is intended that Virgin Australia Airlines (NZ) Limited will be wound up in due course. Virgin Australia Airlines (NZ) Limited will not provide a Note Guarantee in respect of the New Notes. In addition to the wind-up of Virgin Australia Airlines (NZ) Limited, certain special purpose subsidiaries of Virgin Australia have been earmarked for voluntary liquidation in late calendar year 2015 or early calendar year 2016, subject to the approval of Virgin Australia’s Board. Three of these entities—VAH Newco No.2 Pty Ltd, A.C.N. 098 904 262 Pty Ltd and Tiger Airways Australia SPV Pty Ltd—will, as of the Closing Date, be Guarantors. See “Description of Notes—The Note Guarantees”. It is expected that, prior to the liquidation of these three entities, all of their property and assets and all of their liabilities will be transferred to other Guarantors. Subject to relevant conditions, upon the transfer of all of their property and assets to existing Guarantors, each of these three entities shall be deemed to be released and discharged from all obligations as a Guarantor under the Indenture.

Legal Proceedings and Intellectual Property Rights Virgin Australia currently believes that there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Virgin Australia is aware) during the 12 months before the date of this offering circular, which may have, or have had in the recent past, a material effect on its business, results of operations, financial position or profitability. Virgin Australia owns or licenses a number of intellectual property rights, including trade marks in Australia and overseas. Its main intellectual property rights are its name and logo. For more information on Virgin Australia’s trade mark licensing rights see “Risk Factors—Risks Relating to Virgin Australia’s Business—Virgin Australia is dependent on the strength of its brands.”

Sustainability and the Environmental Objectives Virgin Australia is mindful of the impact that its use of energy and natural resources has on the environment and is committed to reducing the impact of its operations on the environment. During the financial year ended June 30, 2014, Virgin Australia’s total domestic and international emissions increased to 3,414,417 metric tons of CO2, up 4.2% from the previous year, largely due to the airline’s growth and the inclusion of the CO2 emissions of Virgin Australia Regional Airlines. Over 98% of Virgin Australia’s total emissions are produced from aircraft fuel burn, and therefore Virgin Australia’s

112 strategic approach towards climate change is primarily focused on fuel efficiency and the development of sustainable aviation fuels. Over the past three years, Virgin Australia has invested in a fleet program to ensure it operates a young and fuel-efficient fleet. The average age of the aircraft in Virgin Australia’s fleet, including Tigerair Australia (and excluding the aircraft in Virgin Australia Regional Airlines’ fleet principally used for charter operations) was 5.6 years as at June 30, 2015. To further improve efficiency, Virgin Australia has instituted a program to evaluate fuel reduction opportunities that is tasked with the following objectives: • optimizing fuel policy and flight planning; • reducing aircraft weight; • operational process excellence; and • working proactively with air navigation service providers to find efficiency opportunities in the air traffic control system. The fuel efficiency program has continued to deliver significant fuel savings across the Virgin Australia Group with more than 20 initiatives and projects undertaken between July 1, 2014 and June 30, 2015. These initiatives include single engine taxi procedures across the entire fleet, a reduction in on-board weight achieved through reduced catering packaging, utilizing ground power when aircraft are at gates and the continued implementation of Performance Based Navigation procedures, which use global navigation satellite systems and computerized on-board systems to navigate. Virgin Australia has continued to work actively to stimulate the development of the sustainable aviation fuel market and has maintained an aspirational goal to source 5% of all aircraft fuel requirements from renewable jet fuel by 2020. Virgin Australia is also a member of the Sustainable Aviation Fuel Users Group coordinated by Boeing and is working with both IATA and ICAO on aviation climate policy and the development of the sustainable aviation fuel market. Virgin Australia also operates a voluntary carbon offset program for passengers who wish to neutralize the carbon emissions from their flight and is also actively working on a range of projects to reduce its environmental impact in areas such as energy efficiency, water usage, recycling initiatives and sustainable procurement strategies.

113 INDUSTRY The Australian passenger aviation market includes both domestic travel within Australia and international travel inbound into Australia and outbound from Australia to the rest of the world. Revenue and income relating to domestic aviation activities (excluding inter-segment revenue) represented 72% of Virgin Australia’s total revenue and income for the financial year ended June 30, 2015. The domestic market is serviced by two key airline groups, Qantas and Virgin Australia. The international market is serviced by a broad range of international airline groups, some of which have alliance agreements with either Qantas or Virgin Australia.

Domestic Passenger Aviation Market Overview The Australian domestic passenger aviation market is characterized by a large geographic territory and long distances between major cities with high population concentrations. For example, the distance between Melbourne and Sydney is 706 kilometers, representing the shortest distance between any two of Australia’s four most densely populated cities—Sydney, Melbourne, Brisbane and Perth. Given the distance between capital cities in the states and territories, there are currently limited feasible alternatives to airline travel. Commonly referred to as the Australian aviation “Golden Triangle,” the routes between the east coast state capital cities of Brisbane, Melbourne and Sydney are some of the busiest in the world. The Sydney-Melbourne route represented the fourth busiest route globally based on total number of seats per month flown in both directions during the period of the month ended January 31, 2015 to the month ended October 31, 2015. The domestic aviation market is also supported by the distance between the other major city routes such as Sydney-Brisbane and the key mining regions of Western Australia and Queensland.

Distance between key Australian capital Top 5 global aviation routes by cities seat capacity in millions (2015 YTD)

Seoul (Gimpo) - 12.8 Jeju Tokyo (Haneda) - 11.7 Australian Aviation Brisbane Sapporo “Golden Triangle”nglg e Popn:Poo 2.3m Tokyo (Haneda) - 10.3 3,615km Fukuoka 3,284km 753km 2,706km Sydney Sydney - Perth 9.2 Popn: 4.8m Melbourne Popn: 2.0m2.0m 706km Hong Kong - Popn: 4.4m 7.1 Taiwan

Source: Bureau of Infrastructure, Transport and Regional Source: Diio Mi. Based on total number of seats per month Economics, Australian Bureau of Statistics flown in both directions during the period of the month ended January 31, 2015 to the month ended October 31, 2015 Australian passenger year-on-year growth has been relatively consistent over the last ten years, with domestic passenger numbers growing at a CAGR of 4.2% for the ten year period ended December 31, 2014. The few instances of relatively smaller growth coincided with specific events which had a negative impact on airline demand, namely the global financial crisis in 2009, the Queensland floods in 2011 and the softening of demand in resource-driven markets in 2014. Australian domestic aviation travel demand is typically impacted by domestic and global economic conditions, and relative exchange movements, with the demand for Australian domestic leisure travel increasing with a weaker Australian dollar as international outbound travel from Australia becomes relatively more expensive.

114 Australian domestic passengers (millions) Australian domestic passenger growth (Calendar years 2004–2014) (year on year %) (Calendar years 2004–2014)

2004 - 2014 CAGR: 4.2% 2009: 2014: 56.1 57.1 57.3 Global 2011: Downturn in 53.3 53.8 14.3% 49.9 49.8 Queensland resources 46.7 financial 43.7 floods markets 40.7 crisis 37.8 7.7% 7.2% 7.0% 6.7% 7.0% 4.1% 1.9% 0.9% 0.4%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (0.0)% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Bureau of Infrastructure, Transport and Regional Economics The Australian domestic aviation market is subject to significant regulatory requirements and associated barriers to entry, including aircraft and route operating license requirements, large capital commitments and cash commitments, infrastructure availability at terminals and gates and the availability of take-off and landing slots, particularly at Sydney Airport, which is subject to strictly regulated slot restrictions. See “Risk Factors—Risks Relating to Virgin Australia’s Business—The airline industry is extremely competitive and Virgin Australia faces competition from other airlines as well as from alternative means of transportation.” Additionally, the capability to replicate premium loyalty program offerings equivalent to those provided by Virgin Australia and Qantas is limited due to departure lounge space requirements and customer and airline/non-airline program partner saturation. The Australian Department of Infrastructure and Regional Development advises the Australian government on the policy and regulatory framework for Australia’s aviation industry, including matters pertaining to economic regulation of international air services, airports, aviation security, airspace and aircraft noise and emissions. Aviation safety is regulated by CASA as an independent statutory authority with the primary function of conducting safety regulation of civil air operations in Australia and the operation of Australian aircraft overseas. All Australian airlines and aircraft require CASA licensing and certification.

Domestic Competitive Landscape The domestic aviation market in Australia is a “two-player” market. Together, Qantas and Virgin Australia Group brands captured over 98% of the market capacity measured by ASK in the financial year ended June 30, 2015 with the Virgin Australia Brand and Tigerair Australia Brand (now wholly- owned by Virgin Australia following the Tigerair Minority Acquisition) capturing approximately 36%, and Qantas Group brands (including Qantas mainline, Jetstar Airways and QantasLink) capturing approximately 62%. The other airlines operating in the Australian domestic aviation market are small regional and charter carriers, including Regional Express, Alliance Aviation and Cobham Aviation Services Australia, which together had a collective market share of less than 2%.

115 Australian domestic capacity share by airline Domestic market capacity share–Mainline (Financial year ended June 30, 2015) (Financial year ended June 30, 2015)

Other Virgin Australia 1.5% Qantas Group Group 62.3% 36.2%(1) 42.2% Qantas 5.9% 57.8%

Qantas 41.6% Domestic market capacity share–Budget 30.4% (Financial year ended June 30, 2015)

Jetstar 20.7%

22.2%

Jetstar 77.8%

Source: Company filings, Bureau of Infrastructure, Transport and Regional Economics

(1) Aggregate of Virgin Australia and Tigerair Australia’s capacity share in the chart does not equal 36.2% due to rounding. Both Virgin Australia and Qantas operate with multi-branded strategies to compete in the mainline premium markets and the budget market. Mainline: The domestic mainline markets include domestic corporate and government travel, domestic leisure travel, regional travel and charter services and cargo operations. The Virgin Australia Brand competes directly with Qantas in the corporate and leisure travel markets, with QantasLink in regional and charter services and with QantasFreight in cargo operations. Customer preference and competition in the domestic mainline market is driven primarily by service offering, product differentiation, on time performance and customer loyalty. To support their premium brand offerings, Virgin Australia and Qantas each have their own frequent flyer loyalty programs, namely Velocity, of which Virgin Australia owns 65%, and Qantas Frequent Flyer. These programs offer members benefits for frequent use of the airlines’ mainline services including premium lounge entry, airport priority services, status bonuses and points reward offerings. Generating brand loyalty through these frequent flyer programs is a key point of differentiation for Virgin Australia and Qantas. Since the introduction of the Game Change Program, the Virgin Australia Brand has significantly improved its market share of corporate and government travelers. In the financial year ended June 30, 2015, the contribution from corporate and government passengers as a share of Virgin Australia’s domestic revenue base was greater than 25%, an increase of more than 15% from the financial year ended June 30, 2010. This increasing share of the higher yielding corporate and government market has helped reduce the revenue per ASK premium of Qantas over Virgin Australia from 46% for the financial year ended June 30, 2013 to 28% for the financial year ended June 30, 2015. Virgin Australia has a target to further reduce this premium to approximately 15%.

116 Qantas domestic RASK premium over Virgin Australia(1)

RASK premium % 50 46% 45 40 35 30 28% 25 20 15% 15 10 5 0 FY13 FY15 Target

Source: Calculated from Qantas and Virgin Australia results presentations and annual reports for the financial years ended June 30, 2013 and 2015

(1) RASK comparison has been performed between Qantas and Virgin Australia domestic segments based on published company filings (including annual reports and results presentations) and operating statistics. RASK is a non-AAS measure. For Virgin Australia, RASK is derived from Segment revenue and income for the Virgin Australia domestic segment divided by ASKs of the Virgin Australia domestic regular passenger transport business. Segment revenue and income is defined in Note 5 to the consolidated financial statements for Virgin Australia for the financial year ended June 30, 2015. For Qantas, RASK is derived from Total segment revenue and other income for the Qantas domestic segment divided by ASKs of the Qantas domestic regular passenger transport business. Total segment revenue and other income is defined in Note 3(c) to the consolidated financial statements for Qantas for the financial year ended June 30, 2015. Budget: The domestic budget market is categorized by low-cost airlines that provide domestic aviation services with limited additional customer benefits. Customer preference and competition in the budget market is driven primarily by price. Under the multi-branded strategies, Virgin Australia competes in the budget market through its Tigerair Australia Brand, and Qantas competes through its Jetstar brand.

117 Virgin Australia vs. Qantas competitive dynamic Market Virgin Australia Qantas

Domestic corporate Qantas

Domestic Leisure Qantas

Charter QantasLink Domestic Mainline

Cargo QantasFreight

Budget Jetstar

Loyalty Qantas Frequent Flyer

International Qantas Air New Zealand Emirates Delta Air Lines LAN Etihad Airways American Airlines Singapore Airlines China Eastern

Recent Industry Trends Historically, capacity expansions have typically been in line with passenger demand requirements. However, partially as a result of Virgin Australia’s expanded service offering and route network as part of the Game Change Program and other competitive dynamics in the Australian domestic aviation market, domestic capacity growth has exceeded passenger demand in recent years. For the five year period ended June 30, 2015, annualized network capacity (ASKs) grew at a CAGR of 4.0% compared to a CAGR of only 2.2% in passenger growth over the same period, resulting in significant overcapacity in the market. Using the financial year ended June 30, 2010 as a base, the period July 2010 to June 2014 saw Qantas provide the majority of seat additions in the domestic market, representing greater than 2.5 times the number of additions from Virgin Australia over the period.

118 Domestic aviation growth ASKs vs. Passengers (Financial years ended June 30, 2005–2015) 180 CAGR: 2005 - 10: CAGR: 2010 - 15: ASKs: 5.1% ASKs: 4.0% Passenger growth: 5.3% Passenger growth: 2.2%

160

140

120 Indexed domestic aviation Indexed domestic aviation growth

100 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

ASKs Passengers

Source: Bureau of Infrastructure, Transport and Regional Economics This widening gap between supply and demand resulted in a reduction in domestic passenger load factors and yield growth for both Virgin Australia and Qantas, which had a significantly negative impact on industry profitability. However over the course of the financial year ended June 30, 2015 profitability in the industry significantly improved, driven by several key factors including a moderation of domestic capacity growth, successful execution of cost reduction initiatives, and benefits relating to a reduction in oil prices, and lower fuel costs. In addition, the repeal of the carbon tax in July 2014 has also contributed to improved industry profitability. Average Virgin Australia and Qantas Aggregate industry domestic revenue per domestic revenue load factor(1) (%) ASK(2) (cents) (FY12—FY15) (FY12–FY15)

14.9 78.2 14.5 14.4 75.6 74.8 74.8 14.0

FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15

Source: Virgin Australia and Qantas company filings Note: Virgin Australia includes domestic mainline and Skywest. Qantas includes domestic Qantas mainline and QantasLink.

(1) Calculated as aggregate industry RPKs for Virgin Australia and Qantas divided by aggregate ASKs for Virgin Australia and Qantas. (2) Calculated as aggregate industry revenue for Virgin Australia and Qantas divided by aggregate ASKs for Virgin Australia and Qantas.

119 In the financial year ended June 30, 2015 Qantas reported underlying profit before tax(1) of AU$975 million, while Virgin Australia reported an underlying loss before tax(2) of AU$49.1 million which represents an AU$1,621 million and AU$162.6 million improvement on the financial year ended June 30, 2014, respectively. Virgin Australia achieved domestic yield growth of 5.2% in the financial year ended June 30, 2015 compared with the financial year ended June 30, 2014.

Domestic Market Capacity Growth (June 2012–June 2015) 16.0%

14.0%

12.0%

10.0%

8.0% FY13 Average: 6.8%

6.0% FY14 Average: 3.0%

4.0%

2.0% FY15 Average: (1.0)% 0.0%

(2.0)%

(4.0)% Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15

Source: Bureau of Infrastructure, Transport and Regional Economic. Data shows moving average of monthly ASKs for domestic airlines from June 2012 to June 2015 Domestic market average monthly ASKs declined (1.0%) for the financial year ended June 30, 2015 which compares to a 3.0% and 6.8% average increase in the financial years ended June 30, 2014 and June 30, 2013, respectively. This trend of declining capacity growth has allowed market supply to more appropriately reflect passenger demand, and supported improvements in passenger yield and industry profitability. Industry EBIT margins in the financial year ended June 30, 2015 were approximately 6%, which were largely in line with the average aggregate EBIT margins from the financial year ended June 30, 1995 to the financial year ended June 30, 2008. Virgin Australia believes that the improvement in competitive dynamics is driven by a moderation in capacity growth, coupled with cost containment, will help support industry profitability with continued margins reflective of a “two-player” market.

(1) Source: Qantas annual report for the financial year ended June 30, 2015. (2) Underlying loss before tax is a non-AAS measure that represents statutory loss before tax of AU$163.3 million, excluding the impact of restructuring and transaction costs and impairment losses of AU$70.2 million, share of losses from equity- accounted investees of AU$16.6 million and hedging and financial instruments costs of AU$27.4 million. This is a measure used by management and Virgin Australia’s Board to assess the financial performance of Virgin Australia.

120 Industry EBIT margin (Jun-1995 to Jun-2015)¹ FY01: FY02: FY05: FY08: FY14: FY15: Entry of Virgin Blue Exit of Ansett Entry of Jetstar Entry of Tiger Airways Virgin Australia Virgin Australia and Impulse completes completes acquisition acquisition of 60% of remaining 40% of 10% of Tigerair Australia Tigerair Australia 9% 8% 8% 7% 8% 6% 6% 6% 5% 5% 6% 4% 4% 4% 3% 3% 2% 1% 1%

(3)% FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY15 & onwards: Stable industry with two major players • Uncontested corporate and government • Global • Virgin enters • Two key market financial crisis corporate & players in all • Rapid expansion of budget market • Regional government segments natural market • Margins return disasters • Qantas targets to historical ~65% market two-player share levels

Avg. EBIT margin 6% 8% 3% 0% 6%

Major full service 22222221111111111222 2 carriers

Major low cost 00000011112223333222 2 carriers

Source: Annual reports, presentations and company filings for Virgin Australia, Qantas, Tiger Airways, Ansett and Rex Airlines. FY95—FY15 Industry EBIT based on underlying EBIT as individually reported by Virgin Australia, Qantas, Tiger Airways, Ansett and Rex Airlines, respectively The improvement in industry profitability has had a corresponding positive impact on financial leverage for both Virgin Australia and Qantas. Virgin Australia’s financial leverage ratio(1) improved from 7.5x in the financial year ended June 30, 2014 to 5.9x in the financial year ended June 30, 2015, while Qantas’ reported Debt/adjusted EBITDA (based on Moody’s methodology) improved from 5.1x in the financial year ended June 30, 2014 to 2.9x in the financial year ended June 30, 2015.

Virgin Australia financial leverage(1) Qantas debt/adjusted EBITDA (Moody’s)(2)

7.5 x 5.9 x 5.1 x 2.9 x

FY14 FY15 FY14 FY15 Virgin Australia Qantas Group Source: Virgin Australia FY15 Results Presentation Source: Qantas Airways FY15 Results Presentation

(1) Financial leverage is a non-AAS measure and is defined as the ratio of adjusted net debt to Segment EBITDAR. Adjusted net debt is a non-AAS measure derived by taking interest bearing liabilities less cash and adding 7 times annual rentals on aircraft operating leases. Segment EBITDAR is a non-AAS measure per Note 5 to the Virgin Australia consolidated financial statements for the financial year ended June 30, 2015. It is used by management and Virgin Australia’s Board as a measure to assess the financial performance of Virgin Australia and its individual segments. (2) As reported in Qantas Airways FY15 Results Presentation. Debt/adjusted Earnings Before Interest, Tax, Depreciation and Amortization. Metric based on Moody’s methodology.

Domestic Market Outlook The outlook for the domestic aviation industry is expected to continue to improve with further moderation of domestic capacity growth, and greater passenger demand as a result of underlying

121 economic conditions in Australia. Virgin Australia expects that in the current weak Australian dollar environment, Australian leisure travelers will prefer domestic travel over outbound overseas travel, while international inbound travel will increase. Virgin Australia expects this weak Australian dollar environment to stimulate domestic demand in the coming months. Both Virgin Australia and Qantas have also publicly expressed a focus to control and maintain a disciplined cost base, and both appear to be exceeding previously announced cost-out initiative guidance. These cost reduction programs, enhanced by expected benefits from a low oil price environment, are expected to support near term industry profitability.

International Market Outlook As an island continent geographically isolated from major international markets, Australia is highly dependent on international aviation services, as airline travel is the only viable method of time-urgent international travel. There are approximately 50 international passenger airlines currently servicing Australian destinations, including the three Australian international carriers—Virgin Australia, Qantas and Jetstar. Virgin Australia plans to introduce short-haul international operations under the “Tigerair” brand beginning in March 2016. There are a total of 23 designated international airports within Australia (excluding non-scheduled airports and those located in external territories), with eight major international airports located in the cities of Adelaide, Brisbane, Cairns, Darwin, Gold Coast, Melbourne, Perth and Sydney. In the calendar year ended December 31, 2014, a total of 33.1 million international passengers traveled inbound into and outbound from Australia (excluding passengers transiting Australia), with the busiest airports being Sydney, Melbourne and Brisbane with 13.3 million, 8.0 million and 5.0 million passengers, respectively. Long-term growth in the Australian international aviation market has been relatively strong. Between 2004 and 2014, international available seats and international passenger numbers grew at a CAGR of 4.2% and 5.5%, respectively.

International passengers (excluding Australian international market share passengers transiting Australia) (millions) by passengers carried (Calendar years 2004–2014) (Month ended June 30, 2015)

Virgin Australia 7.7 % Air New Zealand 6.3 % Singapore Virgin 2004 - 2014 CAGR: 5.5% Australia Other Airlines 33.1 8.8 % Shareholders 29.6 31.3 36.7 % 26.8 28.2 Delta and Alliances 22.8 23.5 24.4 20.9 21.5 0.6 % ~26.1% 19.4 Etihad 2.7 %

LAN Qantas 0.4 % 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 15.9 % China Eastern 1.0 % Emirates Jetstar 10.1 % 9.7 %

Qantas Alliances ~37.2%(1) Source: Bureau of Infrastructure, Transport and Regional Economics

(1) Aggregate of Qantas alliances market share in the chart does not equal 37.2% due to rounding. Qantas had the largest market share of the Australian international aviation market (based on international passengers for the month of June 2015), with approximately 15.9% represented by its Qantas mainline brand and 9.7% represented by its Jetstar brand, followed by Emirates at 10.1%,

122 Singapore Airlines at 8.8%, the Virgin Australia Brand at 7.7%, and Air New Zealand at 6.3%, with a large tail of predominately Asian airlines making up the remainder of the market. Virgin Australia has successfully improved its international service offering through its four key bilateral alliance partnerships with Air New Zealand, Delta Air Lines, Etihad Airways and Singapore Airlines. Each alliance partnership contains reciprocal codeshare agreements, reciprocal loyalty earn and burn agreements and reciprocal loyalty status recognition. Each alliance partnership has been granted anti-trust immunity by the relevant competition authorities. These partnerships have helped to expand Virgin Australia’s international network to over 450 destinations, including interline destinations. Including its key alliances and partnerships, the Virgin Australia Brand’s indirect market share increases to approximately 26% as compared to Qantas’ indirect market share of approximately 37% (including Qantas’ alliance with Emirates, China Eastern and LAN).

Virgin Australia’s global network servicing over 450 destinations

Source: Virgin Australia as at October 31, 2015

(1) Includes Hawaiian Airlines, Virgin Atlantic, South African Airways and Air Berlin among others.

123 DIRECTORS The name and principal occupation of each member of the Board are as set forth below. Such individuals have served as directors since the dates set forth opposite their respective names. For the purposes of this offering circular, the address of each member of the Board is the registered office of Virgin Australia. To the best of their knowledge, there are no potential conflicts of interest between any duties of any member of the Board and Virgin Australia with respect to this Offering and their private interests and/or other duties, other than for Christopher Luxon, Bruno Matheu and Goh Choon Phong, as described in the Nominee Director Protocol referred to below.

Name Principal Occupation Director Since

Elizabeth Bryan AM Independent Non-Executive Chairman May 2015(1) John Borghetti Managing Director and Chief May 2010 Executive Officer Samantha Mostyn Independent Non-Executive Director September 2010 The Hon. Mark Vaile AO Independent Non-Executive Director September 2008 David Baxby Independent Non-Executive Director September 2004 Robert Thomas AM Independent Non-Executive Director September 2006 Goh Choon Phong Non-Executive Director July 2014 Christopher Luxon Non-Executive Director July 2014 Bruno Matheu Non-Executive Director February 2015(2) John Patrick (JP) Moorhead Non-Executive Director September 2015(3)

(1) On October 28, 2014, Neil Chatfield announced that he intended to step down from the Board and Chairmanship of Virgin Australia. Elizabeth Bryan was appointed as his successor on May 20, 2015. (2) On February 18, 2015, the Chairman announced that James Hogan had elected to step down from the role of Non-Executive Director as the nominated representative of Etihad Airways. Bruno Matheu was appointed as his successor. (3) On September 22, 2015, Joshua Bayliss resigned from the role of Non-Executive Director and was replaced by John Patrick (JP) Moorhead. A short biography of each member of the Board is set out below, including their principal appointments outside of Virgin Australia:

Biographies

Elizabeth Bryan AM, Independent Non-Executive Chairman Elizabeth Bryan was appointed Company Chairman to the Virgin Australia Board on May 20, 2015. Ms. Bryan brings extensive leadership, strategic and financial expertise to the Board. She has over 32 years of experience in the financial services industry, government policy and administration, and on the boards of companies and statutory organizations. In addition to her role as Chairman of Caltex Australia, Ms. Bryan is also currently a Director of Westpac Banking Corporation and Insurance Australia Group. Ms. Bryan has held a range of different board roles including Chairmanship of UniSuper Limited, as well as directorships of Ridley Corporation Limited and Australia Pacific Airports Corporation. Ms. Bryan is the Chair of Virgin Australia’s Nomination Committee and a member of Virgin Australia’s Audit and Risk Management Committee, Remuneration Committee and Safety and Operational Risk Review Committee.

124 John Borghetti, Managing Director and Chief Executive Officer John Borghetti was appointed to the Board on May 8, 2010. Mr. Borghetti has more than 40 years’ experience in the aviation sector after previously holding a number of senior positions at Qantas until May 2009. Mr. Borghetti is a director of Energy Australia, the Australian Chamber Orchestra and the New South Wales Customer Advisory Board. Mr. Borghetti was previously a director of CARE Australia (2005-2011), the Australian Ballet (2009-2011) and Piper Aircraft (USA) (2009-2010). Mr. Borghetti is a member of Virgin Australia’s Safety and Operational Risk Review Committee.

Samantha Mostyn, Independent Non-Executive Director Samantha Mostyn was appointed to the Board on September 1, 2010. Ms. Mostyn is a non- executive director and corporate advisor and has previously held senior executive positions at IAG, Optus and Cable & Wireless Plc. Ms. Mostyn is a board member of the Australia Council for the Arts, Australian Volunteers International, the Climate Council and Carriageworks. Ms. Mostyn is President of the ACFID and Deputy Chair of the Diversity Council of Australia. Ms. Mostyn is an Australian Football League Commissioner and director of the GO Foundation. Ms. Mostyn became a director of the Transurban Group in 2010, Citibank Australia in July 2011, Cover-More Group Limited in December 2013 and Mirvac Group in March 2015. Ms. Mostyn has previously served as a Commissioner with the National Mental Health Commission and served on the review into the Treatment of Women in the Australia Defence Force. Ms. Mostyn is the Chair of Virgin Australia’s Remuneration Committee and a member of Virgin Australia’s Nomination Committee and Safety and Operational Risk Review Committee.

The Hon. Mark Vaile AO, Independent Non-Executive Director Mark Vaile was appointed to the Board on September 22, 2008. Mr. Vaile is currently serving as Chairman of Whitehaven Coal Limited, Palisade’s Regional Infrastructure Fund and Australia Korea Business Council and was previously Chairman of CBD Energy Limited. Mr. Vaile is also a director of Stamford Land Corporation Limited, HostPlus Superfund Limited and Servcorp Limited. In 2012, Mr. Vaile was appointed as an Officer in the Order of Australia in the Queen’s birthday honors list. Mr. Vaile was a Member of the Australian Parliament from 1993 to 2008 and served as Deputy Prime Minister (2005-2007), Minister for Trade (1999-2006), Minister for Transport and Aviation (1997-1998, 2006-2007) and Minister for Agriculture (1998-1999). Mr. Vaile is Chair of Virgin Australia’s Safety and Operational Risk Review Committee and a member of Virgin Australia’s Audit and Risk Management Committee and Nomination Committee.

David Baxby, Independent Non-Executive Director David Baxby was appointed to the Board on September 30, 2004. Mr. Baxby is Advisor to the Board of Global Blue SA and was previously the Co-Chief Executive Officer of the Virgin Group. Mr. Baxby’s past directorships include Virgin Atlantic Limited, Virgin Holidays Limited, Virgin America Inc. and Air Asia X. Prior to his position at the Virgin Group, Mr. Baxby was an investment banker for ten years with Goldman, Sachs & Co. Mr. Baxby is a member of Virgin Australia’s Nomination Committee and Remuneration Committee.

Robert Thomas AM, Independent Non-Executive Director Robert Thomas was appointed to the Board on September 8, 2006. Mr. Thomas has more than 40 years’ experience in the securities industry. He is currently serving as the Chairman of Starpharma Holdings Limited and Aus Bio Limited. Mr. Thomas is a director of Heartware International Inc., O’Connell Street Associates Pty Ltd, Grahger Capital Securities Pty Ltd, REVA Medical, Inc. and Biotron Limited.

125 Mr. Thomas is the Chair of Virgin Australia’s Audit and Risk Management Committee and a member of Virgin Australia’s Nomination Committee and Remuneration Committee.

Goh Choon Phong, Non-Executive Director Goh Choon Phong was appointed to the Board on July 4, 2014. Mr. Goh is a Director and Chief Executive Officer of Singapore Airlines. Prior to his appointment as Chief Executive Officer, Mr. Goh held senior management positions in various divisions in Singapore Airlines, ranging from marketing to information technology, finance and cargo. Mr. Goh also served as President of Singapore Airlines Cargo Pte Ltd from 2006 to 2010. Mr. Goh is a director of SIA Engineering Company Limited and is a member of the IATA Board of Governors. Mr. Goh has a Master of Science in Electrical Engineering and Computer Science as well as three Bachelor of Science degrees in Computer Science & Engineering, Management Science and Cognitive Science from the Massachusetts Institute of Technology. Mr. Goh is a member of Virgin Australia’s Nomination Committee.

Christopher Luxon, Non-Executive Director Christopher Luxon was appointed to the Board on July 4, 2014. Mr. Luxon is Chief Executive Officer of Air New Zealand. Prior to joining Air New Zealand, Mr. Luxon was President and Chief Executive Officer of Unilever Canada, which was one of several senior leadership roles he held during an 18 year career at Unilever where he worked in New Zealand, Australia, Asia, Europe and North America. Mr. Luxon has a Master of Commerce in Business Administration from the University of Canterbury. Mr. Luxon is a member of Virgin Australia’s Audit and Risk Management Committee and Nomination Committee.

Bruno Matheu, Non-Executive Director Bruno Matheu was appointed to the Virgin Australia Board on February 18, 2015. Mr. Matheu joined Etihad Airways in December 2014 in the new role of Chief Operating Officer, Equity Partners. He is responsible for strategic developments to optimize business performance, revenues and cost synergies between Etihad Airways and its equity partner airlines, and provide strategic leadership support for partners in which Etihad Airways has management responsibility. Mr. Matheu brings to Virgin Australia almost 30 years of senior management experience in the global aviation industry. He most recently served as Chief Long Haul Officer at Air France, and prior to that held senior executive roles across Air France, being a member of Air France and Air France-KLM Executive Boards for 17 years. He has also served on the Boards of Air France, Alitalia and the global distribution company Amadeus. Mr. Matheu is a member of Virgin Australia’s Nomination Committee.

John Patrick (JP) Moorhead, Non-Executive Director JP Moorhead was appointed as Alternate Director for Mr. Bayliss from August 25, 2014 to September 22, 2015 and appointed a Director on September 22, 2015. Mr. Moorhead is the Chief Financial Officer of the Virgin Group and responsible for the Virgin Group’s overall financial and risk positions as well as accounting, finance, tax, treasury and certain portfolio matters. Mr. Moorhead has served as a director of various Virgin Group operating companies including Virgin Atlantic and Virgin Rail, as well as a number of Virgin Group holding companies. Prior to joining the Virgin Group, Mr. Moorhead spent eight years at Goldman, Sachs & Co. in London and Sydney where he worked on a broad range of strategic advisory, M&A and capital market transactions.

126 Robert McDonald, Alternate Director Robert McDonald was appointed as Alternate Director for Mr. Luxon on September 1, 2014. Mr. McDonald is the Chief Financial Officer of Air New Zealand. Mr. McDonald started his finance career as a commerce graduate with a large building products company in 1980. He worked abroad before joining Coopers and Lybrand in the corporate advisory and valuation practice in 1985. Mr. McDonald took up the position of Group Financial Planning Manager at Air New Zealand in 1993, was appointed Group Treasurer in 1995 and became Chief Financial Officer of Air New Zealand in October 2004. Mr. McDonald graduated from Auckland University with a Bachelor of Commerce degree and in 1999 completed the Program of Management Development at Harvard Business School. He is a Fellow of Chartered Accountants Australia and New Zealand, a member of the Institute of Finance Professionals New Zealand Inc. and was a member of the IATA Financial Committee from 2006 to 2015 including as Vice Chairman from 2013 to 2015.

Marvin Tan, Alternate Director Marvin Tan was appointed as Alternate Director for Mr. Goh on July 4, 2014. Mr. Tan is the Senior Vice President Cabin Crew of Singapore Airlines. Mr. Tan joined Singapore Airlines in 1996 and has held various appointments both in Singapore and overseas, most recently on secondment to SilkAir, Singapore Airlines’ regional subsidiary, as the airline’s Chief Executive. Mr. Tan currently also serves on the board of directors of Scoot Pte Ltd. He holds a Bachelor of Arts degree in International Relations from Stanford University.

Ulf Hu¨ ttmeyer, Alternate Director Ulf Hu¨ttmeyer was appointed as Alternate Director for Mr. Matheu on February 18, 2015. Mr. Hu¨ttmeyer was formerly the Chief Financial Officer of air berlin and joined Etihad Airways on April 1, 2015 as Senior Vice President Finance Equity Partners. Following studies in economics, concluding with a degree in business administration, Mr. Hu¨ttmeyer began his career in 1996 as an analyst with Commerzbank in the credit and financing division followed by various assignments in Germany and overseas (Singapore). Thereafter, Mr. Hu¨ttmeyer served as Group Manager for Corporate Client Services in Berlin and was promoted to Director at the beginning of 2005. Mr. Hu¨ttmeyer was appointed CFO of air berlin in February 2006.

Nominee Director Protocol Virgin Australia’s Nominee Director Protocol (the “Protocol”) sets out procedures to be followed by the Board, each director of Virgin Australia who represents, is nominated by, or is employed by, a person with a relevant interest of at least 5% in Virgin Australia (the “representative”) and the relevant Virgin Australia shareholder (the “nominating shareholder”). The Protocol sets out the procedure for the Board to invite shareholders with a relevant interest of at least 19.9% in Virgin Australia to nominate directors to the Board and the principles to be followed by the Board, those nominee directors and their nominating shareholders. In July 2014, each of Air New Zealand, Etihad Airways and Singapore Airlines appointed one director to the Board.

Nominee Director Appointments The Board must invite a person who has a relevant interest of at least 19.9% in Virgin Australia to nominate one person as a director of Virgin Australia. Any director appointed following this procedure must retire from office and will be eligible for re-election at the next annual general meeting.

127 Restrictions on Representatives In the interests of corporate governance, the flow of certain types of information between Virgin Australia, representatives and nominating shareholders is restricted to ensure compliance with applicable competition and other laws and to manage potential conflicts of interest. A representative whose nominating shareholder carries on an airline business or is not an Australian person must not request and will not be given any confidential information. Confidential information does not include the customary exceptions and any disclosure that has been approved by the Chairman but includes all or any information concerning the business or affairs of Virgin Australia that is made available to a representative in their capacity as director (or potential director) of Virgin Australia, including information relating to: • Virgin Australia’s alliance agreements; • VAIH or its affiliates, except for aggregated data about them that is necessary for Virgin Australia to satisfy its financial reporting obligations or audit requirements; • Tigerair Australia or Tiger Airways prior to the time at which Virgin Australia completed the acquisition of Tigerair Australia; and • matters which the Chairman believes may involve an actual or potential risk of conflict of interest. The representatives will not be permitted to be present in discussions of, and will not vote on matters relating to, this information. The exclusions are subject to limited exceptions so that the representatives can perform their role and satisfy their duties as directors. Representatives are also not permitted to be nominated or appointed as directors of VAIH.

Confidentiality Obligations and Restrictions on Information Permitted to be Given to Nominating Shareholders by Representatives The Protocol restricts the provision of confidential information made available to a representative in his or her capacity as director to his or her nominating shareholder except where the consent of the Chair has been obtained, or the information is required to comply with financial and reporting obligations.

Competition Laws and Insider Trading Laws Compliance Each nominating shareholder and Virgin Australia acknowledges and agrees to comply with competition laws in Australia and the insider trading provisions of the Corporations Act.

Consequences of Non-Compliance The Chairman may make a number of determinations if a representative’s nominating shareholder ceases to have a relevant interest of at least 19.9% or if they fail to comply with the Protocol. In the event of a non-compliance with the Protocol, the Chairman may request that the nominating shareholder request its representative to retire immediately, decide that certain information be withheld from the representative or nominating shareholder or decide that the nominating shareholder is not permitted to nominate a new representative. If the Chairman considers that the failure to comply is personal to the representative the Chairman may decide that the nominating shareholder may nominate a new representative to take effect after the retirement or removal. Any decision made by the Chairman pursuant to the Protocol can be reviewed by a committee comprising all of Virgin Australia’s independent directors (except the Chairman) and the Chief Executive Officer, whose decision is final.

128 Board Committees The primary role of the Board is to provide strategic guidance for Virgin Australia and effective oversight of management. To assist in the performance of its role, the Board has established a number of committees which have specific roles and responsibilities in key areas. Each committee has a documented charter approved by the Board, copies of which can be found on Virgin Australia’s website www.virginaustralia.com.

Audit and Risk Management Committee The Audit and Risk Management Committee was established by the Board to assist it in discharging its oversight responsibilities relating to, among other things, the preparation and integrity of Virgin Australia’s financial statements, reporting financial information to users, the application of accounting policies, internal controls, policies and procedures that Virgin Australia uses to identify and manage business risks and compliance with legal and regulatory requirements and policies. The Audit and Risk Management Committee has authority to conduct or direct any investigation required to fulfill its responsibilities, may require the attendance of management at committee meetings and has direct access to any employee or contractor, external auditors or any other independent experts as it considers appropriate in order to ensure that its responsibilities can be carried out effectively.

Remuneration Committee The Remuneration Committee was established by the Board to support and advise the Board in fulfilling its responsibilities to shareholders by setting and implementing appropriate remuneration policies and establishing systems designed to enhance the performance of Virgin Australia and its executive officers. To fulfill its role, the Remuneration Committee is responsible for, among other things, keeping apprised of the latest developments, policies and trends in relation to remuneration matters which affect the markets in which Virgin Australia does business and providing advice to the Board on remuneration matters and policies generally, including reviewing performance and assessment processes and results for executive officers, as well as developing policies for executive recruitment and employee incentive schemes.

Nomination Committee The Nomination Committee was established by the Board to support and advise the Board in fulfilling its responsibilities to shareholders by making recommendations regarding the size and composition of the Board, systems for the effective induction, training and development of directors, a system of performance appraisal for the Board, its committees, directors and Chief Executive Officer and a system for the appointment of a Chief Executive Officer. To fulfill its role, the Nomination Committee is responsible for, among other things, developing a plan to identify, assess and enhance the necessary and desirable competencies and skills of directors and developing and recommending to the Board a system for the ongoing training and development of directors.

Safety and Operational Risk Review Committee The Safety and Operational Risk Review Committee was established by the Board to assist in providing effective oversight of operational safety, health and security risks. The Safety and Operational Risk Review Committee also ensures that the focus of Virgin Australia is to maintain best practice in operational safety management, including compliance with legal and regulatory obligations and internal systems of control. In performing its role, the Safety and Operational Risk Review Committee reviews Virgin Australia’s operational risk management systems, monitors operational risk management processes maintained by providers and codeshare partners and monitors serious investigations and remedial actions.

129 MANAGEMENT The name and position of each of Virgin Australia’s executive officers are, as at the date hereof, as set forth below.

Name Position with Virgin Australia Executive Officer Since John Borghetti Chief Executive Officer May 2010 Geoff Smith Chief Financial Officer September 2015(1) Judith Crompton Chief Commercial Officer August 2012(2) Gary Hammes Chief Operating Officer February 2014 Mark Hassell Chief Customer Officer January 2012(3) Merren McArthur Group Executive, Virgin Australia Regional May 2008(4) Airlines and Virgin Australia Cargo Karl Schuster Chief Executive Officer, Velocity October 2015(5) Frequent Flyer Robert Sharp Chief Executive Officer, Tigerair Australia October 2014(6)

(1) Geoff Smith replaced Sankar Narayan, Chief Financial Officer, as Acting Chief Financial Officer on September 23, 2015 and was appointed Chief Financial Officer on November 13, 2015. Mr. Smith previously sat on the Executive Committee, served as Virgin Australia’s Executive General Manager Finance and has been employed by Virgin Australia for more than ten years. (2) Judith Crompton was appointed Group Executive, Sales in August 2012. Ms. Crompton’s role changed to Chief Commercial Officer in April 2013 to reflect the expanded portfolio of Sales, Alliances & Network Yield. (3) Mark Hassell was appointed Chief Customer Officer in September 2012. Prior to this appointment, Mr. Hassell served as Group Executive, Brand & Customer Experience from May 2012 and General Manager, Brand and Customer Strategy from January 2012. (4) Merren McArthur was appointed Group Executive, Virgin Australia Regional Airlines in April 2013. Prior to this appointment, Ms. McArthur served as Group Executive, Alliances & Network Yield from July 2011 and General Counsel and Company Secretary from May 2008. (5) Neil Thompson, Chief Executive Officer, Velocity Frequent Flyer, was replaced by Matthew Iser as Acting Chief Executive Officer, Velocity Frequent Flyer in July 2015. Mr. Iser was subsequently replaced by Karl Schuster as Chief Executive Officer, Velocity Frequent Flyer on October 1, 2015. (6) Robert Sharp commenced as an executive officer of Virgin Australia on October 16, 2014 as a result of the Tigerair Minority Acquisition.

130 PRINCIPAL SHAREHOLDERS As at November 16, 2015, the following shareholders held 5% or more of Virgin Australia’s ordinary shares (excluding nominee record holders holding ordinary shares on behalf of multiple beneficial owners):

Beneficial Owner Number of Shares Interest % Air New Zealand ...... 913,503,208 25.89 Etihad Airways ...... 885,511,964 25.10 Singapore Airlines ...... 803,704,286 22.78 Virgin Group ...... 351,464,678 9.96 The directors and executive officers of Virgin Australia as at June 30, 2015 held an aggregate of 8,189,542 ordinary shares in Virgin Australia as at June 30, 2015, which represented 0.23% of the total ordinary shares then outstanding. None of the directors or executive officers of Virgin Australia held more than 1% of Virgin Australia’s ordinary shares. For further information in relation to the ordinary shares and options and performance rights over ordinary shares held by Virgin Australia’s directors and executive officers, see section 5.12 of Virgin Australia’s remuneration report for the financial year ended June 30, 2015 accompanying Virgin Australia’s annual financial report for the financial year ended June 30, 2015.

131 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Information in relation to transactions between Virgin Australia and related parties of Virgin Australia is included in Note 36 to Virgin Australia’s financial statements for the financial year ended June 30, 2015 included elsewhere in this offering circular.

Material Transactions with Principal Shareholders For information in relation to Virgin Australia’s transactions with its airline shareholders, please see “Risk Factors—Risks Relating to Virgin Australia’s Business—Virgin Australia faces risks that its strategic alliances may not be reauthorized or renewed or deliver the anticipated results,” “Business— Virgin Australia’s Operations—Strategic alliances and partnerships” and “Business—Virgin Australia’s Operations—Loyalty Program—Velocity.” For information in relation to Virgin Australia’s brand license agreements with the Virgin Group, please see “Risk Factors—Risks Relating to Virgin Australia’s Business—Virgin Australia is dependent on the strength of its brand” and Note 41(b) to Virgin Australia’s financial statements for the financial year ended June 30, 2014. Other than the agreements described above and in Virgin Australia’s financial statements for the financial year ended June 30, 2015, there were no other material transactions between Virgin Australia and any of its principal shareholders.

132 DESCRIPTION OF OTHER FINANCING ARRANGEMENTS Below is a description of other indebtedness and financing arrangements of Virgin Australia and certain subsidiaries of Virgin Australia that will remain outstanding following the issuance of the New Notes. This summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the underlying documents governing such arrangements. The financing arrangements described below generally contain customary representations and warranties, covenants, events of default and indemnification provisions, and certain of the facilities have the benefit of guarantees extended by Virgin Australia and relevant subsidiaries of Virgin Australia. For additional information in relation to the interest-bearing liabilities of Virgin Australia see Note 23 to the consolidated financial statements of Virgin Australia as at and for the financial year ended June 30, 2015 and the related notes thereto included elsewhere in this offering circular.

Contingent Liability Facilities Virgin Australia maintains cash-collateralized multicurrency bank contingent liability facilities, which had an aggregate commitment (other than the facility secured by simulators described below) of AU$121.2 million as at June 30, 2015. The facilities are required to be cash-collateralized in an amount equal to at least the face value amount of outstanding instruments. As at June 30, 2015, the weighted average interest rate was in the range of 0.65% to 1.09% on the instruments issued under these facilities. The facilities do not require compliance with any financial covenants.

Boeing and Embraer Aircraft Financing Virgin Australia has entered into an Australian dollar-denominated bank facility supporting the financing of Boeing and Embraer aircraft. As at June 30, 2015, the principal amount outstanding under the facility amounted to AU$289.0 million. The facility is secured primarily by the 21 aircraft purchased using the proceeds of this facility. As at June 30, 2015, six of these aircraft were held for sale and are expected to be disposed of by June 30, 2016. The principal amount outstanding under the facility in respect of these aircraft is AU$65.7 million. Principal and interest in respect of the loan for each aircraft is repaid half yearly until the maturity of the loan for that aircraft. The aircraft loans mature in the period from July 2019 to July 2020. The average interest rate for the loans was 3.32% per annum as at June 30, 2015. The loan for an aircraft can be repaid at any time, in whole or in part, on the giving of the required notice and payment of applicable break costs. The facility does not require compliance with any financial covenants. The borrower, a wholly- owned subsidiary of Virgin Australia Airlines Pty Ltd, is bound by special purpose covenants which prohibit it from, among other things, incurring indebtedness, granting liens or making investments.

Export-Import Bank Guaranteed Boeing Aircraft Financings Virgin Australia has entered into three U.S. dollar-denominated Boeing aircraft financing facilities guaranteed by the Export-Import Bank of the United States. In respect of two of these facilities, an aggregate of US$526.0 million was outstanding as at June 30, 2015. The two facilities are supported by loan guarantees provided by the Export-Import Bank of the United States and are secured primarily by 13 delivered Boeing aircraft. Principal and interest in respect of the loan for each aircraft is repayable quarterly until maturity. Interest rates under the two facilities are fixed, and ranged from 2.41% to 4.47% per annum as at June 30, 2015.

133 A third facility guaranteed by the Export-Import Bank of the United States was entered into in 2014, and is secured primarily by three delivered Boeing aircraft. As at June 30, 2015, drawings under the facility amounted to US$132.4 million. Principal and interest for these aircraft loans is repayable quarterly until maturity. Interest rates under the loans are floating, and the weighted average floating interest rate under the third facility as at June 30, 2015 was 0.73% per annum. The three facilities do not require compliance with any financial covenants. Each borrower (and its parent company), each a wholly-owned subsidiary of VB Leaseco Pty Ltd, is bound by special purpose covenants which prohibit it from, among other things, incurring indebtedness or granting liens.

Enhanced Equipment Notes On October 22, 2013, Perpetual Corporate Trust Limited, solely in its capacity as trustee (the “EEN Trustee”) of each of the Virgin Australia 2013-1A Trust, the Virgin Australia 2013-1B Trust, the Virgin Australia 2013-1C Trust and the Virgin Australia 2013-1D Trust (collectively, the “EEN Trusts”) issued four tranches of secured EENs with a combined aggregate face amount of US$797.3 million. The EENs are secured by, and the proceeds from the sale of the EENs were used to refinance the acquisition of, 24 aircraft within Virgin Australia’s existing fleet operated by Virgin Australia Airlines Pty Ltd and Virgin Australia International Airlines Pty Ltd. The subleases of six of these aircraft originally operated by Virgin Australia Airlines (NZ) Limited were transferred to Virgin Australia International Airlines Pty Ltd in early 2015 as part of the restructure and anticipated winding down of Virgin Australia Airlines (NZ) Limited. The aircraft are comprised of 21 B737-800 aircraft, two B737-700 aircraft and one B777-300ER aircraft. The offering consisted of the following EENs: • Class A Enhanced Equipment Notes, with a US$474.0 million face amount, an interest rate of 5.00% per annum and a final expected payment date of October 23, 2023; • Class B Enhanced Equipment Notes, with a US$120.7 million face amount, an interest rate of 6.00% per annum and a final expected payment date of October 23, 2020; • Class C Enhanced Equipment Notes, with a US$137.9 million face amount, an interest rate of 7.125% per annum and a final expected payment date of October 23, 2018; and • Class D Enhanced Equipment Notes, with a US$64.7 million face amount, an interest rate of 8.50% per annum and a final expected payment date of October 23, 2016. Virgin Australia has not guaranteed the obligations of the EEN Trusts in respect of the EENs. Virgin Australia, however, has guaranteed the obligations of its subsidiaries that are obligors under various promissory notes, leases and a sub-lease that were entered into in connection with the EEN transaction. Principal and interest on the EENs is to be paid on a quarterly basis from January 23, 2014. On October 23, 2015, the final scheduled principal payment was made in relation to the equipment notes in respect of the two B737-700 aircraft. These two aircraft will be transferred to Virgin Australia and security over the collateral will be released in due course. The EEN Trustee and certain wholly-owned subsidiaries of Virgin Australia established for the purposes of the transaction are bound by special purpose covenants and prohibitions on raising further debt and creating liens. Virgin Australia and its other wholly-owned subsidiaries are not bound under the terms of this transaction by the same types of restrictions. An aggregate of US$630.4 million of EENs was outstanding as at June 30, 2015.

Flight Simulator Financing Virgin Australia Airlines Pty Ltd has entered into an Australian dollar-denominated facility, which comprises a “Facility A” cash advance subfacility and bank guarantee, and a letter of credit subfacility and a “Facility B” cash advance facility.

134 The aggregate of cash advances drawn at June 30, 2015 was AU$58.1 million. Monies owing under Facility A are secured by four flight simulators and a leasehold interest in real property. The amount undrawn under the facilities as at June 30, 2015 was AU$20.4 million. Each cash advance facility is floating rate and, as at June 30, 2015, the weighted average interest rate of Facility A was 3.95% and of Facility B was 4.45%. The average interest rate for advances under the cash advance facility was 4.24% per annum as at June 30, 2015. The borrower may prepay all or part of Facility A or all (but not part) of Facility B by providing the required notice and paying applicable break costs, accrued interest and fees. The maximum outstanding principal amount under Facility A may be adjusted by reference to market values of the secured property. The facility matures on February 26, 2016. The borrower is prohibited from granting a lien over property secured under the facility but neither it nor Virgin Australia (as guarantor under the facility) is bound by financial covenants or restrictions on incurring indebtedness.

Pre-Delivery Payment Financing for Boeing Aircraft As at June 30, 2015, Virgin Australia had US$65.2 million outstanding under two U.S. dollar- denominated pre-delivery payment financing facilities, each originally in respect of eight Boeing aircraft. On October 1, 2015, the final aircraft loan under the 2013 facility was repaid. The remaining 2015 facility is secured primarily by the rights in relation to the subject aircraft under aircraft purchase agreements. Proceeds of drawings under the facility are permitted to be used only for the purpose of making or refinancing pre-delivery payments due to Boeing in respect of the aircraft. Interest on the aircraft loans is payable on a half-yearly basis. Repayment of the principal in respect of each aircraft loan is due on maturity of the loan, which occurs on delivery of the relevant aircraft from Boeing. The eight aircraft loans in the 2015 facility mature in the period from July 2016 to June 2017. The average interest rate for all outstanding loans across both facilities was 2.72% per annum as at June 30, 2015. The loan for an aircraft can be repaid on any interest payment date, in whole or in part, on the giving of the required notice and payment of applicable break costs, accrued interest and any other amounts due and payable under the transaction documents. The facility does not require compliance with any financial covenants. The borrower, a wholly- owned subsidiary of VB Leaseco Pty Ltd, is bound by special purpose covenants which prohibit it from, among other things, incurring indebtedness, granting liens or making investments. Virgin Australia Airlines Pty Ltd as guarantor is not bound by the same types of restrictions.

The Initial Notes On November 20, 2014, Virgin Australia issued US$300.0 million aggregate principal amount of its 8.50% Senior Notes due 2019 pursuant to the Indenture (the “Initial Notes”). The Initial Notes are guaranteed (the “Note Guarantees”) by certain of Virgin Australia’s subsidiaries (collectively, the “Guarantors”). The Initial Notes are Virgin Australia’s senior unsecured obligations, and the Note Guarantees are the senior unsecured obligations of each Guarantor. For a description of the terms of the Initial Notes, see “Description of Notes.”

Subordinated Loan In 2014, VB Leaseco Pty Ltd, a wholly-owned subsidiary of Virgin Australia, received financing amounting to US$60.0 million (in two equal tranches) pursuant to a term loan. As at June 30, 2015, an aggregate amount of US$55.0 million was outstanding. The loan was secured on a subordinated basis by interests in relation to 34 aircraft as at June 30, 2015. As at June 30, 2015, six of these aircraft were held for sale and are expected to be disposed of by June 30, 2016. At any time, the prepayment amount under the loan in respect of these aircraft is US$5.0 million in aggregate.

135 Interest in respect of the loan is payable quarterly until maturity. One tranche matures in the second quarter of 2020 and the other tranche matures in the second quarter of 2021. The weighted average interest rate on this facility as at June 30, 2015 was 7.78%. The loan can be repaid at any time, in whole or in part, on the giving of the required notice, payment of applicable break costs and, in certain circumstances, payment of a prepayment fee. The payment of amounts owing under the loan is guaranteed by Virgin Australia and Virgin Australia Airlines Pty Ltd on a full recourse basis. The loan terms include terms for the provision of cash collateral (principally based on aircraft values).

Finance Lease Obligations Virgin Australia has entered into finance lease obligations totaling AU$28.3 million as at June 30, 2015. The nominal interest rates applicable to the leases ranged from 8.51% to 13.00% per annum as at June 30, 2015. A finance lease for telecommunications infrastructure has a lease term until 2018 with three additional one year options to extend the lease until 2021. This finance lease contains an option to purchase the assets at the end of the lease term. A finance lease for an aircraft hangar has a lease term until 2047 with an additional 15 year option to extend the lease until 2062. This finance lease does not contain an option to purchase the asset at the end of the lease term.

Velocity Syndicated Facility During the financial year ended June 30, 2015, Velocity Frequent Flyer Pty Ltd entered into a secured Australian dollar-denominated facility. As at June 30, 2015, the principal amount outstanding under the facility amounted to AU$225.0 million. The interest rate applicable under the facility as at June 30, 2015, was 5.30% per annum.

VB Leaseco Syndicated Facility Since June 30, 2015, VB Leaseco Pty Ltd, a wholly-owned subsidiary of Virgin Australia, has received financing amounting to US$125.0 million pursuant to a term loan. The loan is secured by the assets of Virgin Australia, Virgin Australia Airlines Holdings Pty Ltd, Virgin Australia Airlines Pty Ltd and VB Leaseco Pty Ltd that are not subject to security arrangements or restrictions on security, and the payment of amounts owing under the loan is guaranteed by Virgin Australia, Virgin Australia Airlines Holdings Pty Ltd, Virgin Australia Airlines Pty Ltd and VB Leaseco Pty Ltd. Interest in respect of the loan is payable at one, two or three month intervals at the option of VB Leaseco Pty Ltd. The loan matures in May 2016, and the interest rate on the facility is LIBOR + 3.75% per annum through February 2016, increasing to LIBOR + 4.75% per annum for the remainder of the term. An option to extend the facility for a further three months is available at an interest rate of LIBOR + 5.75% per annum. The loan can be repaid at any time, in whole or in part, on the giving of the required notice and payment of applicable break costs. The loan may not be redrawn once voluntarily prepaid.

136 DESCRIPTION OF NOTES The Company will issue the New Notes under an indenture, dated as of November 20, 2014, and as supplemented from time to time (the “Indenture”), among the Company, the Guarantors and The Bank of New York Mellon, as trustee (the “Trustee”). The following summarizes the material provisions of the Notes. See “—Certain Definitions” below for definitions of certain capitalized terms used in the following description. References to “AU$ are to Australian dollars and references to “US$” or “U.S. dollars” are to United States dollars. The following description does not purport to be complete and is subject to, and qualified by reference to, all of the provisions of the Indenture and the Notes, which we urge you to read because they, and not this description, define your rights as a Note holder. You may request copies of the Indenture at the Company’s address set forth under the caption “Available Information” in this offering circular.

General This offering will be for US$50.0 million in aggregate principal amount of 8.50% Senior Notes due 2019 (the “New Notes”). On November 20, 2014, the Company issued US$300.0 million aggregate principal amount of 8.50% Senior Notes due 2019 (the “Initial Notes”) under the Indenture. The New Notes will have the same terms as the Initial Notes (other than the date of original issuance) and will form a part of the same series as the Initial Notes. The New Notes will be treated as a single class with the Initial Notes for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. The New Notes will rank pari passu in right of payment with the Initial Notes and holders of the New Notes will vote together with holders of the Initial Notes on any matter submitted to a vote of the holders of the Notes under the Indenture. The New Notes have identical terms and conditions as the Initial Notes, other than the issue date and issue price. The New Notes have the same CUSIP, ISIN and Common Code numbers as, and are fungible with, the Initial Notes (except that any New Notes offered and sold in compliance with Regulation S will have temporary CUSIP, ISIN and Common Code numbers during a 40-day distribution compliance period commencing on the date of issuance of the New Notes). The New Notes will trade fungibly except for New Notes offered and sold in compliance with Regulation S, which will trade fungibly after the 40-day distribution compliance period. References to “Notes” in this Description of Notes include the Initial Notes, the New Notes and any Additional Notes that may be issued under the Indenture. The Notes bear interest at the rate of 8.50% per year on the principal amount from the original issue date or from the most recent date to which interest has been paid or for which interest has been provided. Interest on the New Notes will be payable semiannually in arrears on May 15 and November 15, commencing on May 15, 2016, to holders of record at the close of business on the May 1 or November 1, respectively, immediately preceding such relevant interest payment date. Each payment of interest on the Notes will include interest accrued through the day before the applicable interest payment date (or redemption date, as the case may be). Any payment required to be made on any day that is not a Business Day will be made on the next succeeding Business Day without any interest or other payment due to the delay. Interest is calculated using a 360-day year composed of twelve 30-day months. Interest will cease to accrue on a Note upon its maturity, redemption or purchase by the Company at the holder’s option upon a Change of Control. We may not reissue a Note that has matured, been redeemed, been purchased by us at the holder’s option upon a Change of Control or otherwise been cancelled, except for registration of transfer, exchange or replacement of such Note. The Indenture does not limit the aggregate principal amount of debt securities that may be issued thereunder and provides that debt securities may be issued thereunder from time to time in one or more additional series. The Indenture contains no covenants or other provisions to afford protection to holders of Notes in the event of a highly leveraged transaction or a Change of Control except to the extent described under “—Certain Covenants—Change of Control Offer to Purchase,” “—Certain

137 Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock” and “—Merger and Sales of Assets.” The Notes will be issued in the form of one or more global notes deposited with a custodian for DTC, and beneficial interests in the global notes will be shown on DTC’s book-entry records. See “—Form and Settlement; Book-Entry System.” The Notes will be issued in minimum denominations of US$2,000 or an integral multiple of US$1,000 in excess thereof. The Notes will not be listed on any national securities exchange.

Further Issuances We may, from time to time, without notice to or the consent of the holders of the Notes, increase the principal amount of this series of Notes under the Indenture and issue such increased principal amount (or any portion thereof), in which case any additional notes so issued will have the same form and terms (other than the date of issuance and, under certain circumstances, the date from which interest thereon will begin to accrue), and will carry the same right to receive accrued and unpaid interest, as the Notes previously issued, and such additional notes will form a single series with the Notes.

The Note Guarantees The Guarantors will fully and unconditionally guarantee (the “Note Guarantees”) on a senior unsecured basis the due and punctual payment of the principal of (and premium, if any) and interest on the Notes, whether at Stated Maturity, upon redemption, upon acceleration, upon required repurchase at the option of the holder or otherwise according to the terms thereof and of the Indenture and all other obligations of the Company under the Indenture and the Notes. As of the Closing Date, only the following Restricted Subsidiaries of the Company will be Guarantors: Virgin Australia Airlines Holdings Pty Ltd; Virgin Australia Airlines Pty Ltd; VB Leaseco Pty Ltd; VAH Newco No. 1 Pty Ltd; VAH Newco No. 2 Pty Ltd; A.C.N. 098 904 262 Pty Ltd; Virgin Australia Regional Airlines Pty Ltd; Tiger Airways Australia Pty Limited; Tiger Airways Australia SPV Pty Ltd; and Virgin Australia International Holdings Pty Ltd (and each of its direct and indirect Subsidiaries, other than Virgin Australia Airlines (NZ) Limited). See also “Business—Corporate Restructure”. There is a risk that the Note Guarantees are voidable under applicable law relating to fraudulent transfer or conveyance or similar laws affecting the rights of creditors generally. See “Risk Factors— Risks Relating to the Notes—The ability to claim under any Note Guarantee following the insolvency of a Guarantor may be materially adversely affected by Australian insolvency laws.” The Note Guarantee of a Guarantor will be automatically released: (1) if the obligation of such Guarantor to guarantee the Notes after the date of the Indenture arose pursuant to the covenant described under “—Certain Covenants—Additional Note Guarantees,” if such Guarantor would not then otherwise be required to Guarantee the Notes pursuant to the covenant described under “—Certain Covenants—Additional Note Guaran- tees;” (2) in connection with any sale or other Disposition of Capital Stock of such Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or any of its Restricted Subsidiaries or other transaction or series of transactions permitted by the Indenture, if such Guarantor ceases to be a Subsidiary of the Company as a result of the sale or other Disposition or such other transaction or series of transactions; or (3) if the Company designates such Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture. The Guarantors will be released from all obligations under their Note Guarantees upon the legal defeasance of the Notes in accordance with the terms of the Indenture. See “—Satisfaction and

138 Discharge of the Indenture; Defeasance.” A Guarantor will also be released from all obligations under its Note Guarantee in the circumstances described under “—Merger and Sales of Assets.”

Ranking of the Notes and the Note Guarantees The Notes will represent the senior unsecured obligations of the Company, and the Note Guarantees will represent the senior unsecured obligations of the Guarantors. The Notes and the Note Guarantees rank equally in right of payment with all of the Company’s and the Guarantors’ existing and future unsecured and unsubordinated debt. However, the Notes and the Note Guarantees will be effectively subordinated to all of the Company’s and the Guarantors’ existing and future secured indebtedness to the extent of the collateral securing such debt and structurally subordinated to all existing and future obligations of the Company’s subsidiaries other than the Guarantors. As at June 30, 2015, after giving effect to the offering of the New Notes, Virgin Australia and its consolidated subsidiaries would have had AU$2,829.6 million of indebtedness and capital lease obligations, of which AU$2,314.9 million would have been secured indebtedness. As at June 30, 2015, Virgin Australia had undrawn borrowing capacity under several credit facilities of AU$107.6 million. As at November 15, 2015, Virgin Australia had AU$65.2 million available and undrawn under various facilities (based on the Bloomberg AU Composite U.S. dollar per Australian dollar exchange rate on November 15, 2015 of US$0.7127 = AU$1.00). In the event of any distribution of the Company’s or the Guarantors’ assets in any foreclosure, dissolution, winding-up, liquidation, reorganization or other bankruptcy proceeding, holders of secured indebtedness will have prior claim to those assets that constitute their collateral. Holders of the Notes will participate ratably with all holders of unsecured indebtedness that is deemed to be of the same class as the Notes and the Note Guarantees, and potentially with all of the Company’s and the Guarantors’ other general creditors, based upon the respective amounts owed to each holder or creditor, in the Company’s and the Guarantors’ remaining assets. In any of the foregoing events, we cannot assure you that there will be sufficient assets to pay amounts due on the Notes. As a result, holders of Notes may receive less, ratably, than holders of secured indebtedness. Holders of the Notes will be creditors of only the Company and the Guarantors for purposes of the Notes and the Note Guarantees and not the Company’s other Subsidiaries. In the event of any winding-up, liquidation, compromise, arrangement, or other insolvency process in respect of any of the Company’s Non-Guarantor Subsidiaries, the claims of all creditors of the Company’s Non-Guarantor Subsidiaries (including trade creditors) will need to be satisfied in full from the assets of those entities before any assets are made available for distribution to the Company as shareholder. The ability of the Company’s creditors, including you, to participate in any distribution of assets of any of the Company’s Non-Guarantor Subsidiaries upon liquidation or bankruptcy will be subject to the prior claims of that Non-Guarantor Subsidiary’s creditors, including trade creditors, and any prior or equal claim of any equity holder of that Non-Guarantor Subsidiary. As a result, the Notes will be structurally subordinated to the prior payment of all of the liabilities of the Company’s Non-Guarantor Subsidiaries, and you may receive less, proportionately, than the creditors of the Company’s Non-Guarantor Subsidiaries. See “Risk Factors—Risks Relating to the Notes—The Notes will be structurally subordinated to all liabilities of Virgin Australia’s subsidiaries that are not Guarantors.” For the financial year ended June 30, 2015, subject to the calculation methodology described under “—The Note Guarantees” and herein, the Non-Guarantors generated 2% of Virgin Australia’s consolidated revenue and income and, 27% of Virgin Australia’s consolidated net loss after tax, and reduced Virgin Australia’s consolidated Operating Segment EBITDAR by 5%. As at June 30, 2015, the Non-Guarantors held 2% of Virgin Australia’s total consolidated assets and 11% of Virgin Australia’s total consolidated liabilities. (In contrast, as at June 30, 2014, the Non-Guarantors held 7% of Virgin Australia’s total consolidated liabilities, the greater proportion as at June 30, 2015 being attributable primarily to the incurrence of third party indebtedness by the Velocity Sub-Group, and also to the growth in the Velocity program during the financial year ended June 30, 2015. See “Risk Factors— Risks Relating to the Notes—The Notes will be structurally subordinated to all liabilities of Virgin Australia’s subsidiaries that are not Guarantors”, “Description of Other Financing Arrangements—

139 Velocity Syndicated Facility”, “Business—Virgin Australia’s Operations—Loyalty Program—Velocity” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Revenue and Income—Other Ancillary Revenue—Loyalty Program”). If issued as at June 30, 2015, the Notes would have been and, once issued, will be structurally subordinate to such liabilities. For purposes of the above calculations in respect of consolidated revenue and income, consolidated net loss after tax and consolidated Operating Segment EBITDAR, revenue and income, expenses and income tax attributable to Virgin Australia Airlines (NZ) Limited are recognized as revenue and income, expenses and income tax relating to the Guarantors, on the basis that Virgin Australia Airlines (NZ) Limited was an operating entity for much of the financial year ended June 30, 2015 and its operations are now conducted by other Guarantors. See “Business—Corporate Restructure”. In addition, for purposes of the above measures, assets and liabilities associated with aeronautic finance facilities are recognized as assets and liabilities of the Company or the relevant Guarantor or Guarantors (rather than as assets and liabilities of the relevant special purpose vehicle).

Sinking Fund The Notes will not be entitled to the benefit of any sinking fund.

Additional Amounts All payments made by the Company under or with respect to the Notes or by the Guarantors under or with respect to any Guarantee will be made free and clear of and without withholding or deduction for, or on account of, any present or future tax, duty, levy, assessment or other governmental charge, including any related interest, penalties or additions to tax (“Taxes”), unless the withholding or deduction of such Taxes is then required by law. If any withholding or deduction for, or on account of, any Taxes imposed or levied by or on behalf of (1) any jurisdiction in which the Company or any Guarantor is then incorporated or organized, engaged in business for tax purposes or resident for tax purposes, or any political subdivision thereof or therein or (2) any jurisdiction from or through which payment is made by or on behalf of the Company or any Guarantor (including the jurisdiction of any paying agent for the Notes), or any political subdivision thereof or therein (each of (1) and (2), a “Tax Jurisdiction”) will at any time be required to be made in respect of any payments made by or on behalf of the Company under or with respect to the Notes or by or on behalf of any of the Guarantors under or with respect to any Guarantee, including payments of principal, redemption price, interest or premium, the Company or the relevant Guarantor, as applicable, will pay such additional amounts so that the persons entitled to such payments receive the amount that such persons would otherwise have received but for such withholding or deduction (the “Additional Amounts”); provided, however, that no Additional Amounts will be payable with respect to: (1) any Taxes, to the extent such Taxes would not have been imposed but for the existence of any actual or deemed present or former connection between the holder or the Beneficial Owner of the Notes and the relevant Tax Jurisdiction (including being a resident of such jurisdiction for Tax purposes), other than the acquisition, ownership or Disposition of such Note, the enforcement of such Note or any Guarantee or the receipt of any payments under or with respect to such Note or a Guarantee. A holder or Beneficial Owner of a Note is not regarded as being connected with Australia for the reason that the holder or Beneficial Owner of a Note (as applicable) is a resident of Australia under the Australian Tax Act where, and to the extent that, such Tax is payable by reason of section 128B(2A) of the Australian Tax Act; (2) any estate, inheritance, gift or similar Taxes, assessment or other governmental charge; (3) any Taxes withheld, deducted or imposed on a payment that are required to be made pursuant to European Council Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council meeting of November 26 and 27, 2000 on the taxation of savings income, or any law implementing or complying with or introduced in order to conform to, such directives;

140 (4) any Taxes imposed on or with respect to a payment made to a holder or Beneficial Owner of Notes who would have been able to avoid such Tax by presenting the relevant Note to, or otherwise accepting payment from, another paying agent; (5) any Taxes payable other than by withholding or deduction from payments under or with respect to the Notes or any Guarantee; (6) any Taxes, to the extent such Taxes are imposed or withheld by reason of the failure of the holder or Beneficial Owner of Notes to comply, to the extent it is legally able to do so, with any timely reasonable written request of the Company addressed to the holder or Beneficial Owner to satisfy any certification, identification, information or other reporting requirements, whether required by statute, treaty, regulation or administrative practice of a Tax Jurisdiction, as a precondition to exemption from, or reduction in the rate of withholding or deduction of, Taxes imposed by the Tax Jurisdiction (including, without limitation, a certification that the holder or Beneficial Owner is not resident in the Tax Jurisdiction), but in each case only to the extent the holder or Beneficial Owner is legally eligible to provide such certification or documentation; (7) any Taxes imposed or withheld by reason of a holder or Beneficial Owner of Notes being an Offshore Associate of the Company or any of the Guarantors or by reason of the Australian Commissioner of Taxation giving a direction under section 255 of the Australian Tax Act or section 260-5 of Schedule 1 of the Taxation Administration Act of 1953 of Australia; or (8) any combination of items (1) through (7) above. In addition to the foregoing, the Company and the Guarantors, as the case may be, will also pay and indemnify the holder or a Beneficial Owner for any present or future stamp, issue, registration, court or documentary taxes, or any other excise or property taxes, charges or similar levies (including related penalties, interest and additions to tax) which are levied by any Tax Jurisdiction on the execution, delivery, issuance, or registration of (and by any jurisdiction on the enforcement of) any of the Notes, the Indenture, any Guarantee or any other document or instrument referred to therein, or any payments made by the Company or a Guarantor under or with respect to any of the Notes or any Guarantee (limited, solely in the case of Taxes attributable to the receipt of any payments under or with respect to the Notes or any Guarantee, to any such taxes imposed in a Tax Jurisdiction that are not excluded under clauses (1) through (4) or (6) and (7) above, or any combination thereof). If the Company or any Guarantor, as the case may be, becomes aware that it will be obligated to pay Additional Amounts with respect to any payment under or with respect to the Notes or any Guarantee, the Company will deliver to the Trustee on a date that is at least 30 days prior to the date of that payment (unless the obligation to pay Additional Amounts arises less than 30 days prior to that payment date, in which case the Company shall notify the Trustee promptly thereafter) an officers’ certificate stating the fact that Additional Amounts will be payable and the amount estimated to be so payable. The officers’ certificate(s) must also set forth any other information reasonably necessary to enable the paying agent to pay such Additional Amounts to holders on the relevant payment date. The Trustee shall be entitled to rely solely on such officers’ certificate as conclusive proof that such payments are necessary. If the Trustee does not receive such an officers’ certificate, it shall be fully protected in assuming that no Additional Amounts are so payable. The Trustee shall not at any time be under any duty or responsibility to any holder to determine the Additional Amounts, or with respect to the nature, extent or calculation of the Additional Amounts owed, or with respect to the method employed in such calculation of the Additional Amounts. The Company or the relevant Guarantor will make all withholdings and deductions required by law to be withheld or deducted by them and will remit the full amount deducted or withheld to the relevant Tax authority in accordance with applicable law. The Company or the relevant Guarantor will use its reasonable efforts to obtain Tax receipts from each Tax authority evidencing the payment of any Taxes so deducted or withheld. The Company or the relevant Guarantor will furnish to the Trustee (or to a holder or Beneficial Owner upon written request), within a reasonable time after the date the payment of any Taxes so withheld or deducted is made, certified copies of Tax receipts evidencing payment by the Company or such Guarantor, as the case may be, or if, notwithstanding such entity’s efforts to

141 obtain receipts, receipts are not obtained, other evidence of payments (reasonably satisfactory to the Trustee) by such entity. Upon reasonable written request, copies of Tax receipts or other evidence of payments, as the case may be, will be made available by the Trustee to the holders or Beneficial Owners of the Notes. Whenever in the Indenture or in this “Description of Notes” there is referred to, in any context, the payment of principal, interest, premium, redemption price or other amounts with respect to any of the Notes, such reference shall be deemed to include the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. The above obligations will survive any termination, defeasance or discharge of the Indenture, any transfer by a holder or Beneficial Owner of its Notes, and will apply, mutatis mutandis, to any successor Persons to the Company or the Guarantors and to any jurisdiction in which any successor Person to the Company or any Guarantor is incorporated or organized, engaged in business for tax purposes or resident for tax purposes or any jurisdiction from or through which payment is made by or on behalf of such Person on the Notes (or any Guarantee), and any political subdivision thereof or therein.

Redemption

Optional Redemption The Company will have the right to redeem the Notes as described under “—Redemption Procedures,” in whole or in part at any time, at a redemption price equal to the greater of (1) 100% of the principal amount of the Notes to be redeemed and (2) the sum of the present values of the remaining scheduled payments of principal and interest on such Notes (excluding accrued and unpaid interest to the redemption date) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined below) plus 50 basis points, plus, in either case, accrued and unpaid interest on the principal amount being redeemed to (but not including) such redemption date. “Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. “Comparable Treasury Price” means with respect to any redemption date for Notes, the average of two Reference Treasury Dealer Quotations for such redemption date. “Quotation Agent” means the Reference Treasury Dealer appointed by the Company. “Reference Treasury Dealer” means any of Goldman, Sachs & Co. and two other Primary Treasury Dealers (defined herein) selected by Goldman, Sachs & Co.; provided, however, that if Goldman, Sachs & Co. shall cease to be a primary United States Government securities dealer in New York City (a “Primary Treasury Dealer”), the Company will substitute therefor another Primary Treasury Dealer. “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. “Treasury Rate” means, with respect to any redemption date, (1) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated “H.l5 (519)” or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption

142 “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the maturity date of the Notes to be redeemed, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined, and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight- line basis, rounding to the nearest month) or (2) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per year equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. The Treasury Rate will be calculated on the third Business Day preceding the redemption date, or, in the case of a satisfaction and discharge, on the third Business Day prior to the date the Company deposits the amount required under the Indenture most nearly equal to the period from the redemption date to the maturity date.

Tax Redemption The Company, at its option, may redeem all but not part of the Notes as described under “—Redemption Procedures,” at a redemption price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest on the principal amount being redeemed, to (but not including) the date fixed by the Company for redemption (a “Tax Redemption Date”) and all Additional Amounts (if any) then due and which will become due on the Tax Redemption Date as a result of the redemption or otherwise (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date), if on the next date on which any amount would be payable in respect of the Notes, the Company is or would be required to pay Additional Amounts, and the Company cannot avoid any such payment obligation by taking reasonable measures available, and the requirement arises as a result of: (1) any amendment to, or change in, the laws (or any regulations or rulings promulgated thereunder) of a relevant Tax Jurisdiction which amendment or change is publicly announced and becomes effective after the Closing Date (or, if the applicable Tax Jurisdiction became a Tax Jurisdiction on a date after the Closing Date, after such later date); or (2) any amendment to, or change in, an official written interpretation of such laws, regulations or rulings (including by virtue of a holding, judgment, or order by a court of competent jurisdiction or a change in published administrative practice) which amendment or change is publicly announced and becomes effective after the Closing Date (or, if the applicable Tax Jurisdiction became a Tax Jurisdiction on a date after the Closing Date, after such later date). The Company will not give any such notice of redemption earlier than 60 days prior to the earliest date on which the Company would be obligated to make such payment or withholding if a payment in respect of the Notes were then due, and the obligation to pay Additional Amounts must be in effect at the time such notice is given. Prior to the publication or, where relevant, delivering of any notice of redemption of the Notes pursuant to the foregoing, the Company will deliver to the Trustee an opinion of independent tax counsel of recognized international standing to the effect that there has been such amendment or change which would entitle the Company to redeem the Notes hereunder. In addition, before the Company publishes or delivers notice of redemption of the Notes as described above, it will deliver to the Trustee an officers’ certificate to the effect that it cannot avoid its obligation to pay Additional Amounts by the Company taking reasonable measures available to it. The Trustee will accept and shall be entitled to conclusively rely on such officers’ certificate and opinion of counsel as sufficient evidence of the existence and satisfaction of the conditions precedent as described above, in which event it will be conclusive and binding on the holders. The foregoing will apply mutatis mutandis to any successor Persons to the Company and any jurisdiction in which any successor Person to the Company is incorporated or organized or engaged in business or resident for tax purposes or any jurisdiction from or through which payment is made by or on behalf of such Person on the Notes, and any political subdivision thereof or therein.

143 Redemption Procedures The Company will provide not less than 30 nor more than 60 days’ notice delivered to each registered holder of the Notes to be redeemed. If the redemption notice is given and funds deposited as required, then interest will cease to accrue on and after the redemption date on the Notes or portions of such Notes called for redemption. In the event that any redemption date is not a Business Day, the Company will pay the redemption price on the next Business Day without any interest or other payment due to the delay. If less than all of the outstanding Notes are to be redeemed, subject to the DTC procedures for global notes, the Notes will be selected to be redeemed in principal amounts of US$2,000 or integral multiples of US$1,000 in excess thereof. In the event the Notes are not held through DTC, the Trustee may select the Notes by lot, pro rata or by any other method the Trustee considers fair and appropriate and in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances.

Certain Covenants The Indenture will contain, among other things, the following covenants:

Change of Control Offer to Purchase If a Change of Control occurs, each holder of Notes will have the right to require the Company to repurchase all or any part (equal to US$2,000 or an integral multiple of US$1,000 in excess thereof) of that holder’s Notes pursuant to a Change of Control Offer on the terms set forth in the Indenture. In the Change of Control Offer, the Company will offer to make a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest on the Notes repurchased to (but not including) the date of purchase (the “Change of Control Payment”). Within 30 days following any Change of Control, the Company will deliver a notice to each holder (with a copy to the Trustee) describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in the notice (the “Change of Control Payment Date”), which date will be no earlier than 30 days and no later than 60 days from the date such notice is delivered, pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the Indenture by virtue of such compliance. On the Change of Control Payment Date, the Company will, to the extent lawful: (1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and (3) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an officers’ certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. The paying agent will promptly deliver to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Company will issue and the Trustee will promptly authenticate and deliver (or cause to be transferred by book entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any. The Company will

144 publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. However, the Company will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption with respect to all Notes has been given pursuant to the Indenture as described above under the caption “—Redemption—Optional Redemption,” unless and until there is a default in payment of the applicable redemption price; and a Change of Control Offer may be made in advance of a Change of Control, conditioned upon the consummation of such Change of Control, if a definitive agreement is in place for the Change of Control at the time the Change of Control Offer is made. If a Change of Control occurs at a time when the Company is prohibited, by the terms of any of its Indebtedness, from purchasing the Notes, the Company may seek the consent of its lenders to the purchase of the Notes or may attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company would remain prohibited from purchasing the Notes. In such case, the Company’s failure to offer to purchase the Notes would constitute a Default (as defined below) under the Indenture. For the avoidance of doubt, the Indenture provides that the Company’s failure to offer to purchase the Notes would constitute a Default under clause (3) and not clause (1) under the caption “—Events of Default,” but the failure of the Company to pay the Change of Control Payment when due shall constitute a Default under clause (1) under such caption. Future indebtedness that the Company or the Guarantors may incur may contain prohibitions on the occurrence of certain events that would constitute a Change of Control or require the repurchase of such indebtedness upon a Change of Control. Moreover, the exercise by the holders of Notes of their right to require the Company to repurchase their Notes could cause a default under such Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company’s ability to pay cash to the holders of Notes following the occurrence of a Change of Control may be limited by the Company’s then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. See “Risk Factors—Risks Relating to the Notes—Virgin Australia may not be able to satisfy its obligations to holders of the Notes upon a change of control.” The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other Disposition of “all or substantially all” of the properties or assets of the Company and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Company to repurchase its Notes as a result of a sale, lease, transfer, conveyance or other Disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain.

Restricted Payments The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of

145 its Restricted Subsidiaries) or to the direct or indirect holders of the Company’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than (x) dividends, distributions or payments payable in Qualifying Equity Interests or in the case of preferred stock of the Company, an increase in the liquidation value thereof, and (y) dividends, distributions or payments payable to the Company or a Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company; (3) make any voluntary payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value (collectively for purposes of this clause (3), a “purchase”) any Indebtedness of the Company or any Guarantor that is contractually subordinated in right of payment to the Notes or to the applicable Note Guarantee (excluding any intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries), except any scheduled payment of interest and any purchase within two years of the Scheduled Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as “Restricted Payments”), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default has occurred and is continuing, (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least US$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock;” and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments (other than Restricted Investments) made by the Company and its Restricted Subsidiaries since the Closing Date and together with Restricted Investments outstanding at the time of giving effect to such Restricted Payment (excluding, in each case, Restricted Payments permitted by clauses (2) through (19) of the next succeeding paragraph), is less than the sum, without duplication, of: (1) 50% of the Consolidated Net Income (less 100% of such Consolidated Net Income which is a deficit) of the Company for the period (taken as one accounting period) from October 1, 2014 to the end of the Company’s most recently ended fiscal quarter for which financial statements are available at the time of such Restricted Payment; plus (2) 100% of the aggregate net cash proceeds and the Fair Market Value of non-cash consideration received by the Company after the Closing Date, in each case, as a contribution to its common equity capital or from the issue or sale of Qualifying Equity Interests (other than Qualifying Equity Interests sold to a Subsidiary of the Company, and excluding Excluded Contributions); plus (3) 100% of the aggregate net cash proceeds and the Fair Market Value of non-cash consideration received by the Company or a Restricted Subsidiary of the Company from the issue or sale of convertible or exchangeable Disqualified Stock of the Company or a Restricted Subsidiary of the Company or convertible or exchangeable debt securities of the Company or a Restricted Subsidiary of the Company (regardless of when issued or sold) or in connection with the conversion or exchange thereof, in each case that have been converted into or exchanged after the Closing Date for Qualifying Equity Interests (other than Qualifying Equity Interests and convertible or exchangeable Disqualified Stock or debt securities sold to a Subsidiary of the Company); plus (4) to the extent that any Restricted Investment that was made after the Closing Date by the Company or any of its Subsidiaries is (a) sold for cash or otherwise cancelled, liquidated or repaid for cash, or (b) made in an entity that subsequently becomes a Restricted Subsidiary of the Company, the initial amount of such Restricted Investment (or, if less, the amount of cash received upon repayment or sale); plus

146 (5) to the extent that any Unrestricted Subsidiary (other than any Unrestricted Subsidiary to the extent the Investment in such Unrestricted Subsidiary constituted a Permitted Investment) of the Company designated as such after the Closing Date is redesignated as a Restricted Subsidiary after the Closing Date, the greater of (i) the Fair Market Value of the Company’s Restricted Investment in such Subsidiary as of the date of such redesignation or (ii) such Fair Market Value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary after the Closing Date; plus (6) 100% of any dividends received in cash by the Company or a Restricted Subsidiary of the Company after the Closing Date from an Unrestricted Subsidiary (other than any Unrestricted Subsidiary to the extent the Investment in such Unrestricted Subsidiary constituted a Permitted Investment) of the Company, to the extent that such dividends were not otherwise included in the Consolidated Net Income of the Company for such period. There shall be no increase in respect of any amount contemplated by clauses (4), (5) or (6) above pursuant to any such clause to the extent such amount otherwise increases the capacity of the Company or any of its Restricted Subsidiaries to make Restricted Payments pursuant to this paragraph or clause (15) of the next succeeding paragraph. The preceding provisions will not prohibit the following (each, a “Permitted Payment”): (1) the payment of any dividend or distribution or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or distribution or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or distribution or redemption payment would have complied with the provisions of the Indenture; (2) the making of any Restricted Payment in exchange for, or out of or with the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Qualifying Equity Interests or from the substantially concurrent contribution of common equity capital to the Company; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will not be considered to be net proceeds of Qualifying Equity Interests for purposes of clause (c)(2) of the preceding paragraph and will not be considered to be Excluded Contributions; (3) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution), distribution or payment by a Restricted Subsidiary of the Company to the holders of its Equity Interests on a pro rata basis; (4) the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Company or any Guarantor that is contractually subordinated in right of payment to the Notes or to the applicable Note Guarantee with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (5) the repurchase, redemption, acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any current or former officer, director, consultant or employee (or their estates or beneficiaries of their estates) of the Company or any of its Restricted Subsidiaries pursuant to any management equity plan or equity subscription agreement, stock option agreement, shareholders’ agreement or other agreement to compensate such persons; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed US$20.0 million in any twelve-month period (except to the extent such repurchase, redemption, acquisition or retirement is in connection with the acquisition of a Permitted Business or merger, consolidation or amalgamation otherwise permitted by the Indenture, in which case the aggregate price paid by the Company and its Restricted Subsidiaries may not exceed US$30.0 million in connection with such acquisition of a Permitted Business or merger, consolidation or amalgamation); provided further that the Company or any of its Restricted Subsidiaries may carry over and make in subsequent twelve-month periods, in addition to the

147 amounts permitted for such twelve-month period, up to US$5.0 million of unutilized capacity under this clause (5) attributable to the immediately preceding twelve-month period; (6) the repurchase of Equity Interests or other securities deemed to occur upon (a) the exercise of stock options, warrants or other securities convertible or exchangeable into Equity Interests or any other securities, to the extent such Equity Interests or other securities represent a portion of the exercise price of those stock options, warrants or other securities convertible or exchangeable into Equity Interests or any other securities or (b) the withholding of a portion of Equity Interests issued to employees and other participants under an equity compensation program of the Company or its Subsidiaries to cover withholding tax obligations of such persons in respect of such issuance or upon the vesting of such Equity Interests; (7) so long as no Default or Event of Default has occurred and is continuing, the declaration and payment of regularly scheduled or accrued dividends, distributions or payments to holders of any class or series of Disqualified Stock or subordinated debt of the Company or any preferred stock of any Restricted Subsidiary of the Company in each case either outstanding on the Closing Date or issued on or after the Closing Date in accordance with the covenant described below under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock;” (8) payments of cash, dividends, distributions, advances, common stock or other Restricted Payments by the Company or any of its Restricted Subsidiaries to allow the payment of cash in lieu of the issuance of fractional shares upon (i) the exercise of options or warrants, (ii) the conversion or exchange of Capital Stock of any such Person or (iii) the conversion or exchange of Indebtedness or hybrid securities into Capital Stock of any such Person; (9) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Company or any Disqualified Stock or preferred stock of any Restricted Subsidiary of the Company to the extent such dividends are included in the definition of Fixed Charges for such Person; (10) in the event of a Change of Control, and if no Default or Event of Default shall have occurred and be continuing, the payment, purchase, redemption, defeasance or other acquisition or retirement of any subordinated Indebtedness of the Company or any Guarantor, in each case, at a purchase price not greater than 101% of the principal amount of such subordinated Indebtedness, plus any accrued and unpaid interest thereon; provided, however, that prior to such payment, purchase, redemption, defeasance or other acquisition or retirement, the Company or any such Guarantor (or a third party to the extent permitted by the Indenture) has made a Change of Control Offer with respect to the Notes as a result of such Change of Control and has repurchased all Notes validly tendered and not withdrawn in connection with such Change of Control Offer (it being agreed that the Company or the applicable Guarantor may pay, purchase, redeem, defease or otherwise acquire or retire such subordinated Indebtedness even if the purchase price exceeds 101% of the principal amount of such subordinated Indebtedness; provided that the amount paid in excess of 101% of such principal amount is otherwise permitted under the Restricted Payments covenant); (11) Restricted Payments made with Excluded Contributions; (12) the distribution, as a dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to the Company or any of its Restricted Subsidiaries by, any Unrestricted Subsidiary; (13) the distribution or dividend of assets or Capital Stock of any Person in connection with any full or partial “spin-off” of a Subsidiary or similar transactions; provided that (a) in connection with any full or partial “spin-off” or similar transactions of any Subsidiary that is a Guarantor, the Company would, on the date of such distribution after giving pro forma effect thereto as if the same had occurred at the beginning of the applicable four-quarter period, (I) be permitted to incur at least US$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption

148 “—Incurrence of Indebtedness and Issuance of Preferred Stock” or (II) the Fixed Charge Coverage Ratio for the Company and its Restricted Subsidiaries would be greater than or equal to such ratio for the Company and its Restricted Subsidiaries immediately prior to such transaction and (b) for any full or partial “spin-off” or similar transactions of any Subsidiary that is not a Guarantor, no Default has occurred and is continuing; (14) the distribution or dividend of assets or Capital Stock of any Person in connection with any full or partial “spin-off” of a Subsidiary or similar transactions having an aggregate Fair Market Value not to exceed US$250.0 million since the Closing Date; (15) so long as no Default has occurred and is continuing any (x) Restricted Payments (other than any Restricted Investments) made on and after the Closing Date and (y) Restricted Investments outstanding at any such time, in an aggregate amount which, when taken together with all such Restricted Payments and Restricted Investments, does not to exceed US$100.0 million; and (16) the payment of any amounts in respect of any restricted stock units or other instruments or rights whose value is based in whole or in part on the value of any Equity Interests issued to any directors, officers or employees of the Company or any Restricted Subsidiary of the Company; (17) any Restricted Payments that are required to be made in connection with the Velocity Transaction in order to comply with or give effect to the provisions of the Velocity Transaction Documents; (18) any Restricted Payments that are required to be made in connection with the consummation of the Tigerair Minority Acquisition in order to comply with or give effect to the provisions of the Tigerair Australia Share Purchase Agreement; and (19) Restricted Payments (other than any Restricted Investments) made on and after the Closing Date and (y) Restricted Investments outstanding at any such time, in an aggregate amount which, when taken together with all other Restricted Payments and Restricted Investments made pursuant to this clause (19), does not exceed 2.5% of the Consolidated Tangible Assets of the Company and its Restricted Subsidiaries (calculated at the time of such Restricted Payment). In the case of any Restricted Payment that is not cash, the amount of such non-cash Restricted Payment will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary of the Company, as the case may be, pursuant to the Restricted Payment. The Fair Market Value of any assets or securities that are required to be valued by this covenant will be determined by an officer of the Company and, if greater than US$10.0 million, set forth in an officers’ certificate of the Company delivered to the Trustee. For purposes of determining compliance with this covenant, if a proposed Restricted Payment (or portion thereof) meets the criteria of more than one of the categories of Restricted Payments described in clauses (1) through (19) above, or is entitled to be made pursuant to the first paragraph under this caption “—Restricted Payments,” the Company will be entitled to classify on the date of its payment or later reclassify such Restricted Payment (or portion thereof) in any manner that complies with this covenant. Notwithstanding anything in the Indenture to the contrary, if a Restricted Payment is made (or any other action is taken or omitted under the Indenture) at a time when a Default or Event of Default has occurred and is continuing and such Default or Event of Default is subsequently cured, any Default or Event of Default arising from the making of such Restricted Payment (or the taking or omission of such other action) during the existence of such Default or Event of Default shall simultaneously be deemed cured.

149 Incurrence of Indebtedness and Issuance of Preferred Stock The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, “incur”) any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock and the Company’s Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) or issue preferred stock, if the Company’s Fixed Charge Coverage Ratio for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or such preferred stock is issued, as the case may be, would have been at least 1.1 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”): (1) the incurrence by the Company and the Guarantors of the Notes and Note Guarantees in the aggregate principal amount to be issued on the Closing Date and any Permitted Refinancing Indebtedness that is incurred to renew, refund, refinance, replace, defease, extend or discharge any Indebtedness incurred pursuant to this clause (1); (2) the incurrence by the Company or any of its Restricted Subsidiaries of (a) the Existing Indebtedness and any Indebtedness that is incurred pursuant to or in lieu of a commitment in existence as of the Closing Date and (b) the Tigerair Existing Indebtedness and any Indebtedness that is incurred by, or in respect of, Tigerair Australia pursuant to or in lieu of a commitment in existence as of the closing date of the Tigerair Minority Acquisition; (3) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness (including Capital Lease Obligations, mortgage financings, purchase money obligations and government bond financings) incurred to finance (or to reimburse the Company or any of its Restricted Subsidiaries for) all or any part of the purchase price or cost of use, design, construction, installation or improvement of property, plant or equipment (including without limitation (and in each case, whether or not owned by the Company or its Restricted Subsidiaries) Aircraft Related Facilities or Aircraft Related Equipment); (4) the incurrence by the Company or any of its Restricted Subsidiaries of (a) Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, extend, defease or discharge any Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (4), (5), (12), (19) or (20) of this paragraph and (b) Permitted Refinancing Indebtedness secured by Aircraft Related Equipment or other assets replacing, renewing, refunding, extending, refinancing, defeasing or discharging any other Indebtedness of the Company or any of its Restricted Subsidiaries that was secured by Aircraft Related Equipment or other assets; including, in the case of both clauses (a) and (b), the incurrence (including by way of assumption, merger or co-obligation) by one or more of the Company and its Restricted Subsidiaries of Indebtedness of any other Restricted Subsidiaries in connection with, or in contemplation of, a spin-off of such other Restricted Subsidiary; (5) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness, Disqualified Stock or preferred stock (including Acquired Debt) (i) as part of, or to finance, the acquisition (including by way of merger) of any Permitted Business, (ii) incurred in connection with, or as a result of, the merger, consolidation or amalgamation of any Person (including the Company or any of its Restricted Subsidiaries) that owns a Permitted Business with or into the Company or a Restricted Subsidiary of the Company, or into which the Company or a

150 Restricted Subsidiary of the Company is merged, consolidated or amalgamated, or (iii) that is an outstanding obligation or commitment to enter into an obligation of a Person that owns a Permitted Business at the time that such Person is acquired by the Company or a Restricted Subsidiary of the Company and becomes a Restricted Subsidiary of the Company; provided that after giving pro forma effect to any such transaction described in clauses (i), (ii) or (iii) of this clause (5), either (x) the Company would be permitted to incur at least US$1.00 of additional Indebtedness pursuant to the first paragraph of this covenant or (y) the Company would have had a Fixed Charge Coverage Ratio not less than the actual Fixed Charge Coverage Ratio of the Company immediately prior to and without giving effect to such transactions; (6) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and/or any of its Restricted Subsidiaries; (7) the issuance by any of the Company’s Restricted Subsidiaries to the Company or to any of its Restricted Subsidiaries of shares of preferred stock; (8) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations in the Ordinary Course of Business and not for speculative purposes; (9) the guarantee (including by way of co-obligation or assumption) by the Company or any Restricted Subsidiary of the Company of Indebtedness of the Company or a Restricted Subsidiary of the Company (including in connection with or in contemplation of a spin-off of the original obligor of the guaranteed or assumed Indebtedness) to the extent that the guaranteed Indebtedness was permitted to be incurred by another provision of this covenant; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the Notes, then the Guarantee must be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed or assumed; (10) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness or reimbursement obligations in respect of workers’ compensation claims, self-insurance obligations (including reinsurance), bankers’ acceptances, performance bonds and surety bonds in the Ordinary Course of Business (including without limitation in respect of customs obligations, landing fees, Taxes, airport charges, overfly rights and any other obligations to airport and governmental authorities); (11) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of any overdrafts and related liabilities arising from treasury, depository and cash management services or in connection with any automated clearing house transfers of funds; (12) Indebtedness (a) constituting credit support or financing from aircraft, engine or parts manufacturers or their affiliates or (b) incurred to finance or refinance Aircraft Related Equipment or other assets (including, without limitation, to reimburse or provide funds to the Company or any of its Restricted Subsidiaries for or in respect of the acquisition cost of, or value of any of the foregoing, to finance or refinance any pre-delivery, progress or similar payment or pursuant to a sale and lease-back) (whether in advance of or at any time following any acquisition of items being financed or refinanced, and whether such indebtedness is unsecured in whole or in part or is secured by such items or by other items or by any combination); provided that the principal amount of such Indebtedness incurred in reliance on subsection (b) of this clause (12), at the time of incurrence of such Indebtedness, may exceed the aggregate incurred and anticipated costs to finance or refinance the acquisition of the item or items being financed or refinanced by such Indebtedness (calculated at the time of incurrence of such Indebtedness and determined in good faith by an officer of the Company or Restricted Subsidiary, as applicable, (including reasonable estimates of anticipated costs) and calculated to include, without limitation, purchase price, fees, expenses, repayment of any pre-delivery financing and related interest expense (whether or not capitalized) and premium (if any), delivery and late charges and other costs associated with such acquisition (as so calculated, for purposes of this proviso,

151 the “financing costs”)) but, if such principal amount exceeds such financing costs, it may not exceed the aggregate Fair Market Value of the relevant item or items (which Fair Market Value may, at the time of an advance commitment, be determined to be the Fair Market Value at the time of such commitment or (at the option of the issuer or such Indebtedness) the Fair Market Value projected for the time of incurrence of such Indebtedness); (13) Indebtedness issued to current or former directors, consultants, managers, officers and employees and their spouses or estates (a) to purchase or redeem Capital Stock of the Company issued to such director, consultant, manager, officer or employee in an aggregate principal amount not to exceed US$5.0 million in any twelve-month period or (b) pursuant to any deferred compensation plan approved by the Board of Directors of the Company; (14) reimbursement obligations in respect of standby or documentary letters of credit or banker’s undertakings (including those under Credit Facilities); (15) surety and appeal bonds that do not secure judgments that constitute an Event of Default; (16) Indebtedness of the Company or any of its Restricted Subsidiaries to Credit Card or travel charge processing service providers or other clearing house processors in connection with Credit Card, travel charge or similar transactions in relation to the sale of air travel, clearing house services and other services incurred pursuant to Card Acceptance and Processing Agreements or otherwise in the Ordinary Course of Business, whether in the form of hold- backs or otherwise; (17) the incurrence of Indebtedness in connection with a Qualified Receivables Transaction that is without recourse to the Company or to any other Restricted Subsidiary of the Company or their assets (other than such Receivables Subsidiary, its assets and the relevant Receivables and, as to the Company or any other Restricted Subsidiary of the Company, other than Standard Receivables Undertakings) and is not guaranteed by any such Person; (18) the incurrence of Indebtedness of the Company or any of its Restricted Subsidiaries owed to one or more Persons in connection with the financing of insurance premiums in the Ordinary Course of Business; (19) Indebtedness in respect of or in connection with tax-exempt or tax-advantaged municipal bond and similar financings related to Aircraft Related Facilities; (20) Credit Card purchases of fuel; (21) Indebtedness arising from agreements of the Company or any of its Restricted Subsidiaries providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the acquisition or Disposition of any business, assets or a Subsidiary; provided that, in the case of a Disposition, the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds, including non-cash proceeds (the Fair Market Value of such non-cash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Company or any of its Restricted Subsidiaries in connection with such Disposition; (22) Indebtedness of the Company or any of its Restricted Subsidiaries consisting of take-or-pay or like obligations contained in supply, maintenance, repair, power-by-the-hour, overhaul or like agreements either (a) entered into in the Ordinary Course of Business or (b) otherwise customary, typical or appropriate for a Permitted Business; and (23) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness and letters of credit (and reimbursement obligations with respect thereto) in an aggregate principal amount (or accreted value, as applicable), including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, extend, defease or discharge any Indebtedness incurred pursuant to this clause (23) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company

152 and its Restricted Subsidiaries thereunder) not to exceed, at any time outstanding, US$750.0 million. For purposes of determining compliance with this “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant, if an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (23) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify all or a portion of such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant; provided that the terms “Existing Indebtedness” and “Tigerair Existing Indebtedness” will not include any Indebtedness that is permitted to be incurred under clauses (1) or (23) of the definition of Permitted Debt. Additionally, all or any portion of any item of Indebtedness may later be reclassified as having been incurred pursuant to the first paragraph of this covenant or under any category of Permitted Debt described in clauses (1) through (23) above so long as such item (or portion) of Indebtedness is permitted to be incurred pursuant to such provision at the time of reclassification. None of the following will constitute an incurrence of Indebtedness or an issuance of preferred stock or Disqualified Stock for purposes of this “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant: (1) the accrual of interest or preferred stock dividends; (2) the accretion or amortization of original issue discount; (3) the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms; (4) the reclassification of preferred stock or of operating leases or any other instrument or transaction as Indebtedness due to a change in accounting principles or in GAAP or due to a modification of such operating leases; and (5) the payment of dividends on preferred stock or Disqualified Stock in the form of additional shares of the same class of preferred stock or Disqualified Stock. For purposes of determining compliance with any U.S. dollar-denominated restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be utilized, calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Company or any of its Restricted Subsidiaries may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values. The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value of the Indebtedness as of such date, in the case of any Indebtedness issued with original issue discount; (2) the principal amount of the Indebtedness as of such date, in the case of any other Indebtedness; and (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (a) the Fair Market Value of such assets as of such date; and (b) the amount of the Indebtedness of the other Person as of such date.

Additional Note Guarantees If the Company or any of its Restricted Subsidiaries acquires or creates another wholly-owned Subsidiary after the date of the Indenture and such newly acquired or created Subsidiary is or becomes a Material Subsidiary, unless prohibited by applicable law (including the Investment Company

153 Act, to the extent applicable), such newly acquired or created Subsidiary will become a Guarantor and execute a supplemental indenture effectuating such Guarantor’s Note Guarantee and deliver a customary opinion of counsel satisfactory to the Trustee (in a form consistent with the relevant opinion of counsel delivered on the Closing Date) within 30 Business Days of the date on which internal financial statements establish that it has become a Material Subsidiary; provided that any Subsidiary that constitutes a Receivables Subsidiary or an Unrestricted Subsidiary need not become a Guarantor until such time as it ceases to be a Receivables Subsidiary or an Unrestricted Subsidiary.

Designation of Restricted and Unrestricted Subsidiaries The Board of Directors may designate any Restricted Subsidiary (other than the Significant Guarantors) to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation. That designation will be permitted only if the Investment would be permitted at that time under the covenant described above under the caption “—Restricted Payments” and if the Restricted Subsidiary otherwise meets the definition of an “Unrestricted Subsidiary.” Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors giving effect to such designation and an officers’ certificate certifying that such designation complied with the preceding conditions. The Board of Directors may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will be permitted only if (1) such Indebtedness is permitted under the covenant described under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock,” calculated on a pro forma basis as if such designation had occurred at the beginning of the applicable reference period; and (2) no Default would be in existence following such designation. As of the Closing Date, each member of the Velocity Sub-Group, CPU Share Plans Pty Limited, as trustee of the Key Employee Performance Plan Trust, the Key Employee Performance Plan Trust, Virgin Tech Pty Ltd and Virgin Samoa Limited will each be designated as an Unrestricted Subsidiary. See “Risk Factors—Risks Relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness.” The Velocity Sub-Group owns Virgin Australia’s frequent flyer program, Velocity, and does not own or rent any aircraft or have other assets apart from the Velocity business. Virgin Australia currently holds a 65% interest in the Velocity Sub-Group. As at June 30, 2014, the Velocity Sub-Group was 100% indirectly owned by Virgin Australia and was consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2014. On August 28, 2014, Virgin Australia executed documents for the sale of a 35% minority interest in Velocity Holdco for gross proceeds of AU$336.0 million. The sale of this 35% interest closed on October 22, 2014. Virgin Australia has retained control of the Velocity Sub-Group and, as a result, the Velocity Sub-Group continues to be consolidated with the financial results and position of Virgin Australia as at and for the financial year ended June 30, 2015. Accordingly, the 35% interest held by Affinity is accounted for as a non-controlling interest and the results attributed to Affinity from October 22, 2014 are shown as net profit/(loss) attributable to non-controlling interests in Virgin Australia’s consolidated statement of profit or loss, directly below the net profit/(loss) attributable to the owners of Virgin Australia. For the financial year ended June 30, 2015, the statutory profit after tax attributable to non-controlling interests (representing Affinity’s ownership in the Velocity Sub-Group) was AU$17.0 million. See “Selected Financial and Operating Information”.

154 The Velocity business accounted for a material portion of Virgin Australia’s consolidated EBITDAR for each of the financial years ended June 30, 2015 and June 30, 2014. Going forward, the contribution of the Velocity business to Virgin Australia’s consolidated EBITDAR will vary after giving effect to the performance of Virgin Australia and the Velocity Sub-Group as well as the impact of the Tigerair Minority Acquisition (including any losses incurred by Tigerair Australia in future periods). For a discussion of Velocity, its anticipated distribution policy and other factors to consider in assessing the Velocity Sub-Group’s importance to the Virgin Australia Group, see “Risk Factors—Risks Relating to the Notes—Virgin Australia is permitted to create Unrestricted Subsidiaries, which will not be subject to any of the covenants in the Indenture, and Virgin Australia may not be able to rely on the cash flow or assets of those Unrestricted Subsidiaries to pay its indebtedness,” “Selected Financial and Operating Information” and “Business—Virgin Australia’s Operations—Loyalty Program—Velocity—Virgin Aus- tralia and Affinity Joint Venture in relation to the Velocity Business.” For the financial year ended June 30, 2015, the Unrestricted Subsidiaries generated 2% of Virgin Australia’s consolidated revenue and income and 22% of Virgin Australia’s consolidated net loss after tax, and reduced Virgin Australia’s consolidated Operating Segment EBITDAR by 3%. As at June 30, 2015, the Unrestricted Subsidiaries held 2% of Virgin Australia’s total consolidated assets and 11% of Virgin Australia’s total consolidated liabilities. For the avoidance of doubt, none of Virgin Australia Airlines Holdings Pty Ltd, Virgin Australia Airlines Pty Ltd, Virgin Australia International Holdings Pty Ltd or Virgin Australia International Airlines Pty Ltd may be designated as an Unrestricted Subsidiary.

Reports and Other Information The Company will provide to the Trustee and each holder of the Notes or will provide to the Trustee for forwarding to each holder of the Notes upon request, without cost to such holder of the Notes: (1) as soon as available after the end of each fiscal year (and, in any event, within 90 days after the close of such fiscal year), annual reports in English, including financial statements (containing a consolidated statement of financial position as of the end of such fiscal year and immediately preceding fiscal year, and consolidated statements of profit or loss, profit or loss and other comprehensive income, changes in equity and cash flows for such fiscal year and the immediately preceding fiscal year) with a report thereon by an internationally recognized independent firm of chartered accountants; (2) as soon as available (and, in any event, within 60 days after the close of the first six months in each fiscal year) interim semi-annual reports in English, containing a condensed consolidated statement of financial position as of the end of each interim period covered thereby and as of the end of the immediately preceding fiscal year, and condensed consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for each interim period covered thereby and for the comparable period of the immediately preceding fiscal year; and (3) whether or not the Company has equity listed on the Australian Stock Exchange (“ASX”), any other documents filed, furnished or otherwise provided or that would be required to be provided to the ASX pursuant to the continuous reporting requirements under Australian securities laws and regulations and ASX rules if the Company had equity listed on the ASX. The Company need not provide those annual or interim reports to the Trustee and each holder of the Notes if and to the extent that the Company (a) files or furnishes those reports with the ASX and those reports are publicly available on the ASX website within the time periods referred to in clauses (i) and (ii) above and (b) notifies the Trustee that such reports have been so filed or furnished and are publicly available. In the event that the Company is neither subject to Section 13 or 15(d) of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, the Company will also, for so long as any of the Notes remain “restricted securities” under Rule 144(a)(3) under the Securities Act, furnish or cause to be furnished to the holders of the Notes, beneficial owners of the Notes,

155 securities analysts and prospective investors upon request the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

Merger and Sales of Assets The indenture provides that the Company may consolidate with or merge into, or convey, transfer or lease all or substantially all of the Company’s properties and assets to, any Person provided that, among other items: (1) the resulting, surviving or transferee Person is a Person organized or existing under the laws of an Acceptable Jurisdiction and expressly assumes by a supplemental indenture, all the obligations under the Notes and the Indenture; and (2) except in connection with a merger of the Company with a Significant Guarantor, immediately after giving effect to such transaction, no Event of Default shall have occurred and be continuing. Any such Person assuming all of the obligations under the Notes and the Indenture will succeed to and be substituted for, and may exercise every right and power of, the Company under the Indenture, but the predecessor, in the case of a lease of all or substantially all of its assets or a disposal or conveyance of substantially all (but less than all) of the assets of the Company, shall not be released from the obligation to pay the principal of and interest on the Notes. A Guarantor may consolidate with or merge into, or convey, transfer or lease all or substantially all of its properties and assets to, any Person provided that, among other items: (1) except in the case of (i) such a Guarantor that has been disposed of in its entirety to another Person (other than to the Company or a Subsidiary of the Company) or otherwise ceases to be a Guarantor as a result of such transaction or series of transactions, whether through a merger, consolidation or sale of Capital Stock or assets or (ii) a Guarantor conveying, transferring or leasing all or substantially all of its properties and assets in circumstances where, at the time of the conveyance, transfer or lease, such Guarantor could have been disposed of in its entirety to another Person and ceased to be a Guarantor as contemplated by (i) above, the resulting, surviving or transferee Person is a Person organized or existing under the laws of an Acceptable Jurisdiction or, in the case of a predecessor Guarantor organized or existing in another jurisdiction, the same jurisdiction as the predecessor Guarantor and expressly assumes by a supplemental indenture, all the obligations under such Guarantor’s Note Guarantee to the extent that such resulting, surviving or transferee Person is not the Company or already a Guarantor; and (2) except in connection with a merger of such Guarantor with the Company or another Guarantor, immediately after giving effect to such transaction, no Event of Default shall have occurred and be continuing. Any such Person assuming all of the obligations under such Guarantor’s Note Guarantee will succeed to and be substituted for, and may exercise every right and power of, such Guarantor under the Indenture. A Guarantor leasing all or substantially all of its assets or disposing of or conveying substantially all (but less than all) of its assets shall not be released from the obligation to pay amounts under the relevant Note Guarantee. For the avoidance of doubt, this section will not restrict mergers, conveyances, transfers or leases by a Restricted Subsidiary of the Company that is not a Guarantor.

156 Events of Default An “Event of Default” occurs with respect to the Notes if any of the following occurs: (1) default in any payment of the principal amount or premium, if any, on any of the Notes when such amount becomes due and payable at Stated Maturity, upon acceleration, redemption or otherwise; (2) failure to pay interest on the Notes when such interest becomes due and payable and such failure continues for a period of 30 days; (3) failure by the Company or any of its Restricted Subsidiaries to comply with any other covenants or agreements applicable to the Notes and such failure continues for 60 days after the notice specified below; (4) except as permitted by the Indenture, a Note Guarantee of a Significant Subsidiary is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or a Guarantor denies or disaffirms in writing its obligations under its Note Guarantee; or (5) certain events of bankruptcy, insolvency or reorganization described in the Indenture with respect to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of its Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary (other than in connection with a consolidation or merger of, or conveyance or transfer of all or substantially all of the assets of, a Restricted Subsidiary permitted under the covenant described under the caption “—Merger and Sales of Assets” at such time as such Restricted Subsidiary is solvent). A Default under clause (3) above will not constitute an Event of Default until the Trustee notifies the Company, or the holders of at least 25% in principal amount of the outstanding Notes notify the Company and the Trustee, of the Default and the Company does not cure such Default within 60 days after receipt of such notice. If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization with respect to the Company or its Restricted Subsidiaries that are Significant Subsidiaries) occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the Notes then outstanding, by written notice to the Company (and to the Trustee, if such notice is given by the holders of the Notes), may, and the Trustee at the written direction of such holders (subject to being indemnified and/or pre-funded to its satisfaction) shall, declare the principal amount of the Notes and any accrued and unpaid interest on the Notes to be due and payable. Upon such a declaration, such amounts shall be due and payable immediately. In the case of certain events of bankruptcy, insolvency or reorganization with respect to the Company or its Restricted Subsidiaries that are Significant Subsidiaries, the principal amount of and accrued and unpaid interest on the Notes shall automatically become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder. If a Default with respect to the Notes occurs and is continuing and is actually known to a Responsible Officer of the Trustee, the Trustee will deliver to each holder of the Notes notice of the Default within 90 days after it occurs. An Event of Default with respect to the Notes will not necessarily be an event of default with respect to any other debt securities issued under the Indenture, and an event of default with respect to another series of debt securities issued under the Indenture will not necessarily be an Event of Default with respect to the Notes. The Indenture provides that the holders of a majority in principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee for the Notes, or exercising any trust or power conferred on the Trustee with respect to the Notes. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture or, subject to certain exceptions, that the Trustee determines is unduly prejudicial to the rights of any

157 other holder of the Notes or that would subject the Trustee to personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any such action, the Trustee shall be entitled to indemnification and/or pre- funding satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. By notice to the Trustee, the holders of a majority in aggregate principal amount of the Notes then outstanding may waive an existing Default and its consequences except (i) a Default in the payment of the principal amount of, premium, if any, and accrued and unpaid interest on the Notes, (ii) a Default arising from the failure to redeem or purchase any Note when required pursuant to the terms of the Indenture or (iii) a Default in respect of a provision that under the Indenture cannot be amended without the consent of each holder of the Notes affected. Further, the holders of a majority in principal amount of the Notes, by written notice to the Company and the Trustee, may rescind an acceleration of the Notes and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default with respect to the Notes have been cured or waived, except non- payment of the principal amount of, and accrued and unpaid interest on, the Notes that has become due solely by such declaration of acceleration.

Modification of Indenture

Without Holder Consent Without notice to or the consent of any holders of Notes, the Company, the Guarantors and the Trustee may amend the Indenture as it applies to the Notes: (1) to evidence the succession of another Person to the Company or a Guarantor pursuant to a consolidation, merger or conveyance, transfer or lease of assets permitted under the Indenture; or (2) to add to the covenants such further covenants, restrictions, conditions or provisions for the protection and/or benefit of the holders of the Notes, and to add any additional Events of Default for the Notes, subject to certain limitations; or (3) to cure any ambiguity or correct or supplement any provision contained in the Indenture, in any supplemental indenture, board resolution, officers’ certificate or in the Notes that may be defective or inconsistent with any other provision contained therein; or (4) to convey, transfer, assign, mortgage or pledge any property to or with the Trustee, or to make such other provisions in regard to matters or questions arising under the Indenture as shall not adversely affect the interests of any holders of Notes; or (5) to modify or amend the Indenture in such a manner as to permit the qualification of the Indenture or any supplemental indenture under the Trust Indenture Act as then in effect; or (6) to conform the text of the Indenture or the Notes to the “Description of Notes” set forth in this offering circular to the extent that such provision in the Description of Notes was intended to be a verbatim, or substantially verbatim, recitation of a provision of the Indenture or the Notes; or (7) to add to or change any provisions of the Indenture to such extent as necessary to permit or facilitate the issuance of the Notes in bearer or uncertificated form; provided that any such action shall not adversely affect the interests of the holders of Notes in any material respect; or (8) to provide security for the Notes; or (9) to provide additional Guarantees for the Notes or to confirm and evidence the release, termination or discharge of any Note Guarantee when such release, termination or discharge is permitted under the Indenture; or (10) to make any change that does not adversely affect the rights of any holder of Notes; or

158 (11) to evidence and provide for the acceptance of appointment of a separate or successor Trustee and to add to or change any of the provisions of the Indenture as shall be necessary to provide for or facilitate the administration of the Indenture by more than one Trustee.

With Holder Consent Except as provided above, the consent of the holders of a majority in aggregate principal amount of the Notes is generally required to amend the Indenture as it applies to the Notes. However, without the consent of each holder of an affected Note, an amendment may not: (1) make any change to the percentage of principal amount of Notes the holders of which must consent to an amendment or waiver; or (2) reduce the principal amount of, premium, if any, or interest on, or extend the Stated Maturity or interest payment periods, of the Notes; or (3) make the Notes of such holder payable in money or securities other than that as stated in the Notes; or (4) make any change that adversely affects such holders’ right to require the Company to purchase the Notes of such holder in accordance with the terms of the Indenture; or (5) impair the right of such holder to institute suit for the enforcement of any payment with respect to the Notes; or (6) except as referred to under “—Satisfaction and Discharge of the Indenture; Defeasance” or in connection with a consolidation, merger or conveyance, transfer or lease of assets pursuant to the Indenture, release any Guarantor from its obligations under its Note Guarantee or make any change in any Note Guarantee that would adversely affect such holder; or (7) change certain requirements relating to waiving an existing Default or to the right to receive payment of, or bring suit to enforce payments of, the principal amount of, premium, if any, or interest on the Notes; or (8) modify any of the foregoing provisions of this sentence.

Satisfaction and Discharge of the Indenture; Defeasance The Indenture shall cease to be of any further effect with respect to the Notes if either (a) the Company has delivered to the Trustee for cancellation all Notes (with certain limited exceptions) or (b) all Notes not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable at their maturity within one year or are to be called for redemption within one year, and the Company shall (i) have deposited with the Trustee as trust funds the amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest, if any, to the date of such deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or redemption date, as the case may be, and (ii) have delivered to the Trustee an officers’ certificate and a customary opinion of counsel, each stating that all conditions precedent provided for or relating to the legal defeasance or the covenant defeasance have been complied with. In addition, the Company shall have a “legal defeasance option” (pursuant to which the Company may terminate, with respect to the Notes, all of its obligations, except for certain obligations, under the Notes and the Indenture with respect to the Notes and all obligations of the Guarantors under the Note Guarantees) and a “covenant defeasance option” (pursuant to which the Company may terminate, with respect to the Notes, its obligations under the covenants described under “—Certain Covenants” above). If the legal defeasance option is exercised with respect to the Notes, payment of the Notes may not be accelerated because of an Event of Default. If the covenant defeasance option is exercised with respect to the Notes, payment of the Notes may not be accelerated because of an Event of Default related to the specified covenants.

159 In order to exercise either the legal defeasance option or the covenant defeasance option with respect to the Notes: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, cash, non-callable U.S. government securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized independent registered public accounting firm, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (2) in the case of an election of the legal defeasance option, the Company shall have delivered to the Trustee a customary opinion of counsel reasonably acceptable to the Trustee confirming that: (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (3) in the case of an election of the covenant defeasance option, the Company shall have delivered to the Trustee a customary opinion of counsel reasonably acceptable to the Trustee confirming that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (4) no Event of Default shall have occurred and be continuing either: (x) on the date of such deposit (other than an Event of Default resulting from the borrowing of funds to be applied to such deposit); or (y) insofar as certain bankruptcy, insolvency or reorganization Events of Default are concerned, at any time in the period ending on the 91st day after the date of deposit; (5) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which the Company is a party or by which the Company is bound; (6) the Company shall have delivered to the Trustee an officers’ certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Notes over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (7) the Company shall have delivered to the Trustee an officers’ certificate and a customary opinion of counsel, each stating that all conditions precedent provided for or relating to the legal defeasance or the covenant defeasance have been complied with.

No Registration Rights The Company does not intend to file a registration statement for the resale of the Notes or for a registered exchange offer with respect to the Notes. Accordingly, holders of Notes may only sell their Notes pursuant to an exemption from the registration requirements of the Securities Act. See “Transfer Restrictions.”

The Trustee The Bank of New York Mellon is the Trustee under the Indenture. Except during the continuance of an Event of Default, the Trustee need perform or be required to perform only those duties that are specifically set forth in the Indenture and no others, and no implied covenants or obligations will be

160 read into the Indenture against the Trustee. In case an Event of Default has occurred and is continuing, the Trustee shall exercise those rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. No provision of the Indenture will require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties thereunder, or in the exercise of its rights or powers, unless it receives indemnity and/or pre- funding satisfactory to it against any loss, liability or expense. The Trustee is permitted to engage in other transactions with the Company and its affiliates.

The Paying Agent, Transfer Agent and Registrar The Bank of New York Mellon has been appointed the paying agent, transfer agent and registrar for the Notes. References to the Trustee shall, as appropriate, refer also to the paying agent, transfer agent and registrar, and such other entities shall be entitled to the same rights, protections and indemnities granted to the Trustee. Notes are transferable at the office of the transfer agent. Principal and interest will be payable at the office of the paying agent. The Company may, however, pay interest at its option by check delivered to registered holders of the Notes or by wire transfer to an account of the Person entitled thereto as such account shall be provided to the registrar for the Notes. Payments of principal of the Notes will be made against surrender of the Notes at the office of the paying agent by wire transfer to an account of the Person entitled thereto as such account shall be provided to the registrar for the Notes. The Company may at any time designate additional paying agents or transfer agents or rescind the designation of paying agents or transfer agents or approve a change in the office through which any paying agent or transfer agent acts without prior notice to the holders of the Notes. The Company may also choose to act as its own paying agent, but must also maintain a paying agency in the Borough of Manhattan, City of New York. Whenever there are changes in the paying agent for the Notes, the Company must notify the Trustee. The paying agent will also initially serve as the registrar for the Notes. The Company may also change the registrar without prior notice to the holders of the Notes.

Governing Law The Indenture is, and the Notes and Note Guarantees will be, governed by, and construed in accordance with, the laws of the State of New York.

Agent for Service of Process Each of the Company and the Guarantors will irrevocably (1) submit to the non-exclusive jurisdiction of any United States federal or New York State court located in the Borough of Manhattan, the City of New York in connection with any suit, action or proceeding arising out of, or relating to the Notes, the Note Guarantees and the Indenture and (2) designate and appoint Law Debenture Corporate Services Inc., 400 Madison Avenue, 4th Floor, New York, NY 10017 as its authorized agent for receipt of service of process in any such suit, action or proceeding.

Currency Indemnity U.S. dollars are the sole currency of account and payment for all sums payable by the Company or the Guarantors under or in connection with the Indenture, the Notes and the Guarantees, including damages. Any amount received or recovered in a currency other than U.S. dollars (whether as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up or dissolution of the Company or otherwise) by any Person in respect of any sum expressed to be due to

161 it from the Company or the Guarantors in connection with the Indenture, the Notes and the Guarantees will only constitute a discharge to the Company or the Guarantors, as the case may be, to the extent of the U.S. dollar amount which the recipient is able to purchase with the amount so received or recovered in that other currency on the date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so). If that U.S. dollar amount is less than the U.S. dollar amount expressed to be due to the recipient, the Company and the Guarantors will indemnify such recipient against any loss sustained by it as a result; and if the amount of U.S. dollars so purchased is greater than the sum originally due to such recipient, such recipient will be deemed to have agreed to repay such excess. In any event, the Company and the Guarantors will indemnify the recipient against the cost of making any such purchase. For the purposes of the preceding paragraph, it will be sufficient for the recipient to certify in a satisfactory manner (indicating the sources of information used) that it would have suffered a loss had an actual purchase of U.S. dollars been made with the amount so received in that other currency on the date of receipt or recovery (or, if a purchase of U.S. dollars on such date had not been practicable, on the first date on which it would have been practicable, it being required that the need for a change of date be certified in the manner mentioned above). These indemnities constitute a separate and independent obligation from the other obligations of the Company and the Guarantors, will give rise to a separate and independent cause of action, will apply irrespective of any indulgence granted by any holder of a Note and will continue in full force and effect despite any other judgment, order, claim or proof for a liquidated amount in respect of any sum due under any Note.

Form and Settlement; Book-Entry System The Notes will be issued in the form of one or more fully registered global notes which will be deposited with, or on behalf of, DTC, as the depositary, and registered in the name of DTC’s nominee. Beneficial interests in the global notes will be represented through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in DTC. Except under circumstances described below, the Notes will not be issuable in definitive form. The laws of some states require that certain purchasers of securities take physical delivery of their securities in definitive form. These limits and laws may impair the ability to transfer beneficial interests in the global notes. So long as the depositary or its nominee is the registered owner of the global notes, the depositary or its nominee will be considered the sole owner or holder of the Notes represented by the global notes for all purposes under the Indenture. Except as provided below, owners of beneficial interests in the global notes will not be entitled to have Notes represented by the global notes registered in their names, will not receive or be entitled to receive physical delivery of Notes in definitive form and will not be considered the owners or holders thereof under the Indenture. Principal and interest payments on Notes registered in the name of the depositary or its nominee will be made to the depositary or its nominee, as the case may be, as the registered owner of the global notes. None of the Company, the Guarantors, the Trustee, any paying agent or registrar for the Notes will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial interests in the global notes or for maintaining, supervising or reviewing any records relating to these beneficial interests. We expect that the depositary for the Notes or its nominee, upon receipt of any payment of principal or interest, will credit the participants’ accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the global notes as shown on the records of the depositary or its nominee. We also expect that payments by participants to owners of beneficial interests in the global notes held through these participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of these participants.

162 Notes represented by the global note will be exchangeable for certificated securities with the same terms only if: • DTC notifies the Company that it is unwilling or unable to continue as depositary or if DTC ceases to be a clearing agency registered under the Exchange Act and, in either case, the Company fails to appoint a successor depositary within 90 days following the notification to Company or the Company becoming aware of such event; or • the Company executes and delivers to the Trustee an officers’ certificate to the effect that such global note shall be so exchangeable; or • an Event of Default shall have occurred and be continuing and owners of beneficial interests in the global note in an amount not less than a majority of the aggregate outstanding principal amount of such global note have delivered to the Company and the Trustee a notice indicating that the continuation of the book-entry system through DTC is no longer in the best interests of the holders of such beneficial interests; or • we and a holder of a beneficial interest in a global note otherwise agree. DTC has advised us as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a member of the Federal Reserve System. DTC facilitates the settlement of transactions among its participants through electronic computerized book-entry changes in participants’ accounts, eliminating the need for physical movement of securities certificates. DTC’s participants include securities brokers and dealers, including the underwriters, banks, trust companies, clearing corporations and other organizations, some of whom and/or their representatives, own The Depository Trust & Clearing Corporation, the sole owner of DTC. Access to DTC’s book-entry system is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly.

Certain Definitions Set forth below are certain defined terms used in the Indenture, which are used in the descriptions under “—Certain Covenants” above: “Acceptable Jurisdiction” means Australia, New Zealand, the United States of America, England, Singapore or, where applicable, any state or any political subdivision thereof. “Accounts” means all “accounts” as defined in the Personal Property Securities Act 2009 (Cth), and all rights to payment for interest (other than with respect to debt and Credit Card receivables). “Acquired Debt” means, with respect to any specified Person: (1) Indebtedness, Disqualified Stock or preferred stock of any other Person existing at the time such other Person is merged, consolidated or amalgamated with or into such specified Person, or became a Subsidiary of such specified Person, to the extent such Indebtedness is incurred or such Disqualified Stock or preferred stock is issued in connection with, or in contemplation of, such other Person merging, consolidating or amalgamating with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative

163 meanings. No Person (other than the Company or any Subsidiary of the Company) in whom a Receivables Subsidiary makes an Investment in connection with a Qualified Receivables Transaction will be deemed to be an Affiliate of the Company or any of its Subsidiaries solely by reason of such Investment. A specified Person shall not be deemed to control another Person solely because such specified Person has the right to determine the aircraft flights operated by such other Person under a code sharing, capacity purchase or similar agreement. “Aircraft Related Equipment” means aircraft (including engines, airframes, propellers and appliances), engines, propellers, spare parts, aircraft parts, simulators and other training devices, quick engine change kits, passenger loading bridges or other flight or ground equipment and other operating assets, including any modifications and improvements with respect to any such equipment. “Aircraft Related Facilities” means (i) airport terminal facilities, including without limitation, baggage systems, loading bridges and related equipment, building, infrastructure and maintenance facilities, tooling facilities, club rooms, apron, fueling systems or facilities, signage/image systems, administrative offices, information technology systems and security systems, (ii) airline support facilities, including without limitation, cargo, catering, mail, ground service equipment, ramp control, deicing, hangars, aircraft parts/storage, training, office and reservations facilities and (iii) all equipment and tooling used in connection with the foregoing. “Associate” has the meaning given to it in Section 128F(9) of the Australian Tax Act. “Australian Tax Act” means the Income Tax Assessment Act 1936 of Australia and the Income Tax Assessment Act 1997 of Australia, as applicable. “Banking Product Obligations” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of such Person in respect of any treasury, depository and cash management services, netting services and automated clearing house transfers of funds services, including obligations for the payment of fees, interest, charges, expenses, attorneys’ fees and disbursements in connection therewith. Treasury, depository and cash management services, netting services and automated clearing house transfers of funds services include, without limitation: corporate purchasing, fleet and travel Credit Card and prepaid card programs, electronic check processing, electronic receipt services, lockbox services, cash consolidation, concentration, positioning and investing, fraud prevention services, and disbursement services. “Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. “Board of Directors” means: (1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board of directors; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; (3) with respect to a limited liability company, the managing member or members, manager or managers or any controlling committee of managing members or managers thereof; and (4) with respect to any other Person, the board or committee of such Person serving a similar function. “Business Day” means a day other than a Saturday, Sunday or other day on which banking institutions are authorized or required by law to close in New York City or the State of New South Wales, Australia, or, with respect to payments, a place of payment. “Capital Lease Obligation” means, at the time any determination is to be made, the amount of the liability in respect of a lease that would at that time be required to be capitalized and reflected as a liability on a balance sheet prepared in accordance with GAAP, and the Scheduled Maturity thereof

164 shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. “Capital Stock” means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock. “Card Acceptance and Processing Agreements” means each agreement entered into by the Company or any of its Subsidiaries from time to time pursuant to which a Credit Card or travel charge processing service provider or other clearing house processor agrees to acquire or process Credit Card, travel charge or similar transactions in relation to the sale of air travel and other services. “Cash Equivalents” means, as of the date acquired, purchased or made, as applicable: (i) marketable securities or other obligations (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States or Australian governments or (b) issued or unconditionally guaranteed as to interest and principal by any agency or instrumentality of the United States or Australian governments, the obligations of which are backed by the full faith and credit of such government, in each case maturing within three years after such date; (ii) direct obligations issued by any state, commonwealth or territory of the United States of America or Australia or any political subdivision or taxing authority thereof, in each case maturing within three years after such date and having, at the time of the acquisition thereof, a rating of at least A- (or the equivalent thereof) from S&P or A3 (or the equivalent thereof) from Moody’s; (iii) obligations of domestic or foreign companies and their subsidiaries (including, without limitation, agencies, sponsored enterprises or instrumentalities chartered by an Act of Congress, which are not backed by the full faith and credit of the United States), including, without limitation, bills, notes, bonds, debentures, and mortgage- backed securities; provided that, in each case, the security has a maturity or weighted average life of one year or less from such date and which has, at the date of such acquisition, a rating of at least A- (or the equivalent thereof) from S&P or A3 (or the equivalent thereof) from Moody’s; (iv) investments in commercial paper maturing no more than one year after such date and having, on such date, a rating of at least A-2 from S&P or at least P-2 from Moody’s; (v) certificates of deposit (including investments made through an intermediary, such as the certificated deposit account registry service), bankers’ acceptances, time deposits, U.S. dollar time deposits, Australian dollar time deposits, New Zealand dollar time deposits, Euro time deposits, British Pound Sterling time deposits, Fiji dollar time deposits, Samoan Tala time deposits, Vanuatu Vatu time deposits, Eurodollar time deposits and overnight bank deposits maturing within three years from such date and issued or guaranteed by or placed with, and any money market deposit accounts issued or offered by, or by any commercial bank organized under the laws of Australia, any state thereof, the United States of America, any state thereof or the District of Columbia that has a combined capital and surplus and undivided profits of not less than US$250.0 million (or the foreign dollar equivalent); (vi) fully collateralized repurchase agreements with counterparties whose long term debt is rated not less than A- by S&P and A3 by Moody’s and with a term of not more than six months from such date; (vii) Investments in money in an investment company registered under the Investment Company Act or in pooled accounts or funds offered through mutual funds, investment advisors, banks and brokerage houses which invest its assets in obligations of the type described in clauses (i) through (vi) above, in each case, as of such date, including, but not be limited to, money market funds or short-term and intermediate bonds funds; (viii) shares of any money market mutual fund that, as of such date, (a) complies with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act and (b) is rated AAA (or the equivalent thereof) by S&P and Aaa (or the

165 equivalent thereof) by Moody’s; (ix) auction rate preferred securities that, as of such date, have the highest rating obtainable from either S&P or Moody’s and with a maximum reset date at least every 30 days; (x) deposits available for withdrawal on demand with commercial banks organized under the laws of Australia, any state thereof, the United States of America, any state thereof or the District of Columbia having capital and surplus in excess of US$100.0 million (or the foreign dollar equivalent); (xi) securities with maturities of three years or less from such date issued or fully guaranteed by any state, commonwealth or territory of the United States of America or Australia or any political subdivision or taxing authority thereof, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A2 by Moody’s; and (xii) any other securities or pools of securities that are classified under GAAP as cash equivalents or short-term investments on a balance sheet as of such date. “Change of Control” means the occurrence of any of the following: (1) the sale, lease, transfer, conveyance or other Disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole to any Person (including any “person” (as that term is used in Section 13(d)(3) of the Exchange Act) but excluding any Excluded Person); or (2) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any Person other than an Excluded Person (including any “person” (as defined above)) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), other than, in the case of clause (1) above or this clause (2) (i) any such transaction where the Voting Stock of the Company (measured by voting power rather than number of shares) outstanding immediately prior to such transaction constitutes or is converted into or exchanged for a majority of the outstanding shares of the Voting Stock of such Person or Beneficial Owner (measured by voting power rather than number of shares) or (ii) any sale, transfer, conveyance or other Disposition to, or any merger or consolidation of the Company with or into, any Person (including any “person” (as defined above)) which owns or operates (directly or indirectly through a contractual arrangement) a Permitted Business (a “Permitted Person”) or a Subsidiary of a Permitted Person, in each case under this clause (ii), if immediately after such transaction no Person (including any “person” (as defined above)) is the Beneficial Owner, directly or indirectly, of more than 50% of the total Voting Stock of such Permitted Person (measured by voting power rather than number of shares). For the avoidance of doubt, the merger or consolidation, if any, of the Company with any Restricted Subsidiary of the Company or any merger or consolidation, if any, of any Restricted Subsidiary of the Company with any other Restricted Subsidiary of the Company will not constitute a “Change of Control.” “Change of Control Offer” has the meaning assigned to that term in the Indenture. “Change of Control Payment” has the meaning assigned to that term in the second paragraph under the caption “—Change of Control Offer to Purchase.” “Change of Control Payment Date” has the meaning assigned to that term in the second paragraph under the caption “—Change of Control Offer to Purchase.” “Closing Date” means the date of original issuance of the Notes. “Company” means Virgin Australia Holdings Limited, until a successor replaces it in accordance with the Indenture and, thereafter, means the successor.

166 “Consolidated EBITDAR” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with any Disposition of assets, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) the Fixed Charges of such Person and its Restricted Subsidiaries, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus (4) any foreign currency translation losses (including losses related to currency remeasurements of Indebtedness) of such Person and its Restricted Subsidiaries for such period, to the extent that such losses were deducted in computing such Consolidated Net Income; plus (5) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges and expenses (excluding any such non-cash charge or expense to the extent that it represents an accrual of or reserve for cash charges or expenses in any future period or amortization of a prepaid cash charge or expense that was paid in a prior period) of such Person and its Restricted Subsidiaries to the extent that such depreciation, amortization and other non-cash charges or expenses were deducted in computing such Consolidated Net Income; plus (6) the amortization of debt discount to the extent that such amortization was deducted in computing such Consolidated Net Income; plus (7) deductions for grants to any employee of the Company or its Restricted Subsidiaries of any Equity Interests during such period to the extent deducted in computing such Consolidated Net Income; plus (8) any net loss arising from the sale, exchange or other Disposition of capital assets by the Company or its Restricted Subsidiaries (including any fixed assets, whether tangible or intangible, all inventory sold in conjunction with the Disposition of fixed assets and all securities) to the extent such loss was deducted in computing such Consolidated Net Income; plus (9) any losses arising under fuel hedging arrangements entered into prior to the Closing Date and any losses actually realized under fuel hedging arrangements entered into after the Closing Date, in each case to the extent deducted in computing such Consolidated Net Income; plus (10) cash restructuring charges in an aggregate amount not to exceed US$15.0 million in any fiscal year to the extent such charges were deducted in computing such Consolidated Net Income; plus (11) proceeds from business interruption insurance for such period, to the extent not already included in computing such Consolidated Net Income; plus (12) any expenses and charges that are covered by indemnification or reimbursement provisions in connection with any permitted acquisition (including the Tigerair Minority Acquisition), merger, Disposition (including the Velocity Transaction), incurrence of Indebtedness, issuance of Equity Interests or any investment to the extent (a) actually indemnified or reimbursed and (b) deducted in computing such Consolidated Net Income; plus (13) all cost-savings, integration costs, transactional costs, expenses and charges incurred in connection with any permitted acquisition (including the Tigerair Minority Acquisition), merger, Disposition (including the Velocity Transaction), incurrence of Indebtedness, issuance of

167 Equity Interests or any investment, in each case, to the extent (a) permitted under the Indenture and (b) deducted in computing such Consolidated Net Income; plus (14) costs and expenses, including fees, incurred directly in connection with the consummation of this offering of the Notes to the extent deducted in computing such Consolidated Net Income; minus (15) non-cash items, other than the accrual of revenue in the Ordinary Course of Business, to the extent such amount increased such Consolidated Net Income; minus (16) the sum of (i) income tax credits and (ii) Consolidated Interest Income included in computing such Consolidated Net Income; in each case, determined on a consolidated basis in accordance with GAAP. “Consolidated Interest Income” means, as of any date of determination, the sum of the amounts that would appear on a consolidated income statement of the Company and its consolidated Restricted Subsidiaries as the interest income of the Company and its Restricted Subsidiaries, determined in accordance with GAAP. “Consolidated Net Income” means, with respect to any specified Person for any period, the aggregate of the net income (or loss) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis (excluding the net income (or loss) of any Unrestricted Subsidiary of such Person), determined in accordance with GAAP and without any reduction in respect of preferred stock dividends; provided that: (1) all (a) extraordinary, non-recurring, special or unusual gains and losses or income or expenses, including, without limitation, any expenses related to a facilities closing and any reconstruction, recommissioning or reconfiguration of fixed assets for alternate uses; any severance or relocation expenses; executive recruiting costs; restructuring or reorganization costs; curtailments or modifications to pension and post-retirement employee benefit plans; (b) any expenses (including, without limitation, transaction costs, integration or transition costs, financial advisory fees, accounting fees, legal fees and other similar advisory and consulting fees and related out-of-pocket expenses), cost-savings, costs or charges incurred in connection with any issuance of securities (including the Notes), Permitted Investment, acquisition, Disposition, recapitalization or incurrence or repayment of Indebtedness permitted under the Indenture, including a refinancing thereof (in each case whether or not successful) (including, but not limited to, the Velocity Transaction and the Tigerair Minority Acquisition); and (c) gains and losses realized in connection with any sale of assets, the Disposition of securities, the early extinguishment of Indebtedness or associated with Hedging Obligations, together with any related provision for taxes on any such gain, will be excluded; (2) the net income (but not loss) of any Person that is not the specified Person or a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included for such period only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the specified Person; (3) the net income (but not loss) of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that net income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (4) the cumulative effect of a change in accounting principles on such Person will be excluded; (5) the effect of non-cash gains and losses of such Person resulting from Hedging Obligations, including attributable to movement in the mark-to-market valuation of Hedging Obligations pursuant to International Accounting Standards Board International Accounting Standard 39— Financial Instruments: Recognition and Measurement, International Financial Reporting

168 Standard 9—Financial Instruments and IFRS Interpretations Committee IFRIC Interpretation 16—Hedges of a Net Investment in a Foreign Operation will be excluded; (6) any non-cash compensation expense recorded from grants by such Person of stock appreciation or similar rights, stock options or other rights to officers, directors or employees, will be excluded; (7) the effect on such Person of any non-cash items resulting from any amortization, write-up, write-down or write-off of assets (including intangible assets, goodwill and deferred financing costs) in connection with any acquisition (including the Tigerair Minority Acquisition), Disposition (including the Velocity Transaction), merger, consolidation or similar transaction or any other non-cash impairment charges incurred subsequent to the Closing Date resulting from the application of International Accounting Standards Board International Accounting Standards 1—Presentation of Financial Statements, 38—Intangible Assets and 16—Property, Plant and Equipment and International Financial Reporting Standard 3—Business Combina- tions (excluding any such non-cash item to the extent that it represents an accrual of or reserve for cash expenditures in any future period except to the extent such item is subsequently reversed), will be excluded; and (8) any provision for income tax reflected on such Person’s financial statements for such period will be excluded to the extent such provision exceeds the actual amount of taxes paid in cash during such period by such Person and its consolidated Subsidiaries. “Consolidated Tangible Assets” means, as of any date of determination, Consolidated Total Assets of the Company and its consolidated Restricted Subsidiaries excluding goodwill, patents, trade names, trademarks, copyrights, franchises and any other assets properly classified as intangible assets, determined in accordance with GAAP. “Consolidated Total Assets” means, as of any date of determination, the sum of the amounts that would appear on a consolidated balance sheet of the Company and its consolidated Restricted Subsidiaries as the total assets of the Company and its Restricted Subsidiaries, determined in accordance with GAAP. “Convertible Note Subscription Deed” means the Convertible Note Subscription Deed, dated as of August 28, 2014, among Connectivity Pte Limited, the Company, Virgin Australia Airlines Holdings Pty Ltd (ABN 19 093 924 675) and Velocity Frequent Flyer Holdco Pty Ltd (ABN 44 169 684 093), as in effect on the Completion Date (as defined therein). “Credit Card” means obligations incurred in connection with any agreement or plan relating to a credit card, debit card, charge card, purchasing card or other similar system. “Credit Facilities” means, one or more debt facilities, commercial paper facilities, reimbursement agreements or other agreements providing for the extension of credit, or securities purchase agreements, indentures or similar agreements, whether secured or unsecured, in each case, with banks, insurance companies, financial institutions or other lenders or investors providing for, or acting as initial purchasers of, revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables), letters of credit, surety bonds, insurance products or the issuance and sale of securities, in each case, as amended, restated, modified, renewed, extended, refunded, replaced in any manner (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities) in whole or in part from time to time. “Default” means any event which, unless cured or waived, is, or after notice or passage of time or both would be, an Event of Default. “Disposition” means, with respect to any property, any sale, lease, sale and leaseback, conveyance, transfer or other disposition thereof. The terms “Dispose” and “Disposed of” shall have correlative meanings.

169 “Disqualified Stock” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than as a result of a Change of Control), is convertible or exchangeable for Indebtedness or Disqualified Stock, or is redeemable at the option of the holder of the Capital Stock, in whole or in part (other than as a result of a Change of Control) on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company or any Restricted Subsidiary to repurchase such Capital Stock upon the occurrence of a Change of Control will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company or such Restricted Subsidiary may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption “—Certain Covenants— Restricted Payments.” The amount of Disqualified Stock deemed to be outstanding at any time for purposes of the Indenture will be the maximum amount that the Company and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends. “Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). “Exchange Act” means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. “Excluded Contributions” means net cash proceeds received by the Company after the Closing Date from: (1) contributions to its common equity capital (other than from any Subsidiary); or (2) the sale (other than to a Subsidiary or to any management equity plan or stock option plan or any other management or employee benefit plan or agreement of the Company or any Subsidiary) of Qualifying Equity Interests, in each case designated as Excluded Contributions pursuant to an officers’ certificate executed on or around the date such capital contributions are made or the date such Equity Interests are sold, as the case may be. Excluded Contributions will not be considered to be net proceeds of Qualifying Equity Interests for purposes of clause (c)(2) of the first paragraph of the covenant described above under the caption “—Certain Covenants—Restricted Payments.” “Excluded Person” means, at any time, (i) Air New Zealand Limited, (ii) Etihad Airways P.J.S.C., (iii) Singapore Airlines Limited, (iv) any Person both the Capital Stock and Voting Stock of which (or, in the case of a trust, the beneficial interests in which) are owned directly or indirectly more than 50% on a fully diluted basis by a Person specified above in clauses (i)—(iii), and (v) any group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision) the members of which include any of the Excluded Persons specified in clauses (i), (ii), (iii) and/or (iv) above, and that (directly or indirectly) hold or acquire beneficial ownership of the Voting Stock of the Company (an “Excluded Person Group”), so long as (1) each member of the Excluded Person Group has voting rights proportional to the percentage of ownership interests held or acquired by such member and (2) no Person or other “group” (other than Excluded Persons specified in clauses (i)—(iv) above) beneficially owns more than 50% on a fully diluted basis of the Voting Stock held by such Excluded Person Group. Any one or more Persons or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of the Indenture will thereafter, together with its (or their) Affiliates, constitute an additional Excluded Person or Excluded Persons, as applicable. “Existing Indebtedness” means all Indebtedness of the Company and its Subsidiaries (other than Indebtedness incurred under clauses (1) or (23) of the definition of Permitted Debt) in existence on the Closing Date until such amounts are repaid.

170 “Fair Market Value” means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by an officer of the Company; provided that any such officer shall be permitted to consider the circumstances existing at such time (including, without limitation, economic or other conditions affecting the Australian or United States airline industry generally and any relevant legal compulsion, judicial proceeding or administrative order or the possibility thereof) in determining such Fair Market Value in connection with such transaction. “Fixed Charge Coverage Ratio” means with respect to any specified Person for any specified period, the ratio of the Consolidated EBITDAR of such Person for such period to the Fixed Charges of such Person for such period. If the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems Disqualified Stock or preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect (as determined in good faith by a responsible financial or accounting officer of the Company) to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Disqualified Stock or preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its Restricted Subsidiaries acquired by the specified Person or any of its Restricted Subsidiaries, and including all related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect (as determined in good faith by a responsible financial or accounting officer of the Company and including any operating expense reductions for such period resulting from such acquisition that have been realized or for which all of the material steps necessary for realization have been taken) as if they had occurred on the first day of the four- quarter reference period; (2) the Consolidated EBITDAR attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded; (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; (4) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).

171 “Fixed Charges” means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense (net of interest income) of such Person and its Restricted Subsidiaries for such period to the extent that such interest expense is payable in cash (and such interest income is receivable in cash); plus (2) the interest component of leases that are capitalized in accordance with GAAP of such Person and its Restricted Subsidiaries for such period to the extent that such interest component is related to lease payments payable in cash; plus (3) any interest expense actually paid in cash for such period by such specified Person on Indebtedness of another Person that is guaranteed by such specified Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such specified Person or one of its Restricted Subsidiaries; plus (4) the product of (a) all cash dividends accrued on any series of preferred stock of such Person or any of its Restricted Subsidiaries for such period, other than to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, determined on a consolidated basis in accordance with GAAP; plus (5) the aircraft rent expense of such Person and its Restricted Subsidiaries for such period to the extent that such aircraft rent expense is payable in cash, all as determined on a consolidated basis in accordance with GAAP. “GAAP” means Australian Accounting Standards and Interpretations, issued by the Australian Accounting Standards Board, which are in effect on the Closing Date. Notwithstanding the foregoing definition, with respect to leases (whether or not they are required to be capitalized on a Person’s balance sheet under generally accepted accounting principles in Australia in effect as of the Closing Date) and with respect to financial matters related to leases, including assets, liabilities and items of income and expense, “GAAP” shall mean (other than for purposes of the covenant described under “—Certain Covenants—Reports and Other Information”), and determinations and calculations shall be made in accordance with, generally accepted accounting principles in Australia, which are in effect as of the Closing Date. “Guarantee” means a guarantee (other than (i) by endorsement of negotiable instruments for collection or (ii) customary contractual indemnities, in each case in the Ordinary Course of Business), direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions). “Guarantor” means initially, the Persons executing the Indenture on the Closing Date and, after such date, any Restricted Subsidiary of the Company that guarantees the Notes in accordance with the provisions of the Indenture, and each Restricted Subsidiary’s respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of the Indenture. “Guarantor Obligations” means the due and punctual payment, of the principal of (and premium, if any) and interest (including, in case of default, interest on principal and, to the extent permitted by applicable law, on overdue interest and including any additional interest required to be paid according to the terms of the Notes), if any, on the Notes, when and as the same shall become due and payable, whether at Stated Maturity, upon redemption, upon acceleration, upon tender for repayment at the option of any holder or otherwise, according to the terms thereof and of the Indenture and all other obligations of the Company with respect to the Notes to the holder or the Trustee thereunder.

172 “Hedging Obligations” means, with respect to any Person, all obligations and liabilities of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to manage interest rates or interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates, fuel prices or other commodity prices. “Indebtedness” means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker’s acceptances; (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed, but excluding in any event trade payables arising in the Ordinary Course of Business; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. Indebtedness shall be calculated without giving effect to the effects of International Accounting Standards Board International Accounting Standard 39—Financial Instruments: Recognition and Measurement, International Financial Reporting Standard 9—Financial Instruments and IFRS Interpretations Committee IFRIC Interpretation 16—Hedges of a Net Investment in a Foreign Operation and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose under the Indenture as a result of accounting for any embedded derivatives created by the terms of such Indebtedness. Notwithstanding the foregoing, none of the following will constitute Indebtedness: (a) Banking Product Obligations, (b) obligations in respect of the pre-purchase by others of frequent flyer miles, (c) maintenance deferral agreements, (d) an amount recorded as indebtedness in the Company’s financial statements solely by operation of International Accounting Standards Board International Accounting Standard 17—Leases or any successor provision of GAAP but which does not otherwise constitute Indebtedness as defined hereinabove, (e) obligations under Card Acceptance and Processing Agreements, (f) a deferral of pre-delivery or delivery (where the deferral results from a deferral of the delivery of the relevant Aircraft Related Equipment) payments relating to the purchases of Aircraft Related Equipment, (g) obligations under flyer miles participation agreements, (h) air traffic liability, (i) payment obligations in connection with health or other types of social security benefits, (j) maintenance reserves, return compensation and any other amounts or provisions in respect of return conditions for leased aircraft, (k) reserves for capital tax obligations, (l) reserves for obligations under land leases and (m) reserves for prepaid services that have not been provided. “Investment Company Act” means the United States Investment Company Act of 1940, as amended, and the rules and regulations thereunder. “Investments” means, with respect to any Person, all direct or indirect investments made from and after the Closing Date by such Person in other Persons (including Affiliates) in the forms of loans

173 (including Guarantees), capital contributions or advances (but excluding advance payments and deposits for goods and services and similar advances to officers, employees and consultants made in the Ordinary Course of Business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities of other Persons, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company after the Closing Date such that, after giving effect to any such sale or Disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or Disposition equal to the Fair Market Value of the Company’s Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the fourth to last paragraph of the covenant described above under the caption “—Certain Covenants—Restricted Payments.” Notwith- standing the foregoing, any Equity Interests retained by the Company or any of its Subsidiaries after a Disposition or dividend of assets or Capital Stock of any Person in connection with any partial “spin-off” of a Subsidiary or similar transactions shall not be deemed to be an Investment. The acquisition by the Company or any Restricted Subsidiary of the Company after the Closing Date of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company or such Restricted Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in the fourth to last paragraph of the covenant described above under the caption “—Certain Covenants—Restricted Payments.” Except as otherwise provided in the Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value. “Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or similar encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any option or other agreement to sell or give a security interest in and, except in connection with any Qualified Receivables Transaction, any agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. “Material Subsidiary” means a Restricted Subsidiary of the Company for which (i) the Consolidated Total Assets constitute at least 5.0% of the Consolidated Total Assets of the Company and its Restricted Subsidiaries or (ii) the total consolidated revenues constitute at least 5.0% of the total consolidated revenues of the Company and its Restricted Subsidiaries, in each case for the twelve- month period ending on the last day of the most recent fiscal quarter for which internal financial statements are available; provided that a Material Subsidiary shall not include any Special Purpose Entity, any Receivables Subsidiary or any Unrestricted Subsidiary, whether existing as of the date of the Indenture or constituted following the date of the Indenture. “Moody’s” means Moody’s Investors Service, Inc. “Non-Guarantor” means any Restricted Subsidiary that is not a Guarantor. “Non-Recourse Debt” means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable as a guarantor or otherwise; and (2) as to which the holders of such Indebtedness do not otherwise have recourse to the stock or assets of the Company or any of its Restricted Subsidiaries (other than the Equity Interests of an Unrestricted Subsidiary). “Offshore Associate” means an Associate which (x) (i) is a non-resident of Australia and does not receive any payment in respect of a Note that the Associate acquired in carrying on a business in Australia at or through a permanent establishment of the Associate in Australia; or (ii) is a resident of Australia and receives any payment in respect of a Note that is acquired in carrying on a business in a country outside Australia at or through a permanent establishment of the Associate in that country; and

174 (y) which does not receive payments in respect of a Note in the capacity of a clearing house, paying agent, custodian, funds manager or responsible entity of a registered scheme. “Ordinary Course of Business” means, with respect to the Company or any of its Subsidiaries, (a) in the ordinary course of business of, or in furtherance of an objective that is in the ordinary course of business of, the Company and its Subsidiaries, (b) customary and usual in the international commercial airline industry or in the commercial airline industry in Australia or the United States or (c) consistent with the past or current practice of one or more international, Australian or American commercial air carriers. “Permitted Business” means any business that is similar, or reasonably related, ancillary, supportive or complementary to, or any reasonable extension of the business in which the Company and its Restricted Subsidiaries are engaged on the Closing Date. “Permitted Investments” means: (1) any Investment in the Company or in a Restricted Subsidiary of the Company; (2) any Investment in cash, Cash Equivalents and any foreign equivalents or by way of security deposit, maintenance reserves, revenue payment or cash collateralization in respect of any Permitted Debt, Permitted Payments or in connection with operating leases, Card Acceptance and Processing Agreements or other operating agreements to which the Company or any Restricted Subsidiary is party; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company; or (b) such Person, in one transaction or a series of related and substantially concurrent transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from a Disposition of assets; (5) any acquisition of assets or Capital Stock in exchange for the issuance of Qualifying Equity Interests; (6) any Investments received in compromise or resolution of (a) obligations of trade creditors or customers that were incurred in the Ordinary Course of Business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer or (b) litigation, arbitration or other disputes; (7) Investments represented by Hedging Obligations; (8) loans or advances to officers, directors or employees made in the Ordinary Course of Business in an aggregate principal amount not to exceed US$5.0 million; (9) redemption or purchase of the Notes; (10) any Guarantee of Indebtedness permitted to be incurred by the covenant entitled “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock” other than a Guarantee of Indebtedness of an Affiliate of the Company that is not a Restricted Subsidiary of the Company; (11) any Investment of the Company and its Restricted Subsidiaries existing on, or made pursuant to binding commitments existing on, the Closing Date and any Investment consisting of an extension, modification or renewal of any such Investment existing on, or made pursuant to a binding commitment existing on, the Closing Date; provided that the amount of any such Investment may be increased (a) as required by the terms of such Investment as in existence on the Closing Date, or (b) as otherwise permitted under the Indenture;

175 (12) Investments or commitments to make Investments acquired after the Closing Date as a result of the acquisition by the Company or any Restricted Subsidiary of the Company of another Person, including by way of a merger, amalgamation or consolidation with or into the Company or any of its Restricted Subsidiaries in a transaction that is not prohibited by the covenant described above under the caption “—Merger and Sales of Assets” after the Closing Date to the extent that such Investments were not made in contemplation of such acquisition, merger, amalgamation or consolidation and were in existence on the date of such acquisition, merger, amalgamation or consolidation; (13) the acquisition by a Receivables Subsidiary in connection with a Qualified Receivables Transaction of Equity Interests of a trust or other Person established by such Receivables Subsidiary to effect such Qualified Receivables Transaction; and any other Investment by the Company or a Subsidiary of the Company in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Transaction; (14) Receivables arising in the Ordinary Course of Business, and Investments in Receivables and related assets including pursuant to a Receivables Repurchase Obligation; (15) Investments in connection with outsourcing initiatives in the Ordinary Course of Business; (16) Investments having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value other than a reduction for all returns of principal in cash and capital dividends in cash), when taken together with all Investments made pursuant to this clause (16) that are at the time outstanding, not to exceed 15.0% of the Consolidated Total Assets of the Company and its Restricted Subsidiaries at the time of such Investment; (17) Investments consisting of reimbursable extensions of credit; provided that any such Investment made pursuant to this clause (17) shall not be permitted if unreimbursed within 90 days of any such extension of credit; (18) Investments in connection with financing any pre-delivery, progress or other similar payments relating to the acquisition of Aircraft Related Equipment; (19) Investments in travel or airline related businesses made in connection with marketing and servicing agreements, alliance agreements, distribution agreements, agreements relating to flight training, agreements relating to insurance arrangements, agreements relating to spare parts management systems and other similar agreements which Investments under this clause (19) (excluding Investments existing on the Closing Date) shall not exceed US$20.0 million at any time outstanding; (20) Investments consisting of payroll advances and advances for business and travel expenses in the Ordinary Course of Business; (21) Investments made by way of any endorsement of negotiable instruments received in the Ordinary Course of Business and presented to any bank for collection or deposit; (22) Investments consisting of stock, obligations or securities received in settlement of amounts owing to the Company or any Restricted Subsidiary in the Ordinary Course of Business or in a distribution received in respect of an Investment permitted hereunder; (23) Investments made in Unrestricted Subsidiaries not to exceed US$10.0 million in any fiscal year in the aggregate; (24) Investments comprising payments made in accordance with the tax sharing agreement among the Company, as head company, and the entities named therein as contributing members, dated as of October 14, 2004, as amended and acceded to from time to time;

176 (25) Investments in fuel and Credit Card consortia and in connection with agreements with respect to fuel consortia, Credit Card consortia and fuel supply and sales, in each case, in the Ordinary Course of Business; (26) Investments in connection with outsourcing initiatives in the Ordinary Course of Business; (27) guarantees incurred in the Ordinary Course of Business of obligations that do not constitute Indebtedness of any regional air carrier doing business with the Company or any of its Restricted Subsidiaries in connection with the regional air carrier’s business with the Company or such Restricted Subsidiary; advances to airport operators of landing fees and other customary airport charges for carriers on behalf of which the Company or any of its Restricted Subsidiaries provides ground handling services; (28) so long as no Default has occurred and is continuing, any Investment by the Company and/or any Restricted Subsidiary of the Company; (29) Investments consisting of payments or prepayments in respect of supply, maintenance, repair, power-by-the-hour, overhaul or like agreements either (a) entered into in the Ordinary Course of Business or (b) otherwise customary, typical or appropriate for a Permitted Business; and (30) Investments consisting of guarantees of Indebtedness of any Person to the extent that such Indebtedness is incurred by such Person in connection with activities related to the business of the Company or any Restricted Subsidiary of the Company and the Company has determined that the incurrence of such Indebtedness is beneficial to the business of the Company or any of its Restricted Subsidiaries, in an aggregate amount outstanding at any time not to exceed US$25.0 million. “Permitted Refinancing Indebtedness” means any Indebtedness (or commitments in respect thereof) of the Company or any of its Restricted Subsidiaries to the extent issued in exchange for, or the net proceeds of which are used to renew, refund, extend, refinance, replace, defease or discharge other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the original principal amount (or accreted value, if applicable) when initially incurred of the Indebtedness renewed, refunded, extended, refinanced, replaced, defeased or discharged (plus all accrued interest on the Indebtedness (whether or not capitalized or accreted or payable on a current basis) and the amount of all fees and expenses, including premiums, incurred in connection therewith (such original principal amount plus such amounts described above, collectively, for purposes of this clause (1), the “preceding amount”)); provided that with respect to any such Permitted Refinancing Indebtedness that is to renew, refund, extend, refinance, replace, defease or discharge Indebtedness used to finance or refinance any assets (“Refinanced Indebtedness”), the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness plus the principal amount (or accreted value, if applicable) of any remaining Refinanced Indebtedness with respect to such assets shall not exceed the greater of the preceding amount and the Fair Market Value of the assets (which Fair Market Value may, at the time of an advance commitment, be determined to be the Fair Market Value at the time of such commitment or (at the option of the issuer of such Indebtedness) the Fair Market Value projected for the time of incurrence of such Indebtedness); (2) if such Permitted Refinancing Indebtedness has a maturity date that is after the final maturity date of the Notes (with any amortization payment comprising such Permitted Refinancing Indebtedness being treated as maturing on its amortization date), such Permitted Refinancing Indebtedness has a Weighted Average Life to Maturity that, at the time such Permitted Refinancing Indebtedness is incurred, is (a) equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed, refunded, extended, refinanced, replaced, defeased or discharged as at the date of such renewal, refund, extension, refinancing,

177 replacement, defeasance or discharge or (b) more than 60 days after the final maturity date of the Notes; (3) if the Indebtedness being renewed, refunded, extended, refinanced, replaced, defeased or discharged is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being renewed, refunded, extended, refinanced, replaced, defeased or discharged; and (4) notwithstanding that the Indebtedness being renewed, refunded, refinanced, extended, replaced, defeased or discharged may have been repaid or discharged by the Company or any of its Restricted Subsidiaries prior to the date on which the new Indebtedness is incurred, Indebtedness that otherwise satisfies the requirements of this definition may be designated as Permitted Refinancing Indebtedness so long as such renewal, refunding, refinancing, extension, replacement, defeasance or discharge occurred not more than 36 months prior to the date of such incurrence of Permitted Refinancing Indebtedness. “Person” means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. “Qualified Receivables Transaction” means any transaction or series of transactions entered into by the Company or any of its Subsidiaries pursuant to which the Company or any of its Subsidiaries sells, conveys or otherwise transfers to (1) a Receivables Subsidiary or any other Person (in the case of a transfer by the Company or any of its Subsidiaries) and (2) any other Person (in the case of a transfer by a Receivables Subsidiary), or grants a security interest in, any Receivables (whether now existing or arising in the future) of the Company or any of its Subsidiaries, and any assets related thereto including, without limitation, all Equity Interests and other investments in, or assets of, the Receivables Subsidiary, all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such Receivables and other assets which are related thereto or which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization or financing transactions involving Receivables. “Qualifying Equity Interests” means Equity Interests of the Company other than Disqualified Stock. “Receivables” means Accounts, and shall also include ticket receivables, sales of frequent flyer miles and other present and future revenues and receivables that may be the subject of a Qualified Receivables Transaction. “Receivables Repurchase Obligation” means any obligation of a seller of Receivables in a Qualified Receivables Transaction to repurchase Receivables and related assets arising as a result of a breach of a representation, warranty or covenant or otherwise, including as a result of a Receivable or portion thereof becoming subject to any asserted defense, dispute, offset or counterclaim of any kind as a result of any action taken by, any failure to take action by or any other event relating to the seller. “Receivables Subsidiary” means a Subsidiary of the Company which engages in no activities other than in connection with (x) the financing or securitization of Receivables or (y) the holding of shares in another Subsidiary which engages in no activities other than in connection with the financing or securitization of Receivables and, in either case, which is designated by the Board of Directors of the Company (as provided below) as a Receivables Subsidiary (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any Restricted Subsidiary of the Company (other than comprising a pledge of the Capital Stock or other interests in such Receivables Subsidiary (an “incidental pledge”), and excluding any Guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to representations, warranties, covenants and indemnities entered into in the Ordinary Course of Business in connection with a Qualified Receivables Transaction), (ii) is recourse to or obligates the Company or any Restricted Subsidiary of the Company in any way other than through an incidental pledge or pursuant to

178 representations, warranties, covenants and indemnities entered into in the Ordinary Course of Business in connection with a Qualified Receivables Transaction or (iii) subjects any property or asset of the Company or any Restricted Subsidiary of the Company (other than accounts receivable and related assets as provided in the definition of “Qualified Receivables Transaction”), directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to representations, warranties, covenants and indemnities entered into in the Ordinary Course of Business in connection with a Qualified Receivables Transaction, (b) with which neither the Company nor any Subsidiary of the Company has any material contract, agreement, arrangement or understanding (other than pursuant to the Qualified Receivables Transaction) other than (i) on terms no less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company, and (ii) fees payable in the Ordinary Course of Business in connection with servicing accounts receivable and (c) with which neither the Company nor any Subsidiary of the Company has any obligation to maintain or preserve such Subsidiary’s financial condition, other than a minimum capitalization in customary amounts, or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company will be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an officers’ certificate certifying that such designation complied with the foregoing conditions. “Responsible Officer” means, when used with respect to the Trustee, any managing director, vice president, trust associate, relationship manager, transaction manager, client service manager, any trust officer or any other officer located at the Specified Corporate Trust Office who customarily performs functions similar to those performed by any Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person’s knowledge of and familiarity with the particular subject and in each such case, who shall have direct responsibility for the day to day administration of the Indenture. “Restricted Investment” means an Investment other than a Permitted Investment. “Restricted Subsidiary” of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. “S&P” means Standard & Poor’s Ratings Services. “Scheduled Maturity” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Closing Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. “Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations thereunder. “Significant Guarantors” means Virgin Australia Airlines Holdings Pty Ltd, Virgin Australia Airlines Pty Ltd, Virgin Australia International Holdings Pty Ltd and Virgin Australia International Airlines Pty Ltd, and each of their permitted successors and assigns, in each case for so long as it is a Guarantor. “Significant Subsidiary” means any Restricted Subsidiary of the Company that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act as such Regulation is in effect on the Closing Date. “Special Purpose Entity” means any Subsidiary which does not operate any aircraft and whose only business and activities relate to: (a) the financing and ownership of aircraft or engines for lease to another Person or financing of advance payments to aircraft or engine manufacturers; (b) interest and currency hedging relating to such financing; (c) the holding of shares in another Subsidiary which is itself a Special Purpose Entity; (d) maintenance of its corporate existence; and (e) tax sharing and funding arrangements in relation to any tax consolidated group of which it is a member. “Specified Corporate Trust Office” means The Bank of New York Mellon, 101 Barclay Street, Floor 4-E, New York, New York 10286, USA, Attn: Global Corporate Trust and BNY Mellon Australia

179 Pty Ltd, Level 2, 35 Clarence Street, Sydney, New South Wales, 2000, Australia, Attn: Global Client Services, Fax +61 2 9551 5001. “Standard Receivables Undertakings” means all representations, warranties, covenants, indemnities, performance Guarantees, servicing obligations and Receivable Repurchase Obligations entered into by the Company or any Subsidiary (other than a Receivables Subsidiary), which are customary in connection with any Qualified Receivables Transaction. “Stated Maturity” means the date specified in the Notes as the fixed date on which an amount equal to the principal amount of the Notes is due and payable. “Subsidiary” means, with respect to any Person: (1) any corporation, association or other business entity (other than a partnership, joint venture or limited liability company) of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person (or a combination thereof); (2) any partnership, joint venture or limited liability company of which (a) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise and (b) such Person or any Subsidiary of such Person is a controlling general partner or otherwise controls such entity; and (3) any Person that is consolidated in the consolidated financial statements of the specified Person in accordance with GAAP. “Tigerair Australia” means Tiger Airways Australia Pty Limited. “Tigerair Australia Share Purchase Agreement” means the Share Purchase Agreement, dated as of October 16, 2014, between Tiger Airlines Holdings Limited and VAH Newco No. 1 Pty Ltd, in effect at the time of the closing of the Tigerair Minority Acquisition. “Tigerair Existing Indebtedness” means all Indebtedness of VAH Newco No. 1 Pty Ltd and its Subsidiaries (other than Indebtedness incurred under clauses (1) or (23) of the definition of Permitted Debt) in existence at either (a) the Closing Date or (b) the time of the Tigerair Minority Acquisition, in each case until such amounts are repaid; provided that any Indebtedness in existence on the Closing Date that is refinanced with the proceeds of Indebtedness in existence at the time of the Tigerair Minority Acquisition shall not be “Tigerair Existing Indebtedness.” “Tigerair Minority Acquisition” means the acquisition by TA Holdco (Singapore) Pte. Ltd., a wholly- owned subsidiary of Virgin Australia Airlines Holdings Pty Ltd, of the remaining 40% of the shares of Tiger Airways Australia Pty Limited not, as of the date of the Indenture, held by VAH Newco No. 1 Pty Ltd. “Trust Indenture Act” means the United States Trust Indenture Act of 1939, as amended, and the rules and regulations thereunder as in effect on the date of the Indenture. “Unrestricted Subsidiary” means any Subsidiary of the Company that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary in compliance with the covenant described under the caption “—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries” pursuant to a resolution of the Board of Directors, but only if such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt;

180 (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; provided that, on the date of the Indenture, each member of the Velocity Sub-Group, CPU Share Plans Pty Limited, as trustee of the Key Employee Performance Plan Trust, the Key Employee Performance Plan Trust, Virgin Tech Pty Ltd and Virgin Samoa Limited shall each be designated as an Unrestricted Subsidiary. “Velocity Sub-Group” means Velocity Frequent Flyer Holdco Pty Ltd, Velocity Frequent Flyer 1 Pty Ltd, Velocity Frequent Flyer 2 Pty Ltd, Velocity Rewards Pty Ltd, as trustee of the Loyalty Trust, Velocity Frequent Flyer Pty Ltd, the Loyalty Trust and any other Subsidiary of Velocity Frequent Flyer Holdco Pty Ltd. “Velocity Transaction” means the transactions contemplated by the Convertible Note Subscription Deed and by the related Transaction Documents (as defined in the Convertible Note Subscription Deed). “Velocity Transaction Documents” means the Transaction Documents (as defined in the Convertible Note Subscription Deed) as in effect on the Completion Date (as defined in the Convertible Note Subscription Deed). “Voting Stock” of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. “Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness.

Certain Australian Considerations

Insolvency There are four principal corporate insolvency processes in Australia: administration (sometimes referred to as voluntary administration); deed of company arrangement; liquidation (also referred to as winding up); and receivership. There is also a fifth less common regime, which is a creditor’s scheme of arrangement. A brief description of each is set out below.

Administration Under Section 435A of the Corporations Act 2001 (Cth) (the “Corporations Act”), the object of administration is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximizes the chances of the company, or as much as possible of its business, continuing in existence. Alternatively, if it is not possible for the company or its business to

181 continue in existence, the object of the administration is to achieve a better return for the company’s creditors and members than would result from an immediate winding up of the company. In the vast majority of cases, a company is put into administration by resolution of its board of directors if the board of directors resolves that the company is insolvent or is likely to become insolvent at some future time. In some cases an administrator may be appointed by a secured creditor who is entitled to enforce its security over the whole or substantially the whole of the company’s property. However, a secured creditor will usually prefer to appoint a receiver who, unlike an administrator, will primarily act in the interests of the secured creditor to realize the secured property (even though a receiver also owes various duties to the company in its capacity as agent and an officer of the company). A secured creditor with a security interest over the whole or substantially the whole of the company’s property has a limited period following the appointment of an administrator in which to appoint a receiver, should it wish to do so. Administration is only intended to last for a short period, during which time the administrator controls the company and acts as its agent. The powers of the directors and officers are suspended, though they remain in office and have a duty to assist the administrator. The administrator’s role is to assess the company’s situation and to report to creditors on which of the three available options (liquidation, execution of a deed of company arrangement or to return the company to the control of its directors) and report to creditors as to which option should be followed. To permit the administrator the opportunity to do this, during the administration there is a moratorium on the enforcement of certain types of creditors’ claims and actions against the company and its property (subject to certain exceptions) and a stay on legal proceedings that will prevent, among other things, security being enforced (subject to certain exceptions, including the right of a secured creditor referred to above).

Deed of Company Arrangement A deed of company arrangement is an agreement binding on the company and its creditors (and sometimes others) in the nature of a compromise. By force of the Corporations Act, the agreement is one which will bind unsecured creditors whose debts are provable whether or not those creditors vote in favor of it, provided that a simple majority (in number, unless a poll is conducted, in which case it is by number and value) votes in favor of the deed of company arrangement. The progress of the company depends on the terms of the deed of company arrangement. The Corporations Act is relatively flexible on the contents of the deed of company arrangement. Once the deed of company arrangement is executed, the administration terminates and the moratorium restrictions come to an end and are replaced by the provisions of the deed, which may include similar moratorium protections. The deed administrator may be tasked by the deed with realizing assets, closing down the business, restructuring the company or pursuing litigation with a view to the payment of dividends to creditors. The deed may apply a moratorium, compromise creditors’ claims, provide for the payment of creditors by installment or specify that different creditors are to receive different treatment, provided that the deed is not unfairly prejudicial to a creditor or creditors as a whole. This is usually assessed by comparing the return that a creditor is entitled to receive under the deed with the return that the creditor could expect to receive if the company was liquidated. Secured creditors may continue to deal with the property over which they have security and are not bound by the deed, unless the secured creditor voted in favor of the deed (and the deed restricts its ability to enforce its security) or it is prevented from enforcing by a court order.

Liquidation The purpose of a liquidation is to enable the realization of all of a company’s assets, the calling up of partly paid shares and the distribution of the proceeds among the company’s creditors and (if there is a surplus after paying creditors) a distribution of the surplus to members. The distribution of

182 proceeds will be subject to statutory priority rules. The company’s existence will then be brought to an end by deregistration. Generally speaking, to the extent that their security is sufficient, secured creditors stand outside the liquidation and therefore do not have to prove their debts. Secured creditors also have the right to appoint a receiver and manager and enforce against the secured property during the liquidation. Secured creditors are generally entitled to sell the assets subject to their security or have them sold and to receive the proceeds (subject to the rights of any prior security holders).

Receivership Receivers are typically appointed by a person to whom the company has granted security who acts as the company’s agent. A receiver’s appointment and powers are generally governed by the terms of the security agreement under which it is appointed. The receiver’s principal task is to take possession and control of the secured property, realize the property subject to the security and pay the proceeds to the security holder. Receivership is a regime implemented for the benefit of the secured creditor that appoints the receiver. In contrast, both administration and liquidation are regimes aimed at securing the best outcome for all of the company’s creditors and members as a whole. The receiver’s principal duty is to realize the secured property to repay the security holder. A receiver owes residual duties to the company, unsecured creditors and shareholders, as an officer of the company. Where a company grants security over an asset, the proceeds of enforcement must generally be remitted to the holder of the security, unless there are claims ranking in priority to the holder of the security, as summarized below: (1) if the proceeds are from contracts of insurance and the insurance policy is in respect of liability to third parties, the proceeds must be paid to the third party in respect of whom the liability was incurred; (2) auditor’s fees and expenses for the period between when the Australia Securities Investments Commission has refused consent to the auditor’s resignation and the date the receiver was appointed; (3) wages, superannuation contributions and superannuation guarantee charges payable by the company in respect of services rendered to the company by the employees prior to the date the receiver was appointed; (4) all amounts due on or before the date the receiver is appointed in respect of leave of absence owing to employees; (5) retrenchment payments; and (6) all amounts that have been advanced by other parties to the company for the purpose of paying wages, superannuation contributions or payments in respect of leave of absence or termination of employment. During a receivership, there is no moratorium in place and other creditors may pursue debts and claims against the company.

Creditor’s Scheme of Arrangement A scheme of arrangement is an arrangement or compromise which binds the company and its creditors even though a minority of those creditors may oppose it. Schemes of arrangement are rarely used in an insolvency context, as they require an extended court approval process and the approval of 75% in value and 50% in number of each class of affected creditor. A scheme of arrangement is most commonly used where a company is seeking to restructure all or some of its term debt rather than to compromise the claims of creditors generally.

183 Limits to Enforcement of Note Guarantees

Liquidation Under Australian law, if a liquidator were to be appointed to any Australian guarantor, the liquidator would have the power to investigate the validity of past transactions. If, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is a voidable transaction, including but not limited to an unfair preference or an uncommercial transaction, it may make a variety of orders as described in Section 588FF of the Corporations Act. Such orders include an order releasing or discharging, in whole or in part, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction or an order requiring a party to repay to the company some or all of the money it received under the transaction. It is not necessary to establish that the directors of the company have breached their duties to the company in any way or that the person taking the benefit of the guarantee or security had actual or constructive notice that the transaction was an insolvent transaction subject to any defenses that may be available in respect of Section 588FF, including under Section 588FG. There are various time periods within which a liquidator can take such action depending on the nature of the transaction being challenged. The test for insolvency in this context is whether the relevant company is able to pay its debts as and when they become due and payable.

Unfair Preferences An unfair preference is a transaction between a company and a creditor which results in the creditor receiving from the company, in respect of an unsecured debt, more than it would receive if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company, as described in Section 588FA(1) of the Corporations Act. For the purposes of Section 588FA(1), a secured debt or a part thereof is taken to be unsecured to the extent it is not reflected in the value of the security. An unfair preference is an insolvent transaction if the company either: (i) is insolvent when the transaction is entered into or when an act is done (or an omission is made) for the purpose of giving effect to the transaction; or (ii) becomes insolvent because of, or because of matters including, entering into the transaction or because of a person doing an act (or making an omission) for the purpose of giving effect to the transaction, as described in Section 588FC of the Corporations Act. Generally, an unfair preference that is an insolvent transaction is voidable if it was entered into (or an act was done for the purpose of giving effect to it): (i) during the six months ending on the relation- back day (as described below); (ii) after the relation-back day but on or before the day when the winding up began, as described in Section 588FE(2) of the Corporations Act; or (iii) if a related entity of the company was a party to the transaction, during the four years ending on the relation-back day, as described in Section 588FE(4) of the Australian Corporations Act). “Relation-back day” means, in the case of a compulsory liquidation, the date on which the application for winding up the company is filed with the court; in the case of a voluntary wind up, the date the members resolve to wind-up the company; or if the liquidation is preceded by an administration, the day the administration commenced, as described in Section 9 of the Corporations Act).

Uncommercial Transactions A transaction is an uncommercial transaction pursuant to Section 588FB(1) of the Corporations Act if it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, with regard to: the benefits (if any) to the company of entering into the transaction; the detriment to the company of entering into the transaction; the respective benefits to other parties to the transaction of entering into the transaction; and any other relevant matter. “Transaction” is broadly defined and generally includes the provision of a guarantee. A guarantee would be unlikely to constitute an uncommercial transaction if the benefit to the company providing the guarantee in the context of the transaction outweighs the detriment that could be incurred by the company in providing the guarantee.

184 An uncommercial transaction is an insolvent transaction if: (i) the company is insolvent when the transaction is entered into, or an act is done (or an omission is made) for the purpose of giving effect to the transaction; or (ii) the company becomes insolvent because of, or because of matters including, entering into the transaction or a person doing an act (or making an omission) for the purpose of giving effect to the transaction, as described in Section 588FC of the Corporations Act. An uncommercial transaction that is an insolvent transaction is voidable if it was entered into (or an act was done for the purpose of giving effect to it) during: (i) the two years ending on the relation- back day, as described in Section 588FE(3) of the Corporations Act; or (ii) if a related entity of the company was a party to the transaction, the four years ending on the relation-back day, as described in Section 588FE(4) of the Corporations Act.

Unfair Loan A loan may be challenged on the basis that it is an unfair loan pursuant to Section 588FD of the Corporations Act if interest or other charges in relation to the loan are considered to be extortionate when the loan was made, or became extortionate because of a variation, having regard to a number of factors including the risk to which the lender was exposed, the value of the security in respect of the loan, the term of the loan, the repayment schedule, the amount of the loan and any other relevant matter.

Other Grounds Under Australian law, a guarantee given by a company may also be set aside on a number of additional grounds, including by the application of laws concerning financial assistance, insolvency, bankruptcy, liquidation and administration and certain equitable principles. In addition, a guarantee may be unenforceable against a guarantor if the directors of the guarantor did not comply with their duties to act in good faith for the benefit of the guarantor and for a proper purpose in giving the guarantee. The issue is particularly relevant where a company provides a guarantee in relation to the obligations of another member of its corporate family, as is the case for the Note Guarantees with respect to the Notes. In determining whether there is sufficient benefit, the directors need to give primary consideration to the benefits and detriments to the guarantor in giving the guarantee, in addition to the benefits to the other members of the corporate family. Whether a guarantee entered into in breach of directors’ duties can be avoided against a party relying on the guarantee depends on certain factors, including whether the party knew of or suspected the breach. Under Australian law, a person is entitled to assume that the directors have properly performed their duties to the company unless that person knows or suspects that they have not done so. In addition, other debts and liabilities of the Company and the Guarantors, such as certain employee entitlements or amounts owed to tax authorities, may rank ahead of claims under the Note Guarantees in the event of insolvency, administration or similar proceedings. If any of the Note Guarantees are avoided, it is possible that a holder of a Note will be left with a claim solely against the Company.

185 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

General The following summary sets forth certain U.S. federal income tax consequences of the purchase, ownership and disposition of the New Notes. This summary is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), applicable U.S. Treasury regulations issued thereunder, published rulings and other administrative pronouncements issued by the U.S. Internal Revenue Service (the “IRS”) and U.S. court decisions, all as at the date hereof and all of which are subject to change or differing interpretations at any time and in some circumstances with retroactive effect. Virgin Australia has not and will not seek a ruling from the IRS regarding the matters discussed below. There can be no assurance that the IRS will not take positions concerning the tax consequences of the purchase, ownership or disposition of the New Notes that are different from those discussed below or that a court will not agree with any such positions. This summary does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular investor in light of the investor’s particular circumstances, or to certain types of investors subject to special treatment under the U.S. federal income tax laws (such as financial institutions, tax-exempt organizations, insurance companies, regulated investment companies, real estate investment trusts, certain U.S. expatriates, controlled foreign corporations, brokers, dealers in securities or currencies, traders in securities that elect to apply a mark-to-market method of accounting, persons holding New Notes as part of a straddle, hedging, conversion or other integrated transaction, persons liable for alternative minimum tax and U.S. persons whose functional currency is not the U.S. dollar). In addition, this summary does not consider the effect of any non-U.S., state, local or other tax laws, or generally any other U.S. tax consequences other than federal income tax consequences that may be applicable to investors. In general, this summary discusses the tax considerations applicable only to those purchasers who purchase the New Notes in the initial Offering at their “issue price” (i.e., the first price at which a substantial amount of the New Notes is sold other than to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers) and does not discuss the tax considerations applicable to other purchases of New Notes. This summary also assumes that the New Notes are held as capital assets by investors. If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the New Notes, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A holder of a New Note that is a partnership and the partners in such partnership should consult their own tax advisors concerning the particular U.S. federal income tax consequences applicable to them of acquiring, holding or disposing of the New Notes. Each prospective purchaser of the New Notes should consult its own tax advisors concerning the application of U.S. Federal tax laws to its particular situation, as well as any consequences of the purchase, ownership and disposition of the New Notes arising under the laws of any other taxing jurisdiction.

Tax Consequences to U.S. Holders As used herein, the term “U.S. Holder” means a beneficial owner of New Notes that is for U.S. federal income tax purposes: • an individual citizen or resident alien of the United States; • a corporation organized under the laws of the United States or of any state of the United States, or the District of Columbia; • an estate the income of which is subject to U.S. federal income tax without regard to its source; or • a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (within the meaning of the

186 Code) have the authority to control all substantial decisions of the trust, or that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.

Qualified Reopening The following discussion assumes that the New Notes are issued in a “qualified reopening” for U.S. federal income tax purposes and thus are treated as part of the same issue as the Initial Notes. If so, the New Notes will be treated as having the same issue price and the same issue date as the Initial Notes. Because the Initial Notes were not issued with “original issue discount” for U.S. federal income tax purposes, the New Notes in this offering also will not have original issue discount. However, depending on a holder’s purchase price, the New Notes may have bond premium. Special rules governing the treatment of bond premium applicable to New Notes issued in a qualified reopening are described below under “—New Notes Purchased at a Premium.” In order for the New Notes offered hereby to constitute a “qualified reopening” of the Initial Notes, various factual requirements must be satisfied. The Company believes that the New Notes satisfy all such factual requirements and therefore are properly characterized as issued in a qualified reopening of the Initial Notes.

Potential Contingent Payment Debt Instrument Treatment In certain circumstances, Virgin Australia may be required to make payments on a New Note that would change the yield of the New Note. See “Description of Notes—Change of Control” and “Description of Notes—Redemption—Optional Redemption.” This obligation may implicate the provisions of Treasury regulations relating to contingent payment debt instruments (“CPDIs”). According to the applicable Treasury regulations, certain contingencies will not cause a debt instrument to be treated as a CPDI if such contingencies, as at the date of issuance, are “remote or incidental” or certain other circumstances apply. Virgin Australia intends to take the position that the New Notes are not CPDIs. This determination, however, is not binding on the IRS and if the IRS were to challenge this determination, a holder may be required to accrue income on the New Notes that such holder owns in excess of stated interest, and to treat as ordinary income rather than capital gain any income realized on the taxable disposition of such New Notes before the resolution of the contingency. If the New Notes are not CPDIs but such contingent payments were required to be made, it would affect the amount and timing of the income that a U.S. Holder recognizes. U.S. Holders are urged to consult their own tax advisors regarding the potential application to the New Notes of the CPDI rules and other rules above and the consequences thereof. The remainder of this discussion assumes that the New Notes will not be treated as CPDIs.

Interest on the New Notes Generally, the amount of any interest payments on a New Note, including any Additional Amounts and any tax withheld from interest payments, will be taxable to a U.S. Holder as ordinary interest income at the time such payments are received or accrued in accordance with the U.S. Holder’s method of accounting for U.S. federal income tax purposes. It is expected, and the remainder of this discussion assumes, that the New Notes will not be issued with original issue discount for U.S. federal income tax purposes.

New Notes Purchased at a Premium A U.S. Holder that purchases a New Note for an amount in excess of its principal amount may elect to treat the excess as “amortizable bond premium,” in which case the amount of interest on the New Note required to be included in the U.S. Holder’s income each year will be reduced by the amount of amortizable bond premium allocable (based on the New Note’s yield to maturity) to that year. The amount of amortizable bond premium for each taxable year is the sum of the daily portions of bond premium with respect to the New Note for each day during the taxable year or portion of the taxable year on which the U.S. Holder holds the New Note. The daily portion is determined by allocating to

187 each day in any “accrual period” a pro rata portion of the bond premium allocable to that accrual period. Accrual periods with respect to a New Note may be of any length selected by the U.S. Holder and may vary in length over the term of the New Note as long as (i) no accrual period is longer than one year; and (ii) each scheduled payment of interest or principal on the New Note occurs on either the final or first day of an accrual period. The amount of bond premium allocable to an accrual period equals the excess of (a) the sum of the payments of interest on the New Note allocable to the accrual period over (b) the product of the New Note’s adjusted acquisition price at the beginning of the accrual period and the New Note’s yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period). The “adjusted acquisition price” of a New Note at the beginning of any accrual period is the U.S. Holder’s purchase price for the New Note, decreased by the amount of bond premium for each prior accrual period.

Disposition of the New Notes Upon the sale, exchange, retirement or other disposition of a New Note, a U.S. Holder will generally recognize taxable gain or loss equal to the difference between the amount realized (not including any amounts received that are attributable to accrued and unpaid interest, which will be taxable as ordinary interest income in accordance with the U.S. Holder’s method of tax accounting) and the U.S. Holder’s adjusted tax basis in the New Note. A U.S. Holder’s adjusted tax basis in a New Note generally will be its U.S. dollar cost reduced by any principal payments previously received by the U.S. Holder and the amount of any amortizable bond premium applied to reduce interest on the New Note. Gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if the New Note was held for more than one year at the time of the disposition. Certain U.S. Holders (including individuals) are eligible for preferential rates of U.S. federal income tax in respect of long- term capital gain. The deduction of capital losses is subject to substantial limitations. Gain or loss recognized by a U.S. Holder generally will ordinarily be treated as U.S. source gain or loss. However, this determination may be affected by provisions contained in the U.S.—Australian income tax treaty.

Medicare Tax and Certain Reporting Obligations Certain U.S. Holders that are individuals, estates or trusts will be subject to an additional 3.8% Medicare tax on, among other things, certain interest income and net gains from the disposition of property, such as the New Notes, less certain deductions. U.S. Holders that are individuals, estates or trusts should consult their tax advisors regarding the effect, if any, of this Medicare tax on their ownership and disposition of the New Notes. Individuals who are U.S. Holders, and who hold “specified foreign financial assets” (as defined in Section 6038D of the Code), including debt of a non-U.S. corporation that is not held in an account maintained by a U.S. “financial institution” (as defined in Section 6038D of the Code), whose aggregate value exceeds US$50,000 during the tax year, may be required to attach to their tax returns for the year certain specified information. An individual who fails to timely furnish the required information may be subject to a penalty. Additionally, in the event a U.S. Holder does not file the required information, the statute of limitations may not close before such information is filed. Under certain circumstances, an entity may be treated as an individual for purposes of the foregoing rules.

Tax Consequences to Non-U.S. Holders The term “Non-U.S. Holder” means a beneficial owner of the New Notes that is an individual, corporation, estate or trust that is not a U.S. Holder. Subject to the discussion of backup withholding below, a Non-U.S. Holder will not be subject to U.S. federal income tax (including withholding tax) on any income in respect of the New Notes, or on any gain realized by the Non-U.S. Holder on the sale, exchange or retirement of the New Notes, unless (i) such income or gain is effectively connected with the conduct of a trade or business by the Non-U.S.

188 Holder in the United States (and, if an applicable treaty so requires, is attributable to a permanent establishment that the Non-U.S. Holder maintains in the United States), or (ii) in the case of gain realized by an individual Non-U.S. Holder, the Non-U.S. Holder is present in the United States for 183 days or more in the taxable year and certain other conditions are met.

Information Reporting and Backup Withholding Backup withholding of U.S. federal income tax may apply to payments made in respect of the New Notes to owners who are not exempt recipients and who fail to provide certain identifying information (such as the owner’s taxpayer identification number) in the required manner. Generally, corporations, certain other entities and Non-U.S. Holders are exempt recipients, provided that they are able to certify their exempt status. Payments made in respect of the New Notes to a U.S. Holder generally must be reported to the IRS, unless the U.S. Holder is an exempt recipient. In addition, upon the sale of a note by a U.S. Holder to (or through) a broker, the broker generally must withhold backup withholding tax from the purchase price, unless either (i) the broker determines that the seller is a corporation or other exempt recipient or (ii) the seller provides, in the required manner, certain identifying information. Such a sale generally must also be reported by the broker to the IRS, unless the broker determines that the seller is an exempt recipient. Any amounts withheld under the backup withholding rules from a payment to a beneficial owner would be allowed as a refund or a credit against such beneficial owner’s U.S. federal income tax liability, provided the required information is furnished by the beneficial owner to the IRS. The preceding discussion of certain U.S. federal income tax considerations is for general information only and is not tax advice. Each prospective investor is encouraged to consult its own tax advisor regarding the particular U.S. federal, state, local and non-U.S. tax consequences of purchasing, holding and disposing of the New Notes, including the consequences of any proposed change in applicable laws.

189 CERTAIN AUSTRALIAN TAX CONSIDERATIONS

Certain Australian Tax Considerations The following is a summary of the principal Australian tax consequences of the acquisition, ownership and disposal of New Notes for investors who are non-residents of Australia for Australian tax purposes and who do not acquire or hold New Notes at any time in carrying on business at or through a permanent establishment in Australia (“Foreign Noteholders”). This summary is not exhaustive and, in particular, does not deal with the position of certain classes of holders of New Notes (including, without limitation, holders that are Australian residents for tax purposes, holders that are non-residents of Australia that acquire or hold New Notes in carrying on business at or through a permanent establishment in Australia, dealers in securities, custodians or third parties who hold New Notes on behalf of any beneficial holders of New Notes). Prospective holders of New Notes should seek independent advice on the Australian and foreign tax implications of an investment in the New Notes in their particular circumstances. This summary is not intended to be, nor should it be construed as, legal or tax advice to any particular holder of a New Note. This summary is based on the provisions of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 (collectively, the “Australian Tax Act”) and also the A New Tax System (Goods and Services Tax) Act 1999 as at the date of this offering circular. New Notes sold pursuant to this Offering must not be purchased by an “Offshore Associate” (as defined below) of Virgin Australia other than one acting in the capacity of a dealer, manager or underwriter in relation to the placement of the New Notes or in the capacity of a clearing house, custodian, funds manager or responsible entity of a registered scheme within the meaning of the Corporations Act. An “Offshore Associate” of Virgin Australia means an “associate” (as defined in section 128F(9) of the Australian Tax Act) of Virgin Australia that is either a non-resident of Australia that does not acquire the New Notes in carrying on a business at or through a permanent establishment in Australia or, alternatively, a resident of Australia that acquires the New Notes in carrying on a business at or through a permanent establishment outside of Australia.

Australian Tax Characterization of the New Notes Australia’s income tax laws generally characterize financing arrangements as either “debt interests” (for all entities) or “equity interests” (generally only for companies), including for the purposes of Australian interest withholding tax and dividend withholding tax. The New Notes should be characterized as “debt interests” for Australian income tax purposes. Furthermore, the New Notes should be characterized as “financial arrangements” under the Taxation of Financial Arrangements (“TOFA”) provisions in Division 230 of the Australian Tax Act. In the context of the transaction, the TOFA provisions should not affect the withholding tax position discussed further below.

Taxation of Noteholders

Withholding Tax

Interest Withholding Tax Under Australian tax law, payments of interest (or amounts in the nature of interest or which could reasonably be regarded as having been converted into a form that is in substitution for interest) on the New Notes to Foreign Noteholders would ordinarily be subject to Australian interest withholding tax at the rate of 10% of the gross amount paid. If the New Notes are issued at a discount to face value, the discount will be treated as an amount in the nature of interest for Australian withholding tax purposes. References in the remainder of this section to “interest” include all payments of interest, any discount to face value if the New Notes are

190 issued at a discount to face value and any other amounts that are treated as in the nature of interest or in substitution of interest for Australian withholding tax purposes. However, an exemption from Australian interest withholding tax should apply if the New Notes are issued, and interest on the New Notes is paid, in accordance with section 128F of the Australian Tax Act. The New Notes will be issued and interest on the New Notes will be paid in accordance with section 128F of the Australian Tax Act if the following conditions are met: (a) Virgin Australia is a company as defined in section 128F(9) of the Australian Tax Act (which includes certain companies acting as trustees) and a resident of Australia when it issues the New Notes and when interest is paid on the New Notes; (b) the New Notes are offered in a manner which satisfies the “public offer test.” There are five principal methods of satisfying the public offer test, the purpose of which is to ensure that lenders in capital markets are aware that the Issuer is offering the New Notes for issue. In summary, the issue of the New Notes should satisfy the public offer test if the issue resulted from the New Notes being offered for issue: • to 10 or more persons each of whom carries on a business of providing finance, or investing or dealing in securities in the course of operating in financial markets and who are not “associates” (as defined in section 128F(9) of the Australian Tax Act) of each other; • to 100 or more potential investors who have acquired debentures in the past or are likely to be interested in acquiring debentures; • as a result of being accepted for listing on a stock exchange; • as a result of negotiations being initiated via electronic or other market sources used by financial markets for dealing in debentures (such as the New Notes); or • to a dealer, manager or underwriter who, by agreement with the Issuer, offers the New Notes for sale within 30 days by one of the preceding methods; (c) at the time of issue, Virgin Australia does not know, or have reasonable grounds to suspect, that the New Notes or an interest in the New Notes were being, or would later be, acquired, directly or indirectly, by an Offshore Associate of Virgin Australia (other than one acting in the capacity of a dealer, manager or underwriter in relation to the placement of the New Notes or in the capacity of a clearing house, custodian, funds manager or responsible entity of a registered scheme within the meaning of the Corporations Act); and (d) at the time of the payment of interest, Virgin Australia does not know, or have reasonable grounds to suspect, that the payee is an Offshore Associate of Virgin Australia (other than one acting in the capacity of a clearing house, paying agent, custodian, funds manager or responsible entity of a registered scheme within the meaning of the Corporations Act). It is intended that the New Notes will be issued in a manner that satisfies the requirements of the public offer test. The Initial Purchaser has agreed to offer the New Notes in a way that is intended to satisfy the public offer test with a view to ensuring that payments of interest on the New Notes should be exempt from Australian interest withholding tax under section 128F.

Double Tax Treaty If the exemption in section 128F of the Australian Tax Act does not apply, interest may still be exempt from Australian interest withholding tax under the terms of an applicable double tax convention between Australia and the country of residence of the particular Foreign Noteholder. Foreign Noteholders should seek their own independent advice with respect to whether an exemption under a double tax treaty with Australia may be applicable in this scenario.

191 Payments under the Note Guarantees Australian income tax law does not specifically address the question of whether or not any payment by an Australian resident Guarantor under the Note Guarantee, of an amount in respect of interest on a New Note, would be subject to Australian interest withholding tax. The Australian Tax Office (“ATO”) has released a Taxation Determination concluding that payments by an Australian resident guarantor in respect of interest on debentures should be regarded as interest subject to Australian interest withholding tax, but that such payments should be entitled to the benefit of the exemption contained in section 128F of the Australian Tax Act if payments of interest in respect of those debentures by the issuer would themselves be exempt from Australian interest withholding tax under section 128F of the Australian Tax Act. As such, if the New Notes are issued in compliance with section 128F of the Australian Tax Act then, based on the ATO’s views in the Taxation Determination, any payment by an Australian resident Guarantor under the Note Guarantee of an amount in respect of interest on a New Note, should not be subject to Australian interest withholding tax.

Tax File Number (“TFN”) and Australian Business Number (“ABN”) Withholding Tax There is a requirement under section 12-140 of Schedule 1 of the Taxation Administration Act 1953 that an issuer of certain securities such as the New Notes withhold an amount on account of tax at the highest marginal rate of tax (currently 49% until the end of the 2016-17 income year when, under current law, the rate is to be reduced to 47%) from payments made on certain securities unless the relevant payee has quoted an Australian TFN or ABN or provided proof of some other exception (as appropriate). Assuming that the requirements of section 128F of the Australian Tax Act are satisfied with respect to the New Notes, then these withholding rules should not apply to payments to a Foreign Noteholder.

Bearer Debenture Withholding Tax Under Australian tax law, a withholding tax will be imposed on payments of interest by a company on bearer notes unless the company provides certain information about the noteholders to the Australian Commissioner of Taxation (“Commissioner”). As the New Notes will not be bearer notes, bearer withholding tax will not apply to the New Notes.

Garnishee Directions The Commissioner may give a direction requiring the Issuer to deduct from any payment to a Foreign Noteholder any amount in respect of Australian tax payable by the Foreign Noteholder. If the Issuer is issued with such a direction, the Issuer will comply with that direction and make any deduction required by that direction.

Supply Withholding Tax A payment of principal or interest under the New Notes to a Foreign Noteholder can be made free and clear of any “supply withholding tax” imposed under section 12-190 of Schedule 1 to the Taxation Administration Act 1953 (Cth).

Additional Withholdings from Certain Payments The Governor-General may make regulations requiring withholding from certain payments to non- residents of Australia (other than payments of interest and other amounts which are already subject to the current interest withholding tax rules or specifically exempt from those rules). Regulations may only be made if the responsible Minister is satisfied that the specified payments are of a kind that could

192 reasonably relate to assessable income of foreign residents. The possible application of any future regulations to the proceeds of sale of any New Notes should be monitored.

Gains on Disposal of New Notes A Foreign Noteholder should not be subject to Australian income tax on gains realized on the sale of New Notes, provided that such gains do not have an Australian source. A gain arising on the sale of New Notes by a Foreign Noteholder to another non-Australian resident, where neither is acting through a permanent establishment in Australia, where the New Notes are sold outside Australia and all negotiations and documentation are conducted and executed outside Australia should generally not be regarded as having an Australian source. In the event that a gain on sale of New Notes by a Foreign Noteholder was taken to have an Australian source, if that Foreign Noteholder is a resident in a country which has a double tax convention with Australia, relief from Australian income tax on any such gain may be available depending on the circumstances.

Death Duties The New Notes will not be subject to death, estate or succession duties imposed by Australia, or by any political subdivision or authority therein having power to tax, if held at the time of death.

Goods and Services Tax (“GST”) No GST will be payable in respect of the issue of the New Notes by Virgin Australia, as this supply will be GST-free. Any payments made by Virgin Australia of interest or principal to the Noteholders will also not be subject to GST.

Stamp Duty Stamp duty is a tax imposed in each Australian State and Territory on various types of documents and transactions. In New South Wales (but not in any other Australian State or Territory) it is imposed on a mortgage or charge which affects property in New South Wales. In all Australian States and Territories it is imposed on the transfer of dutiable property, unless an exemption applies. No duty should be payable in any Australian jurisdiction on the issue or transfer of the New Notes. In particular, the transfer of a New Note will not be chargeable in any Australian jurisdiction either because it is not dutiable property in that jurisdiction or because a relevant exemption from duty should apply.

193 CERTAIN ERISA CONSIDERATIONS The United States Employee Retirement Income Security Act of 1972, as amended (“ERISA”) imposes certain requirements on employee benefit plans subject to Title I of ERISA (“ERISA Plans”), and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general fiduciary requirements, including, but not limited to, the requirement of investment prudence and diversification and the requirement that an ERISA Plan’s investments be made in accordance with the documents governing the ERISA Plan. Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, “Plans”)) and certain persons (referred to as “parties in interest” or “disqualified persons”) having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. The fiduciary of a Plan that proposes to purchase and hold any New Notes should consider, among other things, whether such purchase and holding may involve (i) the direct or indirect extension of credit to a party in interest or a disqualified person, (ii) the sale or exchange of any property between a Plan and a party in interest or a disqualified person, and (iii) the transfer to, or use by or for the benefit of, a party in interest or a disqualified person, of any Plan assets. Such parties in interest or disqualified persons could include, without limitation, Virgin Australia and its affiliates and the Initial Purchaser. Depending on the identity of the Plan fiduciary making the decision to acquire or hold New Notes on behalf of a Plan, Prohibited Transaction Class Exemption (“PTCE”) 91-38 (relating to investments by bank collective investment funds), PTCE 84-14 (relating to transactions effected by a “qualified professional asset manager”), PTCE 95-60 (relating to investments by an insurance company general account), PTCE 96-23 (relating to transactions directed by an in-house professional asset manager) or PTCE 90-1 (relating to investments by insurance company pooled separate accounts) (collectively, the “Class Exemptions”) could provide an exemption from the prohibited transaction provisions of ERISA and Section 4975 of the Code. However, there can be no assurance that any of these Class Exemptions or any other exemption will be available with respect to any particular transaction involving the New Notes. Governmental plans and certain church plans, while not subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to state or other federal laws that are substantially similar to the foregoing provisions of ERISA and the Code. Fiduciaries of any such plans should consult with their counsel before purchasing any New Notes. Any Plan fiduciary which proposes to cause a Plan to purchase any New Notes should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such purchase and holding will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA. Each person who acquires or accepts a New Note or an interest therein, will be deemed by such acquisition or acceptance to have represented and warranted that either: (i) no portion of the assets used by it to acquire and hold the New Notes constitutes assets of (A) any Plan or (B) any plan, account or other arrangement that is subject to the provisions of any federal, state, local, non-U.S. or other laws, rules or regulations that are similar to such provisions of ERISA or the Code (collectively, “Similar Laws”); or (C) any entity whose underlying assets are considered to include “plan assets” of any such plan, account or arrangement (described in (A) or (B)) or (ii) the purchase and holding of the New Notes by it will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code by reason of an applicable statutory or administrative exemption or a violation under any applicable Similar Law.

194 PLAN OF DISTRIBUTION Virgin Australia and the Initial Purchaser, as sole underwriter, have entered into a purchase agreement (the “Purchase Agreement”) with respect to the New Notes. Subject to certain conditions, the Initial Purchaser has agreed to purchase all of the New Notes, if any are taken. The initial offering price is set forth on the cover page of this offering circular. After the New Notes are released for sale, the Initial Purchaser may change the offering price and other selling terms. The Offering of the New Notes by the Initial Purchaser is subject to receipt and acceptance and subject to the Initial Purchaser’s right to reject any order in whole or in part. The New Notes have not been and will not be registered under the Securities Act. The Initial Purchaser has agreed that it will only offer or sell the New Notes (A) in the United States to QIBs in reliance on Rule 144A under the Securities Act, and (B) outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act. Terms used above have the meanings given to them by Rule 144A and Regulation S under the Securities Act. In connection with sales outside the United States, the Initial Purchaser has agreed that it will not offer, sell or deliver the New Notes to, or for the account or benefit of, U.S. persons (i) as part of the Initial Purchaser’s distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the Offering or the date the New Notes are originally issued. The Initial Purchaser will send to each dealer to whom it sells such New Notes during such 40-day period a confirmation or other notice setting forth the restrictions on offers and sales of the New Notes within the United States or to, or for the account or benefit of, U.S. persons. In addition, with respect to New Notes initially sold pursuant to Regulation S, until 40 days after the later of the commencement of this Offering or the date the New Notes are originally issued, an offer or sale of such New Notes within the United States by a dealer that is not participating in the Offering may violate the registration requirements of the Securities Act. Virgin Australia has agreed in the Purchase Agreement that during the period from the date of the Purchase Agreement and the date that is 30 days after the Closing Date, neither Virgin Australia nor any of the Guarantors shall, without the prior written consent of Goldman, Sachs & Co., offer, issue, sell, contract or agree to sell or issue any senior unsecured debt securities having a maturity of more than one year from the relevant date of issue (other than the New Notes offered hereby); provided that such restrictions do not apply to any offer, issue, sale, contract or agreement to sell or issue any securities by any member of the Velocity Sub-Group. The New Notes are a new issue of securities with no established trading market. Virgin Australia is not required to and does not intend to list the New Notes on any securities exchange. Virgin Australia has been advised by the Initial Purchaser that the Initial Purchaser intends to make a market in the New Notes but is not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the New Notes. In connection with the Offering, the Initial Purchaser may purchase and sell New Notes in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the Initial Purchaser of a greater number of New Notes than it is required to purchase in the Offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the New Notes while the Offering is in progress. These activities by the Initial Purchaser, as well as other purchases by the Initial Purchaser for its own account, may stabilize, maintain or otherwise affect the market price of the New Notes. As a result, the price of the New Notes may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the Initial Purchaser at any time. These transactions may be effected in the over-the-counter market or otherwise. Virgin Australia has agreed to indemnify the Initial Purchaser against certain liabilities, including liabilities under the Securities Act.

195 The Initial Purchaser and its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The Initial Purchaser and its affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the issuer, for which they received or will receive customary fees and expenses. In the ordinary course of their various business activities, the Initial Purchaser and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of Virgin Australia. The Initial Purchaser and its affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Notice to Australian Investors The Initial Purchaser has acknowledged that no prospectus or other disclosure document (as defined in the Corporations Act) in relation to the New Notes has been or will be lodged with ASIC or the ASX and has represented, warranted and agreed with Virgin Australia that it: (a) has not made or invited, and will not make or invite, applications for an offer of the New Notes for issue, sale or purchase in Australia (including an offer or invitation which is received by a person in Australia); and (b) has not distributed or published, and will not distribute or publish, this offering circular or any other offering material or advertisement relating to the New Notes in Australia, unless: (i) (A) the minimum aggregate consideration payable by each offeree is at least AU$500,000 (or its equivalent in an alternate currency) (disregarding moneys lent by the offeror or its associates); or (B) the offer or invitation otherwise does not (other than by reason of section 708(14) or section 708A of the Corporations Act) require disclosure to investors under Part 6D.2 or 7.9 of the Corporations Act; (ii) the offer is not made to a person in Australia who is a “retail client” for the purposes of section 761G of the Corporations Act; (iii) such action complies with all applicable laws, regulations and directives (including, without limitation, the licensing requirements in Chapter 7 of the Corporations Act) of the Commonwealth of Australia; and (iv) such action does not require any document to be lodged with ASIC.

Notice to EU Investors In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), the Initial Purchaser has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of New Notes which are the subject of the Offering contemplated by this offering circular, except that it may, with effect from and including the Relevant Implementation Date, make an offer of such New Notes to the public in that Relevant Member State: (a) at any time to any legal entity which is a qualified investor as defined in the Prospectus Directive;

196 (b) at any time to fewer than 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant dealer or dealers nominated by the issuer for any such offer; or (c) at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no such offer of New Notes shall require the issuer or the Initial Purchaser to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. For the purposes of this provision, the expression an “offer of notes to the public” in relation to any notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the New Notes to be offered so as to enable an investor to decide to purchase or subscribe for the New Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State; the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including Directive 2010/73/EU), and includes any relevant implementing measure in the Relevant Member State. The Initial Purchaser has represented and agreed that: (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”)) received by it in connection with the issue or sale of the New Notes in circumstances in which Section 21(1) of the FSMA does not apply to the issuer; and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the New Notes in, from or otherwise involving the United Kingdom. This offering circular and any other material in relation to the New Notes described herein are only being distributed (i) to and are only directed at persons who are outside the United Kingdom, (ii) to investment professionals falling within Article 19(5) of the FSMA Order 2005 (the “Order”), (iii) to high net worth entities and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order and (iv) to persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) in connection with the issue or sale of any New Notes may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This offering circular and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this offering circular or any of its contents. Neither this offering circular nor any other offering material relating to the New Notes described in this offering circular has been submitted to the clearance procedures of the Autorite´ des Marche´s Financiers or of the competent authority of another Member State of the European Economic Area and notified to the Autorite´ des Marche´s Financiers. The New Notes have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this offering circular nor any other offering material relating to the New Notes has been or will be: • released, issued, distributed or caused to be released, issued or distributed to the public in France; or • used in connection with any offer for subscription or sale of the New Notes to the public in France. Such offers, sales and distributions will be made in France only: • to qualified investors (investisseurs qualifie´s) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in, and in

197 accordance with, articles L.411-2, D.411-1, D.411-2, D.744-1, D.754-1 and D.764-1 of the French Code mone´taire et financier; or • to investment services providers authorized to engage in portfolio management on behalf of third parties (personnes fournissant le service d’investissement de gestion de portefeuille pour compte de tiers). The New Notes may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code mone´taire et financier.

Notice to Prospective Investors in Hong Kong WARNING: The contents of this offering circular have not been reviewed or approved by any regulatory authority in Hong Kong, nor will this offering circular be registered as a “Prospectus” in Hong Kong under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), nor has it been authorized by the Securities and Futures Commission in Hong Kong. Recipients are advised to exercise caution in relation to the Offering. The Initial Purchaser has represented and agreed that: • it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any New Notes other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) and any rules or regulations made under that Ordinance or (b) in other circumstances which do not result in the offering circular being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) or which do not constitute an offer to the public within the meaning of that Ordinance; and • it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the New Notes, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to New Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) and any rules or regulations made under that Ordinance.

Notice to Prospective Investors in Japan The New Notes have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the “Financial Instruments and Exchange Law”). Accordingly, the Initial Purchaser has represented and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any New Notes in Japan or to, or for the benefit of any resident of Japan (which term as used herein means any person having his or her place of domicile or residence in Japan, including any corporation or other entity organized under the laws of Japan or having its main office in Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and other relevant laws and regulations of Japan.

Notice to Prospective Investors in Singapore The Initial Purchaser has acknowledged that neither this offering circular nor any other document or material in connection with the offer or sale has been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, the Initial Purchaser has represented and agreed that it has not offered or sold any New Notes or caused such New Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell such New Notes or cause such New Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute this offering circular, or any other document or material in connection with the offer or sale or invitation for subscription or purchase of such New Notes, whether directly or

198 indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA in each case, subject to compliance with the conditions set forth in the SFA. Where the New Notes are subscribed or purchased in reliance of an exemption under Sections 274 or 275 of the SFA it is a condition of the offer that each person who acquires any New Note is acquiring such New Notes for investment purposes only and not with a view to distribution or resell such New Notes and it will not offer for sale, resell, or otherwise distribute within the period of six months from the date of the initial acquisition of the New Notes, except to any of the following persons: • an institutional investor (as defined in Section 4A of the SFA); • a relevant person (as defined in Section 275(2) of the SFA); or • any person pursuant to an offer referred to in Section 275 (1A) of the SFA, unless expressly specified otherwise in Section 276(7) of the SFA. Where the New Notes are subscribed or purchased pursuant to an offer made in reliance on an exemption under Section 275 of the SFA by a relevant person which is a corporation (other than a corporation which is an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, securities of that corporation will not be transferred within six months after that corporation has acquired the New Notes unless such transfer is made in accordance with the conditions specified in Section 276(3) of the SFA. Where any New Note is acquired pursuant to an offer made in reliance on an exemption under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust will not be transferred within six months after that trust has acquired the New Notes unless such transfer is made in accordance with the conditions specified in Section 276(4) of the SFA. Investors should therefore ensure that their own transfer arrangements comply with the above restrictions.

Notice to Prospective Investors in Taiwan This offering circular is provided for information only. It is not an offer to sell or a solicitation of an offer to buy the New Notes. Any such sale or solicitation may only be made pursuant to final offering documents. The offer of New Notes has not been registered with the Securities and Futures Bureau, Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through an offering or in circumstances which constitute an offer within the meaning of the securities and exchange law of the Republic of China that requires a registration or approval of the Securities and Futures Bureau, Financial Supervisory Commission of the Republic of China.

Notice to Prospective Investors in Korea The Initial Purchaser acknowledges that a registration statement for the Offering and sale of the New Notes has not been filed with the Financial Services Commission of Korea, and accordingly, that the New Notes may not be offered, sold or delivered, directly or indirectly, in Korea or to, or for the account or benefit of, any resident of Korea (as such term is defined under the Foreign Exchange Transaction Law of Korea) for a period of one year from the Closing Date, except as otherwise permitted by applicable Korean laws and regulations (such as the sale of the New Notes to professional investors (as such term is defined under the Financial Investment Services and Capital Market Act and its enforcement decree) in the secondary market).

199 Notice to Prospective Investors in Canada The New Notes may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the New Notes must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this Offering Circular (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (“NI 33-105”), the Initial Purchaser is not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

200 TRANSFER RESTRICTIONS The New Notes are subject to restrictions on transfer as summarized below. By purchasing New Notes, you will be deemed to have made the following acknowledgements, representations to and agreements with Virgin Australia and the Initial Purchaser: 1. You acknowledge that: • the New Notes have not been registered under the Securities Act or any other securities laws and are being offered for resale in transactions that do not require registration under the Securities Act or any other securities laws; and • unless so registered, the New Notes may not be offered, sold or otherwise transferred except under an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any other applicable securities laws, and in each case in compliance with the conditions for transfer set forth in paragraph 4 below. 2. You represent that you are not an affiliate (as defined in Rule 144 under the Securities Act) of Virgin Australia, that you are not acting on Virgin Australia’s behalf and that either: • you are a QIB (as defined in Rule 144A under the Securities Act) and are purchasing New Notes for your own account or for the account of another QIB, and you are aware that the Initial Purchaser is selling the New Notes to you in reliance on Rule 144A; or • you are not a U.S. person (as defined in Regulation S under the Securities Act) or purchasing for the account or benefit of a U.S. person, other than a distributor, and you are purchasing New Notes in an offshore transaction in accordance with Regulation S. 3. You acknowledge that neither Virgin Australia nor the Initial Purchaser nor any person representing Virgin Australia or the Initial Purchaser has made any representation to you with respect to Virgin Australia or the offering of the New Notes, other than the information contained in this offering circular. You represent that you are relying only on this offering circular in making your investment decision with respect to the New Notes. You agree that you have had access to such financial and other information concerning Virgin Australia and the New Notes as you have deemed necessary in connection with your decision to purchase New Notes, including an opportunity to ask questions of and request information from Virgin Australia. 4. You represent that you are purchasing New Notes for your own account, or for one or more investor accounts for which you are acting as a fiduciary or agent, in each case not with a view to, or for offer or sale in connection with, any distribution of the New Notes in violation of the Securities Act, subject to any requirement of law that the disposition of your property or the property of that investor account or accounts be at all times within your or their control and subject to your or their ability to resell the New Notes pursuant to Rule 144A or any other available exemption from registration under the Securities Act. You agree on your own behalf and on behalf of any investor account for which you are purchasing New Notes, and each subsequent holder of the New Notes by its acceptance of the New Notes will agree, that until the end of the Resale Restriction Period, as defined herein, the New Notes may be offered, sold or otherwise transferred only: • to Virgin Australia; • under a registration statement that has been declared effective under the Securities Act; • for so long as the New Notes are eligible for resale under Rule 144A, to a person the seller reasonably believes is a QIB that is purchasing for its own account or for the account of another QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A; • through offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act; or • under any other available exemption from the registration requirements of the Securities Act; subject in each of the above cases to any requirement of law that the disposition of the

201 seller’s property or the property of an investor account or accounts be at all times within the seller or account’s control. 5. You also acknowledge that: • the above restrictions on resale will apply from the Closing Date until the date that is one year (in the case of Rule 144A notes) or 40 days (in the case of Regulation S notes) after the later of the Closing Date and the last date that Virgin Australia or any of Virgin Australia’s affiliates was the owner of the New Notes or any predecessor of the New Notes (the “Resale Restriction Period”), and will not apply after the applicable Resale Restriction Period ends; • Virgin Australia and the Trustee reserve the right to require in connection with any offer, sale or other transfer of New Notes under clauses (d) or (e) above the delivery of an opinion of counsel, certifications and/or other information satisfactory to Virgin Australia and the Trustee; and • each note will contain a legend substantially to the following effect: THE NEW NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, (THE “SECURITIES ACT”) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANS- FERRED EXCEPT (A) (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSAC- TION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THERE- UNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL INVESTOR THAT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 OF REGULATION D UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRA- TION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. 6. You acknowledge that you (i) have not offered or invited, and will not offer or invite, application for the issue, sale or purchase in Australia (including an offer or invitation which is received by a person in Australia) unless the minimum aggregate consideration payable by each offeree or invitee is at least AU$500,000 or its equivalent in an alternate currency (in either case disregarding moneys, if any, lent by the offeror its associates (within the meaning of those expressions in Part 6D.2 of the Corporations Act or it is otherwise an offer or invitation for which no disclosure is required to be made in accordance with Parts 6D.2 or 7.9 of the Corporations Act, and is not made to a retail client (for the purpose of section 761G of the Corporations Act), and such action complies with all applicable laws, regulations and directives of the Commonwealth of Australia; and (ii) have not distributed, issued or published, and will not distribute, issue or publish, this offering circular or any other offering material, disclosure document or advertisement relating to the New Notes in Australia or cause any offering material, disclosure document or advertisement which requires lodgment with the ASIC to be received in Australia. 7. You represent that either (i) no portion of the assets used by you to acquire and hold the New Notes constitutes assets of (A) any employee benefit plan as defined in Section 3(3) of ERISA that is subject to Title I of ERISA; (B) any plan, account or other arrangement subject to Section 4975 of the Code; (C) any plan, account or other arrangement that is subject to the provisions of any federal, state, local, non-U.S. or other laws, rules or regulations that are similar to such provisions of ERISA or the Code (collectively, “Similar Laws”); or (D) any entity whose underlying assets are considered to include

202 “plan assets” of any such plan, account or arrangement (described in (A), (B) or (C)) or (ii) the purchase and holding of the New Notes by you will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code by reason of an applicable statutory or administrative exemption or a violation under any applicable Similar Law. 8. You acknowledge that Virgin Australia, the Initial Purchaser, the Trustee and others will rely upon the truth and accuracy of the above acknowledgments, representations and agreements. You agree that if any of the acknowledgments, representations or agreements you are deemed to have made by your purchase of New Notes is no longer accurate, you will promptly notify Virgin Australia and the Initial Purchaser. If you are purchasing any New Notes as a fiduciary or agent for one or more investor accounts, you represent that you have sole investment discretion with respect to each of those accounts and that you have full power to make the above acknowledgments, representations and agreements on behalf of each account.

203 LEGAL MATTERS The validity of the New Notes is being passed upon for Virgin Australia by Herbert Smith Freehills, Sydney, Australia, and Herbert Smith Freehills LLP, Singapore. The Initial Purchaser has been represented by Milbank, Tweed, Hadley & McCloy LLP, New York, New York, and King & Wood Mallesons, Sydney, Australia.

INDEPENDENT AUDITORS The consolidated financial statements of Virgin Australia as at, and for each of the three financial years ended, June 30, 2015, 2014 and 2013 included in this offering circular have been audited by KPMG, independent auditors, as set forth in their reports thereon included herein. The liability of KPMG, in relation to the performance of their professional services provided to Virgin Australia including, without limitation, KPMG’s audits of Virgin Australia’s consolidated financial statements described above, is limited under the Institute of Chartered Accountants in Australia (NSW) Scheme approved by the New South Wales Professional Standards Council or such other applicable scheme approved pursuant to the Professional Standards Act 1994 (NSW), including the Treasury Legislation Amendment (Professional Standards) Act.

204 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF VIRGIN AUSTRALIA HOLDINGS LIMITED

Annual Consolidated Financial Statements for the financial year ended June 30, 2015

Page Consolidated Statement of Profit or Loss for the financial years ended June 30, 2015 and 2014 ...... F-2 Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial years ended June 30, 2015 and 2014 ...... F-3 Consolidated Statement of Financial Position as at June 30, 2015 and 2014 ...... F-4 Consolidated Statement of Changes in Equity for the financial years ended June 30, 2015 and 2014 ...... F-5 Consolidated Statement of Cash Flows for the financial years ended June 30, 2015 and 2014 ...... F-7 Notes to the Consolidated Financial Statements ...... F-8 Directors’ Declaration ...... F-78 Independent Auditor’s Report ...... F-79

Annual Consolidated Financial Statements for the financial year ended June 30, 2014

Consolidated Statement of Profit or Loss for the financial years ended June 30, 2014 and 2013 ...... F-81 Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial years ended June 30, 2014 and 2013 ...... F-82 Consolidated Statement of Financial Position as at June 30, 2014 and 2013 ...... F-83 Consolidated Statement of Changes in Equity for the financial years ended June 30, 2014 and 2013 ...... F-84 Consolidated Statement of Cash Flows for the financial years ended June 30, 2014 and 2013 ...... F-86 Notes to the Consolidated Financial Statements ...... F-87 Directors’ Declaration ...... F-164 Independent Auditor’s Report ...... F-165

F-1 Consolidated statement of profit or loss For the year ended 30 June 2015

Restated(1) 2015 2014 Note $m $m Revenue and income Airline passenger revenue 3,999.0 3,603.0 Other ancillary revenue 707.0 683.8 Other income 17.4 16.4 Net foreign exchange gains 25.8 3.4 Revenue and income 4,749.2 4,306.6 Operating expenditure Aircraft operating lease expenses (290.0) (274.2) Airport charges, navigation and station operations (917.0) (792.3) Contract and other maintenance expenses (155.2) (189.0) Commissions and other marketing and reservations expenses (363.1) (330.6) Fuel and oil (1,191.6) (1,208.7) Labour and staff related expenses (1,118.8) (1,041.4) Impairment loss 17, 21 – (56.9) Other expenses from ordinary activities (464.2) (433.6) Depreciation and amortisation (275.4) (267.8) Ineffective cash flow hedges and non-designated derivatives losses (27.4) (38.5) Net operating expenditure (4,802.7) (4,633.0) Share of net (losses)/profits of equity-accounted investees 18 (16.6) (48.7) Loss before related income tax benefit and net finance costs (70.1) (375.1) Finance income 39.7 13.3 Finance costs 8 (132.9) (119.7) Net finance costs (93.2) (106.4) Loss before income tax benefit (163.3) (481.5) Income tax benefit 9 69.5 127.7 Net loss for the year (93.8) (353.8) Attributable to: Owners of the Company (110.8) (353.8) Non-controlling interests 7 17.0 – (93.8) (353.8)

Earnings per share for loss attributable to the ordinary equity holders of the Company: Cents Cents Basic earnings per share 10 (3.2) (11.4) Diluted earnings per share 10 (3.2) (11.4)

(1) Refer to note 3(v)(i). The above consolidated statement of profit or loss is to be read in conjunction with the accompanying notes to the consolidated financial statements.

F-2 ANNUAL FINANCIAL REPORT 2015 47 Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2015

Restated(1) 2015 2014 Note $m $m Loss for the year (93.8) (353.8) Other comprehensive income Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations (170.5) (0.1) Equity-accounted investees - share of exchange differences on translation of foreign operation 0.9 – Effective portion of changes in fair value of cash flow hedges (54.4) (37.3) Net change in fair value of cash flow hedges transferred to profit or loss 64.0 (38.0) Net change in fair value of cash flow hedges transferred to initial carrying value of hedged item 0.6 – Time value of options (13.9) (2.6) Income tax benefit on other comprehensive income 1.1 23.4 Other comprehensive loss for the year, net of income tax (172.2) (54.6) Total comprehensive loss for the year (266.0) (408.4) Attributable to: Owners of the Company (283.0) (408.4) Non-controlling interests 7 17.0 – Total comprehensive loss for the year (266.0) (408.4)

(1) Refer to note 3(v)(i). The above consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes to the consolidated financial statements.

F-3 48 VIRGIN AUSTRALIA GROUP Consolidated statement of financial position As at 30 June 2015

Restated(1) 2015 2014 Note $m $m Current assets Cash and cash equivalents 11 1,028.5 783.8 Trade and other receivables 12 304.8 302.9 Inventories 13 41.1 36.1 Derivative financial instruments 14 43.6 17.3 Other financial assets 15 67.7 29.0 Other current assets 16 4.7 4.7 Current tax assets 0.2 – Assets classified as held for sale 17 95.4 61.1 Total current assets 1,586.0 1,234.9 Non-current assets Trade and other receivables 12 – 23.6 Derivative financial instruments 14 6.9 2.0 Other financial assets 15 291.3 171.4 Investments accounted for using the equity method 18 6.6 5.2 Deferred tax assets 9 216.6 146.9 Property, plant and equipment 19 3,081.9 2,702.4 Intangible assets 20 564.3 362.3 Other non-current assets 16 26.0 30.6 Total non-current assets 4,193.6 3,444.4 Total assets 5,779.6 4,679.3 Current liabilities Trade and other payables 22 701.5 620.3 Interest-bearing liabilities 23 440.3 360.2 Derivative financial instruments 14 45.6 11.7 Provisions 24 172.8 120.4 Unearned revenue 25 939.3 8 07.7 Other current liabilities 0.3 0.3 Total current liabilities 2,299.8 1,920.6 Non-current liabilities Trade and other payables 22 6.3 7.4 Interest-bearing liabilities 23 2,321.9 1,590.5 Derivative financial instruments 14 – 3.7 Provisions 24 122.4 102.5 Unearned revenue 25 2.0 – Other non-current liabilities 6.4 6.5 Total non-current liabilities 2,459.0 1,710.6 Total liabilities 4,758.8 3,631.2 Net assets 1,020.8 1,048.1 Equity Share capital 26 1,152.9 1,147.3 Reserves 177.3 43.6 Retained losses (253.6) (142.8) Equity attributable to the owners of the Company 1,076.6 1,048.1 Non-controlling interests 7 (55.8) – Total equity 1,020.8 1,048.1

(1) Refer to note 3(v)(i). The above consolidated statement of financial position is to be read in conjunction with the accompanying notes to the consolidated financial statements. F-4 ANNUAL FINANCIAL REPORT 2015 49

– 7.4 4.0 0.4 $m 51.6 (17.8) (74.7) (54.6) Total (93.8) 319.8 238.7 (172.2) (169.6) (266.0) equity 1,048.1 1,048.1 1,020.8

– – – – – – – – – 7.4 $m 17.0 17.0 12.3 (17.8) (74.7) (55.8) (72.8) Non- interests controlling

– – – – 4.0 0.4 $m 51.6 (54.6) 311.5 307.5 (110.8) of the (172.2) (169.6) (283.0) 1,048.1 1,048.1 1,076.6 Company to owners Attributable

– – – – – – – – – – – 0.7 $m (110.8) (110.8) (142.8) (143.5) (253.6) profits (losses)/ (losses)/ Retained Retained

– – – – – – – – – – – – – – $m Non- 307.5 307.5 307.5 reserve interests interests controlling contribution

– – – – – – – – – – – – $m (1.6) (1.6) 17.9 19.5 19.5 based Share- reserve payments payments

– – – – – – – – – – 6.8 $m (9.7) (9.7) (0.7) (0.7) (10.4) (16.5) Option reserve time value value time

– – – – – – – – – 7.1 7.1 0.4 $m (4.7) 44.8 (11.8) (11.8) (38.1) reserve Hedging

– – – – – – – – – – – $m 36.6 36.6 (169.6) (169.6) (169.6) (133.0) reserve Foreign currency translation

– – – – – – – – – – – – 5.6 5.6 $m Share Share 1,147.3 1,147.3 capital 1,152.9 7 7 26 Note (1) (2) (2) Refer note to 3(v)(i). applicable). tax (where income of net disclosed are recognised Amounts

Balance at 1 July 2014 Impact of early adoption of accounting standard Share-based payment transactionsShare-based payment transactions owners with Total Balance at 30 June 2015 Equity distributions Other comprehensive income comprehensive Other Foreign currency translation differences translation currency Foreign Sale of interest in Velocity Group Redemption convertible of notes Restated balance at 1 July 2014 July 1 at balance Restated (Loss)/profit for the year Net change in fair value of cash flow hedges transferred profit to or loss Net change in fair value of cash flow hedges transferred initial to carrying value of hedged item income/(loss) comprehensive other Total comprehensiveTotal income/(loss) for the year recorded in directly owners, with Transactions equity Income tax reserve Effective portion of changes in fair value of cash hedges flow (1) (2) The above consolidated statement changes of in equity be is to read in conjunction with the accompanying notes the to consolidated financial statements. Consolidated statement of changes in equity in changes of statement Consolidated 2015 ended June 30 year the For F-5 50 VIRGIN AUSTRALIA GROUP

– 5.5 $m (0.1) (27.9) (26.6) (54.6) Total 349.7 355.2 (408.4) (353.8) 1,101.3 1,101.3 1,048.1 equity

– – – – – – – – – – – – – $m Non- interests controlling

– 5.5 $m (0.1) (27.9) (26.6) (54.6) 349.7 355.2 (408.4) of the (353.8) 1,101.3 1,101.3 1,048.1 Company Company to owners Attributable

– – – – – – – (1.1) $m 212.1 211.0 (142.8) (353.8) (353.8) profits (losses)/ (losses)/ Retained Retained

– – – – – – – – – – – – – $m Non- reserve interests interests controlling contribution

– – – – – – – – 2.6 2.6 $m 19.5 16.9 16.9 based Share- reserve payments payments

– – – – – – – 1.1 1.1 $m (1.8) (1.8) (1.8) (0.7) (continued)

Option reserve time value value time

– – – – – – $m 40.9 40.9 (11.8) (26.1) (52.7) (52.7) (26.6) reserve Hedging

– – – – – – – $m (0.1) (0.1) (0.1) 36.7 36.7 36.6 reserve Foreign currency translation

– – – – – – – 2.9 $m 794.7 794.7 352.6 349.7 Share 1,147.3 capital 26 26 Note (1) (2) (2) Refer note to 3(v)(i). applicable). tax (where income of net disclosed are recognised Amounts

Impact of early adoption of accounting standard Balance at 1 July 2013 Other comprehensive income comprehensive Other Effective portion of changes in fair value of cash hedges flow (restated) loss comprehensive other Total comprehensiveTotal loss for the year (restated) Restated balance at 1 July 2013 July 1 at balance Restated Loss for the year Foreign currency translation differences translation currency Foreign Net change in fair value of cash flow hedges transferred profit to or loss recorded in directly owners, with Transactions equity Issue of ordinary shares for cash Restated balance at 30 June 2014 Total transactions owners with Total Share-based payment transactionsShare-based payment (1) (2) The above consolidated statement changes of in equity be is to read in conjunction with the accompanying notes the to consolidated financial statements. Consolidated statement of changes in equity in changes of statement Consolidated For the year ended 30 June 2015 ended June 30 year the For F-6 ANNUAL FINANCIAL REPORT 2015 51 Consolidated statement of cash flows For the year ended 30 June 2015

2015 2014 Note $m $m Cash flows from operating activities Cash receipts from customers 5,176.7 4,781.7 Cash payments to suppliers and employees (4,785.6) (4,615.6) Cash generated from operating activities 391.1 166.1 Cash paid for business transformation expenses (82.5) (108.6) Finance costs paid (109.3) (76.7) Finance income received 18.8 11.5 Net cash from/(used in) operating activities 34 218.1 (7.7) Cash flows from investing activities Acquisition of property, plant and equipment (577.3) (360.2) Proceeds on disposal of property, plant and equipment 147.4 376.8 Acquisition of intangible assets (60.3) (72.4) Acquisition of subsidiary, net of cash acquired 6 3.2 – Acquisition of interest in joint venture 6 – (35.0) Advances of loans to joint venture (23.8) (83.4) Proceeds from loans to joint venture 8.2 35.1 Payments for other deposits (72.9) (55.2) Proceeds from other deposits 2.6 19.6 Net cash used in investing activities (572.9) (174.7) Cash flows from financing activities Proceeds from borrowings 910.7 1,041.4 Repayment of borrowings (525.4) (975.8) Payments of transaction costs related to borrowings (34.9) (28.3) Redemption of convertible notes (74.7) – Net proceeds from share issue 26 – 348.5 Equity distributions paid to non-controlling interests 7 (17.8) – Advances of loans from associate 23(c)(iv) – 1.8 Repayments of loans from associate 23(c)(iv) (4.2) ( 7.3) Proceeds from non-controlling interests 7 336.0 – Payments of transaction costs relating to non-controlling interests (8.8) – Net cash from financing activities 580.9 380.3 Net increase in cash and cash equivalents 226.1 197.9 Cash and cash equivalents at 1 July 783.8 580.5 Effect of exchange rate fluctuations on cash held 18.6 5.4 Cash and cash equivalents at 30 June 11 1,028.5 783.8

The above consolidated statement of cash flows is to be read in conjunction with the accompanying notes to the consolidated financial statements.

F-7 52 VIRGIN AUSTRALIA GROUP Notes to the consolidated financial statements For the year ended 30 June 2015

1. Reporting entity Virgin Australia Holdings Limited (VAH) (the Company) is a company domiciled in Australia. The address of the Company’s registered office and principal place of business is 56 Edmondstone Road, Bowen Hills, Queensland. The consolidated financial statements of the Company as at and for the year ended 30 June 2015 comprises the Company and its subsidiaries (together referred to as the Group, and individually as Group entities), and the Group’s interests in associates and joint ventures. The Group is a for-profit entity and is primarily involved in the airline industry, both domestic and international.

2. Basis of preparation The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency and the functional currency of the majority of the Group entities. The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with the Class Order, amounts in the consolidated financial statements have been rounded off to the nearest one hundred thousand dollars, unless otherwise stated. The consolidated financial statements have been prepared on the basis of historical costs, except where assets and liabilities are stated at fair value in accordance with relevant accounting policies. The Group’s current liabilities exceeded its current assets for the year ended 30 June 2015 by $713.8 million (2014: $685.7 million) including a current liability for unearned revenue of $939.3 million (2014: $807.7 million). Unearned revenue includes revenue received in advance which has been deferred in the statement of financial position until carriage is performed. The consolidated financial statements have been prepared on a going concern basis, which contemplates a return to profitable trading and a continued strong cash position. The Group has a balance of cash and cash equivalents of $1,028.5 million (2014: $783.8 million) has an unrestricted cash balance at 30 June 2015 of $718.9 million (2014: $541.0 million). Management of liquidity risk is detailed in note 32(c). The consolidated financial statements were approved by the Board of Directors (Board) on 22 September 2015.

3. Significant accounting policies The accounting policies set out below have been consistently applied to all the periods presented in these consolidated financial statements and have been applied consistently by Group entities. (a) Basis of consolidation Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Controlled entities are consolidated from the date on which control commences and are de-consolidated from the date that control ceases. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The Group has established special purpose entities (SPEs) for aircraft financing purposes. The Group does not have any direct or indirect shareholding in these SPEs. A SPE is consolidated if the Group concludes that it controls the SPE. (b) Investments accounted for using the equity method The Group’s interests in equity-accounted investees comprise interests in associates and joint ventures. An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

F-8 ANNUAL FINANCIAL REPORT 2015 53 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

3. Significant accounting policies (continued) (b) Investments accounted for using the equity method (continued) A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Investments in associates and joint ventures are accounted for in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates and joint ventures includes any notional goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ and joint ventures’ post-acquisition profits or losses is recognised in the consolidated statement of profit or loss and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates and joint ventures reduce the carrying amount of the investment recorded in the consolidated financial statements. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the associates and joint ventures and are eliminated against the carrying amount of the investment. Unrealised losses are also eliminated in the same way unless the transaction provides evidence of impairment. (c) Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. Acquisition- related costs are expensed as incurred. If the business combination is achieved in stages, any previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non- controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. (d) Foreign currency (i) Transactions and balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time, the cumulative amount is reclassed to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively). (ii) Foreign operations The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities are translated at exchange rates at the reporting date; • Income and expenses are translated at average exchange rates (unless that is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • All resulting exchange differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve.

F-9 54 VIRGIN AUSTRALIA GROUP 3. Significant accounting policies (continued) (d) Foreign currency (continued) (ii) Foreign operations (continued) On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recognised as equity in the foreign currency translation reserve. When a foreign operation is disposed of, the cumulative amount in the translation reserve relating to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. (e) Revenue and other income Revenue is recognised to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised for the major business activities as follows: (i) Airline passenger revenue Airline passenger revenue comprises revenue from passenger ticket sales. Revenue is recognised in profit or loss when carriage is performed. Airline passenger revenue received in advance is carried forward in the consolidated statement of financial position as unearned revenue based on expected future carriage. In addition, the Group is a party to various alliance arrangements. Revenue under these arrangements is recognised in profit or loss when the Group performs the carriage or otherwise fulfils all relevant contractual commitments. (ii) Other ancillary revenue Other ancillary revenue comprises revenue earned from the provision of other airline related services (including charter revenue, freight revenue, on‑board sales and other product revenue) and revenue from unutilised carriage. Other ancillary revenue is recognised in profit or loss at the time the service is provided or upon determination that carriage has not occurred. (iii) Loyalty program As described in note 3(t), the Group defers revenue relating to the issuance of points to members in the Velocity Frequent Flyer program. The receipt of cash from third parties above the fair value of the redemption is recognised immediately in profit or loss. For airline redemptions, revenue is recognised in profit or loss in accordance with the accounting policy for airline passenger revenue above. For non-airline redemptions relating to third parties, revenue is recognised in profit or loss as other ancillary revenue when points are redeemed. (iv) Credit vouchers Revenue from the redemption of credit vouchers is recognised in profit or loss as other ancillary revenue when carriage is complete, or when the credit voucher is no longer expected to be redeemed by the guest based on an analysis of historical non-redemption rates, or upon expiry. (f) Net finance costs Net finance costs comprise interest paid or payable on borrowings calculated using the effective interest rate method, unwinding of the discount on provisions and receivables, interest receivable on funds invested and amortisation of borrowing costs. Finance income is recognised in profit or loss as it accrues, using the effective interest rate method. Finance costs are recognised in profit or loss as incurred on an effective interest rate method, except where interest costs relate to qualifying assets in which case they are capitalised to the cost of the assets. If borrowed specifically for the acquisition, construction or production of a qualifying asset, the amount of finance costs capitalised are those incurred in relation to that borrowing, net of any interest earned on those borrowings. Where funds are borrowed generally, finance costs are capitalised using a weighted average capitalisation rate and amortised over the terms of the agreement.

F-10 ANNUAL FINANCIAL REPORT 2015 55 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

3. Significant accounting policies (continued) (g) Income tax (i) Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income. (ii) Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. (iii) Deferred tax Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted at the reporting date for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and temporary differences to measure the deferred tax asset or liability. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is not recognised for: • Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • Temporary differences relating to investments in subsidiaries and associates, and interests in joint arrangements, where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future; or • Taxable temporary differences arising on initial recognition of goodwill. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. (iv) Tax consolidation legislation VAH and its wholly-owned Australian controlled entities have formed a tax consolidated group. Tiger Airways Australia Pty Limited and its subsidiary Tiger Airways Australia SPV Pty Ltd (collectively referred to as Tigerair Australia) have formed a separate tax consolidated group. The head entity and the controlled entities in each tax consolidated group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. In addition to its own current and deferred tax amounts, the head entity in each tax consolidated group recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. (h) Earnings per share Basic earnings per share (EPS) is calculated by dividing the net profit or loss attributable to the owners of the Company for the reporting period, after excluding any costs of servicing equity, by the weighted average number of ordinary shares of the Company, adjusted for any bonus elements in ordinary shares issued during the period. Diluted EPS adjusts the figures used in the determination of basic EPS to take into account the income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

F-11 56 VIRGIN AUSTRALIA GROUP 3. Significant accounting policies (continued) (i) Financial instruments (i) Non-derivative financial assets The Group initially recognises loans and receivables and deposits on the date that they originate. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial assets: loans and receivables and cash and cash equivalents.

F-12 ANNUAL FINANCIAL REPORT 2015 57 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

3. Significant accounting policies (continued) (i) Financial instruments (continued) (iv) Derivative financial instruments, including hedge accounting The Group enters into derivative financial instruments to hedge its foreign currency, fuel price risk and specific asset purchases denominated in foreign currencies. On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value of cash flows of the respective hedged items during the period for which the hedge is designated. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect profit or loss. Derivatives are recognised initially at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

Cash flow hedges Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in other comprehensive income to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, is expired or sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income and presented in the hedging reserve in equity remains there until the forecast transaction is recognised in profit or loss. When the hedged item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognised. In other cases, the amount recognised in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss. (v) Non-hedge accounted derivative financial instruments When a derivative financial instrument is not designated in a hedge relationship, all changes in fair value are recognised immediately in profit or loss. (vi) Embedded derivatives and options Changes in the fair value of separable embedded derivatives and options are recognised immediately in profit or loss. (j) Inventories Inventories are measured at the lower of cost and net realisable value. The costs of engineering consumables and uniforms are assigned to the individual items of inventory on the basis of weighted average costs. Cost of catering inventory is determined using the first-in, first-out (FIFO) cost method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. (k) Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from other comprehensive income of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Ongoing repairs and maintenance are recognised in profit or loss. Items of property, plant and equipment are depreciated using the straight-line method over their estimated useful lives, taking into account estimated residual values. Assets are depreciated from the date they are installed and are ready for use, or in respect of internally constructed assets, from the time an asset is completed and held ready for use. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount exceeds its estimated recoverable amount. Major cyclical maintenance and modifications to operating leased aircraft capitalised are depreciated over the shorter of the time to the next maintenance event or remaining lease term. Finance leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Depreciation methods, useful lives and residual values are reviewed at each reporting date.

F-13 58 VIRGIN AUSTRALIA GROUP 3. Significant accounting policies (continued) (k) Property, plant and equipment (continued) The depreciation and amortisation rates used for each class of asset for the current and comparative periods are as follows:

2015 2014 Buildings 2.5%–10% 2.5%–10% Aircraft and aeronautic related assets ––Modifications to leased aircraft 8%–16.7% 8%–16.7% ––Rotables and maintenance parts 3%–11.1% 3%–11.1% ––Airframe, engines and landing gear 5%–25% 5%–25% ––Major cyclical maintenance 10%–80% 10%–80% Plant and equipment ––Leasehold improvements 6.7%–75% 10%–75% ––Other 3%–20% 3%–20% Computer equipment 20%–33.3% 20%–33.3% Finance leased assets ––Buildings 2.9% 2.9% ––Aeronautic related assets 20%–25% 20%–25%

Gains or losses on disposal of an item of property, plant or equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised on a net basis within other expenses in profit or loss. (i) Repairs and maintenance – owned aircraft Routine maintenance costs, including minor airframe checks, are recognised in profit or loss as incurred. The cost of major cyclical maintenance on owned aircraft is capitalised to the carrying value of the aircraft as incurred and amortised over the period to the next scheduled heavy maintenance. Any remaining carrying amount of the cost of the previous inspection is derecognised. (ii) Repairs and maintenance – operating leased aircraft Routine maintenance costs, including minor airframe checks, are recognised in profit or loss as incurred. Where the Group is obligated under its operating leases to pay an amount upon return of the aircraft based on either use or condition of the aircraft, a provision is recognised at inception of the lease for the present value of the expected payment, with a corresponding asset, reflecting the maintenance components within the lease payments. The asset is then amortised on a straight line basis over the life of the lease. The provision is accreted to the expected payment at the end of the lease with interest expense recognised in profit or loss. The cost of major cyclical maintenance and modifications incurred subsequently are capitalised as a leasehold improvement and depreciated over the shorter of the remaining lease term or the time to the next major maintenance event. Where leasehold improvements are made to aircraft at inception of the lease, restoration provisions are also recognised at inception. Maintenance reserve payments made to the lessor are recognised in the consolidated statement of financial position as an other financial asset where recoverable. Unrecoverable reserve payments are treated as a component of lease expense and recognised over the remaining term of the lease. (iii) Leasehold improvements The cost of improvements to or on leasehold property is amortised over the shorter of the unexpired period of the lease or the estimated useful life of the improvement. Leasehold improvements on plant and equipment and leased aircraft held at the reporting date are being amortised over one to fifteen years (2014: one to twelve years). (l) Assets classified as held for sale The Group classifies assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale rather than through continuing use. Such assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to a sale within one year from the date of the classification. Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale. Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position. F-14 ANNUAL FINANCIAL REPORT 2015 59 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

3. Significant accounting policies (continued) (m) Intangible assets (i) Goodwill Goodwill on acquisition of subsidiaries is included in intangible assets. For the basis of measurement of goodwill at and after initial recognition, refer to note 3(c). Goodwill on acquisition of interests in associates and joint ventures is included in investments accounted for using the equity method. (ii) Intangible assets with indefinite useful lives Brand names have an indefinite useful life. Indefinite life intangible assets are not amortised. Instead, they are tested for impairment annually or more frequently if events or changes in circumstance indicate that they might be impaired. Indefinite life intangibles are carried at cost less accumulated impairment losses. (iii) Other intangible assets Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of the intangible assets over their estimated useful lives. Amortisation methods, useful lives and residual values are reviewed at each reporting date. (iv) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. (v) Amortisation The amortisation rates used for each class of intangible asset for the current and comparative periods are as follows:

2015 2014 Software 6.7%–20% 8.3%–33.3% Customer contracts and relationships 10%–100% 10%–100%

The amortisation period remaining is 12.5 years for software and 3.4 years for customer contracts and relationships. (n) Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception of the lease. Leases under which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Other leases are classified as operating leases. (i) Finance leases – as lessee Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Capitalised leased assets are depreciated over the term of the relevant lease, or where it is likely the Group will obtain ownership of the asset, the life of the asset. Minimum lease payments made under finance leases are apportioned between finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (ii) Operating leases – as lessee Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. (iii) Operating leases – as lessor Lease income from operating leases is recognised in other income on a straight-line basis over the lease term, unless another systematic basis is considered more representative of the time pattern in which benefit is derived from the leased asset.

F-15 60 VIRGIN AUSTRALIA GROUP 3. Significant accounting policies (continued) (n) Leases (continued) (iv) Sale and leaseback transactions A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. If the sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount is deferred and amortised over the lease term. If a sale and leaseback transaction results in an operating lease, and the transaction is established at fair value, any profit or loss is recognised immediately. If the sale price is below fair value, any profit or loss is recognised immediately except that, if the loss is compensated for by future lease payments at below market price, it is deferred and amortised in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above the fair value, the excess over fair value is deferred and amortised over the period for which the asset is expected to be used. If the fair value at the time of a sale and leaseback transaction is less than the carrying amount, a loss equal to the amount of the difference between the carrying amount and the fair value is recognised immediately. (o) Impairment (i) Financial assets (including receivables) A financial asset not carried at fair value through profit or loss, including an interest in an equity-accounted investee, is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset. Individually significant financial assets are tested for impairment on an individual basis. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognised in profit or loss, and is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. (ii) Non-financial assets (excluding inventories and deferred tax assets) The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU’s) fair value less costs of disposal and its value-in-use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. Goodwill is allocated to CGUs for the purpose of impairment testing. Goodwill and intangibles that have indefinite useful lives or assets that are not yet available for use, are tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised in profit or loss. Impairment losses relating to goodwill cannot be reversed in future periods. Intangible assets with indefinite useful lives are tested for impairment annually at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.

F-16 ANNUAL FINANCIAL REPORT 2015 61 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

3. Significant accounting policies (continued) (p) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest rate method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance date. (q) Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within twelve months of the reporting date are measured at their nominal amounts in current other payables and provisions and represent the amounts expected to be paid when liabilities are settled. Liabilities for non-vesting sick leave are recognised when the leave is taken and measured at the rates paid or payable. (ii) Long term employee benefits The provision for long term employee benefits, such as long service leave, represents the present value of the estimated future cash outflows to be made resulting from employees’ services provided to the reporting date. The provision is calculated using expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using high quality corporate bond rates (2014: state government bond rates) at the reporting date which most closely match the terms of maturity of the related liabilities. (iii) Employee bonus plans A liability for employee benefits in the form of bonus plans is recognised in the provision for employee entitlements when there is no realistic alternative but to settle the liability and at least one of the following conditions is met: • There are formal terms in the plan for determining the amount of the benefit; • The amounts to be paid are determined before the time of completion of the annual consolidated financial statements; or • Past practice gives clear evidence of the amount of the obligation. Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. (iv) Superannuation plan The Group is required to make contributions to defined contribution employee superannuation plans. A defined contribution plan is a post- employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Such contributions are charged to profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available. (v) Share-based payments The Group operates a number of employee option plans and share plans. The fair value of options and performance rights granted are recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options and performance rights. The fair value at grant date is determined using a Black-Scholes, Binomial or Monte Carlo option pricing model depending on the terms and conditions of each option, that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair value of the performance rights at the grant date is independently determined using a discounted cash flow technique taking into account the share price at the grant date and dividends forgone over the vesting period of the performance rights. The fair value of the option granted excludes the impact of any service and non-market vesting conditions (for example, profitability and sales growth targets). Service and non-market vesting conditions are included in assumptions about the number of options and performance rights that are expected to become exercisable. At each reporting date, the entity revises its estimate of the number of options and performance rights that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimates, such that the amount ultimately recognised as an expense is based on the number of options and performance rights that meet the related service and non-market performance conditions at the vesting date.

F-17 62 VIRGIN AUSTRALIA GROUP 3. Significant accounting policies (continued) (q) Employee benefits (continued) (v) Share-based payments (continued) Upon exercise of options and performance rights, the balance of the share-based payments reserve relating to those options and performance rights is transferred to share capital. The market value of shares issued to employees for no cash consideration under the employee share scheme is recognised as an employee benefits expense with a corresponding increase in equity when the shares vest. When the Company grants options and performance rights over its shares to employees of subsidiaries, the fair value at grant date is recognised as an increase in the investments in subsidiaries, with a corresponding increase in equity over the vesting period of the grant. (vi) Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted. (r) Provisions A provision is recognised when there is a present legal, equitable or constructive obligation as a result of a past event, it is probable that a future sacrifice of economic benefits will be required to settle the obligation and the amount can be reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. If the effect of the time value of money is material, provisions are discounted using a pre-tax rate that reflects risks specific to the liability. The unwinding of the discount is recognised as a finance cost. (i) Maintenance Refer note 3(k)(ii) for the accounting policy relating to provisions for repairs and maintenance – operating leased aircraft. (ii) Unfavourable contract terms A provision for unfavourable contract terms is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract in profit or loss. (s) Dividends Provision is made for the amount of any dividend declared, determined or publicly recommended by the directors on or before the end of the year but not distributed at balance date. (t) Loyalty program accounting The Group receives participation fee revenue from third parties for the rights to have loyalty points allocated to members of the Velocity Frequent Flyer program. Members of the Velocity Frequent Flyer program also accumulate loyalty points by travelling on qualifying Group airline services. The obligation to provide awards to members is accounted for by deferring a portion of the flight ticket sales revenue. The amount deferred is the fair value, which is the amount for which the points could be sold separately (taking into account non-performance risk) and includes an estimate of historical trends of breakage. Revenue is released from the deferred revenue account and recognised in profit and loss when loyalty points are redeemed, except in the case of flight rewards, in which case revenue is recognised in profit and loss when the flight has flown.

F-18 ANNUAL FINANCIAL REPORT 2015 63 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

3. Significant accounting policies (continued) (u) Determination of fair values Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • In the principal market for the asset or liability; or • In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable • Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. When measuring the fair value of financial assets and liabilities, the Group uses market observable data where available. There have been no transfers between levels of the fair value hierarchy during the financial year. Fair values have been determined for measurement and/or disclosure purposes based on the following methods: (i) Derivatives The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques, such as estimated discounted cash flows. The fair value of forward exchange contracts and fuel contracts is determined using forward exchange market rates and fuel prices at the reporting date. (ii) Non-derivative financial liabilities Non-derivative financial liabilities are measured at fair value, at initial recognition and for disclosure purposes, at each annual reporting date. The fair value of interest-bearing borrowings and loans, including leases, are determined by discounting the remaining contractual cash-flows at the relevant credit adjusted market interest rates at the reporting date.

F-19 64 VIRGIN AUSTRALIA GROUP 3. Significant accounting policies (continued) (v) Impact of new accounting standards and interpretations adopted from 1 July 2014 (i) Financial instruments From 1 July 2014 the Group early adopted AASB 9 Financial Instruments (2013, 2010 and 2009) (AASB 9). AASB 9 introduces a new hedge accounting model to simplify hedge accounting requirements. AASB 9 introduces more principle-based requirements allowing more risk management activities to qualify for hedge accounting and therefore matching the timing of the profit or loss on the hedge instruments with the profit or loss on the underlying exposures. The Group has achieved this through component hedges (jet fuel component) and deferral of the time value on option-based contracts to the option time value reserve until maturity of the contract. Component hedges and option-based contracts are both commonly used in managing fuel price risk across the aviation industry. AASB 9 also improves and simplifies the approach for the classification and measurement of financial assets and liabilities. The impact of early adopting AASB 9 had no material impact on classification and measurement. The early adoption of AASB 9 has been applied retrospectively as permitted by the transitional provisions of AASB 9. Comparative amounts disclosed for the 2014 financial year and as at 1 July 2013 have been restated where appropriate. The table below summarises the adjustments made to reflect the early adoption of this accounting standard.

Option time value reserve Retained (losses)/profits Reported Adjustment Restated Reported Adjustment Restated $m $m $m $m $m $m Opening 1 July 2013 – 1.1 1.1 212.1 (1.1) 211.0 Movement in the year – (1.8) (1.8) (355.6) 1.8 (353.8) Closing 30 June 2014 / Opening 1 July 2014 – (0.7) (0.7) (143.5) 0.7 (142.8)

(ii) Offsetting financial assets and financial liabilities AASB 2012-3 adds application guidance to AASB 132 Financial Instruments: Presentation (AASB 132) to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement. The Group has applied the standard effective 1 July 2014 and as a result receivables and payables relating to the International Air Transport Association (IATA) Clearing House have been presented net as at 30 June 2015. (iii) Other The following amendments to standards have been considered and determined to have no material impact on the Group: • Interpretation 21 Levies • AASB 2014-1 Part A - Annual Improvements 2010–2012 Cycle, AASB 3 Business Combinations • AASB 2014-1 Part A - Annual Improvements 2010–2012 Cycle, AASB 8 Operating Segments • AASB 2014-1 Part A - Annual Improvements 2010–2012 Cycle, AASB 124 Related Party Disclosures • AASB 2014-1 Part A - Annual Improvements 2011–2013 Cycle, AASB 13 Fair Value Measurement • AASB 2014-1 Part A - Annual Improvements 2010–2012 Cycle, AASB 2 Share-based Payments • AASB 2014-1 Part B - Amendments to AASB 119 Employee Benefits (w) New accounting standards issued but not yet effective The following standards, amendments to standards and interpretations have been identified as those which may impact the Group in the period of initial application, and have not been applied in preparing these consolidated financial statements: • AASB 15 Revenue from Contracts with Customers (AASB 15). AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and Interpretation 13 Customer Loyalty Programmes. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2017, with early adoption permitted. The Group has commenced development of a project plan to assess the impact of AASB 15. • AASB 2015-2 - Amendments to AASB 101 Presentation of Financial Statements (AASB 101). The amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements. The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. While this standard has not be adopted early, some of the concepts discussed are consistent with the concept of ‘de-cluttering’ which is being applied by a number of reporters. The Group is undertaking a project of de-cluttering which will be implemented over the following financial years.

F-20 ANNUAL FINANCIAL REPORT 2015 65 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

4. Critical accounting estimates and judgements The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below. (a) Impairment of assets The Group tests annually whether goodwill and intangible assets with indefinite useful lives have suffered any impairment and whether impairment of any non-current assets has occurred in accordance with the accounting policy stated in note 3(o)(ii). The recoverable amounts of CGUs have been determined based on value-in-use calculations. Refer to note 21 for details of these assumptions. Impairment of financial assets is assessed in accordance with the accounting policy stated in note 3(o)(i). (b) Maintenance provisions Refer to note 3(k)(ii) for the basis for determining maintenance provisions relating to operating lease agreements. Assumptions for the provision for maintenance include expected use of the aircraft during the lease term, forecast maintenance obligation dates and forecast contractual maintenance rates. CPI was applied to certain current labour and market costs and the provisions are discounted as specified in note 3(r). The nominal discount rate applied was 9.0% (2014: 9.0%). (c) Financial instruments As detailed in note 3(i), the Group enters into financial instruments to manage exposures to foreign currency, fuel price risk and specific asset purchases denominated in foreign currencies. These instruments are measured at fair value. The fair value calculations require valuation techniques using various methods and assumptions, refer to note 3(u). For further details regarding financial instruments, refer to note 32. (d) Residual values and estimated useful lives Determining the depreciable amount of aircraft requires the use of assumptions regarding the residual value of the aircraft at the estimated time of disposal. Residual value is estimated based on market estimates of future aircraft values and current expectations of the aircraft operations. Assessments are made of the maintenance profile of owned aircraft and the timing of when specific maintenance events are considered likely to occur. This impacts the residual value assessment. As the market for aircraft is based on US dollars, residual value estimates are also affected by movements in the US dollar against the Australian dollar. During the current and prior year the Group undertook a review of the useful lives and residual values of certain assets. The depreciation and amortisation rates used for each class of property, plant and equipment and intangibles in the current and comparative years are as follows:

2015 2014 2013 Buildings 2.5%–10% 2.5%–10% 2.5%–10% Aircraft and aeronautic related assets ––Modifications to leased aircraft 8%–16.7% 8%–16.7% 8%–16.7% ––Rotables and maintenance parts 3%–11.1% 3%–11.1% 3%–11.1% ––Airframe, engines and landing gear 5%–25% 5%–25% 5%–25% ––Major cyclical maintenance 10%–80% 10%–80% 10%–80% Plant and equipment ––Leasehold improvements 6.7%–75% 10%–75% 10%–75% ––Other 3%–20% 3%–20% 3%–20% Computer equipment 20%–33.3% 20%–33.3% 20%–33.3% Finance leased assets ––Buildings 2.9% 2.9% 2.9% ––Aeronautic related assets 20%–25% 20%–25% 20%–25% Software 6.7%–20% 8.3%–33.3% 12.5%–33.3% Customer contracts and relationships 10%–100% 10%–100% 10%–100%

F-21 66 VIRGIN AUSTRALIA GROUP 4. Critical accounting estimates and judgements (continued) (d) Residual values and estimated useful lives (continued) During the years ended 30 June 2015 and 2014 the useful lives of certain software assets changed based on the intended use of these items resulting in a $7.4 million decrease to amortisation expense for the year (2014: decrease of $4.8 million). The impact of this change on future financial years, based on the current cost, is expected to be an average decrease in amortisation of $3.2 million per annum for each financial year until 30 June 2025, and an average increase of $7.9 million per annum thereafter, until the end of the useful lives of the assets on 30 June 2030. During the year ended 30 June 2015 the useful lives of certain leasehold improvements and aircraft and aeronautic related assets changed based on the intended use of these items resulting in a $6.6 million decrease to depreciation expense for the year (2014: $nil). The impact of this change on future financial years, based on the current cost, is expected to be an average decrease in depreciation of $8.6 million per annum for each financial year until 30 June 2025, and an average increase of $23.2 million per annum thereafter, until the end of the useful lives of the assets on 30 June 2029. (e) Deferred points revenue As described in note 3(t), the Group defers revenue relating to participation by members in the Velocity Frequent Flyer program. This revenue is deferred and recognised in profit or loss when reward points are redeemed and, in the case of flight rewards, when carriage is performed. The amount of revenue deferred is calculated using assumptions regarding the fair value of reward points. The fair value of the reward points is reduced to reflect points that are expected to lapse under the rules of the Velocity Frequent Flyer program. Assumptions are based on historical trends experienced within the program. The annual review of the unused points liability in regards to the Velocity Frequent Flyer program was conducted during the year ended 30 June 2015, resulting in a decrease in program revenue of $6.4 million (2014: increase of $3.3 million). (f) Credit vouchers The key assumption in measuring the liability for credit vouchers is the expected redemption rate by guests. Expected redemption rates are reviewed at each reporting date. Any reassessment of the expected redemption rates in a particular period will affect the revenue recognised from expiry of credit vouchers. There is a continuous assessment of future obligations in relation to credit vouchers. As a consequence of reviewing historical issued and expired credit vouchers, there has been a reassessment of credit voucher redemption rates resulting in a decrease in revenue of $4.5 million (2014: decrease of $8.1 million). (g) Unearned passenger revenue The historical trends of passenger non-attendance rates is a key assumption in the measurement of unearned passenger revenue. Expected non-attendance rates are reviewed at each reporting date. Any reassessment of the expected rate of non-attendance in a particular period will affect the airline passenger revenue recognised. The continuous assessment of unearned passenger revenue obligations and historical trends of non-attendance rates has resulted in an increase in revenue in the current year of $3.0 million (2014: increase of $3.5 million). (h) Deferred tax assets Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax losses can be utilised. At 30 June 2015, the Group had approximately $1,829.9 million (2014: $1,322.0 million) of carry-forward tax losses that would be available to offset against future taxable profit. A deferred tax asset of $549.0 million (2014: $396.6 million) has been recognised in respect of these losses. It is expected that sufficient profits will be generated in the future to utilise these carried forward tax losses. Evidence supporting projections of future taxable income are in the form of detailed financial modelling based on Group operating initiatives, recent industry trends and long term industry analysis. This evidence is reviewed by Senior Management and the Board and if the evidence presented is not considered convincing, then the deferred tax assets associated with these tax losses are not recognised. (i) Basis of control of Virgin Australia International Holdings Pty Ltd Refer to note 33, footnote 13. (j) Acquisition of subsidiary The fair value of assets and liabilities and the settlement of pre-existing relationships is subject to accounting judgement. Refer to note 6 for a discussion of these judgements and estimates in relation to the acquisition of Tigerair Australia.

F-22 ANNUAL FINANCIAL REPORT 2015 67 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

5. Operating segments The following summary describes the operations in each of the Group’s reportable segments: • Virgin Australia Domestic: operations using the fleet of Boeing B737 aircraft, Airbus A320 and A330 aircraft, ATR aircraft, Embraer E190 aircraft, and Fokker F50 and F100 aircraft. This comprises Australian domestic flying, including regional network operations. • Virgin Australia International: operations using a mix of Boeing B777 and B737 aircraft. This comprises Trans-Pacific, Abu Dhabi, Trans‑Tasman, Pacific Island and South East Asia flying. • Velocity: operations of the airline’s loyalty program, which comprises more than 5 million members. • Tigerair Australia: operations using a narrow body fleet of A320 aircraft. This comprises Australian domestic flying targeting the budget leisure market. Information regarding the results of each operating segment is detailed in the tables which follow. Performance is measured based on Segment EBIT (earnings before net gain/(loss) on disposal of assets, impairment losses, accelerated depreciation due to changes in useful lives of assets; business and capital restructure and transaction costs; share of net profits/(losses) of equity-accounted investees; time value movement on cash flow hedges; unrealised ineffectiveness on cash flow hedges and non-designated derivatives; net finance costs and income tax benefit) as included in the internal management reports that are reviewed by the chief operating decision maker. Segment EBITDAR is defined as Segment EBIT excluding costs associated with aircraft rentals and depreciation and amortisation costs allocated to the Group’s reportable segments. During the period, two significant transactions occurred which resulted in management re-assessing the Group’s operating segments. The Velocity Frequent Flyer Group was transferred to a separate legal structure and a 35% interest was sold to an external party. In addition, the Group acquired the remaining 40% of Tiger Airways Australia Pty Limited and its subsidiary Tiger Airways Australia SPV Pty Ltd (collectively referred to as Tigerair Australia). Management has also re-assessed the allocation of corporate costs amongst the segments as a result of broader changes within the business. The 30 June 2014 comparative information has been restated to reflect these changes. The Velocity airline loyalty program is operated by the Velocity Frequent Flyer Group (VFF Group) that was established on 22 October 2014 (refer to note 7). Prior to establishing the VFF Group, various agreements were entered into by controlled entities to confirm the terms and conditions of arrangements between the parties on an arm’s-length basis. Segment information, including restated comparative information of the Virgin Australia Domestic segment, has been prepared on the basis that these agreements were in place from 1 July 2013 to provide comparability between the reporting periods. Segment EBIT, as defined by the Group, is used to measure performance, as management believes such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within the airline industry. During the year ended 30 June 2015, changed management practices brought about by the early adoption of AASB 9 Financial Instruments (2013, 2010 and 2009) have resulted in time value movement on cash flow hedges and unrealised ineffectiveness on cash flow hedges and non-designated derivatives being excluded from Segment EBIT. Inter-segment pricing is determined on an arm’s-length basis or a cost plus margin basis, depending on the nature of the revenue or expense and the financial impact on the segment of recognising the revenue or expense.

F-23 68 VIRGIN AUSTRALIA GROUP 5. Operating segments (continued) (a) Reportable segments

Virgin Virgin Corporate Australia Australia Tigerair and Domestic International Velocity(1) Australia(2) Eliminations Consolidated 2015 $m $m $m $m $m $m Revenue and income External revenue and income 3,114.3 1,112.4 238.4 284.1 – 4,749.2 Inter-segment revenue 195.7 – – – (195.7) – Segment revenue and income 3,310.0 1,112.4 238.4 284.1 (195.7) 4,749.2 Segment EBITDAR 404.5 154.1 82.3 26.4 (48.9) 618.4 Aircraft rentals (68.1) (180.4) – (28.6) – (277.1) Segment EBITDA 336.4 (26.3) 82.3 (2.2) (48.9) 341.3 Depreciation and amortisation (225.3) (42.6) (1.1) (6.4) – (275.4) Segment EBIT 111.1 (68.9) 81.2 (8.6) (48.9) 65.9 Net gain/(loss) on disposal of assets (7.6) Business and capital restructure and transaction costs (84.4) Share of net profits/(losses) of equity accounted investees: ––Tigerair Australia (17.1) ––Virgin Samoa 0.5 Time value movement on cash flow hedges(3)(4) (10.0) Unrealised ineffectiveness on cash flow hedges and non-designated derivatives(3) (17.4) (70.1) Net finance costs: ––Net income resulting from Tigerair Australia acquisition 21.8 ––Net finance costs excluding capital restructure costs (115.0) Loss before related income tax benefit (163.3) Income tax benefit 69.5 Loss for the period (93.8)

(1) The Velocity segment information includes adjustments to eliminate intercompany transactions and includes adjustments relating to restated arrangements to reflect a full year result. Therefore the figures in the table above do not correspond to the statutory result reported in note 7. (2) The Tigerair Australia segment information relates to the period from which Tigerair Australia was consolidated being 17 October 2014 to 30 June 2015. (3) The addition of these two items reconciles to total ineffective cash flow hedges and non-designated derivatives losses included within operating expenditure as disclosed in the consolidated statement of profit or loss. (4) Time value represents the risk premium payable on a purchased option over and above its current exercise value (intrinsic value) based on the probability it will increase in value before expiry.

F-24 ANNUAL FINANCIAL REPORT 2015 69 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

5. Operating segments (continued) (a) Reportable segments (continued) Virgin Virgin Corporate Australia Australia Tigerair and Domestic International Velocity(1) Australia Eliminations Consolidated 2014 (restated) $m $m $m $m $m $m Revenue and income External revenue and income 2,955.6 1,149.8 201.2 – – 4,306.6 Inter-segment revenue 202.2 – – – (202.2) – Segment revenue and income 3,157.8 1,149.8 201.2 – (202.2) 4,306.6 Segment EBITDAR 208.7 164.5 77.4 – (56.1) 394.5 Aircraft rentals (82.9) (170.6) – – – (253.5) Segment EBITDA 125.8 (6.1) 77.4 – (56.1) 141.0 Depreciation and amortisation (224.8) (40.0) (2.2) – – (267.0) Segment EBIT (99.0) (46.1) 75.2 – (56.1) (126.0) Impairment losses (56.9) Accelerated depreciation due to changes in useful lives of assets(2); and net gain/(loss) on disposal of assets (3.1) Business and capital restructure and transaction costs (101.9) Share of net losses of equity accounted investees: ––Tigerair Australia (46.1) ––Virgin Samoa (2.6) Time value movement on cash flow hedges(3)(4)(5) (18.3) Unrealised ineffectiveness on cash flow hedges and non-designated derivatives(3) (20.2) (375.1) Net finance costs: ––Net finance costs excluding capital restructure costs (85.7) ––Interest rate swap terminations associated with capital restructure (8.4) ––Accelerated amortisation resulting from capital restructure (12.3) Loss before related income tax benefit (481.5) Income tax benefit(5) 127.7 Loss for the period (353.8)

(1) The Velocity segment information includes adjustments to eliminate intercompany transactions and includes adjustments relating to restated arrangements to reflect a full year result. (2) Accelerated depreciation due to the changes in useful lives of assets for the year ended 30 June 2014 was $0.8 million. The addition of accelerated depreciation and depreciation and amortisation above reconciles to total depreciation and amortisation expense included within operating expenditure as disclosed in the consolidated statement of profit or loss. (3) The addition of these two items reconciles to total ineffective cash flow hedges and non-designated derivatives losses included within operating expenditure as disclosed in the consolidated statement of profit or loss. (4) Time value represents the risk premium payable on a purchased option over and above its current exercise value (intrinsic value) based on the probability it will increase in value before expiry. (5) Refer to note 3(v)(i) for net restatement. Net restatement of $1.8 million comprises a $2.6 million reduction in time value movement on cash flow hedges expense and a corresponding $0.8 million reduction in income tax benefit.

F-25 70 VIRGIN AUSTRALIA GROUP 5. Operating segments (continued) (b) Geographical segments Ticket sales revenue from domestic services within Australia is attributed to the Australia geographic region. Guest and other services revenue from inbound and outbound services between Australia and overseas is allocated proportionately to the area in which point of sale occurs. Certain other revenue amounts are not allocated to a geographical region as it is impractical to do so.

Australia New Zealand United States Europe Other Unallocated Consolidated $m $m $m $m $m $m $m 2015 External revenue and income 3,935.7 218.2 180.4 153.0 174.5 87.4 4,749.2 2014 (restated)(1) External revenue and income 3,6 07.1 196.2 166.4 144.2 82.7 110.0 4,306.6

(1) Revenue of $138.6 million has been reallocated from Unallocated to Australia to be consistent with the methodology applied in 2015. For the financial year ended 30 June 2015 and 30 June 2014, the principal assets of the Group comprised the aircraft fleet. These assets are used flexibly across the Group’s worldwide route network. Accordingly, there is no suitable basis for allocating such assets and the related liabilities between geographic areas.

6. Acquisition of subsidiary On 8 July 2013, the Group acquired 60% of the shares and voting interests in Tiger Airways Australia Pty Limited and its subsidiary, Tiger Airways Australia SPV Pty Ltd (collectively referred to as Tigerair Australia) from Tiger Airways Holdings Limited (Tiger Holdings) for $35.0 million. As Tigerair Australia is a low-cost Australian airline, the arrangement gave the Group a share of the budget travel sector, while maintaining its position in the corporate, regional and high-end leisure markets. Although the Group had a majority holding, it did not control Tigerair Australia. The terms of the shareholder agreement specified a number of matters relating to key activities of Tigerair Australia which required unanimous consent of the Group and Tiger Holdings. These activities included, inter alia, approval of business plans and budgets, capital expenditure, major contracts and funding decisions. As a result, the Group and Tiger Holdings had joint control of Tigerair Australia and the arrangement was classified as a joint venture. Accordingly, the Group applied the equity method to its investment in Tigerair Australia up to its acquisition of the remaining 40% of Tigerair Australia on 16 October 2014. Tigerair Australia made losses in the period during which the Group had joint control and the equity method of accounting was applied. These losses were applied to reduce the investment in Tigerair Australia and thereafter applied to reduce a loan receivable from Tigerair Australia. On 16 October 2014, the Group acquired the remaining 40% of Tigerair Australia for a cash consideration of $1. The Group gained control from this date and accordingly has consolidated 100% of Tigerair Australia from this date. The acquisition will enable the Group to become an effective and sustainable competitor in Australia’s budget travel market. For the period 17 October 2014 to 30 June 2015, Tigerair Australia contributed revenue of $284.1 million and net loss after tax of $5.2 million to the Group’s results. If the acquisition had occurred on 1 July 2014, management estimates Tigerair Australia would have contributed additional revenue of $130.0 million and additional net loss of $11.4 million to the Group’s result. In determining these proforma amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 July 2014. The directors of the Group consider these proforma numbers represent an approximate measure of the performance of the combined group and do not provide a reference point for comparison to future periods. (a) Consideration $m Cash paid – Settlement of pre-existing relationships 60.9 Total consideration 60.9

(i) Cash paid The Group paid $1 to acquire the remaining 40% interest in Tigerair Australia.

F-26 ANNUAL FINANCIAL REPORT 2015 71 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

6. Acquisition of subsidiary (continued) (a) Consideration (continued) (ii) Settlement of pre-existing relationships Under the terms of the share purchase agreement, the Tigerair Australia shareholder loans with the Group and Tiger Holdings were forgiven. The Group had impaired the loan receivable from Tigerair Australia as a result of accounting for losses of Tigerair Australia during the period of joint control. At acquisition date, the carrying amount of the loan receivable was $39.1 million. AASB 3 Business Combinations requires a gain or loss to be recognised which is measured as the amount by which the loan receivable from Tigerair Australia is favourable or unfavourable compared to the fair value of the loan. The fair value of the loan was assessed to be $60.9 million, resulting in a gain of $21.8 million which has been recognised in finance income. The fair value attributed to the loan receivable results in an adjustment to the purchase consideration. The amount in finance income is not included in the reportable operating segments (Segment EBIT), but rather is an unallocated amount. (b) Identifiable assets acquired and liabilities assumed The following table summarises the assets acquired and liabilities assumed at the acquisition date, which are measured on a provisional basis. The Group is still finalising the assessment of the fair value of the provisions and maintenance assets and liabilities. Any revisions to these balances will be made before the end of the measurement period in October 2015.

$m Current assets Cash and cash equivalents 3.2 Trade and other receivables 7.3 Inventories 0.6 Total current assets 11.1 Non-current assets Other financial assets 10.9 Property, plant and equipment 80.0 Intangible assets 0.1 Total non-current assets 91.0 Total assets 102.1 Current liabilities Trade and other payables 59.4 Interest-bearing liabilities 39.1 Derivative financial instruments 6.4 Provisions 27.0 Unearned revenue 44.9 Total current liabilities 176.8 Non-current liabilities Provisions 25.7 Total non-current liabilities 25.7 Total liabilities 202.5 Net liabilities 100.4

Trade and other receivables comprise gross contractual amounts of $7.3 million, all of which is expected to be collected. Contingent liabilities were recognised as part of the acquisition. There were no contingent liabilities identified which could not be measured reliably.

F-27 72 VIRGIN AUSTRALIA GROUP 6. Acquisition of subsidiary (continued) (c) Goodwill Goodwill arising from the acquisition has been recognised as follows: $m Consideration transferred 60.9 Fair value of previously held equity interest – Fair value of identifiable net liabilities 100.4 Goodwill 161.3

The previously held equity interest was recognised at nil immediately before the acquisition date. The fair value of this equity interest has been assessed to be nil. The goodwill is attributable to synergies that resulted from the transaction. These include cost synergies, network optimisation and scale benefits along with access to a vehicle to compete in the low-cost carrier budget market. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. The goodwill will not be deductible for tax purposes. (d) Net cash inflow $m Consideration paid in cash – Cash and cash equivalent balances acquired 3.2 Net inflow of cash from investing activities 3.2

7. Non-controlling interests On 22 October 2014, the Group announced the execution of documents for the sale of a 35% interest in the Velocity Frequent Flyer Group (VFF Group) to Affinity Equity Partners (Affinity) for total consideration of $336.0 million, by way of VFF Group issuing convertible notes to Affinity. The VFF Group consists of the following entities, all with a principal place of business of Australia: –– Velocity Frequent Flyer Holdco Pty Ltd –– Velocity Frequent Flyer 1 Pty Ltd –– Velocity Frequent Flyer 2 Pty Ltd –– Velocity Frequent Flyer Pty Ltd –– Velocity Rewards Pty Ltd (as Trustee for the Loyalty Trust) –– The Loyalty Trust The table following summarises the VFF Group’s contribution to the Group’s assets and liabilities as at 30 June 2015 as well as income and cash movements for the period 22 October 2014 to 30 June 2015 before any intra-group eliminations. There is no comparative information for 30 June 2014 as the VFF Group was established during the year ended 30 June 2015 and a 35% interest in the VFF Group was sold to Affinity on 22 October 2014.

F-28 ANNUAL FINANCIAL REPORT 2015 73 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

7. Non-controlling interests (continued)

2015 $m Revenue and income 167.2 Profit from continuing operations 48.7 Other comprehensive income – Total comprehensive income 48.7 Profit allocated to non-controlling interest (35%) 17.0 Other comprehensive income allocated to non-controlling interest (35%) – Current assets 325.0 Non-current assets 13.6 Current liabilities (284.2) Non-current liabilities (213.8) Net liabilities (159.4) Non-controlling interest (35%) (55.8) Net increase in cash and cash equivalents 19.6

Equity distributions of $17.8 million were paid to non-controlling interests during the year ended 30 June 2015. The following table summarises the changes in the Group’s ownership interest in the VFF Group.

$m Ownership interest at 22 October 2014 35.1 Effect of decrease in ownership interest (12.3) Ownership interest at 22 October 2014 (after disposal of 35% ownership interest) 22.8

8. Expenses Loss before income tax benefit includes the following specific expenses: (a) Finance costs 2015 2014 $m $m Interest and finance charges paid/payable 162.9 145.0 Less: capitalised finance charges (30.0) (25.3) Finance costs expensed 132.9 119.7

Finance charges were capitalised at a weighted average rate of 3.99% (2014: 2.80%). (b) Operating lease rentals 2015 2014 $m $m Aircraft operating lease rentals 290.0 274.2 Other operating lease rentals 80.2 71.3 Total operating lease rentals 370.2 345.5

Owned aircraft no longer required for Virgin Australia services have been leased, and do not form part of the above disclosure - refer to note 30(b) for minimum lease payments receivable under this agreement. (c) Superannuation plans The Group contributes to several defined contribution superannuation plans. The amount recognised as an expense for the year ended 30 June 2015 was $69.4 million (2014: $65.8 million). F-29 74 VIRGIN AUSTRALIA GROUP 9. Income tax (a) Income tax benefit Restated(1) 2015 2014 $m $m Current tax – – Deferred tax 68.6 131.2 Over/(under) provided in prior years 0.9 (3.5) Income tax benefit 69.5 127.7 Deferred income tax revenue/(expense) included in income tax benefit comprises: Increase/(decrease) in deferred tax assets 163.5 146.4 (Increase)/decrease in deferred tax liabilities (94.9) (15.2) 68.6 131.2

(1) Refer to note 3(v)(i) for net restatement. Net restatement of $1.8 million comprises a $2.6 million reduction in time value movement on cash flow hedges expense and a corresponding $0.8 million reduction in income tax benefit. (b) Reconciliation of income tax benefit to pre-tax accounting loss 2015 2014 $m $m Loss before income tax benefit (163.3) (481.5) Tax benefit at the Australian tax rate of 30% (2014: 30%) 49.0 144.5 Tax effect of amounts which are not included in calculating taxable income: ––Non-deductible expenditure (8.7) (21.8) ––Differences in overseas tax rates – (0.2) ––Tax loss recognition (losses not previously brought to account) 14.0 – ––Revaluation gains 8.9 – ––Sundry items 7.5 6.3 70.7 128.8 Under/(over) provision in prior years (1.2) (1.1) Income tax benefit 69.5 127.7

(c) Income tax recognised in other comprehensive income 2015 2014 Tax benefit/ Tax benefit/ Before tax (expense) Net of tax Before tax (expense) Net of tax $m $m $m $m $m $m Foreign currency translation differences for foreign operations (169.6) – (169.6) (0.1) – (0.1) Cash flow hedges that may be reclassified subsequently to profit or loss (3.7) 1.1 (2.6) ( 77.9) 23.4 (54.5) (173.3) 1.1 (172.2) (78.0) 23.4 (54.6)

F-30 ANNUAL FINANCIAL REPORT 2015 75 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

9. Income tax (continued) (d) Deferred tax Restated(1) 2015 2014 $m $m The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Employee benefits 38.4 32.9 General accruals 52.2 48.2 Tax losses carried forward 549.0 396.6 Other - deferred tax asset 14.2 12.6 Property, plant and equipment (283.7) (232.4) Maintenance-related assets (101.6) (67.7) Other - deferred tax liability (58.8) (49.1) 209.7 141.1 Amounts recognised directly in equity and other comprehensive income Equity raising costs 0.7 0.7 Cash flow hedges 6.2 5.1 6.9 5.8 Net deferred tax assets 216.6 146.9 Reflected in the statement of financial position as follows: Deferred tax assets 660.7 496.1 Deferred tax liabilities (set-off pursuant to set-off provisions) (444.1) (349.2) Net deferred tax assets 216.6 146.9 Movements Opening balance 146.9 (7.7) Recognised in profit or loss 68.6 131.2 Recognised in equity and other comprehensive income 1.1 23.4 Closing balance 216.6 146.9

(1) Refer to note 3(v)(i) for net restatement. Net restatement of $1.8 million comprises a $2.6 million reduction in time value movement on cash flow hedges expense and a corresponding $0.8 million reduction in income tax benefit. Refer to note 3(g) for details of the Group’s accounting policy on the recognition of deferred tax assets on deductible temporary differences and income tax losses and note 4(h) outlining critical accounting estimates and judgements made. Tax losses carried forward include $14.0 million in relation to Tigerair Australia recognised subsequent to the acquisition date. The facts and circumstances at the time of the acquisition did not support the recognition of any of the tax losses acquired in the business combination as it was not probable that the tax losses were recoverable. As a result of the significant turnaround in the performance of Tigerair Australia since the acquisition date and the turnaround in the aviation industry resulting from an elongated period of lower jet fuel prices and a moderation in capacity growth in the domestic market, these tax losses were recognised as a deferred tax asset subsequent to the acquisition. Deferred tax assets have not been recognised in respect of $116.3 million of net tax losses relating to Tigerair Australia because it is not considered probable that future taxable profit will be available against which these tax losses can be realised.

F-31 76 VIRGIN AUSTRALIA GROUP 10. Earnings per share (a) Reconciliation of earnings used in calculating earnings per share 2015 2014 $m $m Loss attributable to ordinary shareholders (110.8) (353.8) Basic earnings (110.8) (353.8) Diluted earnings (110.8) (353.8)

(b) Reconciliation of weighted average number of shares

2015 2014 Number (m) Number (m) Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 3,515.2 3,107.1 Adjustments for calculation of diluted earnings per share: ––Effect of share options and performance rights on issue – – Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 3,515.2 3,107.1

(c) Information concerning shares The average market value of the Company’s shares for the purposes of calculating the dilutive effect of share options and performance rights was based on quoted market prices for the period that the options and performance rights were outstanding. At 30 June 2015, 9.5 million options and performance rights (2014: 33.7 million) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.

11. Cash and cash equivalents

2015 2014 $m $m Cash at bank and on hand 328.8 194.4 Deposits 699.7 589.4 Total cash and cash equivalents 1,028.5 783.8

(a) Restricted cash The amount of restricted cash included in cash and cash equivalents but not available for use is:

Restricted cash 309.6 242.8

F-32 ANNUAL FINANCIAL REPORT 2015 77 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

12. Trade and other receivables

2015 2014 Note $m $m Current Trade receivables 174.0 158.9 Less: provision for doubtful receivables (0.8) (0.7) 173.2 158.2 Other receivables 59.4 53.2 Loans and receivables – related parties (unsecured) 36(b) – 14.9 Prepayments 72.2 76.6 72.2 91.5 Total current trade and other receivables 304.8 302.9 Non-current Loans and receivables – related parties (unsecured) 36(b) – 23.6 Total non-current trade and other receivables – 23.6

The Group’s exposure to credit and currency risk and impairment losses related to trade and other receivables is disclosed in note 32. For terms and conditions relating to related party loans and receivables, refer to note 36(b)(iii).

13. Inventories

2015 2014 $m $m Engineering expendables – at cost 29.3 25.7 Consumables stores – at cost 10.8 9.8 Other – at cost 1.0 0.6 41.1 36.1

Inventories expensed during the 2015 financial year totalled $113.2 million (2014: $114.5 million).

F-33 78 VIRGIN AUSTRALIA GROUP 14. Derivative financial instruments

2015 2014 $m $m Current assets Forward foreign exchange contracts – cash flow hedges 34.0 – Fuel hedging contracts – cash flow hedges 9.6 17.3 43.6 17.3 Non-current assets Forward foreign exchange contracts – cash flow hedges 2.9 – Fuel hedging contracts – cash flow hedges 4.0 2.0 6.9 2.0 Current liabilities Forward foreign exchange contracts – cash flow hedges 0.1 7.6 Fuel hedging contracts – cash flow hedges 45.5 4.1 45.6 11.7 Non-current liabilities Forward foreign exchange contracts – cash flow hedges – 3.7 – 3.7

15. Other financial assets

2015 2014 $m $m Current Deposits 26.3 8.6 Maintenance reserve deposits 34.0 13.5 Other 7.4 6.9 67.7 29.0 Non-current Deposits 31.0 29.2 Maintenance reserve deposits 203.5 123.6 Other 56.8 18.6 291.3 171.4

F-34 ANNUAL FINANCIAL REPORT 2015 79 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

16. Other assets

2015 2014 $m $m Current Future lease payments 4.4 4.4 Other 0.3 0.3 4.7 4.7 Non-current Future lease payments 23.4 27.8 Other 2.6 2.8 26.0 30.6

During the 2014 financial year, a number of sale and leaseback transactions took place which resulted in losses on sale being deferred against future lease payments. Refer to note 3(n)(iv) which discusses the Group’s accounting policy on these transactions.

17. Assets classified as held for sale In the prior financial year, aircraft with a net book value of $61.1 million (after impairment loss recognised of $5.7 million) were held for sale. These aircraft have been transferred out of assets classified as held for sale during the year ended 30 June 2015. During the current financial year, the Group has reclassified aircraft operated within the Virgin Australia Domestic segment with a net book value of $95.4 million from property, plant and equipment to assets classified as held for sale following the commitment of the Group, on 1 January 2015, to a plan to sell the aircraft. Efforts to sell the aircraft have commenced, and a sale is expected prior to 30 June 2016. No impairment loss was recognised on reclassification of these assets to held for sale. In the prior financial year a $5.7 million impairment loss was recognised on the remeasurement of the aircraft to the lower of its carrying amount and its fair value less costs to sell which was included in “impairment loss” in the consolidated statement of profit or loss. There are no cumulative income or expenses included in other comprehensive income relating to the planned disposal of the aircraft. The carrying value of assets classified as held for sale as at 30 June 2015 is $95.4 million (2014: $61.1 million).

18. Investments accounted for using the equity method (a) Carrying amounts Information relating to associates and joint ventures is set out below: Ownership interest Carrying amount 2015 2014 2015 2014 Name of company % % $m $m Unlisted Virgin Samoa 49 49 6.6 5.2 Tigerair Australia(1) – 60 – –

(1) On 16 October 2014 the Group acquired the remaining 40% of Tiger Airways Australia Pty Limited, refer to note 6 to the consolidated financial statements. (b) Investment in associate The principal activity of Virgin Samoa is the operation of airline activities between Samoa and Australia/New Zealand. Virgin Samoa is incorporated in Samoa. The Group’s interest in Virgin Samoa is accounted for using the equity method in the consolidated financial statements. The Group had no contingent liabilities or capital commitments relating to its interest in the associate as at 30 June 2015 (2014: nil). (i) Dividends No dividends were received in the current year from the Group’s investment in Virgin Samoa (2014: nil).

F-35 80 VIRGIN AUSTRALIA GROUP 18. Investments accounted for using the equity method (continued) (b) Investment in associate (continued) (ii) Summarised financial information of associate 2015 2014 100% $m $m Revenue and income 44.3 41.1 Profit/(loss) from continuing operations 1.0 (5.3) Other comprehensive income 1.8 – Total comprehensive income 2.8 (5.3) Group’s share (49%) 1.4 (2.6)

(c) Interest in joint venture As disclosed in note 6, the Group acquired the remaining 40% of Tigerair Australia on 16 October 2014 and has consolidated Tigerair Australia since this date. (i) Summarised financial information of joint venture The summarised information below is based on Tigerair Australia’s financial information prepared in accordance with Australian Accounting Standards for the period up to 16 October 2014.

2015(1) 2014(2) 100% $m $m Revenue and income 130.0 336.3 Loss from continuing operations(3) (28.5) ( 77.4) Other comprehensive income – 0.5 Total comprehensive loss (28.5) (76.9) Current assets(4) – 18.9 Non-current assets – 66.8 Current liabilities(5) – (147.2) Non-current liabilities(6) – (74.5) Net liabilities – (136.0) Group’s interest in net liabilities of joint venture at the beginning of the year – – Acquisition of 60% share in net liabilities(7) – 35.0 Share of total comprehensive loss(8) – (35.0) Dividends received during the year – – Carrying amount of interest in Tigerair Australia at the end of the year(8) – –

(1) Consolidated from 17 October 2014. Balances are eliminated within the Group at 30 June 2015, refer to note 6. Transactions are for the period from 1 July 2014 to 16 October 2014. (2) Acquired on 8 July 2013. Balances are presented as at 30 June 2014 and transactions are for the period from 8 July 2013 to 30 June 2014. (3) Includes: – finance income of $0.2 million (2014: $0.7 million); – depreciation and amortisation of $0.6 million (2014: $1.2 million); – finance costs of $0.5 million (2014: $0.7 million); and – income tax expense of nil (2014: nil). (4) Includes cash and cash equivalents of nil (2014: $1.3 million). (5) Includes current financial liabilities (excluding trade and other payables and provisions) of nil (2014: $43.8 million). (6) Includes non-current financial liabilities (excluding trade and other payables and provisions) of nil (2014: $60.4 million). (7) Refer to note 6. (8) Refer to note 18(c)(ii).

F-36 ANNUAL FINANCIAL REPORT 2015 81 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

18. Investments accounted for using the equity method (continued) (c) Interest in joint venture (continued) (ii) Share of losses of joint venture Included in the Group’s pre-tax loss for the year ended 30 June 2015 is $17.1 million (2014: $46.1 million) attributable to the Group’s share of losses generated by Tigerair Australia. In recognising the Group’s share of Tigerair Australia losses from the acquisition date of 8 July 2013, the equity investment was reduced to nil and the remaining $17.1 million loss for the current year (2014: $11.1 million loss) was recognised as a reduction in loans advanced to Tigerair Australia. The net amount advanced to Tigerair Australia as at 30 June 2014 was $38.5 million and was classified as loans and receivables, refer note 12.

19. Property, plant and equipment (a) Reconciliations Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:

Aircraft and aeronautic Plant and Computer Finance Work in Buildings related assets equipment equipment leased assets progress Total 2015 $m $m $m $m $m $m $m Carrying amount at the beginning of the year 6.9 2,491.9 112.4 13.8 23.8 53.6 2,702.4 Acquisition through business combinations – 5.0 – – – 75.0 80.0 Other additions – 441.0 2.5 0.4 – 171.1 615.0 Disposals – (92.5) (1.1) (1.1) – (72.4) (167.1) Depreciation (0.4) (229.4) (17.5) (8.5) (0.7) – (256.5) Transfers(1) – (15.6) 2.6 12.1 – (33.4) (34.3) Foreign exchange movements – 139.9 0.2 – – 2.3 142.4 Carrying amount at the end of the year 6.5 2,740.3 99.1 16.7 23.1 196.2 3,081.9 At cost(2) 19.8 4,060.0 258.0 68.0 24.6 196.2 4,626.6 Accumulated depreciation and impairment (13.3) (1,319.7) (158.9) (51.3) (1.5) – (1,544.7) 6.5 2,740.3 99.1 16.7 23.1 196.2 3,081.9

(1) Transfers relate to amounts which were disclosed within work in progress at 30 June 2014 which were capitalised during the 2015 financial year and amounts relating to aircraft and aeronautical related assets transferred to and from assets classified as held for sale. Refer to note 17. (2) As at 30 June 2015, included in aircraft and aeronautical related assets are deposits and other costs incurred in respect of aircraft which have not yet been delivered totalling $145.8 million.

F-37 82 VIRGIN AUSTRALIA GROUP 19. Property, plant and equipment (continued) (a) Reconciliations (continued) Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:

Aircraft and aeronautic Plant and Computer Finance Work in Buildings related assets equipment equipment leased assets progress Total 2014 $m $m $m $m $m $m $m Carrying amount at the beginning of the year 65.8 2,820.2 107.7 7.2 24.5 40.0 3,065.4 Additions – 277.8 36.4 12.6 – 40.6 3 67.4 Disposals (57.9) (285.0) (16.3) (0.2) – (6.2) (365.6) Depreciation (1.0) (210.7) (19.7) (6.1) (0.7) – (238.2) Impairment loss – (51.2) – – – – (51.2) Transfers(1) – (50.7) 4.4 0.3 – (20.8) (66.8) Foreign exchange movements – (8.5) (0.1) – – – (8.6) Carrying amount at the end of the year 6.9 2,491.9 112.4 13.8 23.8 53.6 2,702.4 At cost(2) 19.8 3,510.5 253.3 58.4 24.6 53.6 3,920.2 Accumulated depreciation and impairment (12.9) (1,018.6) (140.9) (44.6) (0.8) – (1,217.8) 6.9 2,491.9 112.4 13.8 23.8 53.6 2,702.4

(1) Transfers relate to amounts which were disclosed within work in progress at 30 June 2013 which were capitalised during the 2014 financial year and amounts relating to aircraft and aeronautical related assets transferred to assets classified as held for sale. Refer to note 17. (2) As at 30 June 2014, included in aircraft and aeronautical related assets are deposits and other costs incurred in respect of aircraft which have not yet been delivered totalling $119.1 million. The Group recognised a net loss on disposal of property, plant and equipment of $7.6 million (2014: $2.3 million). This loss has been included in other expenses from ordinary activities in the consolidated statement of profit or loss. Refer to note 21 for impairment testing. Refer to note 23(b) for information on non-current assets pledged as security by the Group.

F-38 ANNUAL FINANCIAL REPORT 2015 83 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

20. Intangible assets (a) Reconciliations Reconciliations of the carrying amounts for each class of intangible asset are set out below:

Work in Customer progress Work in contracts and – contract progress – Goodwill Software Brand names relationships intangible other Total 2015 $m $m $m $m $m $m $m Carrying amount at the beginning of the year 134.5 137.8 4.6 16.6 35.6 33.2 362.3 Acquisition through business combinations 161.3 – – – – – 161.3 Other additions – 3.3 – – 25.3 32.1 60.7 Disposals – (1.1) – – – – (1.1) Amortisation – (15.5) – (3.4) – – (18.9) Transfers(1) – 26.8 – – – (26.8) – Carrying amount at the end of the year 295.8 151.3 4.6 13.2 60.9 38.5 564.3 At cost 295.8 264.6 4.6 20.7 60.9 38.5 685.1 Accumulated amortisation and impairment – (113.3) – (7.5) – – (120.8) 295.8 151.3 4.6 13.2 60.9 38.5 564.3

(1) Transfers relate to amounts which were disclosed within work in progress at 30 June 2014 which were capitalised during the 2015 financial year.

Work in Customer progress Work in contracts and – contract progress – Goodwill Software Brand names relationships intangible other Total 2014 $m $m $m $m $m $m $m Carrying amount at the beginning of the year 134.5 124.1 4.6 20.0 15.9 19.5 318.6 Additions – 25.6 – – 19.7 28.4 73.7 Disposals – (0.4) – – – – (0.4) Amortisation – (26.2) – (3.4) – – (29.6) Transfers(1) – 14.7 – – – (14.7) – Carrying amount at the end of the year 134.5 137.8 4.6 16.6 35.6 33.2 362.3 At cost 134.5 246.5 4.6 20.8 35.6 33.2 475.2 Accumulated amortisation and impairment – (108.7) – (4.2) – – (112.9) 134.5 137.8 4.6 16.6 35.6 33.2 362.3

(1) Transfers relate to amounts which were disclosed within work in progress at 30 June 2013 which were capitalised during the 2014 financial year. (b) Indefinite life intangible asset In a previous year the brand name acquired as part of the acquisition of Skywest was assigned an indefinite useful life. This assessment was made on the basis that the Group has the ability to maintain the brand and the legal right to use the brand to generate future cash inflows through licensing or sale agreements.

F-39 84 VIRGIN AUSTRALIA GROUP 21. Impairment testing The Group’s cash-generating units (CGUs) are identified according to operating segments. The recoverable amount is determined based on value-in-use calculations. The Group has goodwill with a carrying value of $295.8 million (2014: $134.5 million) of which $134.5 million (2014: $134.5 million) has been allocated to the Virgin Australia Domestic CGU. Goodwill of $161.3 million arising from the Tigerair Australia acquisition relates to both the Virgin Australia Domestic and Tigerair Australia CGUs. This goodwill has not been finally allocated to the CGUs as the fair values of the assets and liabilities in relation to the Tigerair Australia acquisition are provisional and any further changes to these balances may result in a change to the goodwill recognised. The goodwill will be allocated to CGUs upon finalisation of the accounting for the Tigerair Australia acquisition in October 2015. The Group has an indefinite life brand name with a carrying value of $4.6 million (2014: $4.6 million) which has been allocated to the Virgin Australia Domestic CGU. The following key assumptions were used in determining the value‑in-use:

Growth rate(1) Discount rate(2) 2015 2014 2015 2014 CGU % % % % Virgin Australia Domestic 3.00 3.50 8.53 9.53 Virgin Australia International 3.00 3.50 9.13 10.13 Tigerair Australia 3.50 n/a 8.93 n/a Velocity(3) n/a n/a n/a n/a

(1) Weighted average growth rate used to extrapolate cash flows beyond the budget period. (2) Post-tax discount rate applied to the cash flow projections. The equivalent pre-tax rates were: Virgin Australia Domestic 10.73% (2014: 11.20%), Virgin Australia International 10.81% (2014: 9.84%), Tigerair Australia 10.55% (2014: n/a) and Velocity n/a (2014: n/a). (3) The Group assessed the Velocity CGU and determined no impairment triggers had occurred and no goodwill is assigned to the CGU. Therefore there was no requirement for impairment testing and recoverable amount calculations for 2015. These calculations use cash flow projections based upon financial budgets covering a five year period and approved by senior management. Cash flows beyond the five year period are calculated using the estimated growth rates stated above. The cash flows are based on management’s expectations regarding the market, including guest numbers, revenue yield and associated operating costs. The weighted average growth rates used are consistent with industry forecasts. The discount rate applied reflects the weighted average cost of capital based on the risk-free rate for ten year Australian government bonds adjusted for a risk premium to reflect the risk of the specific CGU. Descriptions of other key assumptions underlying the cash flow projections include: • The fuel price has been set with regard to the Brent forward curve adjusted for refining margins and hedge positions; • The AUD/USD exchange rate is set with regard to the prevailing spot rate; and • Load factors and average net fares were set having regard to historical experience and market conditions, fleet plans and competitor behaviour. The recoverable amount of the Virgin Australia International CGU exceeds its carrying amount by $78.0 million. Management has identified that a reasonably possible change in the following assumptions would cause the carrying amount to exceed the recoverable amount. The following table shows the amount by which these assumptions would need to change individually for the estimated recoverable amount to be equal to the carrying amount. Change required for recoverable amount to equal carrying amount (%) Revenue per available seat kilometre (0.5) Yield (0.5) Load factor (0.5) Cost per available seat kilometre 0.5 Depreciation of Australian dollar (0.9) Jet fuel price 1.5

F-40 ANNUAL FINANCIAL REPORT 2015 85 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

21. Impairment testing (continued) The Group has considered all reasonably possible changes in key assumptions relating to the remaining CGUs and concluded that no impairment would result from these changes. As at 30 June 2014, the Group assessed that the carrying amount of the Virgin Australia International CGU had exceeded its recoverable amount due to a deterioration of performance on its short haul international market segment, in particular on the Bali route, due to increased capacity and competition. The carrying amount of the CGU was determined to be higher than its recoverable amount of $528.3 million and an impairment loss of $51.2 million was recognised. The impairment loss was fully allocated to the carrying value of property, plant and equipment assets attributable to the Virgin Australia International CGU. The estimate of value-in-use was determined using a post-tax discount rate of 10.13% (equivalent pre-tax rate of 9.84%).

22. Trade and other payables

2015 2014 $m $m Current Trade payables and accruals 688.3 609.2 Other payables 13.2 11.1 701.5 620.3 Non-current Other payables 6.3 7.4

Trade and other payables are non interest-bearing. The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 32.

23. Interest-bearing liabilities

2015 2014 $m $m Current Loans (aeronautic finance facilities) – secured(1) 384.5 296.5 Loans (bank) – secured(1) 21.7 24.1 Loans (bank) – unsecured(1) 32.4 33.9 Loan from associate – unsecured – 4.2 Finance lease liabilities 1.7 1.5 Total current interest-bearing liabilities 440.3 360.2 Non-current Loans (aeronautic finance facilities) – secured(1) 1,692.6 1,562.5 Loans (bank) – secured(1) 216.1 – Loans (bank) – unsecured(1) 386.6 – Finance lease liabilities 26.6 28.0 Total non-current interest-bearing liabilities 2,321.9 1,590.5

(1) These amounts are net of deferred borrowing costs in line with the Group’s accounting policy.

F-41 86 VIRGIN AUSTRALIA GROUP 23. Interest-bearing liabilities (continued) (a) Terms and debt repayment schedule Terms and conditions of outstanding loans were as follows:

Face value Carrying amount Nominal interest rate $m $m Year of Currency maturity(1) 2015 2014 2015 2014 2015 2014 Secured bank loans ––Aircraft AUD 2019-2020 3.32% 3.21% 289.0 346.0 285.6 343.5 ––Aircraft USD 2015-2027 0.72%-8.50% 2.41%-8.50% 1,851.9 1,562.3 1,791.5 1,515.5 ––Other AUD 2016-2020 3.95%-5.30% 4.49% 249.1 24.1 237.8 24.1 Unsecured bank loans ––Other AUD 2016 4.45% 4.99% 34.0 33.9 34.0 33.9 ––Other USD 2019 8.50% – 392.1 – 385.0 – Loan from associate NZD 2014 – 6.68% – 4.2 – 4.2 Finance leases AUD 2018-2047 8.51%-13.00% 8.51%-13.00% 28.3 29.5 28.3 29.5 2,844.4 2,000.0 2,762.2 1,950.7

(1) Based on the calendar year. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, refer to note 32. There have been no breaches in the financial covenants of any interest-bearing loans and borrowings in the current year. (b) Assets pledged as security The aeronautic finance facility liabilities are secured over assets purchased and issued capital of the following Group subsidiaries: • 737 2012 No.1 Pty Ltd; • 737 2012 No.2 Pty Ltd; • Virgin Australia Airlines Pty Ltd; • VA Leaseco No.4 Pty Ltd; • VBNC9 Pty Ltd; • VB LH 2008 No.1 Pty Ltd; • VB LH 2008 No.2 Pty Ltd; • Short Haul 2014 No.2 Pty Ltd; • Virgin Australia Regional Airlines Pty Ltd; and • Virgin Australia 2013-1 Issuer Co Pty Ltd.

The carrying amounts of assets pledged as security for current and non-current interest-bearing liabilities are:

2015 2014 Non-current $m $m Fixed charge Aircraft and aeronautic related assets 2,575.6 2,302.6 Buildings 6.2 6.4 Plant and equipment 15.7 16.5 2,597.5 2,325.5

F-42 ANNUAL FINANCIAL REPORT 2015 87 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

23. Interest-bearing liabilities (continued) (c) Financing arrangements Unrestricted access was available at reporting date to the following lines of credit: 2015 2014 $m $m Total facilities available at reporting date: Standby letters of credit and bank guarantees 141.6 98.9 Aeronautic finance facilities 2,213.8 1,917.8 Bank loans 695.6 82.8 Loan from associate – 14.0 Finance lease liabilities 28.3 29.5 3,079.3 2,143.0 Facilities utilised at reporting date: Standby letters of credit and bank guarantees 127.3 85.0 Aeronautic finance facilities 2,140.9 1,908.3 Bank loans 675.2 58.0 Loan from associate – 4.2 Finance lease liabilities 28.3 29.5 2,971.7 2,085.0 Facilities not utilised at reporting date: Standby letters of credit and bank guarantees 14.3 13.9 Aeronautic finance facilities 72.9 9.5 Bank loans 20.4 24.8 Loan from associate – 9.8 Finance lease liabilities – – 107.6 58.0

(i) Standby letters of credit and bank guarantees The standby letter of credit facility is a committed facility available to be drawn down over the next year (2014: over the next year). The amount of the standby letters of credit facilities can be increased by the provision of additional security. The standby letters of credit are secured over at-call deposits of an equivalent amount. The weighted average interest rate on the facility at 30 June 2015 is 0.65% (2014: 0.65%). The bank guarantees are secured over deposits of an equivalent amount. The amount of the bank guarantee facilities can be increased by the provision of additional security. The weighted average interest rate on the facility at 30 June 2015 is 1.09% (2014: 0.93%). (ii) Aeronautic finance facilities The aeronautic finance facilities are available to assist the Group to finance purchases of aeronautic related assets. The facilities are secured over assets purchased and issued capital of the subsidiaries listed in note 23(b). The weighted average interest rate on these facilities at 30 June 2015 is 3.73% (2014: 4.41%). During the year ended 30 June 2015, the Group financed USD 171.0 million for the purchase of aeronautical assets. The facilities are secured over assets purchased. The weighted average interest rate on these facilities is 1.1% (2014: n/a). During the previous financial year the Group entered into a subordinated loan agreement with a carrying amount of US$60.0 million, AU$63.8 million. The subordinated loan is secured on a subordinated basis by interests in 34 aircraft. The weighted average interest rate on this facility at 30 June 2015 is 7.78% (2014: 6.23%).

F-43 88 VIRGIN AUSTRALIA GROUP 23. Interest-bearing liabilities (continued) (c) Financing arrangements (continued) (iii) Bank loans Secured During the year ended 30 June 2015 Velocity Frequent Flyer Pty Ltd entered in to a syndicated facility agreement, the proceeds of which were $225.0 million. The interest rate on this facility at 30 June 2015 is 5.30% (2014: n/a). Unsecured During the year ended 30 June 2015 the Group issued US$300.0 million of bonds to investors in the US Bond Market. The bonds have a five year term, maturing on 15 November 2019. The interest rate is fixed at 8.5% per annum with interest payments due semi-annually. The bond issue has provided the Group with additional US dollar liquidity coverage and has diversified the Group’s funding mix and ultimately reduced liquidity risk. (iv) Loan from associate (Virgin Samoa) During the year ended 30 June 2015, the Group made repayments on its revolving, unsecured loan facility with Virgin Samoa Limited, an associate of the Group of NZ$4.5 million, AU$4.2 million (2014: NZ$8.5 million, AU$7.3 million) and made no drawdowns for additional funding (2014: NZ$2.0 million, AU$1.8 million). As at 30 June 2015 the loan balance had been repaid in full (2014: loan repayable NZ$4.5 million, AU$4.2 million). The interest rate on the facility at 30 June 2015 is n/a (2014: 6.68%). (v) Finance lease liabilities The Group leases buildings, telecommunications and aircraft and aeronautical related assets under finance leases. Finance lease liabilities are payable as follows:

Future minimum lease Present value of minimum payments Interest lease payments 2015 2014 2015 2014 2015 2014 $m $m $m $m $m $m Within one year 4.7 4.7 3.0 3.2 1.7 1.5 One year or later and no later than five years 14.5 16.4 10.0 10.7 4.5 5.7 Later than five years 67.1 69.6 45.0 47.3 22.1 22.3 86.3 90.7 58.0 61.2 28.3 29.5

During the 2014 financial year the Group entered into a finance lease for telecommunications infrastructure. The lease term is until 2018 with three additional one year options to extend the lease until 2021. This finance lease contains an option to purchase the assets at the end of the term of the lease. During a previous financial year the Group entered into a finance lease agreement for the sale and leaseback of the Brisbane Hangar. The lease term is to 2047 and there is an additional 15 year option to extend the lease to 2062. This finance lease does not contain an option to purchase the asset at the end of the term of the lease.

F-44 ANNUAL FINANCIAL REPORT 2015 89 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

24. Provisions

2015 2014 $m $m Current Employee benefits 114.4 92.7 Maintenance 43.7 18.7 Unfavourable contract terms 10.1 5.6 Other 4.6 3.4 172.8 120.4 Non-current Employee benefits 16.5 19.3 Maintenance 73.6 68.9 Unfavourable contract terms 24.9 10.7 Other 7.4 3.6 122.4 102.5

(a) Movements in provisions Movements in each class of provision during the financial period, except for employee benefits, are set out below:

Unfavourable contract Maintenance terms Other Total 2015 $m $m $m $m Opening carrying value 87.6 16.3 7.0 110.9 Assumed in a business combination 5.1 37.4 1.2 43.7 Provisions made 47.2 4.5 7.1 58.8 Provisions utilised (22.6) (23.2) (3.3) (49.1) Closing carrying value 117.3 35.0 12.0 164.3

(b) Provision for maintenance Refer to note 3(k)(ii) for the basis for determining maintenance provisions relating to operating lease agreements. Assumptions for the provision for maintenance include expected use of the aircraft during the lease term, forecast maintenance obligation dates and forecast contractual maintenance rates. CPI was applied to certain current labour and market costs and the provisions are discounted as specified in note 3(r). The nominal discount rate applied was 9.0% (2014: 9.0%). (c) Provision for unfavourable contract terms As part of restructuring the fleet, the Group has recognised a provision for unfavourable aircraft lease terms (onerous contracts). These lease agreements expire between March and April 2017. The prospective unfavourable portion of the rental payments associated with these lease agreements have been valued on an incremental cash flow basis. As part of the acquisition of Tigerair Australia, the Group recognised a provision for unfavourable aircraft lease terms of $23.5 million. This amount is provisional. The final lease agreement expires in October 2021. (d) Other provisions Other provisions includes restructure costs, legal provisions and provisions for property make-good clauses contained in operating leases of premises. The property make-good provisions were recognised during the 2013 financial year as part of the acquisition of Skywest. These lease agreements expire between 2014 and 2022.

F-45 90 VIRGIN AUSTRALIA GROUP 25. Unearned revenue 2015 2014 $m $m Current Unearned passenger revenue 632.0 552.3 Credit vouchers 16.9 12.6 Other unearned revenue 290.4 242.8 939.3 8 07.7 Non-current Other unearned revenue 2.0 –

26. Share capital

2015 2014 $m $m Ordinary shares, fully paid 1,170.6 1,166.8 Treasury shares held by the KEPP Trust(1) (17.7) (19.5) 1,152.9 1,147.3

(1) The trustee for the Key Employee Performance Plan (KEPP) holds a number of shares in VAH, which may be transferred to employees of the Group in accordance with the rules of the Plan. On consolidation, shares held for the KEPP are offset against contributed equity. During the year ended 30 June 2015, 4.3 million (2014: 2.2 million) of KEPP shares worth $1.8 million (2014: $0.6 million) were issued to employees, refer note 26(c). The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. (a) Movements in ordinary share capital Number of Shares (m) Balance at 1 July 2013 2,567.5 Issue of shares by KEPP 2.2 Issue of shares for cash 925.0 Issue of shares for executive remuneration 8.6 Balance at 30 June 2014 3,503.3 Balance at 1 July 2014 3,503.3 Issue of shares by KEPP 4.3 Issue of shares for executive remuneration 10.1 Balance at 30 June 2015 3,517.7

F-46 ANNUAL FINANCIAL REPORT 2015 91 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

26. Share capital (continued) (b) Terms and conditions of ordinary shares With the exception of shares held in trust under the KEPP, holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation. At 30 June 2015, the trustee for the KEPP holds 7.2 million (2014: 11.5 million) shares. A participating employee is not entitled to any income or other rights (including voting rights) derived from any shares acquired by the trustee under KEPP unless and until the shares are transferred to the employee for nil consideration, following satisfaction of any vesting conditions – refer to note 35(b). (c) Issue of ordinary shares Transactions during the financial year ended 30 June 2015 On 30 June 2014, the vesting conditions associated with Senior Executive Option Plan (SEOP) Issue 15, were partially met resulting in the issue of 7.5 million shares on 25 September 2014 and an increase in share capital of $2.9 million. Refer to note 35(a). On 30 June 2014, the vesting conditions associated with Senior Executive Option Plan (SEOP) Issue 16, were partially met resulting in the issue of 2.6 million shares on 25 September 2014 and an increase in share capital of $0.9 million. Refer to note 35(a). On 8 July 2014, vesting conditions associated with Tranche 2 of Key Employee Performance Plan 2012 were met resulting in the issue of 1.5 million performance rights and an increase in share capital of $0.6 million. Refer to note 35(b). On 8 July 2014, vesting conditions associated with Tranche 1 of Key Employee Performance Plan 2013 were met resulting in the issue of 2.8 million performance rights and an increase in share capital of $1.2 million. Refer to note 35(b). Transactions during the financial year ended 30 June 2014 On 30 June 2013, the vesting conditions associated with Senior Executive Option Plan (SEOP) Issue 12, were partially met resulting in the issue of 8.3 million shares on 18 September 2013 and an increase in share capital of $2.2 million. Refer to note 35(a). On 30 June 2013, the vesting conditions associated with Senior Executive Option Plan (SEOP) Issue 14, were partially met resulting in the issue of 0.3 million shares on 18 September 2013 and an increase in share capital of $0.1 million. Refer to note 35(a). On 1 July 2013, vesting conditions associated with Tranche 1 of Key Employee Performance Plan 2012 were met resulting in the issue of 2.2 million performance rights and an increase in share capital of $0.6 million. Refer to note 35(b). On 14 November 2013, the Group announced the intention to issue 925.0 million new shares, pursuant to the terms of the fully underwritten pro-rata, non-renounceable entitlement offer, comprising an institutional component (Institutional Entitlement Offer) and a retail component (Retail Entitlement Offer). On 29 November 2013, 740.6 million shares were issued under the Institutional Entitlement Offer at a price of $0.38 per share resulting in an increase in share capital of $281.4 million. Transaction costs associated with the capital raising were capitalised and offset against share capital. On 17 December 2013, 184.4 million shares were issued under the Retail Entitlement Offer at a price of $0.38 per share, resulting in an increase in share capital of $70.1 million. Transaction costs associated with the capital raising were capitalised and offset against share capital. Of the total shares issued under the Institutional Entitlement Offer and the Retail Entitlement Offer, 633.8 million shares were issued to Air New Zealand Limited, Etihad Airways P.J.S.C. and Singapore Airlines Limited.

F-47 92 VIRGIN AUSTRALIA GROUP 27. Reserves (a) Nature and purpose of reserves (i) Foreign currency translation reserve Exchange differences arising on translation of foreign operations are recognised in the foreign currency translation reserve, as described in note 3(d). The reserve is recognised in profit or loss when the net investment in the foreign operation is disposed of. (ii) Hedging reserve and option time value reserve – cash flow hedges The hedging reserve and option time value reserve are used to record gains or losses on a hedging instrument in a cash flow hedge that is recognised directly in equity, as described in note 3(i). Amounts are recognised in profit or loss when the associated hedged transaction affects profit or loss, or recognised as part of the acquisition price of property, plant and equipment. (iii) Share-based payments reserve The share-based payments reserve is used to recognise the grant date fair value of options and performance rights issued as described in note 3(q)(v). (iv) Non-controlling interests contribution reserve The non-controlling interests contribution reserve represents the excess of consideration received over and above the carrying value of net assets attributable to equity instruments when acquired by non-controlling interests.

28. Dividends (a) Dividends No dividends were declared and paid by the Company in the current or prior year. No final dividend has been declared or paid for 2015 (2014: nil) or subsequent to year end. (b) Franked dividends 2015 2014 $m $m Dividend franking account Franking credits available for subsequent financial years based on a tax rate of 30% (2014: 30%) 68.8 76.4 Exempting franking credits account based on a tax rate of 30%(1) 4.2 4.2

(1) The Company acquired these exempting franking credits upon acquisition of the Skywest Group. The ability to utilise the franking credits is dependent upon the ability to declare dividends. In accordance with the tax consolidation legislation, the Company as the head entity in the Australian tax-consolidated group has assumed the benefit of the above franking credits. The Group’s New Zealand subsidiary, Virgin Australia Airlines (NZ) Ltd has franking credits totalling NZD $7.6 million as at 30 June 2015 (2014: NZD $7.6 million). The ability to utilise the franking credits is dependent upon the ability to declare dividends.

29. Capital expenditure commitments

2015 2014 $m $m Commitments payable for the acquisition of property, plant and equipment, including aircraft and aeronautic related assets, contracted for at the reporting date but not recognised as liabilities 4,333.4 3,383.7

F-48 ANNUAL FINANCIAL REPORT 2015 93 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

30. Operating leases (a) Operating leases as lessee 2015 2014 $m $m Non-cancellable operating lease expense commitments Commitments in relation to operating leases contracted for at the reporting date but not recognised as liabilities, payable: ––Less than one year 516.0 376.7 ––Between one and five years 1,816.9 1,4 47.8 ––More than five years 1,326.0 1,310.0 3,658.9 3,134.5

In accordance with normal industry practice, the Group is responsible for maintenance costs of operating leased aircraft for the term of the lease. The Group leases property, plant and equipment, principally aircraft, under non-cancellable operating leases expiring from one to twelve years from 30 June 2015 (2014: one to twelve years). Aircraft lease payments are payable in US dollars. There are options on some leases to renew the leases after the end of the original lease period. Some leases provide for additional rent payments that are based on changes in a local price index. There are no restrictions imposed by the leases in relation to additional debt raising or entering into further leases. (b) Operating leases as lessor 2015 2014 $m $m Future minimum lease payments receivable under non-cancellable leases: ––Less than one year 17.6 15.3 ––Between one and five years 3.5 17.2 21.1 32.5

The Group leases certain aircraft to other parties. These leases are for a period of five years with an option to extend for a further 12 months. There is a second option to extend for a further 12 months post the initial option period and a third option to extend for a further 12 months post the initial two option periods. The lease payments are receivable monthly in US dollars. Some leases provide for additional rent payments that are based on changes in a local price index. There are no restrictions imposed by the leases in relation to additional debt raising or entering into further leases.

31. Contingent liabilities and contingent assets Bank guarantees, letters of credit and aircraft facilities guarantees The Group has provided bank guarantees and standby letters of credit to third parties as guarantees of payment for fuel, aircraft lease security deposits and maintenance reserve deposits, non-aircraft operating lease commitments and other arrangements entered into with third parties. The amount of bank guarantees and standby letters of credit issued as at the end of the 2015 financial year was $127.3 million (2014: $85.0 million). As at 30 June 2015, there were $272.9 million of aircraft facilities guarantees outstanding (2014: $486.7 million). The prior period amount relates to Tigerair Australia which was disclosed as a related party guarantee in the prior period. Refer to note 36(b)(iii).

F-49 94 VIRGIN AUSTRALIA GROUP 32. Financial instruments The Group has exposure to a variety of financial risks, including market risk, credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group manages these risk exposures using various financial instruments. The Board has determined hedging limits for financial risks and these are documented in the Treasury Risk Management Policy. Transactions entered into are to be carried out within these guidelines approved by the Board. Implementation of this policy is delegated to management, who have flexibility to act within the bounds of the authorised policy limits. Group policy is to not enter, issue or hold derivative financial instruments for speculative trading purposes. Compliance with the policy is monitored on an ongoing basis through regular reporting to the Board. (a) Market risk Market risk is the risk that changes in market prices, such as fuel prices, foreign exchange rates, interest rates and equity prices, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market exposures, within tolerances. The Group enters into derivatives, and also incurs financial liabilities, in order to manage market risks relating to fuel prices, foreign exchange rates and interest rates. All such transactions are carried out within the guidelines set by the Board in the Treasury Risk Management Policy. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss. (i) Fuel price risk Price risk arises on the Group’s exposure to jet fuel prices. The Group’s fuel price risk management strategy aims to provide the airline with protection against sudden and significant increases in fuel prices while ensuring that the airline is not competitively disadvantaged in the event of a substantial decline in the price of fuel. Risk management The Group’s risk management policy is to hedge anticipated jet fuel consumption for subsequent financial periods subject to limits determined by the Board. Group Treasury is responsible for managing this exposure by using Singapore kerosene and Brent crude commodity swaps, option contracts and other fuel related derivatives. These contracts are designated at Group level as hedges of price risk on specific volumes of future jet fuel consumption. The Group considers Brent crude to be a separately identifiable and measurable component of Singapore kerosene. The Group primarily operates in a geographical area in which jet fuel is priced in reference to Singapore kerosene as opposed to other jet fuels (i.e. MOPAG, LA PIPE). Ineffectiveness on fuel derivatives can arise from timing differences on the notional amount between the hedged instrument and hedged item, or changes in market dynamics which may cause the Group to reassess the component inputs into jet fuel. At 30 June 2015, the Group has no ineffectiveness on derivative positions. During the 2014 financial year, ineffectiveness was recognised for unrealised time value movements on options. The Group has retrospectively adjusted time value on options for qualifying hedge relationships as permitted by the transitional provisions of AASB 9. Refer to note 3(v)(i). Realised gains or losses on these contracts arise due to differences between the actual fuel prices on settlement, the forward rates of derivative contracts and the cost of option premiums paid. During the year, the net loss arising from fuel hedging activities for the Group was $129.4 million (2014: gain of $35.4 million). Of this net amount, a loss of $106.7 million (2014: gain of $80.9 million) represents the realised element of the hedges which has been recognised in fuel expense, and a loss of $22.8 million (2014: loss of $45.5 million) represents the unrealised element of the hedges (including changes in option time value) and realised option premium which has been recognised in ineffective cash flow hedges and non-designated derivatives losses. The following table sets out the timing of the notional amount and the hedged price range (minimum and maximum strike/contract rates) of the Group’s fuel hedging instruments.

Notional Less than 1 Hedged price amount year 1 to 2 years 2 to 5 years $/bbl bbl/m bbl/m bbl/m bbl/m 2015 AUD fuel costs 70-132 9.3 8.2 1.1 – 2014 AUD fuel costs 100-134 7.3 6.5 0.8 –

F-50 ANNUAL FINANCIAL REPORT 2015 95 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

32. Financial instruments (continued) (a) Market risk (continued) (i) Fuel price risk (continued) Sensitivity analysis The following table summarises the sensitivity of the Group’s financial assets and liabilities to a reasonably possible change in fuel prices. An AUD 30 (2014: AUD 30) per barrel (bbl) increase/(decrease) in the price of fuel (with no change in refining margin) would have increased/ (decreased) equity and the profit or loss (before tax) by the amounts shown below. This analysis assumes that all other variables remain constant and based on the designated hedge relationship as at the reporting dates. The analysis is performed on the same basis for 2014.

AUD 30/bbl increase AUD 30/bbl decrease Carrying amount Profit/(loss) Equity Profit/(loss) Equity $m $m $m $m $m 2015 Net financial liability ––Derivative liability (31.9) (0.7) 140.0 – (126.9) 2014 Net financial asset ––Derivative asset 15.2 38.0 95.2 (28.0) (62.4)

(ii) Foreign exchange risk Exposure to foreign exchange risk The Group undertakes transactions in US dollars, including the cost of purchasing fuel, aircraft, aircraft lease payments, the sale of airline passenger tickets and the repayment of USD debt. The Group also undertakes transactions in New Zealand dollars. The Group’s exposure to foreign exchange risk at the reporting date was as follows, based on notional amounts (presented in AUD):

2015 2014 AUD USD NZD AUD USD NZD $m $m $m $m $m $m Cash and cash equivalents 2.6 453.9 12.9 2.1 232.3 17.3 Trade and other receivables – 53.8 2.2 – 78.8 6.0 Other financial assets – 131.6 – – 168.5 – Trade and other payables (5.4) (120.9) (17.7) (10.2) (97.5) (10.2) Interest-bearing liabilities – (392.1) – – – – Gross statement of financial position exposure (2.8) 126.3 (2.6) (8.1) 382.1 13.1 Forward exchange contracts (1) – 529.7 – – 676.5 –

(1) Relates to forecast cash flow exposure pertaining to operating expenses and aircraft lease rentals.

The following significant exchange rates applied during the year: Average rate Reporting date spot rate AUD 2015 2014 2015 2014 USD 0.8501 0.9189 0.7652 0.9400 NZD 1.0731 1.1150 1.1222 1.0754

F-51 96 VIRGIN AUSTRALIA GROUP 32. Financial instruments (continued) (a) Market risk (continued) (ii) Foreign exchange risk (continued) Risk management (continued) During the 2015 financial year, the net gain arising from foreign exchange hedging activities for the Group was $56.7 million (2014 gain of $45.4 million) as a result of the Australian dollar depreciating below the average hedged price. Of this net amount, a gain of $61.3 million (2014: gain of $41.0 million) represents the realised element of the hedges which has been recognised in the relevant expenditure category which the contract was hedging, and a loss of $4.6 million (2014: gains of $4.4 million) was recognised in respect of the unrealised element of hedges and non-designated derivatives (including changes in option time value) and realised option premium in ineffective cash flow hedges and non-designated derivatives losses. The following table sets out the timing of the notional amount and the hedged rate range (minimum and maximum strike/contract rates) of the Group’s foreign exchange hedging instruments.

Notional Less than Hedged rate amount 1 year 1 to 2 years 2 to 5 years AUD/USD $m $m $m $m 2015 USD operating costs 0.75-0.91 529.7 412.9 116.8 – 2014 USD operating costs 0.86-1.02 676.5 544.5 132.0 –

Sensitivity analysis The following table summarises the sensitivity of the Group’s financial assets and liabilities to a reasonably possible change in the exchange rate to the US dollar. A 10% (2014: 10%) appreciation/(depreciation) of the AUD against the USD would have increased/(decreased) equity and profit or loss (before tax) by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2014. USD 10% increase in AUD USD 10% decrease in AUD Carrying amount Profit/(loss) Equity Profit/(loss) Equity $m $m $m $m $m 2015 Financial assets ––Non-derivative asset 801.5 (58.1) (14.7) 71.0 18.0 ––Derivative asset 36.9 – (54.6) – 67.1 Financial liabilities ––Non-derivative liability (2,329.8) 46.6 165.2 (57.0) (201.9) (11.5) 95.9 14.0 (116.8) 2014 Financial assets ––Non-derivative asset 479.6 (43.6) – 53.3 – Financial liabilities ––Non-derivative liability (1,650.6) 8.9 141.2 (10.8) (172.6) ––Derivative liability (11.3) (0.7) (63.4) 0.4 73.0 (35.4) 77.8 42.9 (99.6)

F-52 ANNUAL FINANCIAL REPORT 2015 97 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

32. Financial instruments (continued) (a) Market risk (continued) (iii) Interest rate risk Exposure to interest rate risk The Group holds both interest-bearing assets and interest-bearing liabilities; therefore, the Group’s income and operating cash flows are subject to changes in market interest rates. The Group’s main interest rate risk arises from long-term borrowings, short-term borrowings and finance leases. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. At the reporting date, the interest rate profile of the Group’s interest-bearing financial instruments was: Carrying amount 2015 2014 $m $m Fixed rate instruments Financial assets 574.9 539.3 Financial liabilities (1,849.4) (1,423.4) (1,274.5) (884.1) Variable rate instruments Financial assets 442.0 233.0 Financial liabilities (912.8) (527.3) (470.8) (294.3)

Risk management The Group manages its cash flow interest rate risk by entering into fixed and floating rate debt and leasing arrangements. The residual exposure to floating interest rate risk is managed by holding floating rate assets to create a natural hedge and may include entering into floating-to-fixed interest rate swaps to hedge part of this exposure. During the year, there was no net gain or loss arising from interest rate hedging activities for the Group (2014: loss of $10.2 million). The prior year loss was a result of actual interest rates being lower than the average hedged rates and represented the effective portion of the hedges which had been recognised in finance costs.

Sensitivity analysis For the year ended 30 June 2015, an analysis demonstrating the sensitivity of financial instruments to a reasonably possible change in interest rates is provided in the following table. • Fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model; therefore a change in interest rates at the reporting date would not affect profit or loss. • Variable rate instruments The Group accounts for variable rate financial assets and financial liabilities at amortised cost using the effective interest rate method. A 100 basis point increase/(decrease) in interest rates would have increased/(decreased) equity and profit or loss (before tax) by the amounts shown as follows. This analysis assumes that all other variables remain constant.

F-53 98 VIRGIN AUSTRALIA GROUP 32. Financial instruments (continued) (a) Market risk (continued) (iii) Interest rate risk (continued) Sensitivity analysis (continued) 100 bp increase 100 bp decrease Carrying amount Profit/(loss) Equity Profit/(loss) Equity 2015 $m $m $m $m $m Variable rate instruments Financial assets 442.0 4.4 – (4.4) – Financial liabilities (912.8) (9.1) – 9.1 – (4.7) – 4.7 –

100 bp increase 100 bp decrease Carrying amount Profit/(loss) Equity Profit/(loss) Equity 2014 $m $m $m $m $m Variable rate instruments Financial assets 233.0 2.3 – (2.3) – Financial liabilities (527.3) (5.3) – 5.3 – (3.0) – 3.0 –

(b) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from trade debtor counterparties (travel agents, industry settlement organisations and credit provided direct to customers), other counterparties (including related parties), deposits and unrealised gains on derivative financial instruments. (i) Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer or counterparty. Significant loans and receivables credit risk are assessed based on trading performance of the counterparty. The demographics of the Group’s customer base, including default risk of the industry, have less of an influence on credit risk. A significant proportion of the Group’s revenue is received through credit cards, however there are no significant concentrations of credit risk. The Group has credit policies in place under which each new trade debtor is analysed individually for creditworthiness before the Group’s standard payment terms are offered. Purchase limits are established for each counterparty and reviewed on a regular basis to ensure that sales made on credit terms are made to counterparties with appropriate credit history. The Group continuously monitors counterparty credit limits on defaults, incorporating this information into credit risk controls.

F-54 ANNUAL FINANCIAL REPORT 2015 99 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

32. Financial instruments (continued) (b) Credit risk (continued) (ii) Investments, deposits and derivatives The Group limits its exposure to credit risk by only investing in liquid securities with counterparties and entering into derivative contracts with counterparties that have an investment grade credit rating. Exposure to credit risk The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was: Carrying amount 2015 2014 Note $m $m Cash and cash equivalents 11 1,028.5 783.8 Trade and other receivables 12 232.6 249.9 Commodity contracts used for hedging: assets 14 13.6 19.3 Forward exchange contracts used for hedging: assets 14 36.9 – Other financial assets 15 359.0 200.4 1,670.6 1,253.4

Impairment losses The ageing of the Group’s trade and other receivables at the reporting date was: Gross Impairment Gross Impairment 2015 2015 2014 2014 $m $m $m $m Not past due 218.9 – 237.6 (0.3) Past due 1-30 days 7.2 – 5.3 (0.3) Past due 31-60 days 2.3 – 2.4 – 61+ days 5.0 (0.8) 5.3 (0.1) 233.4 (0.8) 250.6 (0.7)

The Group has established a provision for doubtful receivables for trade receivables that represents its estimate of incurred losses. The main components of this provision are a specific loss component that relates to individually significant exposures. The movement in the Group’s provision for doubtful receivables in respect of trade receivables during the year was as follows:

2015 2014 $m $m Balance at 1 July 0.7 0.3 Impairment loss recognised 0.2 1.0 Write-off of bad debts (0.1) (0.6) Balance at 30 June 0.8 0.7

Impairment (losses)/gains on doubtful receivables are included in other expenses from ordinary activities in the consolidated statement of profit or loss. The provision for doubtful receivables at 30 June 2015 of $0.8 million (2014: $0.7 million) relates to specific receivables that are considered doubtful. The provision for doubtful receivables account in respect of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amount is considered irrecoverable and is written off against the financial asset directly. At 30 June 2015 the Group does not have any collective impairment on its trade receivables (2014: no collective impairment). Of the trade receivables as at 30 June 2015, deemed neither past due nor impaired, there are no customers who represent more than 5% (2014: 5%) of the total balance of trade receivables. The average credit period on revenue is 19 days (2014: 19 days). Upon default the credit of customers immediately ceases. No interest is charged on trade receivables.

F-55 100 VIRGIN AUSTRALIA GROUP 32. Financial instruments (continued) (c) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity risk is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. (i) Risk management Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding as required and the ability to close-out market positions if necessary. Due to the dynamic nature of the underlying businesses, Group Treasury aims at maintaining flexibility in funding by keeping adequate liquidity available. The Group aims to ensure that it has sufficient cash on demand to meet expected operational expenses, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot be predicted, such as natural disasters. The Group also maintains various lines of credit, which are detailed in note 23(c). The Group has contractual commitments for the acquisition of property, plant and equipment, which are detailed in note 29. (ii) Aircraft financing During the year, the Group undertook a number of aircraft and related financing transactions. These transactions included: • Mortgaging of three Boeing B737 aircraft. During the 2014 financial year, the Group undertook a number of aircraft financing transactions. These transactions included: • Sale and leaseback of seven Boeing B737 aircraft; • Sale and leaseback of one Embraer E190 engine; and • Refinancing of twenty-three Boeing B737 and one Boeing B777 aircraft. (iii) Exposure to liquidity risk The following are the contractual maturities of financial liabilities including estimated interest payments and including the impact of netting agreements:

Carrying Contractual Less than More than amount cash flows 1 year 1-2 years 2-5 years 5 years 2015 $m $m $m $m $m $m Non-derivative financial liabilities Secured loans (2,314.9) (2,734.7) (442.9) (535.3) (1,242.7) (513.8) Unsecured loans (419.0) (577.4) (68.7) (33.3) (475.4) – Finance lease liabilities (28.3) (86.3) (4.7) (4.5) (10.0) (67.1) Trade and other payables (707.8) (707.8) (701.5) (1.1) (2.9) (2.3) (3,470.0) (4,106.2) (1,217.8) (574.2) (1,731.0) (583.2)

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. As at 30 June 2015, the Group has financial covenants in relation to financing arrangements relating to cash balances and property values. Any breach of covenants may require the Group to repay the relevant loans earlier than indicated in the above table. As at 30 June 2015, the Group was compliant with these covenants.

F-56 ANNUAL FINANCIAL REPORT 2015 101 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

32. Financial instruments (continued) (c) Liquidity risk (continued) (iii) Exposure to liquidity risk (continued) Carrying Contractual Less than More than amount cash flows 1 year 1-2 years 2-5 years 5 years 2014 $m $m $m $m $m $m Non-derivative financial liabilities Secured loans (1,883.1) (2,243.3) (409.9) (372.4) (926.4) (534.6) Unsecured loans (33.9) (34.5) (34.5) – – – Loan from associate (4.2) (4.2) (4.2) – – – Finance lease liabilities (29.5) (90.7) (4.8) (4.6) (11.7) (69.6) Trade and other payables (627.7) (627.7) (620.3) ( 7.4) – – (2,578.4) (3,000.4) (1,073.7) (384.4) (938.1) (604.2)

At 30 June 2015, the Group held various types of derivative instruments that were designated as cash flow hedges of future forecast transactions. These were: • Hedging of future jet fuel purchases by commodity forward contracts and option contracts; and • Hedging of future foreign currency payments by forward exchange contracts and option contracts. The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to occur:

Expected and contractual cash flows Carrying Less than More than amount 1 year 1-2 years 2-5 years 5 years Total 2015 $m $m $m $m $m $m Commodity contracts used for hedging: ––Assets 13.6 9.6 4.0 – – 13.6 ––Liabilities (45.5) (45.5) – – – (45.5) Forward exchange contracts used for hedging: ––Assets 36.9 34.0 2.9 – – 36.9 ––Liabilities (0.1) (0.1) – – – (0.1) 4.9 (2.0) 6.9 – – 4.9

The net inflows/(outflows) disclosed represent the contractual undiscounted cash flows relating to derivative financial assets/(liabilities) held for risk management purposes as at 30 June 2015. The Group may exercise the ability to close out the instruments prior to contracted maturity in line with the Group’s hedging policy. The disclosure shows net cash flow amounts for derivatives that are net cash settled.

Expected and contractual cash flows Carrying Less than More than amount 1 year 1-2 years 2-5 years 5 years Total 2014 $m $m $m $m $m $m Commodity contracts used for hedging: ––Assets 19.3 17.3 2.0 – – 19.3 ––Liabilities (4.1) (4.1) – – – (4.1) Forward exchange contracts used for hedging: ––Assets – – – – – – ––Liabilities (11.3) ( 7.6) (3.7) – – (11.3) 3.9 5.6 (1.7) – – 3.9

The cash flows outlined above are expected to impact profit or loss in the same periods in which the cash flows are expected to occur.

F-57 102 VIRGIN AUSTRALIA GROUP 32. Financial instruments (continued) (d) Capital management Capital management is a key focus of the Board and senior management and it is the Group’s policy to maintain a strong capital base that will ensure continuing investor, creditor and market support for the future development of the business. The Board monitors the liquidity of the Group including unrestricted cash balances. Future financing requirements including those relating to aircraft purchases are monitored with determination of financing being based on competitively priced financing alternatives available at the time of the financing transaction. Compliance with debt covenants is monitored. The Group’s mix of interest-bearing liabilities as at 30 June 2015 consisted of aeronautic finance facilities, loans from banks and finance lease liabilities, of which 15.94% (2014: 18.47%) were current facilities and 84.06% (2014: 81.53%) were non-current facilities. There were no significant changes in the Group’s approach to capital management during the 2015 financial year. (e) Fair values The Group’s accounting policies and disclosures may require the measurement of fair values for both financial and non-financial assets and liabilities. The framework for measuring fair values is discussed in note 3(u). (i) Estimation of fair values The following table shows the carrying amounts and fair values of financial assets and liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

Quoted Observable Carrying market price inputs amount Fair value (Level 1) (Level 2) 2015 Note $m $m $m $m Financial assets carried at fair value Fuel hedging contracts – cash flow hedges 14 13.6 13.6 – 13.6 Forward foreign exchange contracts – cash flow hedges 14 36.9 36.9 – 36.9 50.5 50.5 – 50.5 Financial assets carried at amortised cost Cash and cash equivalents 11 1,028.5 1,028.5 – – Trade and other receivables 12 232.6 232.6 – – Other financial assets 15 359.0 359.0 – – 1,620.1 1,620.1 – – Financial liabilities carried at fair value Fuel hedging contracts – cash flow hedges 14 45.5 45.5 – 45.5 Forward foreign exchange contracts – cash flow hedges 14 0.1 0.1 – 0.1 45.6 45.6 – 45.6 Financial liabilities carried at amortised cost Trade and other payables 22 707.8 707.8 – – Loans (aeronautic finance facilities) 23 2,077.1 2,166.6 850.8 1,315.8 Unsecured bonds 23 385.0 407.1 – 407.1 Secured syndicate facility 23 213.7 225.0 – 225.0 Finance lease liabilities 23 28.3 28.3 – 28.3 Other financial liabilities 23 58.1 58.1 – – 3,470.0 3,592.9 850.8 1,976.2

F-58 ANNUAL FINANCIAL REPORT 2015 103 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

32. Financial instruments (continued) (e) Fair values (continued) (ii) Estimation of fair values (continued) Quoted Observable Carrying market price inputs amount Fair value (Level 1) (Level 2) 2014 Note $m $m $m $m Financial assets carried at fair value Fuel hedging contracts – cash flow hedges 14 19.3 19.3 – 19.3 Forward foreign exchange contracts – cash flow hedges 14 – – – – 19.3 19.3 – 19.3 Financial assets carried at amortised cost Cash and cash equivalents 11 783.8 783.8 – – Trade and other receivables 12 249.9 249.9 – – Other financial assets 15 200.4 200.4 – – 1,234.1 1,234.1 – – Financial liabilities carried at fair value Fuel hedging contracts – cash flow hedges 14 4.1 4.1 – 4.1 Forward foreign exchange contracts – cash flow hedges 14 11.3 11.3 – 11.3 15.4 15.4 – 15.4 Financial liabilities carried at amortised cost Trade and other payables 22 627.7 627.7 – – Loans (aeronautic finance facilities) 23 1,859.0 1,962.6 859.6 1,103.0 Finance lease liabilities 23 29.5 29.5 – 29.5 Other financial liabilities 23 62.2 62.2 – – 2,578.4 2,682.0 859.6 1,132.5

(iii) Valuation techniques and significant unobservable inputs The fair value of financial assets and liabilities is included at the amount which the Group would expect to receive upon selling an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of cash and cash equivalents, trade and other receivables, other financial assets, trade and other payables and other financial liabilities approximate their carrying amounts largely due to the short term nature of these instruments. The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:

Forward currency and over-the-counter fuel derivatives The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. These are measured at the market value of instruments with similar terms and conditions at the reporting date (Level 2) using forward pricing models. Changes in counterparty and own credit risk are deemed to be insignificant. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques, such as estimated discounted cash flows. The fair value of forward exchange contracts and fuel contracts is determined using forward exchange market rates and fuel prices at the reporting date.

Loans and finance leases The fair value of the Group’s interest-bearing borrowings and loans, including leases, are determined by discounting the remaining contractual cash flows at the relevant credit adjusted market interest rates as at 30 June.

F-59 104 VIRGIN AUSTRALIA GROUP 32. Financial instruments (continued) (f) Master netting arrangements or similar agreements The Group enters into contractual arrangements such as the International Air Transport Association (IATA) and International Swaps and Derivatives Association (ISDA) Master Agreements where, upon the occurrence of a credit event (such as default) a termination value is calculated and only a single net amount is payable in settlement of all transactions that are capable of offset under the contractual terms. Offsetting has been applied to IATA balances and derivatives in the consolidated statement of financial position where the Group has a legally enforceable right to set off and there is an intention to settle on a net basis. The Master Agreements contractually bind the Group and the counterparty to apply close-out netting across all outstanding transactions only if either party defaults or other pre-agreed termination events occur. As such, they do not meet the criteria for offsetting in the consolidated statement of financial position. The following table sets out the carrying amounts of recognised financial assets and liabilities that are subject to the above agreements.

Gross Net amounts Related Gross amounts set presented amounts not amounts of off in the in the set off in the recognised consolidated consolidated consolidated financial statement statement statement assets and of financial of financial of financial liabilities position position(1) position Net amount 2015 Note $m $m $m $m $m Financial assets Cash and cash equivalents 11 380.1 – 380.1 (47.3) 332.8 Trade and other receivables 12 22.2 – 22.2 (18.7) 3.5 Derivative financial assets 14 78.8 (28.3) 50.5 (27.1) 23.4 481.1 (28.3) 452.8 (93.1) 359.7 Financial liabilities Trade and other payables 22 (34.3) – (34.3) 27.7 (6.6) Derivative financial liabilities 14 (73.9) 28.3 (45.6) 31.4 (14.2) Interest-bearing liabilities 23 (34.0) – (34.0) 34.0 – (142.2) 28.3 (113.9) 93.1 (20.8)

Gross Net amounts Related Gross amounts set presented amounts not amounts of off in the in the set off in the recognised consolidated consolidated consolidated financial statement statement statement assets and of financial of financial of financial liabilities position position(1) position Net amount 2014 Note $m $m $m $m $m Financial assets Cash and cash equivalents 11 223.1 – 223.1 (36.3) 186.8 Trade and other receivables 12 24.2 – 24.2 (23.3) 0.9 Derivative financial assets 14 29.6 (10.3) 19.3 (6.8) 12.5 276.9 (10.3) 266.6 (66.4) 200.2 Financial liabilities Trade and other payables 22 (23.3) – (23.3) 23.3 – Derivative financial liabilities 14 (25.7) 10.3 (15.4) 9.2 (6.2) Interest-bearing liabilities 23 (33.9) – (33.9) 33.9 – (82.9) 10.3 (72.6) 66.4 (6.2)

(1) Balances may not equate to the corresponding line item presented on the face of the consolidated statement of financial position or in the supporting notes. The difference relates to financial assets and financial liabilities that are not subject to master netting arrangements and is therefore not in scope for offsetting disclosures.

F-60 ANNUAL FINANCIAL REPORT 2015 105 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

33. Subsidiaries The consolidated annual financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 3(a): Equity Holding Name 2015 2014 Virgin Australia Holidays Pty Ltd 100% 100% Red Jet Foundation Pty Ltd 100% 100% VA Leaseco No.4 Pty Ltd 100% 100% VAH Newco No.1 Pty Ltd(1) 100% 100% VAH Newco No.2 Pty Ltd(1) 100% 100% VB 800 2009 Pty Ltd 100% 100% VB E190 2009 No.2 Pty Ltd 100% 100% VB E190 2009 Pty Ltd 100% 100% VB Investco Pty Ltd 100% 100% VB Leaseco No.2 Pty Ltd 100% 100% VB Leaseco Pty Ltd(1) 100% 100% VB LH 2008 No.1 Pty Ltd 100% 100% VB LH 2008 No.2 Pty Ltd 100% 100% VB PDP 2010-11 Pty Ltd 100% 100% VB Training Pty Ltd 100% 100% VB Ventures Pty Ltd 100% 100% VBNC5 Pty Ltd 100% 100% VBNC9 Pty Ltd 100% 100% Velocity Rewards Pty Ltd 100% 100% Virgin Australia Airlines Pty Ltd(1) 100% 100% Virgin Tech Pty Ltd(1) 100% 100% Virgin Australia (NZ) Holdings Pty Ltd(1) 100% 100% Virgin Australia (NZ) Employment and Crewing Ltd 100% 100% Virgin Australia Airlines Holdings Pty Ltd(1) 100% 100% Virgin Australia International Operations Pty Ltd(1) 100% 100% 737 2012 No.1 Pty Ltd 100% 100% 737 2012 No.2 Pty Ltd 100% 100% VA Regional Leaseco Pty Ltd 100% 100% A.C.N. 098 904 262 Pty Ltd(1) 100% 100% Virgin Australia Regional Airlines Pty Ltd(1) 100% 100% Captivevision Capital Pte Ltd 100% 100% F11305 Pte Ltd 100% 100% VA Hold Co Pty Ltd 100% 100% VA Lease Co Pty Ltd 100% 100% Virgin Australia 2013-1 Issuer Co Pty Ltd 100% 100% Velocity Frequent Flyer Holdco Pty Ltd(2) 100% 100% TA Holdco (Singapore) Pte Ltd(1)(9) 100% – Tiger Airways Australia Pty Limited(1)(3) 100% – Tiger Airways Australia SPV Pty Ltd(1)(3) 100% – Virgin Australia Freight Operations Pty Ltd(4)(15) 100% – Short Haul 2014 No.1 Pty Ltd(5) 100% –

F-61 106 VIRGIN AUSTRALIA GROUP 33. Subsidiaries (continued)

Equity Holding Name 2015 2014 Short Haul 2014 No.2 Pty Ltd(6) 100% – Velocity Frequent Flyer 1 Pty Ltd(7) 100% – Velocity Frequent Flyer 2 Pty Ltd(7) 100% – Velocity Frequent Flyer Pty Ltd(8) 100% – Tiger International Number1 Pty Limited(10) 100% – Key Employee Performance Plan Trust(11) – – Red Jet Foundation Charitable Trust(11)(14) – – The Loyalty Trust(11) – – VH-ZHA: MSN 17000180 Owner Trust(12) – – VH-ZHB: MSN 17000187 Owner Trust(12) – – VH-ZHC: MSN 17000191 Owner Trust(12) – – VH-ZHD: MSN 17000227 Owner Trust(12) – – VH-ZHE: MSN 17000247 Owner Trust(12) – – VH-ZHF: MSN 17000255 Owner Trust(12) – – Virgin Australia 2013-1A Trust(12) – – Virgin Australia 2013-1B Trust(12) – – Virgin Australia 2013-1C Trust(12) – – Virgin Australia 2013-1D Trust(12) – – Virgin Australia International Airlines Pty Ltd(13) – – Virgin Australia International Holdings Pty Ltd(13) – – Virgin Australia Airlines (NZ) Ltd(13) – – Virgin Australia Airlines (SE Asia) Pty Ltd(13) – –

(1) Persuant to ASIC Class Order 98/1418 (as amended), these controlled entities are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports for the financial year ended 30 June 2015. Refer note 38 for further information. Virgin Australia Airlines Holdings Pty Ltd, VAH Newco No.1 Pty Ltd, TA Holdco (Singapore) Pte Ltd, Tiger Airways Australia Pty Limited and Tiger Airways Australia SPV Pty Ltd became eligible for relief from 21 May 2015. (2) This entity changed its name during the 2015 financial year from Velocity Frequent Flyer Pty Ltd to Velocity Frequent Flyer Holdco Pty Ltd. (3) During the financial year ended 30 June 2015, the Company gained control of these entities by virtue of acquiring 100% of the issued share capital in Tigerair Australia. Details of this acquisition are disclosed in note 6. (4) This entity was incorporated on 11 July 2014. (5) This entity was incorporated on 21 July 2014. (6) This entity was incorporated on 24 July 2014. (7) These entities were incorporated on 15 August 2014. (8) This entity was incorporated on 22 August 2014. (9) This entity was incorporated on 27 November 2014. (10) This entity was incorporated on 29 May 2015. (11) The Company administers the Key Employee Performance Plan Trust, The Loyalty Trust and Red Jet Foundation Charitable Trust through appointed Trustees. (12) The Company consolidates these trust entities despite holding no issued capital, as it controls the trust entity as the Company is exposed to or has rights to variable returns from its involvement with the trust entity and has the ability to affect those returns through its power over the trust entity. (13) The Company consolidates these entities despite holding minimal issued capital, as it controls the entity as the Company is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. (14) The Trust was terminated on 12 June 2015. (15) This entity changed its name on 22 July 2015 from Virgin Australia Freight Operations Pty Ltd to Virgin Australia Cargo Pty Ltd.

F-62 ANNUAL FINANCIAL REPORT 2015 107 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

33. Subsidiaries (continued) All entities are incorporated in Australia, with the exception of the following:

Subsidiary Country of incorporation Virgin Australia Airlines (NZ) Ltd New Zealand Virgin Australia (NZ) Employment and Crewing Ltd New Zealand Captivevision Capital Pte Ltd Singapore F11305 Pte Ltd Singapore Skywest Airlines Pte Ltd Singapore Skywest Airlines (S) Pte Ltd Singapore TA Holdco (Singapore) Pte Ltd Singapore

There are no significant restrictions on the Company’s ability to access or use the assets and settle the liabilities of the Group. During the year the Group voluntarily entered the following subsidiaries into liquidation:

Equity Holding Name 2015 2014 Skywest Airlines Pte Ltd 100% 100% Skywest Airlines (S) Pte Ltd 100% 100%

These entities were placed into voluntary (solvent) liquidation on 17 August 2014, as they were no longer required in the Group’s corporate structure. These entities will be deregistered at the end of the liquidation process which is expected to occur by the end of December 2015. (a) Involvement with unconsolidated structured entities The table below describes the types of structured entities that the Group does not consolidate. The Group sponsors these entities on the basis that it is a majority user of these entities.

Type of structured entity Nature and Interest Interest held by the Group Asset-backed financing entity(1)(2) Holder of the purchase agreement Nil

(1) On 30 April 2013, one of the Group’s subsidiaries, VA Leaseco No.4 Pty Ltd (VA Leaseco No.4) participated in an asset-backed financing arrangement relating to aircraft via a Special Purpose Entity (SPE) that was established on behalf of the Group for this purpose. VA Leaseco No.4 assigns and novates its rights and obligations under the purchase agreement to the SPE. On aircraft delivery, the arrangements are such that the Group takes title to the aircraft. During the year, the Group did not provide financial support to the SPE and has no intention of providing financial or other support. The Group does meet the administrative expenses of the SPE. The Group concluded that it does not control or have power over the relevant activities of the SPE, and therefore does not consolidate the SPE at 30 June 2015 and 30 June 2014. (2) In a prior year, Tiger Airways Australia SPV Pty Ltd, which was has since been acquired and consolidated by the Group, participated in an asset-backed financing arrangement relating to aircraft via a SPE that was established on behalf of the Group for this purpose. Tiger Airways Australia SPV Pty Ltd assigned and novated its rights and obligations under the purchase agreement to the SPE. On aircraft delivery, the arrangements are such that the Group takes title to the aircraft. During the year, the Group did not provide financial support to the SPE and has no intention of providing financial or other support. The Group does meet the administrative expenses of the SPE. The Group concluded that it does not control or have power over the relevant activities of the SPE, and therefore does not consolidate the SPE at 30 June 2015.

F-63 108 VIRGIN AUSTRALIA GROUP 34. Reconciliation of loss after income tax to net cash from/(used in) operating activities

Restated(1) 2015 2014 $m $m Loss for the financial year (93.8) (353.8) Adjustments for: Depreciation 256.5 238.2 Amortisation 18.9 29.6 Share of net losses/(profits) of equity accounted investees 16.6 48.7 Loss on disposal of property, plant and equipment 7.6 2.3 Amortisation of deferred borrowing costs 14.4 9.4 Equity-settled share-based payment expenses 4.0 5.5 Net change in fair value of cash flow hedges transferred to profit or loss 51.6 (26.6) Unrealised foreign exchange movements – non-operating activities (15.3) 0.9 Net finance income from Tigerair Australia acquisition (21.8) – Amortisation of deferred loss/(gain) on sale and leaseback assets 3.6 3.0 Impairment losses – 56.9 242.3 14.1 Changes in operating assets and liabilities: (Increase)/decrease in trade and other receivables (18.6) (28.8) (Increase)/decrease in inventories (4.5) (6.3) (Increase)/decrease in other assets (35.7) (53.8) (Increase)/decrease in deferred and current tax assets (69.9) (145.4) (Increase)/decrease in derivative financial instruments (61.7) 72.5 (Decrease)/increase in trade and other payables 50.3 61.0 (Decrease)/increase in provisions 26.8 14.4 (Decrease)/increase in unearned revenue 89.1 71.6 (Decrease)/increase in deferred tax liabilities – ( 7.0) Net cash from/(used in) operating activities 218.1 (7.7)

(1) Refer to note 3(v)(i).

F-64 ANNUAL FINANCIAL REPORT 2015 109 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

35. Share-based payments (a) Executive option plans The Group has established the following executive option plans. The options have been granted to senior executives of the Group. The following table sets out the percentages of the options that will vest depending on the Company’s Total Shareholder Return (TSR) relative to the comparator group as at the testing date. This is relevant to each of the following executive option plans unless otherwise stated:

The Group’s relative TSR growth % of options that vest Below 50th percentile 0% 50th percentile 50% Between 51st and 74th percentile 2% (for each percentile ranking above 50%) 75th percentile 100%

Plan Vesting Periods and Conditions Senior Executive Option Plan Senior executives (excluding the CEO) were granted zero exercise price options in the 2013 financial year under (SEOP) Issue 17 SEOP 17. The terms of the grants were: • Issued on 1 May 2013, the options are exercisable if there is growth in the Company’s TSR over a three year period (commencing 1 July 2012 and ending on 30 June 2015) relative to the median of the S&P/ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the testing date, 30 June 2015, will be determined using the Volume Weighted Average Price (VWAP) for VAH shares traded on the ASX on each of the 30 trading days up to and including the relevant date. • The zero exercise price options offered under the plan can only be exercised if the performance hurdle is achieved at the conclusion of the three year performance period. • Any vested options are exercisable during the period commencing on the date on which the 2015 annual results are announced and concluding on 30 June 2016. Senior Executive Option Plan The CFO was granted zero exercise price options in the 2013 financial year under SEOP 18. The terms of the (SEOP) Issue 18 grants were: • Issued on 1 May 2013, the options are exercisable if the CFO remains in continuous employment with the Virgin Australia Group of companies in a Group Executive role or higher throughout the period 1 July 2012 to 30 June 2015. • Exercised entitlements will be satisfied by either an allotment of new securities or by an on-market purchase of existing securities, at the Board’s discretion. • Any vested options are exercisable during the period commencing on the date on which the 2015 annual results are announced and concluding on 30 June 2016. Senior Executive Option Plan The CEO was granted zero exercise price options in the 2013 financial year under SEOP 19. The terms of the (SEOP) Issue 19 grants were: • Issued on 1 May 2013, 50% of the options are exercisable if there is growth in the Company’s TSR over a three year period (commencing 1 July 2012 and ending on 30 June 2015) relative to the median of the S&P/ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the testing date, 30 June 2015, will be determined using the VWAP for VAH shares traded on the ASX on each of the 30 trading days up to and including the relevant date. • The remaining 50% of the options are exercisable if corporate performance measures determined by the Board are met. The performance measures include specific targets, each of which are equally weighted in relation to the growth of corporate, government and alliances partners’ related business, performance of the Velocity Frequent Flyer program, Group safety outcomes and productivity enhancements. • Of the options that vest, 60% vested on 30 June 2015 and 40% will vest on 30 June 2016. Options that vest will be exercisable no later than 12 months after vesting, after which they will lapse. Senior Executive Option Plan The CEO was granted zero exercise price options in the 2014 financial year under SEOP 20. The terms of the (SEOP) Issue 20 grants were: • Issued on 20 December 2013, 50% of the options are exercisable if there is growth in the Company’s TSR over a three year period (commencing 1 July 2013 and ending on 30 June 2016) relative to the median of the S&P/ ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the testing dates, 30 June 2016 and 30 June 2017, will be determined using the VWAP for VAH shares traded on the ASX on each of the 30 trading days up to and including the relevant date. • The remaining 50% of the options are exercisable if corporate performance measures determined by the Board are met. The performance measures include specific targets in relation to the growth of corporate and government revenue targets, performance of Tigerair Australia, performance of the Velocity Frequent Flyer program and Group safety outcomes. • Of the options that vest, 60% will vest on 30 June 2016 and 40% will vest on 30 June 2017. Options that vest will be exercisable no later than 12 months after vesting, after which they will lapse.

F-65 110 VIRGIN AUSTRALIA GROUP 35. Share-based payments (continued) (a) Executive option plans (continued) The following plans were active during 2015, but had expired or partially expired by 30 June 2015:

Plan Vesting Periods and Conditions Senior Executive Option Plan Senior executives (excluding the CEO) were granted zero exercise price options in the 2012 financial year under (SEOP) Issue 15 SEOP 15. The terms of the grants were: • Issued on 29 February 2012, the options are exercisable if there is growth in the Company’s TSR over a three year period (commencing 1 July 2011 and ending on 30 June 2014) relative to the median of the S&P/ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the testing date, 30 June 2014, are determined using the VWAP for VAH shares traded on the ASX on each of the 30 trading days up to and including the relevant date. • The zero exercise price options offered under the plan can only be exercised if the performance hurdle is achieved at the conclusion of the three year performance period. • Any vested options were exercised during the period ending 30 June 2015. Senior Executive Option Plan The CEO was granted zero exercise price options in the 2012 financial year under SEOP 16. The terms of the (SEOP) Issue 16 grants were: • Issued on 29 February 2012, 50% of the options are exercisable if there is growth in the Company’s TSR over a three year period (commencing 1 July 2011 and ending on 30 June 2014) relative to the median of the S&P/ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the testing date, 30 June 2014, will be determined using the VWAP for VAH shares traded on the ASX on each of the 30 trading days up to and including the relevant date. • The remaining 50% of the options are exercisable if corporate performance measures determined by the Board are met. The performance measures include specific targets in relation to the growth of corporate, government and alliances partners’ related business, performance of the Velocity Frequent Flyer program and Group safety outcomes. • Of the options that vest, 60% vest on 30 June 2014 and 40% will vest on 30 June 2015. Options that vest will be exercisable no later than 12 months after vesting, after which they will lapse.

All options are granted for no consideration. When exercisable, each option is convertible into one ordinary share. Set out below are summaries of options granted under the plans by the Group:

During the year (number)

Number Number of Number of of options options at options at vested and beginning of Options Options Options Options year end on exercisable year granted forfeited lapsed exercised issue at year end Exercise Option plan Grant date ’000 ’000 ’000 ’000 ’000 ’000 ’000 price Expiry date 2015 SEOP 15(1) 29-Feb-12 7,537 - - - (7,537) - - $0.00 30-Jun-15 SEOP 16(1) 29-Feb-12 4,250 - - - (2,551) 1,699 1,699 $0.00 30-Jun-15/16(2) SEOP 17(1) 1-May-13 5,325 - - (5,325) - - - $0.00 30-Jun-16 SEOP 18(1) 1-May-13 653 - - - - 653 653 $0.00 30-Jun-16 SEOP 19(1) 1-May-13 2,796 - - (1,678) - 1,118 671 $0.00 30-Jun-16/17(3) SEOP 20(1) 20-Dec-13 2,868 - - - - 2,868 - $0.00 30-Jun-17/18(4) Total 23,429 - - (7,003) (10,088) 6,338 3,023 Weighted average exercise price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

(1) SEOP is the Senior Executive Option Plan. (2) Of the options that vest, 60% vested on 30 June 2014 and 40% vested on 30 June 2015. Options vested will be exercisable no later than 12 months after vesting, after which they will lapse. (3) Of the options that vest, 60% vested on 30 June 2015 and 40% will vest on 30 June 2016. Options vested will be exercisable no later than 12 months after vesting, after which they will lapse. (4) Of the options that vest, 60% vest on 30 June 2016 and 40% will vest on 30 June 2017. Options vested will be exercisable no later than 12 months after vesting, after which they will lapse.

F-66 ANNUAL FINANCIAL REPORT 2015 111 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

35. Share-based payments (continued) (a) Executive option plans (continued)

During the year (number)

Number Number of Number of of options options at options at vested and beginning of Options Options Options Options year end on exercisable year granted forfeited lapsed exercised issue at year end Exercise Option plan Grant date ’000 ’000 ’000 ’000 ’000 ’000 ’000 price Expiry date 2014 CEO SEOP 13(1) 24-Nov-10 4,116 – – (4,116) – – – $0.00 30-Jun-14 SEOP 12(1) 10-Mar-11 12,106 – – (3,793) (8,313) – – $0.00 30-Jun-14 SEOP 14(1) 11-Oct-11 414 – – (141) (273) – – $0.00 30-Jun-14 SEOP 15(1) 29-Feb-12 13,386 – (2,919) (2,930) – 7,537 7,537 $0.00 30-Jun-15 SEOP 16(1) 29-Feb-12 4,942 – – (692) – 4,250 2,550 $0.00 30-Jun-15/16(2) SEOP 17(1) 1-May-13 7,027 – (1,702) – – 5,325 – $0.00 30-Jun-16 SEOP 18(1) 1-May-13 653 – – – – 653 – $0.00 30-Jun-16 SEOP 19(1) 1-May-13 2,796 – – – – 2,796 – $0.00 30-Jun-16/17(3) SEOP 20(1) 20-Dec-13 – 2,868 – – – 2,868 – $0.00 30-Jun-17/18(4) Total 45,440 2,868 (4,621) (11,672) (8,586) 23,429 10,087 Weighted average exercise price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

(1) SEOP is the Senior Executive Option Plan. (2) Of the options that vest, 60% vest on 30 June 2014 and 40% will vest on 30 June 2015. Options vested will be exercisable no later than 12 months after vesting, after which they will lapse. (3) Of the options that vest, 60% vest on 30 June 2015 and 40% will vest on 30 June 2016. Options vested will be exercisable no later than 12 months after vesting, after which they will lapse. (4) Of the options that vest, 60% vest on 30 June 2016 and 40% will vest on 30 June 2017. Options vested will be exercisable no later than 12 months after vesting, after which they will lapse. The weighted average remaining contractual life of share options outstanding at the end of the financial year was two years (2014: two years). Fair value of options granted There were no options granted during the period. The assessed fair value at grant date of options granted during the 2014 financial year are:

2014 Plan Grant Date $ SEOP 20 20 December 2013 0.287

The fair value of options at grant date is determined in one of two ways, depending on the terms of the options: (a) Fair value is independently determined utilising assumptions underlying the Black-Scholes methodology to produce a Monte Carlo simulation model which allows for the incorporation of performance hurdles that must be met before the SEOP vests. The valuation is undertaken in a risk-neutral framework whilst allowing for variables such as volatility, dividends, the risk-free rate, the withdrawal rate and performance hurdles along with constants such as the strike price, term and vesting periods. (b) Fair value is determined as the value of the shares at grant date less the value of the dividends forgone over the vesting period. Expected volatility is estimated by considering historic average share price volatility.

F-67 112 VIRGIN AUSTRALIA GROUP 35. Share-based payments (continued) (a) Executive option plans (continued) Fair value of options granted (continued) The model inputs for options granted during the 2014 financial year include:

2014 SEOP 20 (a) Exercise price $0.00 (b) Grant date 20 December 2013 (c) Expiry date 30 June 2017/18 (d) Share price at grant date $0.385 (e) Expected volatility of the Company’s shares 40% (f) Expected dividend yield 0% (g) Risk-free rate Australian Government Bond Yields

(b) Employee share plans The following plans were active during 2015 and 2014:

Share Plan Date Established Details Restrictions Key Employee 11 September 2013 Directors may grant performance A participating employee is not entitled to any income Performance Plan rights to eligible full-time or permanent or other rights (including voting rights) derived from any (KEPP 13) 2013 part-time employees of the Group, shares acquired by the Trustee under KEPP 13 unless other than a non-executive director of and until the shares are transferred to the employee, a member of the Group. The Company following satisfaction of any vesting conditions. The vesting has appointed CPU Share Plans Pty conditions require employees to hold and not sell any of Limited as Trustee to acquire and hold their initial purchase of shares and to remain an employee shares under KEPP 13. The Trustee throughout the period. will transfer shares held by it to a 4,379,721 performance rights were issued on 11 September participating employee when the 2013 under KEPP 13 with a grant date of 11 September vesting conditions in relation to a 2013. Issued in three tranches, 58% of the performance performance right have been satisfied rights are eligible to vest on 1 July 2014, a further 28% or have been waived by the Board. are eligible to vest 1 July 2015 and the remaining 14% are The Company provides all monies eligible to vest on 1 July 2016. The performance rights are required by the Trustee to acquire exercisable during the period commencing on the date on shares for the purposes of KEPP 13, which the respective year’s annual results are announced including costs and duties. and concluding on 30 June of the subsequent year, upon which the rights will lapse if unexercised. Key Employee 6 September 2012 Directors may grant performance A participating employee is not entitled to any income Performance Plan rights to eligible full-time or permanent or other rights (including voting rights) derived from any (KEPP 12) 2012 part-time employees of the Group, shares acquired by the Trustee under KEPP 12 unless other than a non-executive director of and until the shares are transferred to the employee, a member of the Group. The Company following satisfaction of any vesting conditions. The vesting has appointed CPU Share Plans Pty conditions require employees to hold and not sell any of Limited as Trustee to acquire and their initial purchase of shares and to remain an employee hold shares under KEPP 12. The throughout the period. Trustee will transfer shares held by 5,409,856 performance rights were issued on 1 May 2013 it to a participating employee when under KEPP 12 with a grant date of 6 September 2012. the vesting conditions in relation to a Issued in three tranches, 40% of the performance rights are performance right have been satisfied eligible to vest on 1 July 2013, a further 40% are eligible to or have been waived by the Board. vest on 1 July 2014 and the remaining 20% are eligible to The Company provides all monies vest on 1 July 2015. The performance rights are exercisable required by the Trustee to acquire during the period commencing on the date on which shares for the purposes of KEPP 12, the respective year’s annual results are announced and including costs and duties. concluding on 30 June of the subsequent year, upon which the rights will lapse if unexercised.

F-68 ANNUAL FINANCIAL REPORT 2015 113 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

35. Share-based payments (continued) (b) Employee share plans (continued) Set out below are summaries of performance rights granted by the Group under the Key Employee Performance Plan (KEPP):

Number of Number of Number of performance Number of Number of performance performance Number of rights performance performance rights vested rights performance vested and rights at the rights granted and exercised forfeited rights at exercisable beginning of during during during the end of at the end of the year the year the year the year the year the year ’000 ’000 ’000 ’000 ’000 ’000 2015 KEPP 12 2,227 – (1,485) – 742 – KEPP 13 4,380 – (2,788) – 1,592 – 6,607 – (4,273) – 2,334 – 2014 KEPP 12 5,410 98 (2,186) (1,095) 2,227 – KEPP 13 – 4,380 – – 4,380 – 5,410 4,478 (2,186) (1,095) 6,607 –

Fair value of performance rights granted There were no performance rights granted during the period. The assessed fair value at grant date of performance rights granted during the 2014 financial year are:

2014 Plan Grant Date $ KEPP 13 11 September 2013 0.433

2014 KEPP 13 (a) Exercise price $0.00 (b) Grant date 11 September 2013 (c) Expiry date 1 July 2015/16/17(1) (d) Share price at grant date $0.433 (e) Expected volatility of the Company’s shares n/a (f) Expected dividend yield 0% (g) Risk-free rate Australian Government Bond Yields

(1) Of the performance rights which vest, 58% will expire on 1 July 2015, 28% will expire on 1 July 2016 and 14% will expire on 1 July 2017.

F-69 114 VIRGIN AUSTRALIA GROUP 35. Share-based payments (continued) (b) Employee share plans (continued) Fair value of performance rights granted (continued) Set out below are summaries of shares in Virgin Australia Holdings Limited held within the Key Employee Performance Plan:

Shares at the Distribution Shares beginning of Acquired by the Plan during the at the end the period during the period period of period Fair value Number Number per share Number Number ’000 ’000 $ ’000 ’000 2015 11,479 – – (4,273) 7,206 2014 13,665 – – (2,186) 11,479

The fair value of shares granted and distributed during the period is the market price of shares of the Company on the Australian Securities Exchange as at close of trading on each of the issue dates. The fair value is allocated over the vesting period evenly. (c) Short term incentive remuneration plans The following Short Term Incentive (STI) remuneration plan was active during 2015, but had expired by 30 June 2015.

Share Plan Date Established Details Restrictions CEO 13 19 November 2013 On 19 November 2013 the CEO was 100% of the options are exercisable if the CEO remains granted 813,712 zero exercise price in continuous employment with the Virgin Australia Group options in respect of a portion of his of companies as CEO throughout the period 1 July 2013 short term incentive remuneration for to 30 June 2014. the financial year ended 30 June 2013, Exercised entitlements will be satisfied by an on-market which was deferred in shares. purchase of existing securities. Any vested options are exercisable during the period 1 July 2014 to 30 June 2015. Set out below are summaries of options granted to the CEO under STI remuneration plans by the Group:

Number Number Number of options Number of options Number of of options vested and of options Number of vested and options at the granted exercised forfeited options at exercisable beginning of during during during the end of at the end of the year the year the year the year the year the year ’000 ’000 ’000 ’000 ’000 ’000 2015 CEO 13 814 – (744) (70) – – 814 – (744) (70) – – 2014 CEO 12 861 – (861) – – – CEO 13 – 814 – – 814 814 861 814 (861) – 814 814

Fair value of options granted There were no options granted during the period. The assessed fair value at grant date of options granted during the 2014 financial year are:

2014 Plan Grant Date $ CEO 13 19 November 2013 0.361

F-70 ANNUAL FINANCIAL REPORT 2015 115 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

35. Share-based payments (continued) (c) Short term incentive remuneration plans (continued) Fair value of options granted (continued) The fair value of options at grant date is independently determined utilising a discounted cash flow technique taking into account the share price at the grant date and dividends forgone over the vesting period of the options. The model inputs for options granted during the 2014 financial year include:

2014 CEO 13 (a) Exercise price $0.00 (b) Grant date 20 November 2013 (c) Expiry date 30 June 2015 (d) Share price at grant date $0.380 (e) Expected volatility of the Company’s shares n/a (f) Expected dividend yield 0% (g) Risk-free rate Australian Government Bond Yields

(d) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the year as part of employee benefit expense were as follows:

2015 2014 $’000 $’000 Options issued under employee option plans 3,160 4,074 Shares issued under employee share plans 312 1,472 Shares issued under employee STI remuneration plans 962 147 4,434 5,693

36. Related parties (a) Key management personnel disclosures (i) Key management personnel compensation The key management personnel compensation comprises: 2015 2014 $’000 $’000 Short-term employee benefits 12,094 9,510 Long-term benefits – 61 Post-employment benefits 240 223 Share-based payments 1,182 2,007 Termination benefits – 149 13,516 11,950

F-71 116 VIRGIN AUSTRALIA GROUP 36. Related parties (continued) (a) Key management personnel disclosures (continued) (ii) Loans to key management personnel For the 2015 financial year, there were no loans made, guaranteed, secured or outstanding in relation to key management personnel or their related parties (2014: nil). (iii) Other transactions with key management personnel A number of key management personnel hold positions in other subsidiaries of the parent entity that result in them having control or significant influence over the financial and operating policies of those entities. A number of these entities transacted with the Group in the reporting period. The details of these transactions are disclosed in note 36(b). Personal travel by key management personnel and their related parties is undertaken on terms no more favourable than those of employees, as per Group policy. (b) Non-key management personnel disclosures The Group has a related party relationship with its subsidiaries (refer to note 33), its associate and joint venture (refer to note 18) and its key management personnel (refer to part (a) of this note for disclosures in respect of key management personnel). (i) Controlling entity The ultimate parent entity in the Group is Virgin Australia Holdings Limited. (ii) Transactions with related parties The following transactions occurred with related parties:

2015 2014 $’000 $’000 Sale of goods and services Revenue for airline and other services to joint venture(3) 109 3,477 Revenue for wet lease to associate 21,148 20,188 Revenue for airline services to associate 15,291 15,644 Sale of goods and services to Tiger Airways Holdings Limited 81 – Revenue for ticket sales collected by key shareholders(2) 213,769 – Participation fee revenue for frequent flyer program from key shareholders(2) 25,745 – Purchase of goods and services “Tigerair” brand name royalty paid to other related party(1) 1,394 – Purchase of goods and services from Tiger Airways Holdings Limited 22,560 – Purchase of goods and services from key shareholders(2) 74,448 – Finance income/(costs) Finance income for unsecured loans advanced to joint venture(4) 764 1,310 Finance costs for unsecured loan received from associate(5) (23) (339)

(1) Royalties are payable to Tiger Holdings which are determined to be on an arm’s-length basis. As a result of Tigerair Australia being consolidated by the Group, Tiger Holdings became a related party of the Group, through the Group’s relationships with Singapore Airlines Limited (Singapore). Singapore accounts for Tiger Holdings as a joint venture and accounts for the Group as an associate, therefore Tiger Holdings is a related party of the Group. (2) On 4 July 2014, the Group appointed three Non-Executive Directors to the Board of Virgin Australia Holdings Limited. As a result of these Board appointments, Singapore Airlines Limited, Etihad Airways P.J.S.C and Air New Zealand Limited are considered to be related parties from this date. (3) From 17 October 2014 the Group has consolidated 100% of Tigerair Australia as a subsidiary (refer to note 6). As a result, Tigerair Australia has been consolidated and related party transactions after this date are eliminated in the Group result. The revenue for airline and other services to joint venture relates to the period from 1 July 2014 to 16 October 2014. (4) The loan advanced to Tigerair Australia at 30 June 2015 is eliminated in the Group result. The above finance income for unsecured loans advanced to joint venture relates to the period from 1 July 2014 to 16 October 2014 (2014: 8 July 2013 to 30 June 2014). (5) Refer to note 23(c)(iv) for details relating to the loan received from Virgin Samoa.

F-72 ANNUAL FINANCIAL REPORT 2015 117 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

36. Related parties (continued) (b) Non-key management personnel disclosures (continued) (iii) Outstanding balances The following balances are outstanding at the reporting date in relation to transactions with related parties:

2015 2014 Note $’000 $’000 Current receivables Virgin Samoa (sales of goods and services) 4,457 4,063 Tigerair Australia (sales of goods and services) – 149 Tigerair Australia (unsecured loans)(1) 12 – 14,948 Tiger Airways Holdings Limited (sales of goods and services) 81 – Non-current receivables Tigerair Australia (unsecured loans)(1) 12 – 23,580 Current payables Key shareholders (purchases of goods and services)(2) 9,344 – Tiger Airways Holdings Limited (purchases of goods and services) 3,052 – Virgin Samoa (purchases of goods and services) 11,916 11,800 Virgin Samoa (unsecured loan)(3) – 4,184

(1) From 17 October 2014 the Group has consolidated 100% of Tigerair Australia as a subsidiary (refer to note 6). As a result, Tigerair Australia has been consolidated and related party transactions after this date are eliminated in the Group result. All pre-existing relationships at the date of consolidation were settled as part of the acquisition. During the previous financial year, the Group entered into two unsecured loan facilities with Tigerair Australia. Under one facility, the Group advanced US$54,099 thousand, AU$58,389 thousand, and received interest at a rate of LIBOR + 5%, which at 30 June 2014 was 5.23%. The Group received repayments during the previous financial year on this facility of US$32,199 thousand, AU$35,056 thousand. The other facility extended of AU$25,000 thousand received interest at a rate equivalent to the prevailing Reserve Bank of Australia cash rate, which at 30 June 2014 was 2.50%. As at 30 June 2014 the total loan balance receivable, including interest receivable, was $49,607 thousand. After recognising losses exceeding the Group’s equity investment value in Tigerair Australia against the value of loan receivables, the carrying value of the loans receivable at 30 June 2014 was AU$38,528 thousand. (2) On 4 July 2014, the Group appointed three Non-Executive Directors to the Board of Virgin Australia Holdings Limited. As a result of these Board appointments, Singapore Airlines Limited, Etihad Airways P.J.S.C and Air New Zealand Limited are considered to be related parties as at 30 June 2015. (3) Refer to note 23(c)(iv) for details relating to the loan received from Virgin Samoa. No provision for doubtful receivables has been raised in relation to any outstanding balances and no expense has been recognised in respect of bad or doubtful debts due from related parties. As at 30 June 2014, the Group provided various joint and several guarantees for Tigerair Australia and its related entities of $486,719 thousand for aircraft facilities and $20,000 thousand for banking facilities. Tiger Holdings assumed 40% of these obligations under the Deed of Undertaking and Indemnity with the Group.

F-73 118 VIRGIN AUSTRALIA GROUP 37. Auditor’s remuneration Details of amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit services provided during the year are set out below:

Restated(1) 2015 2014 $’000 $’000 Audit and review services Auditors of the Company – KPMG – Audit and review(1) 1,832 1,891 Other services Auditors of the Company – KPMG – Other assurance services(2) 687 482 – Other services Taxation services 358 95 Other(3) 653 157 1,698 734

(1) 2014 comparatives have been restated to reflect the final total 2014 remuneration for audit related services agreed after the year ended 30 June 2014. (2) Other assurance services relate to assurance services rendered in relation to sustainability, debt raising transactions, compliance with service level agreements and other non-financial statement assurance procedures. (3) Mainly comprises services in connection with divestments, advice on accounting matters and other agreed upon procedures.

F-74 ANNUAL FINANCIAL REPORT 2015 119 Notes to the consolidated financial statements (continued) For the year ended 30 June 2015

38. Deed of Cross Guarantee Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries identified in note 33 are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports and Directors’ Report. It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee (Deed). The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Corporations Act 2001, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The Deed came into effect on 18 June 2007. Virgin Australia Airlines Holdings Pty Ltd, VAH Newco No.1 Pty Ltd, TA Holdco (Singapore) Pte Ltd, Tiger Airways Australia Pty Limited and Tiger Airways Australia SPV Pty Ltd became a party to the Deed on 21 May 2015, by virtue of a Deed of Assumption. A consolidated statement of profit or loss, consolidated statement of profit or loss and other comprehensive income and retained (losses)/ profits and consolidated statement of financial position, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed is set out as follows:

Restated(1) 2015 2014 Consolidated statement of profit or loss $m $m Revenue and income 3,645.7 3,309.6 Net operating expenditure (3,708.7) (3,604.8) Loss before related income tax benefit and net finance costs (63.0) (295.2) Finance income 84.4 46.7 Finance costs (169.3) (141.6) Net finance costs (84.9) (94.9) Loss before income tax benefit (147.9) (390.1) Income tax benefit 61.7 143.5 Net loss for the year (86.2) (246.6)

Consolidated statement of profit or loss and other comprehensive income Loss for the year (86.2) (246.6) Other comprehensive loss for the year, net of income tax Items that may be reclassified subsequently to profit or loss 32.8 (58.3) Total comprehensive loss for the year (53.4) (304.9) Transfers to reserves (32.8) 58.3 Retained profits at the beginning of the year 49.7 103.4 Movement in retained (losses)/profits due to entities entering the Deed (45.4) 192.9 Retained (losses)/profits at the end of the year (81.9) 49.7

(1) The 2014 comparatives have been restated as a result of a review of the financial impact of the change in the maintenance accounting policy on the sub-leases between members of the deed group and other VAH subsidiaries. The 2014 comparatives have also been restated to reflect the impact of AASB 9. Refer to note 3(v)(i),

F-75 120 VIRGIN AUSTRALIA GROUP 38. Deed of Cross Guarantee (continued)

Restated(1) 2015 2014 Consolidated statement of financial position $m $m Current assets Cash and cash equivalents 927.2 744.1 Trade and other receivables 1,156.4 1,196.1 Inventories 36.5 32.0 Derivative financial instruments 45.4 17.3 Other financial assets 50.8 21.1 Other current assets 5.7 5.8 Current tax assets 0.6 – Assets classified as held for sale 90.3 61.1 Total current assets 2,312.9 2,077.5 Non-current assets Trade and other receivables – 23.6 Derivative financial instruments 6.9 2.0 Other financial assets 1,092.9 498.5 Deferred tax assets 385.5 233.4 Property, plant and equipment 2,646.6 2,234.0 Intangible assets 565.8 371.6 Other non-current assets 25.7 29.9 Total non-current assets 4,723.4 3,393.0 Total assets 7,036.3 5,470.5 Current liabilities Trade and other payables 1,303.2 1,489.9 Interest-bearing liabilities 636.9 436.4 Derivative financial instruments 52.5 11.7 Provisions 191.3 123.6 Unearned revenue 401.3 318.3 Total current liabilities 2,585.2 2,379.9 Non-current liabilities Trade and other payables 12.7 14.0 Interest-bearing liabilities 1,957.1 1,397.2 Derivative financial instruments 20.1 3.7 Provisions 60.3 88.5 Unearned revenue 219.4 248.1 Total non-current liabilities 2,269.6 1,751.5 Total liabilities 4,854.8 4,131.4 Net assets 2,181.5 1,339.1 Equity Share capital 1,170.6 1,166.8 Reserves 1,092.8 122.6 Retained losses/(profits) (81.9) 49.7 Total equity 2,181.5 1,339.1

39. Parent entity disclosures As at, and throughout the financial year ended 30 June 2015, the parent entity of the Group was Virgin Australia Holdings Limited. (a) Financial results and position of the parent entity 2015 2014 $m $m Result of the parent entity (Loss)/profit for the year (9.4) 65.0 Total comprehensive (loss)/income for the year (9.4) 65.0 Financial position of the parent entity at year end Current assets 1,142.2 1,008.0 Total assets 2,466.4 1,813.0 Current liabilities 700.3 432.1 Total liabilities 1,092.4 432.1 Total equity of the parent comprising of: Share capital 1,170.6 1,166.8 Share-based payments reserve 16.9 18.2 Retained earnings 186.5 195.9 Total equity 1,374.0 1,380.9

(b) Parent entity contingencies The Company does not have any contingent assets or contingent liabilities at 30 June 2015 (2014: nil). (c) Parent entity capital commitments for acquisition of property, plant and equipment The Company does not have any capital commitments at 30 June 2015 (2014: nil). (d) Parent entity guarantees in respect of debts of its subsidiaries The Company has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of a number of its subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in note 38.

40. Events subsequent to reporting date On 1 July 2015 the Group acquired Torque Data, a data analytics company for a consideration of $4.8 million including cash and convertible notes. The accounting for the business combination is incomplete at this time. Based on a provisional assessment of the fair value of the assets and liabilities of the acquiree, the acquisition date fair values of the assets and liabilities are not material to the Group.

F-77 122 VIRGIN AUSTRALIA GROUP Directors’ declaration

(1) In the opinion of the directors of Virgin Australia Holdings Limited (the Company): (a) the consolidated financial statements and notes that are set out on pages 47 to 122 and the Remuneration report in section 5 in the Directors’ Report, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2015 and of its performance for the financial year ended on that date; (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (2) There are reasonable grounds to believe that the Company and the group entities identified in note 33 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities pursuant to ASIC Class Order 98/1418. (3) The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2015. (4) The directors draw attention to note 2 to the financial statements, which includes a statement of compliance with International Financial Reporting Standards.

Signed in accordance with a resolution of the directors:

Elizabeth Bryan John Borghetti Director Director Dated at Sydney, 22 September 2015

F-78 ANNUAL FINANCIAL REPORT 2015 123 Independent auditor’s report to the members of Virgin Australia Holdings Limited Report on the financial report We have audited the accompanying financial report of Virgin Australia Holdings Limited (the company), which comprises the consolidated statement of financial position as at 30 June 2015, and consolidated statement of profit or loss, consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 40 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In note 2, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view 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 the directors, as well as evaluating the overall presentation of the financial report. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2015 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2.

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG Liability limited by a scheme approved International”), a Swiss entity. under Professional Standards Legislation. F-79 124 VIRGIN AUSTRALIA GROUP Independent auditor’s report to the members of Virgin Australia Holdings Limited (continued) Report on the remuneration report We have audited the Remuneration report included in pages 26 to 43 of the Directors’ Report for the year ended 30 June 2015. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion In our opinion, the remuneration report of Virgin Australia Holdings Limited for the year ended 30 June 2015, complies with Section 300A of the Corporations Act 2001.

KPMG

A W Young Partner Sydney, 22 September 2015

F-80 ANNUAL FINANCIAL REPORT 2015 125 Consolidated statement of profit or loss For the year ended 30 June 2014

Restated(1) 2014 2013 Note $m $m Revenue and income Revenue 9 4,286.8 3,9 87.8 Other income 16.4 16.8 Net foreign exchange gains 3.4 15.7 4,306.6 4,020.3 Operating expenditure Aircraft operating lease expenses (274.2) (246.3) Airport charges, navigation and station operations (792.3) (710.0) Contract and other maintenance expenses (189.0) (189.9) Commissions and other marketing and reservations expenses (330.6) (256.5) Fuel and oil (1,208.7) (1,125.9) Labour and staff related expenses (1,041.4) (976.1) Impairment losses 19, 22(b) (56.9) – Other expenses from ordinary activities (433.6) (391.7) Depreciation and amortisation (267.8) (272.1) Ineffective cash flow hedges and non-designated derivatives (losses)/gains (41.1) 49.1 Net operating expenses (4,635.6) (4,119.4) Share of net (losses)/profits of equity accounted investees 20 (48.7) 0.1 Loss before related income tax benefit and net finance costs (377.7) (99.0) Finance income 13.3 20.0 Finance costs 10 (119.7) (70.7) Net finance costs (106.4) (50.7) Loss before income tax benefit (484.1) (149.7) Income tax benefit 11 128.5 51.6 Net loss attributable to the owners of Virgin Australia Holdings Limited (355.6) (98.1)

Earnings per share for loss attributable to the ordinary equity holders of the Company: Cents Cents Basic earnings per share 12 (11.4) (4.1) Diluted earnings per share 12 (11.4) (4.1)

(1) Refer to note 3(b). The above consolidated statement of profit or loss is to be read in conjunction with the accompanying notes to the consolidated financial statements.

44 Virgin Australia F-81 Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2014

Restated(1) 2014 2013 $m $m Loss for the year (355.6) (98.1) Other comprehensive income Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations (0.1) (34.7) Effective portion of changes in fair value of cash flow hedges (37.3) 89.3 Net change in fair value of cash flow hedges transferred to profit or loss (38.0) 18.7 Income tax (expense)/benefit on other comprehensive income 22.6 (32.4) Other comprehensive (loss)/income for the year, net of income tax (52.8) 40.9 Total comprehensive loss for the year attributable to owners of Virgin Australia Holdings Limited (408.4) (57.2)

(1) Refer to notes 3(b) and 7(c). The above consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes to the consolidated financial statements.

F-82 annual financial report 2014 45 Consolidated statement of financial position As at 30 June 2014

Restated(1) Restated(1) 2014 2013 1 July 2012 Note $m $m $m Current assets Cash and cash equivalents 13 783.8 580.5 802.6 Trade and other receivables 14 302.9 257.4 202.8 Inventories 15 36.1 29.8 14.9 Derivative financial instruments 16 17.3 96.8 0.6 Other financial assets 17 29.0 12.7 28.3 Other current assets 18 4.7 3.0 2.6 Current tax assets – 1.5 0.4 Assets classified as held for sale 19 61.1 – – Total current assets 1,234.9 981.7 1,052.2 Non-current assets Trade and other receivables 14 23.6 1.8 8.0 Derivative financial instruments 16 2.0 16.8 0.1 Other financial assets 17 171.4 136.3 110.5 Investments accounted for using the equity method 20 5.2 7.8 7.7 Deferred tax assets 21 146.9 – – Property, plant and equipment 22 2,702.4 3,065.4 2,811.3 Intangible assets 23 362.3 318.6 101.0 Other non-current assets 18 30.6 18.7 18.8 Total non-current assets 3,444.4 3,565.4 3,0 57.4 Total assets 4,679.3 4,547.1 4,109.6 Current liabilities Trade and other payables 24 620.3 580.4 505.5 Interest-bearing liabilities 25 360.2 373.5 254.0 Derivative financial instruments 16 11.7 – 36.1 Provisions 26 120.4 123.3 109.1 Unearned revenue 27 807.7 736.1 691.9 Other current liabilities 28 0.3 1.1 – Total current liabilities 1,920.6 1,814.4 1,596.6 Non-current liabilities Trade and other payables 24 7.4 6.6 2.8 Interest-bearing liabilities 25 1,590.5 1,516.4 1,420.1 Derivative financial instruments 16 3.7 9.3 16.4 Provisions 26 102.5 85.2 50.2 Other non-current liabilities 28 6.5 6.9 – Deferred tax liabilities 29 – 7.0 26.6 Total non-current liabilities 1,710.6 1,631.4 1,516.1 Total liabilities 3,631.2 3,445.8 3,112.7 Net assets 1,048.1 1,101.3 996.9 Equity Share capital 30 1,147.3 794.7 633.3 Reserves 44.3 94.5 53.4 Retained (losses)/profits (143.5) 212.1 310.2 Total equity 1,048.1 1,101.3 996.9

(1) Refer to notes 3(b) and 7(c). The above consolidated statement of financial position is to be read in conjunction with the accompanying notes to the consolidated financial statements.

46 Virgin Australia F-83 Consolidated statement of changes in equity For the year ended 30 June 2014

Attributable to owners of the Company Foreign Share- currency based Retained Share translation Hedging payments (losses)/ Total capital reserve reserve reserve profits equity Note $m $m $m $m $m $m Balance at 1 July 2013 (restated)(1) 794.7 36.7 40.9 16.9 212.1 1,101.3 Total comprehensive income for the year Loss for the year – – – – (355.6) (355.6) Other comprehensive (loss)/income(2) Foreign currency translation differences – (0.1) – – – (0.1) Effective portion of changes in fair value of cash flow hedges – – (26.1) – – (26.1) Net change in fair value of cash flow hedges transferred to profit or loss – – (26.6) – – (26.6) Total other comprehensive (loss)/ income – (0.1) (52.7) – – (52.8) Total comprehensive (loss)/income for the year – (0.1) (52.7) – (355.6) (408.4) Transactions with owners, recorded directly in equity(2) Issue of ordinary shares for cash 30 349.7 – – – – 349.7 Issue of ordinary shares related to business combinations 30 – – – – – – Share-based payment transactions 2.9 – – 2.6 – 5.5 Total transactions with owners 352.6 – – 2.6 – 355.2 Balance at 30 June 2014 1,147.3 36.6 (11.8) 19.5 (143.5) 1,048.1

(1) Refer to notes 3(b) and 7(c). (2) Amounts recognised are disclosed net of income tax (where applicable). The above consolidated statement of changes in equity is to be read in conjunction with the accompanying notes to the consolidated financial statements.

F-84 annual financial report 2014 47 Consolidated statement of changes in equity (continued) For the year ended 30 June 2014

Attributable to owners of the Company Foreign Share- currency based Retained Share translation Hedging payments (losses)/ Total capital reserve reserve reserve profits equity Note $m $m $m $m $m $m Balance at 1 July 2012 633.3 71.4 (34.7) 16.7 243.0 929.7 Impact of change in accounting policy(1) – – – – 67.2 67.2 Restated balance at 1 July 2012 633.3 71.4 (34.7) 16.7 310.2 996.9 Total comprehensive income for the year Loss for the year – – – – (98.1) (98.1) Other comprehensive (loss)/income (restated)(1)(2) Foreign currency translation differences (restated) – (34.7) – – – (34.7) Effective portion of changes in fair value of cash flow hedges – – 62.5 – – 62.5 Net change in fair value of cash flow hedges transferred to profit or loss – – 13.1 – – 13.1 Total other comprehensive (loss)/ income (restated)(1) – (34.7) 75.6 – – 40.9 Total comprehensive (loss)/income for the year (restated)(1) – (34.7) 75.6 – (98.1) (57.2) Transactions with owners, recorded directly in equity(2) Issue of ordinary shares for cash 30 110.7 – – – – 110.7 Issue of ordinary shares related to business combinations 30 48.5 – – – – 48.5 Share-based payment transactions 2.2 – – 0.2 – 2.4 Total transactions with owners 161.4 – – 0.2 – 161.6 Balance at 30 June 2013 (restated)(1) 794.7 36.7 40.9 16.9 212.1 1,101.3

48 Virgin Australia F-85 Consolidated statement of cash flows For the year ended 30 June 2014

Restated(1) 2014 2013 Note $m $m Cash flows from operating activities Cash receipts from customers 4,781.7 4,347.8 Cash paid to suppliers and employees (4,615.6) (4,100.9) Cash generated from operating activities 166.1 246.9 Cash paid for business and capital restructure costs (108.6) (81.5) Finance costs paid (76.7) (63.8) Finance income received 11.5 21.7 Net cash (used in)/from operating activities 38 (7.7) 123.3 Cash flows from investing activities Acquisition of property, plant and equipment (360.2) (439.2) Proceeds on disposal of property, plant and equipment 376.8 56.8 Acquisition of subsidiary, net of cash acquired 7(e) – (42.2) Acquisition of intangible assets (72.4) (128.0) Acquisition of interest in joint venture 8 (35.0) – Advances of loans to joint venture 41(b) (83.4) – Repayments of loans to joint venture 41(b) 35.1 – Payments for other deposits (55.2) (58.9) Proceeds from other deposits 19.6 52.4 Dividends received – 0.4 Net cash used in investing activities (174.7) (558.7) Cash flows from financing activities Proceeds from borrowings 1,041.4 354.9 Repayment of borrowings (975.8) (267.9) Payments of transaction costs related to borrowings (28.3) (10.0) Net proceeds from share issue 30 348.5 110.7 Proceeds from loans from associate 25(c) 1.8 8.7 Repayments of loans from associate 25(c) (7.3) – Net cash from financing activities 380.3 196.4 Net increase/(decrease) in cash and cash equivalents 197.9 (239.0) Cash and cash equivalents at 1 July 580.5 802.6 Effect of exchange rate fluctuations on cash held 5.4 16.9 Cash and cash equivalents at 30 June 13 783.8 580.5

(1) Refer to note 3(b). The above consolidated statement of cash flows is to be read in conjunction with the accompanying notes to the consolidated financial statements.

F-86 annual financial report 2014 49 Notes to the consolidated financial statements For the year ended 30 June 2014

1. Reporting entity Virgin Australia Holdings Limited (VAH) (the Company) is a company domiciled in Australia. The address of the Company’s registered office and principal place of business is 56 Edmondstone Road, Bowen Hills, Queensland. The consolidated financial statements of the Company as at and for the year ended 30 June 2014 comprise the Company and its subsidiaries (together referred to as the Group, and individually as Group entities), and the Group’s interests in associates and joint ventures. The Group is a for-profit entity and is primarily involved in the airline industry, both domestic and international.

2. Basis of preparation (a) Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). The consolidated financial statements were approved by the Board of Directors (Board) on 29 September 2014. (b) Basis of measurement The consolidated financial statements have been prepared on the basis of historical costs, except where assets and liabilities are stated at fair value in accordance with relevant accounting policies. The Group’s current liabilities exceed its current assets for the year ended 30 June 2014 by $685.7 million (2013: $832.7 million) including a current liability for unearned revenue of $807.7 million (2013: $736.1 million). The consolidated financial statements have been prepared on a going concern basis, which contemplates the return to profitable trading and retention of a strong cash position. A net improvement of $147.0 million in net current liabilities was achieved in the year ended 30 June 2014, mainly due to an increase in cash and cash equivalents primarily due to debt and equity funding raised during the year. The Group has a cash and cash equivalents balance at 30 June 2014 of $783.8 million (2013: $580.5 million) and has an unrestricted cash balance at 30 June 2014 of $541.0 million (2013: $326.5 million). (c) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency and the functional currency of the majority of the Group entities. The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with the Class Order, amounts in the consolidated financial statements have been rounded off to the nearest one hundred thousand dollars, unless otherwise stated. (d) Use of estimates and judgements The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is disclosed in note 4. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The significant changes in estimates recognised in the year ended 30 June 2014 and the comparative year ended 30 June 2013 are detailed in note 5. (e) Comparatives Where applicable, various comparative balances have been reclassified to align with current period presentation. These amendments have no material impact on the consolidated financial statements.

50 Virgin Australia F-87 3. Significant accounting policies The accounting policies set out below have been consistently applied to all the periods presented in these consolidated financial statements with the exception of those changes noted in notes 3(a) and 3(b) and have been applied consistently by Group entities. (a) New accounting policies (i) Assets classified as held for sale The Group classifies assets as held for sale if it is highly probable that their carrying amounts will be recovered principally through a sale rather than through continuing use. Such assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale and subsequent gains and losses on re-measurement are recognised in profit and loss. Assets are not depreciated or amortised once classified as held for sale. Assets classified as held for sale are presented separately as current items in the consolidated statement of financial position. (b) Change in accounting policy (i) Repairs and maintenance – operating leased aircraft The Group has re-assessed its accounting for major maintenance of operating leased engines, airframes, landing gear and auxiliary power units, including the end of lease obligations to return the aircraft in the condition specified by the lessor. The Group previously recognised provisions for the estimated future costs of major maintenance, calculated by reference to the estimated rectification cost. Provisions were also made for end of lease obligations to return the aircraft in the condition specified by the lessor. Provisions were recognised net of reserve payments made to the lessor which were available to be drawn down. The costs of major maintenance were recognised against the provision when incurred. Following the assessment of the current policy against those applied by industry participants in conjunction with the Board announcement in November 2013 of its intention to work with major airline shareholders for future Board representation with appropriate protocols, the Group elected to change the method of accounting for major maintenance of leased aircraft parts and end of lease obligations on 30 June 2014. Under the new policy, where the Group is obligated under its operating leases to pay an amount upon return of the aircraft based on either use or condition, a provision is recognised at inception of the lease for the present value of the expected payment, with a corresponding asset, reflecting the maintenance components within the lease payments. The asset is then amortised on a straight line basis over the life of the lease. The provision is accreted to the expected payment at the end of the lease with interest expense recognised in profit and loss. The cost of major cyclical maintenance and modifications incurred subsequently are capitalised as a leasehold improvement and depreciated over the shorter of the remaining lease term period or the time to the next major maintenance event. Where leasehold improvements are made to aircraft at inception of the lease, restoration provisions are also recognised at inception. Maintenance reserve payments made to the lessor are recognised in the consolidated statement of financial position as an other financial asset where recoverable. Unrecoverable reserve payments are treated as a component of lease expense and recognised over the term of the lease. The Group believes the change in accounting policy provides more relevant and reliable information, better reflects the present obligations arising under the lease agreements and achieves closer alignment with the policies adopted by industry participants. The change in accounting policy has been applied retrospectively and the comparative amounts disclosed for the 2013 financial year have been restated where appropriate. The tables below summarise the adjustments made to reflect the implementation of the change in accounting policy:

Impact of the Impact of the Impact of the change in change in change in Balances at accounting Balances at accounting accounting 1 July 2012, policy for the Restated 30 June 2013, policy for the policy for the Restated as previously year ended balances at as previously year ended year ended balances at Consolidated statement reported 30 June 2012 1 July 2012 reported 30 June 2012 30 June 2013 30 June 2013 of financial position $m $m $m $m $m $m $m Other financial assets (current) 8.1 20.2 28.3 3.4 20.2 (10.9) 12.7 Other financial assets (non-current) 47.7 62.8 110.5 42.6 62.8 30.9 136.3 Deferred tax assets 10.9 (10.9) – 32.6 (10.9) (21.7) – Property, plant and equipment 2,769.0 42.3 2,811.3 3,005.2 42.3 (13.0) 3,034.5 Provisions (current) (104.1) (5.0) (109.1) (102.0) (5.0) (10.4) (117.4) Provisions (non-current) (25.9) (24.3) (50.2) (53.6) (24.3) 3.4 (74.5) Deferred tax liabilities (8.7) (17.9) (26.6) – (17.9) 21.7 3.8 Retained (losses)/profits (243.0) (67.2) (310.2) (144.9) (67.2) – (212.1)

F-88 annual financial report 2014 51 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

3. Significant accounting policies (continued) (b) Change in accounting policy (continued) (i) Repairs and maintenance – operating leased aircraft (continued)

30 June 30 June 2014 2013 Consolidated statement of profit or loss and other comprehensive income $m $m Decrease in contract and other maintenance expenses (39.9) (32.3) Increase in depreciation and amortisation 12.5 27.1 Increase in finance costs 5.4 5.2 Decrease/(increase) in income tax benefit 6.6 – Increase/(decrease) in net loss for the year attributable to the owners of Virgin Australia Holdings Limited (15.4) – Increase/(decrease) in total comprehensive loss for the year attributable to owners of Virgin Australia (15.4) – Holdings Limited

The change in accounting policy had no impact on the earnings per share for loss attributable to ordinary equity holders of the Company previously reported as 4.1 cents for the year ended 30 June 2013.

Impact of the change in Balances at accounting 30 June 2013, policy for the Restated as previously year ended balances at reported 30 June 2013 30 June 2013 Consolidated statement of cash flows $m $m $m Net cash from operating activities 60.6 62.7 123.3 Net cash used in investing activities (496.0) (62.7) (558.7)

(c) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Controlled entities are consolidated from the date on which control commences and are de-consolidated from the date that control ceases. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (ii) Special purpose entities The Group has established special purpose entities (SPEs) for aircraft financing purposes. The Group does not have any direct or indirect shareholding in these SPEs. A SPE is consolidated if the Group concludes that it controls the SPE. (iii) Investments accounted for using the equity method The Group’s interests in equity-accounted investees comprise interests in associates and joint ventures. Associates are those entities in which the Group has significant influence but not control or joint control over the financial and operating policies, generally accompanying a shareholding of between 20% and 50% of the voting rights. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Investments in associates and joint ventures are accounted for in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates and joint ventures includes any notional goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ and joint ventures’ post-acquisition profits or losses is recognised in the consolidated statement of profit or loss and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates and joint ventures reduce the carrying amount of the investment recorded in the consolidated financial statements.

52 Virgin Australia F-89 3. Significant accounting policies (continued) (c) Basis of consolidation (continued) (iii) Investments accounted for using the equity method (continued) Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the associates and joint ventures and are eliminated against the carrying amount of the investment. Unrealised losses are also eliminated in the same way unless the transaction provides evidence of impairment. (iv) Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, being the date at which control is transferred to the Group. Refer note 3(c)(i) for the definition of control. The Group measures goodwill at the acquisition date as: • The fair value of the consideration transferred; plus • The amount recognised of any non-controlling interests in the acquiree; plus • If the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less • The net amount recognised (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. (d) Foreign currency (i) Transactions and balances Foreign currency transactions are translated to the functional currency of respective Group entities at the rates of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on qualifying cash flow hedges, which are recognised directly in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency gains and losses are reported on a net basis. (ii) Foreign operations The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities are translated at exchange rates at the reporting date; • Income and expenses are translated at average exchange rates (unless that is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • All resulting exchange differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recognised as equity in the foreign currency translation reserve. When a foreign operation is sold, liquidated, has share capital repaid or is abandoned partially or in full such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are also considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income and accumulated in the foreign currency translation reserve.

F-90 annual financial report 2014 53 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

3. Significant accounting policies (continued) (e) Revenue and other income Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised for the major business activities as follows: (i) Airline passenger revenue Airline passenger revenue comprises revenue from passenger ticket sales. Revenue is recognised in profit or loss when carriage is performed. Airline passenger revenue received in advance is carried forward in the consolidated statement of financial position as unearned revenue based on expected future carriage. In addition, the Group is a party to various alliance arrangements. Revenue under these arrangements is recognised in profit or loss when the Group performs the carriage or otherwise fulfils all relevant contractual commitments. (ii) Other revenue Other revenue comprises revenue earned from the provision of other airline related services (including charter revenue, freight revenue, on-board sales and other product revenue) and revenue from unutilised carriage. Other revenue is recognised in profit or loss at the time the service is provided or upon determination that carriage has not occurred. (iii) Loyalty program As described in note 3(u), the Group defers revenue relating to the issuance of points to members in the Velocity Frequent Flyer program. The receipt of cash from third parties above the fair value of the redemption is recognised immediately in profit or loss. For airline redemptions, revenue is recognised in profit or loss in accordance with the accounting policy for airline passenger revenue above. For non-airline redemptions relating to third parties, revenue is recognised in profit or loss as other revenue when points are redeemed. (iv) Credit vouchers Revenue from the redemption of credit vouchers is recognised in profit or loss as other revenue when carriage is complete, or when the credit voucher is no longer expected to be redeemed by the guest based on an analysis of historical non-redemption rates, or upon expiry. (v) Dividends Revenue from dividends and distributions from associates and joint ventures are recognised by the Group when they are declared by the associates and joint ventures. (f) Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets. (g) Net finance costs Net finance costs comprise interest paid or payable on borrowings calculated using the effective interest rate method, unwinding of the discount on provisions and receivables, interest receivable on funds invested and amortisation of borrowing costs. Finance income is recognised in profit or loss as it accrues, using the effective interest rate method. Finance costs are recognised in profit or loss as incurred on an effective interest rate method, except where interest costs relate to qualifying assets in which case they are capitalised to the cost of the assets. If borrowed specifically for the acquisition, construction or production of a qualifying asset, the amount of finance costs capitalised are those incurred in relation to that borrowing, net of any interest earned on those borrowings. Where funds are borrowed generally, finance costs are capitalised using a weighted average capitalisation rate and amortised over the terms of the agreement. (h) Income tax The income tax expense/benefit for the period comprises tax payable or receivable on the current period’s taxable income or loss based on the notional income tax rate for each jurisdiction, using tax rates enacted or substantively enacted at the reporting date, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements, and to unused tax losses.

54 Virgin Australia F-91 3. Significant accounting policies (continued) (h) Income tax (continued) Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted at the reporting date for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and temporary differences to measure the deferred tax asset or liability. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is not recognised for: • Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • Temporary differences relating to investments in subsidiaries and associates, and interests in joint arrangements, where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future; or • Taxable temporary differences arising on initial recognition of goodwill. Current and deferred tax balances attributable to amounts recognised directly in equity or other comprehensive income are also recognised directly in equity or other comprehensive income. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. (i) Tax consolidation legislation VAH and its wholly-owned Australian controlled entities are part of a tax consolidated group. The head entity, VAH, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. In addition to its own current and deferred tax amounts, VAH also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. (i) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the Australian Taxation Office (ATO) is included as a current asset or liability in the consolidated statement of financial position. Cash flows are included in the consolidated statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (j) Earnings per share Basic earnings per share (EPS) is calculated by dividing the net profit or loss attributable to the owners of the Company for the reporting period, after excluding any costs of servicing equity, by the weighted average number of ordinary shares of the Company, adjusted for any bonus elements in ordinary shares issued during the period. Diluted EPS adjusts the figures used in the determination of basic EPS to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

F-92 annual financial report 2014 55 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

3. Significant accounting policies (continued) (k) Financial instruments (i) Non-derivative financial assets The Group initially recognises loans and receivables and deposits on the date that they originate. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial assets: loans and receivables and cash and cash equivalents.

Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest rate method, less any impairment losses. Loans and receivables comprise trade and other receivables and deposits (included in other financial assets). Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (ii) Non-derivative financial liabilities The Group initially recognises debt securities issued on the date that they originate. All other financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial liabilities: loans, finance leases and trade and other payables. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest rate method. (iii) Share capital – ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are recognised as a deduction in equity, net of any tax effects. Transactions of the Group sponsored Key Employee Performance Plan Trust are treated as being executed directly by the Company (as the Trust acts as the Company’s agent). Accordingly, shares in the Company held by the Trust are recognised as treasury shares and deducted from equity. (iv) Derivative financial instruments, including hedge accounting The Group enters into derivative financial instruments to hedge its foreign currency, fuel price risk, interest rate risk exposures and specific asset purchases denomindated in foreign currencies. On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value of cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125%. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect profit or loss.

56 Virgin Australia F-93 3. Significant accounting policies (continued) (k) Financial instruments (continued) (iv) Derivative financial instruments, including hedge accounting (continued) Derivatives are recognised initially at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. Cash flow hedges Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in other comprehensive income to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, is expired or sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income and presented in the hedging reserve in equity remains there until the forecast transaction is recognised in profit or loss. When the hedged item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognised. In other cases, the amount recognised in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss. (v) Non-hedge accounted derivative financial instruments When a derivative financial instrument is not designated in a hedge relationship, all changes in fair value are recognised immediately in profit or loss. (vi) Embedded derivatives and options Changes in the fair value of separable embedded derivatives and options are recognised immediately in profit or loss. (l) Inventories Inventories are measured at the lower of cost and net realisable value. The costs of engineering consumables, and uniforms are assigned to the individual items of inventory on the basis of weighted average costs. Cost of catering inventory is determined using the first-in, first-out (FIFO) cost method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. (m) Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from other comprehensive income of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Ongoing repairs and maintenance are recognised in profit or loss. Items of property, plant and equipment are depreciated using the straight-line method over their estimated useful lives, taking into account estimated residual values. Major cyclical maintenance and modifications to operating leased aircraft capitalised are depreciated over the shorter of the time to the next maintenance event or remaining lease term period. Finance leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Depreciation methods, useful lives and residual values are reviewed at each reporting date. Assets are depreciated from the date they are installed and are ready for use, or in respect of internally constructed assets, from the time an asset is completed and held ready for use. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount exceeds its estimated recoverable amount.

F-94 annual financial report 2014 57 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

3. Significant accounting policies (continued) (m) Property, plant and equipment (continued) The depreciation and amortisation rates used for each class of asset for the current and comparative periods are as follows:

2014 2013 Buildings 2.5%–10% 2.5%–10% Aircraft and aeronautic related assets ––Modifications to leased aircraft 8%–16.7% 8%–16.7% ––Rotables and maintenance parts 3%–11.1% 3%–11.1% ––Airframe, engines and landing gear 5%–25% 5%–25% ––Major cyclical maintenance 10%–80% 10%–80% Plant and equipment ––Leasehold improvements 10%–75% 10%–75% ––Other 3%–20% 3%–20% Computer equipment 20%–33.3% 20%–33.3% Finance leased assets ––Buildings 2.9% 2.9% ––Aeronautic related assets 20%–25% 20%–25%

Gains/(losses) on disposal of an item of property, plant or equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within other expenses in profit or loss. (i) Repairs and maintenance – owned aircraft Routine maintenance costs, including minor airframe checks, are taken to profit or loss as incurred. The cost of major cyclical maintenance on owned aircraft is capitalised to the carrying value of the aircraft as incurred and amortised over the period to the next scheduled heavy maintenance. Any remaining carrying amount of the cost of the previous inspection is derecognised. (ii) Repairs and maintenance – operating leased aircraft Routine maintenance costs, including minor airframe checks, are taken to profit or loss as incurred. Where the Group is obligated under its operating leases to pay an amount upon return of the aircraft based on either use or condition, a provision is recognised at inception of the lease for the present value of the expected payment, with a corresponding asset, reflecting the maintenance components within the lease payments. The asset is then amortised on a straight line basis over the life of the lease. The provision is accreted to the expected payment at the end of the lease with interest expense recognised in profit and loss. The cost of major cyclical maintenance and modifications incurred subsequently are capitalised as a leasehold improvement and depreciated over the shorter of the remaining lease term period or the time to the next major maintenance event. Where leasehold improvements are made to aircraft at inception of the lease, restoration provisions are also recognised at inception. Maintenance reserve payments made to the lessor are recognised in the consolidated statement of financial position as an other financial asset where recoverable. Unrecoverable reserve payments are treated as a component of lease expense and recognised over the term of the lease. Refer to note 3(b) for the Group’s change in accounting policy for maintenance provisions. (iii) Leasehold improvements The cost of improvements to or on leasehold property is amortised over the shorter of the unexpired period of the lease or the estimated useful life of the improvement to the Group. Leasehold improvements on plant and equipment and leased aircraft held at the reporting date are being amortised over one to twelve years (2013: one to twelve years). (n) Intangible assets (i) Goodwill Goodwill on acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition, refer to note 3(c)(iv). Goodwill on acquisition of interests in associates and joint ventures is included in investments accounted for using the equity method. Goodwill acquired in business combinations is not amortised. Instead goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing, refer to note 3(p). Each of those CGUs represents the Group’s investment in each region of operation by each primary reporting segment. The two identified CGUs are Domestic and International.

58 Virgin Australia F-95 3. Significant accounting policies (continued) (n) Intangible assets (continued) (ii) Intangible assets with indefinite useful lives Brand names have an indefinite useful life. Indefinite life intangible assets are not amortised. Instead, they are tested for impairment annually or more frequently if events or changes in circumstance indicate that they might be impaired. Indefinite life intangibles are carried at cost less accumulated impairment losses. (iii) Other intangible assets Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of the intangible assets over their estimated useful lives. Amortisation methods, useful lives and residual values are reviewed at each annual reporting date. (iv) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. (v) Amortisation The amortisation rates used for each class of intangible asset for the current and comparative periods are as follows:

2014 2013 Software 8.3%–33.3% 12.5%–33.3% Patents and trademarks 33.3% 33.3% Customer contracts and relationships 10%–100% 10%–100%

The amortisation period remaining is 10.5 years for software, 3.0 years for customer contracts and 8.8 years for customer relationships. (o) Leases Leases under which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Other leases are classified as operating leases. (i) Finance leases – as lessee Finance leased assets are capitalised. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Capitalised leased assets are amortised over the term of the relevant lease, or where it is likely the Group will obtain ownership of the asset, the life of the asset. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (ii) Operating leases – as lessee Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. (iii) Operating leases – as lessor Lease income from operating leases is recognised in other revenue on a straight-line basis over the lease term, unless another systematic basis is considered more representative of the time pattern in which benefit is derived from the leased asset. (iv) Sale and leaseback transactions A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. If the sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount is deferred and amortised over the lease term. If a sale and leaseback transaction results in an operating lease, and the transaction is established at fair value, any profit or loss is recognised immediately. If the sale price is below fair value, any profit or loss is recognised immediately except that, if the loss is compensated for by future lease payments at below market price, it is deferred and amortised in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above the fair value, the excess over fair value is deferred and amortised over the period for which the asset is expected to be used. If the fair value at the time of a sale and leaseback transaction is less than the carrying amount, a loss equal to the amount of the difference between the carrying amount and the fair value is recognised immediately.

F-96 annual financial report 2014 59 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

3. Significant accounting policies (continued) (p) Impairment (i) Financial assets (including receivables) A financial asset not carried at fair value through profit or loss, including an interest in an equity-accounted investee, is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset. Individually significant financial assets are tested for impairment on an individual basis. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognised in profit or loss, and is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. (ii) Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. The recoverable amount of an asset or CGU is the greater of its value-in-use and its fair value less costs of disposal. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets, the CGU. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated have been aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to CGUs that are expected to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro-rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (q) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest rate method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance date. (r) Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within twelve months of the reporting date are measured at their nominal amounts in current other payables and provisions and represent the amounts expected to be paid when liabilities are settled. Liabilities for non-vesting sick leave are recognised when the leave is taken and measured at the rates paid or payable.

60 Virgin Australia F-97 3. Significant accounting policies (continued) (r) Employee benefits (continued) (ii) Long term employee benefits The provision for long term employee benefits, such as long service leave, represents the present value of the estimated future cash outflows to be made resulting from employees’ services provided to the reporting date. The provision is calculated using expected future increases in wage and salary rates including related on costs and expected settlement dates based on turnover history and is discounted using the rates attaching to state government bonds as appropriate at the reporting date which most closely match the terms of maturity of the related liabilities. (iii) Employee bonus plans A liability for employee benefits in the form of bonus plans is recognised in the provision for employee entitlements when there is no realistic alternative but to settle the liability and at least one of the following conditions is met: • There are formal terms in the plan for determining the amount of the benefit; • The amounts to be paid are determined before the time of completion of the annual consolidated financial statements; or • Past practice gives clear evidence of the amount of the obligation. Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. (iv) Superannuation plan The Group is required to make contributions to defined contribution employee superannuation plans. A defined contribution plan is a post- employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Such contributions are charged to profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available. (v) Share-based payments The Group operates a number of employee option plans and share plans. The fair value of options and performance rights granted are recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options and performance rights. The fair value at grant date is determined using a Black-Scholes, Binomial or Monte Carlo option pricing model depending on the terms and conditions of each option, that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair value of the performance rights at the grant date is independently determined using a discounted cash flow technique taking into account the share price at the grant date and dividends forgone over the vesting period of the performance rights. The fair value of the option granted excludes the impact of any service and non-market vesting conditions (for example, profitability and sales growth targets). Service and non-market vesting conditions are included in assumptions about the number of options and performance rights that are expected to become exercisable. At each reporting date, the entity revises its estimate of the number of options and performance rights that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimates, such that the amount ultimately recognised as an expense is based on the number of options and performance rights that meet the related service and non-market performance conditions at the vesting date. Upon exercise of options and performance rights, the balance of the share-based payments reserve relating to those options and performance rights is transferred to share capital. The market value of shares issued to employees for no cash consideration under the employee share scheme is recognised as an employee benefits expense with a corresponding increase in equity when the shares vest. When the Company grants options and performance rights over its shares to employees of subsidiaries, the fair value at grant date is recognised as an increase in the investments in subsidiaries, with a corresponding increase in equity over the vesting period of the grant. (vi) Termination benefits Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value.

F-98 annual financial report 2014 61 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

3. Significant accounting policies (continued) (s) Provisions A provision is recognised when there is a present legal, equitable or constructive obligation as a result of a past event, it is probable that a future sacrifice of economic benefits will be required to settle the obligation, the timing or amount of which is uncertain and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are determined by discounting expected future cash flows at a pre-tax rate that is specific to the liability. The unwinding of the discount is recognised as a finance cost. (i) Maintenance Refer note 3(m)(ii) for the accounting policy relating to provisions for repairs and maintenance – operating leased aircraft. (ii) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract in profit or loss. In the prior year, a provision for unfavourable contract terms was recognised on acquisition of Skywest Airlines Pte Ltd (formerly Skywest Airlines Ltd) (Skywest). This provision relates to aircraft operating lease agreements that are unfavourable relative to market terms. The provision is measured at the present value of the unfavourable aircraft rental expense attributable to these lease agreements. (t) Dividends Provision is made for the amount of any dividend declared, determined or publicly recommended by the directors on or before the end of the year but not distributed at balance date. (u) Loyalty program accounting The Group receives participation fee revenue from third parties for the rights to have Velocity reward points allocated to members of the Velocity Frequent Flyer program. Members of the Velocity Frequent Flyer program also accumulate points by travelling on qualifying Group airline services. The obligation to provide awards to members is accounted for by deferring a portion of the flight ticket sales revenue. The amount deferred is the fair value, which is the amount for which the points could be sold separately (taking into account non-performance risk) and includes an estimate of historical trends of breakage. (v) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. (w) Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. The fair value of cash and cash equivalents, trade and other receivables, other financial assets, trade and other payables and other financial liabilities approximate their carrying amounts largely due to the short term nature of these instruments.

62 Virgin Australia F-99 3. Significant accounting policies (continued) (w) Determination of fair values (continued) Fair values have been determined for measurement and/or disclosure purposes based on the following methods: (i) Derivatives The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques, such as estimated discounted cash flows. The fair value of forward exchange contracts and fuel contracts is determined using forward exchange market rates and fuel prices at the reporting date. The fair value of interest-rate swaps is calculated as the present value of the estimated future cash flows and credit adjustments. (ii) Non-derivative financial liabilities Non-derivative financial liabilities are measured at fair value, at initial recognition and for disclosure purposes, at each annual reporting date. The fair value of interest-bearing borrowings and loans, including leases, are determined by discounting the remaining contractual cash-flows at the relevant credit adjusted market interest rates at the reporting date. (iii) Share-based payment transactions Refer to note 3(r)(v) for discussion of fair value calculations of employee shares, share options and performance rights. (iv) Unearned revenue Refer to note 3(u) for discussion of fair value of Velocity Frequent Flyer program reward points, which are recorded in the statement of financial position as unearned revenue. (v) Property, plant and equipment The fair value of property, plant and equipment recognised as a result of a business combination is the estimated amount for which a property could be exchanged on the date of acquisition between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably. The fair value of items of plant and equipment, including aircraft and aeronautical related assets, is based on the market approach and cost approaches using quoted market prices for similar items when available and depreciated replacement cost when appropriate. The market approach reflects adjustments for differences in the timing, location, background and subject matter of the assets. Depreciated replacement cost reflects adjustments for physical deterioration in addition to functional and economic obsolescence. (vi) Intangible assets The fair value of brand names acquired in a business combination is calculated using the relief from royalty methodology. The fair value is calculated as the net present value of the prospective stream of hypothetical royalty income that would be generated over the expected useful life of the brand name if it was licensed to an independent third party owner. The fair value of customer contracts and customer relationships acquired in a business combination are determined using the excess earnings method. The intangible asset is valued after deducting a fair return on all other assets that contribute to generating the cash flows attributed to the intangible asset. (vii) Inventories The fair value of engineering consumables acquired in a business combination is determined using the current replacement cost method, with reference to consumables with equivalent functionality at current prices and costs. (viii) Provisions on acquisition The fair value of provisions acquired in a business combination is determined differently for each type of provision. The fair value of provisions for employee benefits has been determined in accordance with the accounting policy in note 3(r), while the provisions for aircraft maintenance have been determined in accordance with the accounting policy in note 3(m)(ii). The fair value of the provision for unfavourable aircraft lease terms was determined via the identification of the prospective unfavourable portion of the rental payments associated with the lease agreements, on an incremental cash flow basis. All provisions acquired in a business combination are adjusted for the effect of the time value of money by discounting expected future cash flows at a pre-tax rate that is specific to the liability.

F-100 annual financial report 2014 63 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

3. Significant accounting policies (continued) (x) Impact of new accounting standards and interpretations adopted from 1 July 2013 (i) Fair value measurement and presentation From 1 July 2013 the Group applied AASB 13 Fair Value Measurement (AASB 13). AASB 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other AASBs. It unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. It replaces and expands the disclosure requirements about fair value measurements in other AASBs, including AASB 7 Financial Instruments: Disclosures. In accordance with the transitional provisions of AASB 13, the Group has applied the new fair value measurement guidance prospectively. Notwithstanding the above, the change had no material impact on the measurement of the Group’s assets and liabilities. (ii) Employee benefits measurement and presentation From 1 July 2013, the Group applied amendments to AASB 119 Employee Benefits. The change in accounting policy impacts the Group’s measurement of annual leave provisions as a result of the amended definitions of short-term and other long-term employee benefits. The change had no material impacts for the Group. (iii) Consolidated financial statements AASB 10 Consolidated Financial Statements (AASB 10) supersedes AASB 127 Consolidated and Separate Financial Statements and Interpretation 112 Consolidation – Special Purpose Entities. It introduces a new single control model to assess whether to consolidate an investee. The Group has adopted the standard effective 1 July 2013 and has assessed that there are no material impacts for the Group. (iv) Joint arrangements AASB 11 Joint Arrangements (AASB 11) introduces a principles based approach to accounting for joint arrangements. If the parties have rights to and obligations for underlying assets and liabilities, the joint arrangement is considered a joint operation and the parties will account for their share of revenue, expenses, assets and liabilities. Otherwise the joint arrangement is considered a joint venture and the parties must use the equity method to account for their interest. The Group has adopted the standard effective 1 July 2013 and has assessed, other than the application of the standard on acquisition of Tiger Airways Australia Pty Limited (Tiger), refer note 8, there are no material impacts for the Group. (v) Disclosure of interests in other entities AASB 12 Disclosure of Interests in Other Entities sets out the required disclosures in annual financial statements for entities reporting under the two new standards AASB 10 and AASB 11. The Group has adopted the standard effective 1 July 2013. (vi) AASB 2013-3 Amendments to AASB 136 Recoverable Amount Disclosures for Non-Financial Assets AASB 2013-3 Amendments to AASB 136 Recoverable Amount Disclosures for Non-Financial Assets amends the disclosure requirements in AASB 136 Impairment of Assets. The effective date of this amendment is 1 January 2014. The Group has early adopted the new standard before its operative date, which means that it will be applied in the reporting period ended 30 June 2014. Early adoption of this amendment is allowed, provided that AASB 13 is also applied to the same period. As a result, there are additional disclosure requirements where an impairment is recognised, refer to note 22(b). (y) New accounting standards and interpretations not yet adopted The following standards, amendments to standards and interpretations have been identified as those which may impact the Group in the period of initial application, and have not been applied in preparing these consolidated financial statements: • AASB 9 (2013, 2010 and 2009) Financial Instruments introduces a new hedge accounting model to simplify hedge accounting requirements and more closely align hedge accounting with risk management activities. It aims to improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139Financial Instruments: Recognition and Measurement. It also includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially- reformed approach to hedge accounting. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The standard is not applicable until 1 January 2018 but is available for early adoption. The Group will apply AASB 9 from 1 July 2014. As a result of the early adoption of this accounting standard, the financial results going forward are expected to reflect reduced accounting ineffectiveness and deferral of time value of options until maturity for qualifying hedges.

64 Virgin Australia F-101 4. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below. (a) Impairment of assets The Group tests annually whether goodwill and intangible assets with indefinite useful lives have suffered any impairment and whether impairment of any non-current assets has occurred in accordance with the accounting policy stated in note 3(p). The recoverable amounts of CGUs have been determined based on value-in-use calculations. Refer to note 23(b) for details of these assumptions. Impairment of financial assets is assessed in accordance with the accounting policy stated in note 3(p)(i). (b) Maintenance provisions Refer to note 3(b)(i) for the basis for determining maintenance provisions relating to operating lease agreements. Assumptions for the provision for maintenance include expected use of the aircraft during the lease term, forecast maintenance obligation dates and forecast contractual maintenance rates. CPI was applied to certain current labour and market costs and the provisions are discounted as specified in note 3(s). The nominal discount rate applied was 9.0% (2013: 8.5%). (c) Financial instruments As detailed in note 3(k), the Group enters into financial arrangements to manage exposures to foreign currency, interest rate risk, fuel price risk and specific asset purchases denominated in foreign currencies. Financial instruments are recognised as financial assets and financial liabilities of the Group. The fair value of these financial assets and financial liabilities must be estimated for recognition and measurement disclosure purposes. These calculations require valuation techniques using various methods and assumptions, refer to note 3(w). For further details regarding financial instruments, refer to note 36. (d) Residual values and estimated useful lives Determining the depreciable amount of aircraft requires the use of assumptions regarding the residual value of the aircraft at the estimated time of disposal. Residual value is estimated based on market estimates of future aircraft values and current expectations of the aircraft operations. Assessments are made of the maintenance profile of owned aircraft and the timing of when specific maintenance events are considered likely to occur. This impacts the residual value assessment. As the market for aircraft is based on US dollars, residual value estimates are also affected by movements in the US dollar against the Australian dollar. (e) Deferred points revenue As described in note 3(u), the Group defers revenue relating to participation by members in the Velocity Frequent Flyer program. This revenue is deferred and recognised in profit or loss when reward points are redeemed. The amount of revenue deferred is calculated using assumptions regarding the fair value of reward points. The fair value of the reward points is reduced to reflect points that are expected to lapse under the rules of the Velocity Frequent Flyer program. Assumptions are based on historical trends experienced within the program. (f) Credit vouchers The key assumption in measuring the liability for credit vouchers is the expected redemption rate by guests. Expected redemption rates are reviewed at each reporting date. Any reassessment of the expected redemption rates in a particular period will affect the revenue recognised from expiry of credit vouchers. (g) Unearned passenger revenue The historical trends of passenger non-attendance rates is a key assumption in the measurement of unearned passenger revenue. Expected non-attendance rates are reviewed at each reporting date. Any reassessment of the expected rate of non-attendance in a particular period will affect the airline passenger revenue recognised. (h) Long service leave Management judgement is applied in determining the following key assumptions used in the calculation of the liability for long service leave at the reporting date: • Future increases in salaries and wages; • Future on-cost rates; • Experience of employee departures and period of service; and • Discount rates.

F-102 annual financial report 2014 65 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

4. Critical accounting estimates and judgements (continued) (i) Income tax In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. (j) Deferred tax assets Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax losses can be utilised. At 30 June 2014, the Group had approximately $1,322.0 million (2013: $860.0 million) of carry-forward tax losses that would be available to offset against future taxable profit. A deferred tax asset of $396.6 million (2013: $258.0 million) has been recognised in respect of these losses. It is expected that sufficient profits will be generated in the future to utilise these carried forward tax losses. Evidence supporting projections of future taxable income are in the form of detailed financial modelling based on Group operating initiatives, recent industry trends and long term industry analysis. This evidence is reviewed by senior management and the Board and if the evidence presented is not considered convincing, then the deferred tax assets associated with these tax losses are not recognised. (k) Share-based payments The assumptions and models used for estimating fair values of share-based payment transactions are disclosed in note 3(r)(v). In determining the fair values of the options and performance rights granted the impact of any service and non-market vesting conditions (for example, profitability and sales growth targets) are excluded. (l) Basis of control of Virgin Australia International Holdings Pty Ltd Refer to note 37, footnote 8. (m) Joint arrangements Refer to note 8 for basis of classification of the Group’s interest in Tiger as a joint venture. (n) Share of net losses of equity accounted investees In determining the Group’s share of the equity accounted investment in Tiger and Virgin Samoa Limited (Virgin Samoa), the Group has not recognised tax benefits relating to its share of net losses for the year ended 30 June 2014. In accordance with accounting standards, at each subsequent reporting period, the Group will consider the impact of any unrecognised previous deferred tax assets of Tiger and Virgin Samoa and will recognise such amounts to the extent that it becomes probable that future taxable profits will allow the deferred tax asset to be recovered.

5. Change in accounting estimates The significant changes in estimates recognised in the current and previous financial years are: (a) Estimation of unearned revenue redemption rates There is a continuous assessment of future obligations in relation to credit vouchers. As a consequence of reviewing historical issued and expired credit vouchers, there has been a reassessment of credit voucher redemption rates resulting in a decrease in revenue of $8.1 million (2013: increase of $8.0 million). The continuous assessment of unearned passenger revenue obligations and historical trends of non-attendance rates has resulted in an increase in revenue of $3.5 million (2013: $11.1 million). The annual review of the unused points liability in regards to the Velocity Frequent Flyer program was conducted during the year ended 30 June 2014, resulting in an increase in program revenue of $3.3 million (2013: $14.6 million).

66 Virgin Australia F-103 5. Change in accounting estimates (continued) (b) Estimated useful lives of assets During the current and prior year the Group undertook a review of the useful lives and residual values of certain assets. The depreciation and amortisation rates used for each class of property, plant and equipment and intangibles in the current and comparative years are as follows:

2014 2013 2012 Buildings 2.5%–10% 2.5%–10% 2.5%–10% Aircraft and aeronautic related assets ––Modifications to leased aircraft 8%–16.7% 8%–16.7% 20% ––Rotables and maintenance parts 3%–11.1% 3%–11.1% 3%–11.1% ––Airframe, engines and landing gear 5%–25% 5%–25% 5% – 25% ––Major cyclical maintenance 10%–80% 10%–80% 10%–80% Plant and equipment ––Leasehold improvements 10%–75% 10%–75% 8.33%–33.3% ––Other 3%–20% 3%–20% 3%–20% Computer equipment 20%–33.3% 20%–33.3% 20%–33.3% Finance leased asset ––Buildings 2.9% 2.9% – ––Aeronautic related assets 20%–25% 20%–25% – Software 8.3%–33.3% 12.5%–33.3% 10%–33.3% Patents and trademarks 33.3% 33.3% 33.3% Customer contracts and relationships 10%–100% 10%–100% –

During the current year the Group identified a change in the useful lives of certain software assets based on the intended use of these items. The net impact of these changes in useful lives of assets resulted in a $4.8 million decrease to amortisation expense for the year ended 30 June 2014. The impact of this change on future financial years, based on the current cost, is expected to be a decrease in amortisation expense of $4.8 million per annum, for each financial year until 12 January 2021, and an increase in amortisation expense thereafter, until the end of the useful life of the assets on 12 January 2025. During the 2013 financial year the Group identified a change in the useful lives of plant and equipment and leasehold improvements based on the intended use of these items. The net impact of these changes in useful lives of assets resulted in a $5.5 million decrease (2013: $7.2 million decrease) to depreciation expense for the year ended 30 June 2014. The impact for this change is expected to be a decrease in depreciation expense of $4.7 million and $4.1 million in the financial years ending 2015 and 2016 respectively.

6. Operating segments The following summary describes the operations in each of the Group’s reportable segments: • Domestic operations: operations using the fleet of Boeing B737 aircraft, Airbus A320 and A330 aircraft, ATR aircraft, Embraer E170 and E190 aircraft, and Fokker F50 and F100 aircraft. This comprises Australian domestic flying, including regional network operations. The Group’s Velocity Frequent Flyer program is also reported within domestic operations. • International operations: operations using a mix of Boeing B777 and B737 aircraft. This comprises Trans-Pacific, Middle East, Trans-Tasman, Pacific Island and South East Asia flying. Information regarding the results of each operating segment is detailed in the table which follows. Performance is measured based on EBIT (earnings before impairment losses, accelerated depreciation due to changes in useful life of assets; and net gain/(loss) on sale of assets, business and capital restructure costs, share of net (losses)/profits of equity accounted investees, net finance costs and income tax benefit) as included in the internal management reports that are reviewed by the chief operating decision maker. The 30 June 2013 comparative numbers have been restated to reflect the current definition of EBIT and the change in accounting policy, refer to note 3(b). In addition, segment EBIT disclosed in the 30 June 2013 consolidated financial statements excluded gains of $37.6 million relating to unrealised ineffectiveness on cash flow hedges and non-designated derivatives as these amounts were not specifically allocated to segments. These amounts have now been allocated to segment EBIT for the year ended 30 June 2014.

F-104 annual financial report 2014 67 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

6. Operating segments (continued) EBIT, as defined by the Group, is used to measure performance, as management believes such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within the airline industry. Inter-segment pricing is determined on an arm’s length basis or a cost plus margin basis, depending on the nature of the revenue or expense and the financial impact on the segment of recognising the revenue or expense. Domestic International Eliminations Consolidated 2014 $m $m $m $m Revenue and income External revenue and other income 3,156.8 1,149.8 – 4,306.6 Inter-segment revenue 43.1 – (43.1) – Segment revenue and income 3,199.9 1,149.8 (43.1) 4,306.6 Segment EBITDAR 303.4 91.1 – 394.5 Aircraft rentals (222.1) (31.4) – (253.5) Segment EBITDA 81.3 59.7 – 141.0 Depreciation and amortisation(1) (140.5) (126.5) – (267.0) Segment EBIT excluding time value movement and unrealised (59.2) (66.8) – (126.0) ineffectiveness Time value movement on cash flow hedges(2)(3) (13.8) (7.1) – (20.9) Unrealised ineffectiveness on cash flow hedges and non-designated derivatives(2) (13.9) (6.3) – (20.2) Segment EBIT (86.9) (80.2) – (167.1) Impairment losses (56.9) Accelerated depreciation due to changes in useful life of assets(1); (3.1) and net gain/(loss) on sale of assets Business and capital restructure costs (101.9) Share of net (losses)/profits of equity accounted investees: ––Tiger (46.1) ––Virgin Samoa (2.6) (377.7) Net finance costs: ––Net finance costs excluding capital restructure costs (85.7) ––Interest rate swap terminations associated with capital restructure (8.4) ––Accelerated amortisation resulting from capital restructure (12.3) Loss before related income tax benefit (484.1) Income tax benefit 128.5 Loss for the period (355.6)

(1) Accelerated depreciation due to the changes in useful lives of assets for the year ended 30 June 2014 was $0.8 million. The addition of accelerated depreciation and depreciation and amortisation above reconciles to total depreciation and amortisation expense included within operating expenditure as disclosed in the consolidated statement of profit or loss. (2) The addition of these two items reconcile to total ineffective cash flow hedges and non-designated derivatives (losses)/gains included within operating expenditure as disclosed in the consolidated statement of profit or loss. (3) Time value represents the risk premium payable on a purchased option over and above its current exercise value (intrinsic value) based on the probability it will increase in value before expiry.

68 Virgin Australia F-105 6. Operating segments (continued) Domestic International Eliminations Consolidated 2013 (Restated) $m $m $m $m Revenue and income External revenue and other income 2,899.2 1,121.1 – 4,020.3 Inter-segment revenue 52.4 – (52.4) – Segment revenue and income 2,951.6 1,121.1 (52.4) 4,020.3 Segment EBITDAR 311.9 133.9 – 445.8 Aircraft rentals (192.3) (30.8) – (223.1) Segment EBITDA 119.6 103.1 – 222.7 Depreciation and amortisation(1) (154.2) (111.6) – (265.8) Segment EBIT excluding time value movement and unrealised (34.6) (8.5) – (43.1) ineffectiveness Time value movement on cash flow hedges(2)(3) 7.0 4.5 – 11.5 Unrealised ineffectiveness on cash flow hedges and non-designated derivatives(2) 25.3 12.3 – 37.6 Segment EBIT (2.3) 8.3 – 6.0 Impairment losses – Accelerated depreciation due to change in useful life of assets(1); (8.3) and net gain/(loss) on sale of assets Business and capital restructure costs (96.8) Share of net (losses)/profits of equity accounted investees: ––Tiger – ––Virgin Samoa 0.1 (99.0) Net finance costs ––Net finance costs excluding capital restructure costs (50.7) ––Interest rate swap terminations associated with capital restructure – ––Accelerated amortisation resulting from capital restructure – Loss before related income tax benefit (149.7) Income tax benefit 51.6 Loss for the period (98.1)

(1) Accelerated depreciation due to the changes in useful lives of assets for the year ended 30 June 2013 was $6.3 million. The addition of accelerated depreciation and depreciation and amortisation above reconciles to total depreciation and amortisation expense included within operating expenditure as disclosed in the consolidated statement of profit or loss. (2) The addition of these two items reconcile to total ineffective cash flow hedges and non-designated derivatives (losses)/gains included within operating expenditure as disclosed in the consolidated statement of profit or loss. (3) Time value represents the risk premium payable on a purchased option over and above its current exercise value (intrinsic value) based on the probability it will increase in value before expiry.

F-106 annual financial report 2014 69 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

6. Operating segments (continued) (a) Geographical segments Ticket sales revenue from domestic services within Australia is attributed to the Australia geographic region. Guest and other services revenue from inbound and outbound services between Australia and overseas is allocated proportionately to the area in which point of sale occurs. Certain other revenue amounts are not allocated to a geographical region as it is impractical to do so. Australia New Zealand United States Europe(1) Other Unallocated Consolidated $m $m $m $m $m $m $m 2014 External revenue and income 3,468.5 196.2 166.4 144.2 82.7 248.6 4,306.6 2013 External revenue and income 3,313.8 135.3 136.4 – 77.8 357.0 4,020.3

(1) For the financial year ended 30 June 2014, the Group has disclosed ticket sales revenue generated from the European geographical segment. Following the Group’s transition to the SabreSonic booking and check-in system during the 2013 financial year the Group has benefited from enhanced data reporting capability on point of sale information. Comparative information has not been disclosed for the European geographical segment as it is impracticable to do so. For the financial year ended 30 June 2014 and 30 June 2013, the principal assets of the Group comprised the aircraft fleet. These assets are used flexibly across the Group’s worldwide route network. Accordingly, there is no suitable basis for allocating such assets and the related liabilities between geographic areas.

7. Acquisition of subsidiary During the year ended 30 June 2014 no new entities were acquired in business combinations. During the 2013 financial year, the Group acquired 100% of the shares and voting interests in Skywest Airlines Pte Ltd (formerly known as Skywest Airlines Ltd) (Skywest) and its subsidiaries (Skywest Group) on 19 April 2013. The primary operating entity of the Skywest Group was Skywest Airlines (Australia) Pty Limited (currently known as Virgin Australia Regional Airlines Pty Ltd), an airline operating out of Western Australia, Australia. The acquisition is expected to accelerate the Group’s growth in regional and Fly-In, Fly-Out markets, increasing competition in these segments. (a) Consideration transferred Under the terms of the agreement, Skywest shareholders were entitled to receive $0.225 in cash plus 0.53 VAH shares for each share in Skywest.

2013 Note $m Cash 50.2 Equity instruments issued (112.9 million ordinary shares) 30 48.5 Settlement of pre-existing relationships 15.3 114.0

(i) Equity instruments issued The fair value of the ordinary shares issued was based on the listed share price of the Company at 19 April 2013 of $0.43 per share. (ii) Settlement of pre-existing relationships Prior to the acquisition of Skywest, the Group was party to a number of pre-existing relationships with the Skywest Group. The arrangements include the Australian Regional Airline Network (ARAN) agreement, Velocity Frequent Flyer program and a convertible loan note. In line with the requirements of AASB 3 Business Combinations, the Group recognised the effective settlement, based on fair values, of these pre-existing arrangements on the acquisition of the Skywest Group resulting in an increase in purchase price of $15.3 million. These relationships now eliminate on consolidation and as such, are no longer disclosed in the consolidated financial statements of the Group. (iii) Acquisition related costs In the prior year the Group incurred acquisition related costs of $1.7 million related to external legal fees and due diligence costs. These costs were included in other expenses from ordinary activities in the Group’s consolidated statement of profit or loss for the financial year ended 30 June 2013.

70 Virgin Australia F-107 7. Acquisition of subsidiary (continued) (b) Provisional accounting Accounting for the acquisition of the Skywest Group was provisionally determined at 30 June 2013. At this date, the necessary market valuations and other calculations had not been finalised and were therefore only provisionally determined based on the directors’ best estimates. The Group has assessed new information obtained during the one year measurement period from the acquisition date about facts and circumstances relating to assets and liabilities that existed at the acquisition date and identified adjustments to the provisional accounting valuations. Revision to the acquisition accounting has been completed on this basis. Note 7(c) summarises the major classes of assets acquired and liabilities assumed at the acquisition date, and the subsequent revisions to purchase price accounting during the measurement period to 19 April 2014. The revisions to purchase price accounting include the change in repairs and maintenance accounting policy referred to in note 3(b). Note 7(d) outlines the change in goodwill as a result of these revisions. (c) Identifiable assets acquired and liabilities assumed

Restated 2013 Adjustment 2013 $m $m $m Current assets Cash and cash equivalents 8.0 – 8.0 Trade and other receivables(1) 20.0 – 20.0 Inventories 4.8 – 4.8 Other current assets 0.1 – 0.1 Current tax assets 2.1 1.5 3.6 Total current assets 35.0 1.5 36.5 Non-current assets Other financial assets 3.6 – 3.6 Deferred tax assets(2) 3.9 (4.8) (0.9) Property, plant and equipment(2) 33.7 30.9 64.6 Intangible assets 25.6 – 25.6 Total non-current assets 66.8 26.1 92.9 Total assets 101.8 27.6 129.4 Current liabilities Trade and other payables 43.0 – 43.0 Interest-bearing liabilities 4.2 – 4.2 Derivative financial instruments 0.1 – 0.1 Provisions 17.4 5.9 23.3 Unearned revenue 7.4 – 7.4 Total current liabilities 72.1 5.9 78.0 Non-current liabilities Interest-bearing liabilities 0.9 – 0.9 Provisions 16.5 10.7 27.2 Total non-current liabilities 17.4 10.7 28.1 Total liabilities 89.5 16.6 106.1 Net assets 12.3 11.0 23.3

(1) Included in trade and other receivables at 30 June 2013 are acquired trade receivables with a fair value of $14.4 million. These trade receivables were primarily supported by contracts with third party charter customers. The full amount of the contractual trade receivables has been collected post acquisition. (2) Included in the adjustment to property, plant and equipment and deferred tax assets are amounts relating to the change in repairs and maintenance accounting policy of $24.1 million and ($7.2) million respectively, refer to note 3(b).

F-108 annual financial report 2014 71 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

7. Acquisition of subsidiary (continued) (d) Goodwill Goodwill was recognised as a result of the acquisition as follows: Restated 2013 Adjustment 2013 Note $m $m $m Total consideration transferred 114.0 – 114.0 Fair value of identifiable net assets (12.3) (11.0) (23.3) 23 101.7 (11.0) 90.7

Goodwill arose on the acquisition of the Skywest Group as the cost of the combination included a control premium. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth and the assembled workforce of the Skywest Group. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. The goodwill arising on this acquisition is not expected to be deductible for tax purposes. (e) Net cash outflow on acquisition

2013 $m Consideration paid in cash 50.2 Less: cash and cash equivalent balances acquired (8.0) 42.2

(f) Impact on the financial results of the Group Included in the Group’s pre-tax loss for the prior financial year ended 30 June 2013 was $10.2 million attributable to losses generated by the Skywest Group. Revenue for the year ended 30 June 2013 included $54.8 million in respect of the Skywest Group. Had this business combination been effected at 1 July 2012, the revenue of the Group from continuing operations would have been $4,206.2 million, and the consolidated pre-tax loss for the year ended 30 June 2013 from continuing operations would have been $142.1 million. The directors of the Company consider these pro-forma numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. In determining the pro-forma revenue and loss of the Group had the Skywest Group been acquired at the beginning of the 2013 financial year, management assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 July 2012.

8. Acquisition of interest in joint venture On 8 July 2013, the Group acquired 60% of the shareholding in Tiger Airways Australia Pty Limited (Tiger), a subsidiary of Tiger Airways Holdings Limited (Tiger Holdings). Purchase consideration of $35.0 million was paid by the Group. After acquisition date, there is joint commitment by the Group and Tiger Holdings to invest up to $62.5 million (pro-rated based on ownership interest) into the Tiger operation plus a commitment for further funding should Tiger so require. At 30 June 2014 the Group had provided $25.0 million of funding to Tiger and $0.1 million of interest had accrued on this amount. The loan receivable, in substance, is deemed to form part of the Group’s net investment in Tiger at 30 June 2014. As a consequence, in recognising the Group’s share of Tiger losses from the acquisition date, the equity investment was reduced to nil and the loan receivable was reduced by $11.1 million. As at 30 June 2014, the Group has provided various joint and several guarantees for Tiger aircraft and banking facilities of up to $506.7 million. Refer to note 41(b)(iv). Tiger Holdings has assumed 40% of these obligations under the Deed of Undertaking and Indemnity with the Group. Although the Group has a 60% interest in Tiger, under a shareholders’ agreement between the Group and Tiger Holdings (holder of the remaining 40% interest), the nature of the relationship between the shareholders is one of joint control and is classified as a joint venture in accordance with AASB 11 Joint Arrangements. The agreement between the shareholders sets out a number of key matters for which unanimity is necessary. Both shareholders must agree upon matters such as, inter alia, changes in governance or corporate structure, approvals for debt and equity funding, dividend distribution, business plans and budgets, capital expenditure, major contracts and aircraft delivery schedules. As a consequence, the Group is not in a position to direct the relevant activities that significantly affect Tiger’s returns. Accordingly, the Group applies the equity method, as described in AASB 128 Investments in Associates and Joint Ventures, for its investment in Tiger. Refer to note 20(c) for further details relating to the Group’s interest in Tiger.

72 Virgin Australia F-109 9. Revenue

2014 2013 $m $m Airline passenger revenue 3,603.0 3,461.0 Other revenue 683.8 526.8 4,286.8 3,9 87.8

10. Expenses Loss before income tax benefit includes the following specific expenses: (a) Finance costs

Restated(1) 2014 2013 $m $m Interest and finance charges paid/payable 145.0 80.6 Less: capitalised finance charges (25.3) (9.9) Finance costs expensed 119.7 70.7

(1) Refer to note 3(b). Finance charges were capitalised at a weighted average rate of 2.80% (2013: 2.80%). (b) Operating lease rentals

Restated(1) 2014 2013 $m $m Aircraft operating lease rentals 274.2 246.3 Other operating lease rentals 71.3 55.2 Total operating lease rentals 345.5 301.5

(1) Refer to note 3(b). Owned aircraft no longer required for Virgin Australia services have been leased, and do not form part of the above disclosure - refer to note 34(b) for minimum lease payments receivable under this agreement. (c) Loss on disposal

2014 2013 $m $m Net loss on disposal of property, plant and equipment 2.3 2.0

F-110 annual financial report 2014 73 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

11. Income tax benefit (a) Income tax benefit

Restated(1) 2014 2013 Note $m $m Current tax – – Deferred tax (132.0) (58.3) Under provided in prior years 3.5 6.7 Income tax benefit attributable to continuing operations (128.5) (51.6) Deferred income tax (revenue)/expense included in income tax benefit comprises: (Increase)/decrease in deferred tax assets 21 (147.2) (121.6) Increase/(decrease) in deferred tax liabilities 29 15.2 63.3 (132.0) (58.3)

(1) Refer to notes 3(b) and 7(c). (b) Reconciliation of income tax benefit to pre-tax accounting loss

2014 2013 $m $m Loss from continuing operations before income tax benefit (484.1) (149.7) Tax at the Australian tax rate of 30% (2013: 30%) (145.2) (44.9) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: ––Non-deductible expenditure 21.7 2.7 ––Differences in overseas tax rates 0.2 0.4 ––Sundry items (6.3) (5.9) (129.6) (47.7) Under/(over) provision in prior years 1.1 (3.9) Income tax benefit (128.5) (51.6)

(c) Income tax recognised in other comprehensive income Restated(1) 2014 2013 Tax benefit/ Tax benefit/ Before tax (expense) Net of tax Before tax (expense) Net of tax $m $m $m $m $m $m Foreign currency translation differences for foreign (0.1) – (0.1) (34.7) – (34.7) operations Cash flow hedges (75.3) 22.6 (52.7) 108.0 (32.4) 75.6 (75.4) 22.6 (52.8) 73.3 (32.4) 40.9

(1) Refer to note 7(c).

74 Virgin Australia F-111 12. Earnings per share (a) Reconciliation of earnings used in calculating earnings per share

2014 2013 $m $m Loss attributable to ordinary shareholders (355.6) (98.1) Basic earnings (355.6) (98.1) Diluted earnings (355.6) (98.1)

(b) Reconciliation of weighted average number of shares

2014 2013 Number (m) Number (m) Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 3,107.1 2,373.2 Adjustments for calculation of diluted earnings per share: ––Effect of share options and performance rights on issue – – Weighted average number of ordinary shares and potential ordinary shares used as the denominator 3,107.1 2,373.2 in calculating diluted earnings per share

(c) Information concerning shares The average market value of the Company’s shares for the purposes of calculating the dilutive effect of share options and performance rights was based on quoted market prices for the period that the options and performance rights were outstanding. At 30 June 2014, 33.7 million options and performance rights (2013: 50.9 million) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.

13. Cash and cash equivalents

2014 2013 $m $m Cash at bank and in hand 194.4 107.9 Deposits 589.4 472.6 Cash and cash equivalents in the consolidated statement of cash flows 783.8 580.5

(a) Restricted cash The amount of restricted cash included in cash and cash equivalents but not available for use is:

Restricted cash 242.8 254.0

Certain merchant acquiring relationships require restricted cash to be held to cover total forward sales for some forms of payment. Cash is also required to secure standby letters of credit and bank guarantees. (b) Interest rate risk The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in note 36.

F-112 annual financial report 2014 75 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

14. Trade and other receivables

2014 2013 Note $m $m Current Trade receivables 158.9 151.4 Less: provision for doubtful receivables (0.7) (0.2) 158.2 151.2 Other receivables 53.2 35.8 Less: provision for doubtful receivables – (0.1) 53.2 35.7 Loans and receivables – related parties (unsecured) 41(b) 14.9 – Prepayments 76.6 70.5 302.9 257.4 Non-current Other receivables – 1.8 Loans and receivables – related parties (unsecured) 41(b) 23.6 – 23.6 1.8

The Group’s exposure to credit and currency risk and impairment losses related to trade and other receivables is disclosed in note 36. For terms and conditions relating to related party loans and receivables, refer to note 41(b)(iii).

15. Inventories

2014 2013 $m $m Engineering expendables – at cost 25.7 20.9 Consumables stores – at cost 9.8 8.4 Other – at cost 0.6 0.5 36.1 29.8

Inventories expensed during the 2014 financial year totalled $114.5 million (2013: $95.6 million).

76 Virgin Australia F-113 16. Derivative financial instruments

2014 2013 $m $m Current assets Forward foreign exchange contracts – cash flow hedges – 48.9 Fuel hedging contracts – cash flow hedges 17.3 47.9 17.3 96.8 Non-current assets Forward foreign exchange contracts – cash flow hedges – 9.8 Fuel hedging contracts – cash flow hedges 2.0 7.0 2.0 16.8 Current liabilities Forward foreign exchange contracts – cash flow hedges 7.6 – Fuel hedging contracts – cash flow hedges 4.1 – 11.7 – Non-current liabilities Forward foreign exchange contracts – cash flow hedges 3.7 – Interest rate swap contracts – cash flow hedges – 9.3 3.7 9.3

17. Other financial assets

Restated(1) 2014 2013 $m $m Current Deposits 22.1 12.7 Other 6.9 – 29.0 12.7 Non-current Deposits 152.8 136.3 Other 18.6 – 171.4 136.3

(1) Refer to note 3(b).

F-114 annual financial report 2014 77 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

18. Other assets

2014 2013 $m $m Current Future lease payments 4.4 3.0 Other 0.3 – 4.7 3.0 Non-current Future lease payments 27.8 18.7 Other 2.8 – 30.6 18.7

During the 2014 and 2013 financial years, a number of sale and leaseback transactions took place which resulted in losses on sale being deferred against future lease payments. Refer to note 3(o)(iv) which discusses the Group’s accounting policy on these transactions.

19. Assets classified as held for sale The Group has reclassified aircraft operated within the domestic segment, with a net book value of $66.8 million, from property, plant and equipment to assets classified as held for sale following the commitment of the Group, on 1 January 2014, to a plan to sell the aircraft. Efforts to sell the aircraft have commenced, and a sale is expected prior to 31 December 2014. An impairment loss of $5.7 million on the re-measurement of the aircraft to the lower of their carrying amounts and their fair values less costs to sell has been included in “impairment losses” in the consolidated statement of profit or loss. There is no cumulative income or expenses included in other comprehensive income relating to the planned disposal of the aircraft. The carrying value of assets classified as held for sale as at 30 June 2014 is $61.1 million (2013: n/a). In July 2013, the Group issued a letter of intent for the sale of the Group’s head office, an asset within the domestic segment. As a result, the Group reclassified buildings with a net book value of $63.1 million from property, plant and equipment to assets classified as held for sale. It was the Group’s intention to enter a leaseback arrangement immediately subsequent to the sale transaction. In May 2014, the Group’s head office was sold and an operating leaseback arrangement was entered into. A gain of $5.3 million recognised on the disposal has been recorded in “other expenses from ordinary activities” in the consolidated statement of profit or loss at 30 June 2014.

20. Investments accounted for using the equity method (a) Carrying amounts Information relating to associates and joint ventures is set out below: Ownership interest Carrying amount 2014 2013 2014 2013 Name of company % % $m $m Unlisted Virgin Samoa 49 49 5.2 7.8 Tiger(1) 60 – – –

(1) Acquired on 8 July 2013. Refer to note 8. (b) Investment in associate The principal activity of Virgin Samoa is the operation of airline activities between Samoa and Australia/New Zealand. Virgin Samoa is incorporated in Samoa. The Group’s interest in Virgin Samoa is accounted for using the equity method in the consolidated financial statements. The Group had no contingent liabilities or capital commitments relating to its interest in the associate as at 30 June 2014 (2013: nil). (i) Dividends No dividends were received in the current year from the Group’s investment in Virgin Samoa. During the 2013 financial year, the Group received a dividend of $0.4 million.

78 Virgin Australia F-115 20. Investments accounted for using the equity method (continued) (b) Investment in associate (continued) (ii) Summarised financial information of associate

2014 2013 100% $m $m Revenue and other income 41.1 40.8 (Loss)/profit from continuing operations (5.3) 0.2 Other comprehensive income – – Total comprehensive income (5.3) 0.2 Group’s share (49%) (2.6) 0.1

(c) Interest in joint venture The principal activity of Tiger is the operation of low cost airline activities in Australia. The arrangement has allowed the Group to have a share in the budget travel sector whilst maintaining its position in the corporate, regional and high-end leisure markets. The Group’s interest in Tiger is accounted for using the equity method in the consolidated annual financial statements. The joint venture cannot transfer funds to the Group in the form of cash dividends, or repay loans on advances made by the Group without shareholder approval under the Shareholders’ Agreement. (i) Summarised financial information of joint venture The summarised information below is based on Tiger’s financial information prepared in accordance with Australian Accounting Standards.

2014(1) 100% $m Revenue and other income 336.3 Loss from continuing operations(2) (77.4) Other comprehensive income 0.5 Total comprehensive loss (76.9) Current assets(3) 18.9 Non-current assets 66.8 Current liabilities(4) (147.2) Non-current liabilities(5) (74.5) Net assets (136.0) Group’s interest in net assets of joint venture at the beginning of the year – Acquisition of 60% share in net assets(6) 35.0 Share of total comprehensive loss(7) (35.0) Dividends received during the year – Carrying amount of interest in Tiger at the end of the year(7) –

(1) Acquired on 8 July 2013. Balances are presented as at 30 June 2014 and transactions are for the period from 8 July 2013 to 30 June 2014. (2) Includes: – finance income of $0.7 million (2013: n/a); – depreciation and amortisation of $1.2 million (2013: n/a); – finance costs of $0.7 million (2013: n/a); and – income tax expense of $nil (2013: n/a). (3) Includes cash and cash equivalents of $1.3 million (2013: n/a). (4) Includes current financial liabilities (excluding trade and other payables and provisions) of $43.8 million (2013: n/a). (5) Includes non-current financial liabilities (excluding trade and other payables and provisions) of $60.4 million (2013: n/a). (6) Refer to note 8. (7) Refer to note 20(c)(iii).

F-116 annual financial report 2014 79 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

20. Investments accounted for using the equity method (continued) (c) Interest in joint venture (continued) (ii) Guarantees for aircraft and banking facilities and future funding arrangements Refer to notes 8 and 41(b)(iv) for details of guarantees provided and future funding commitments relating to the Group’s interest in Tiger. (iii) Share of losses of joint venture Included in the Group’s pre-tax loss for the year ended 30 June 2014 is $46.1 million (2013: n/a) attributable to the Group’s share of losses generated by Tiger. In recognising the Group’s share of Tiger losses from the acquisition date, the equity investment was reduced to nil and the remaining $11.1 million loss recognised as a reduction in loans advanced to Tiger, refer to notes 8 and 41(b)(iii). The net amount advanced to Tiger as at 30 June 2014 is $38.5 million and is classified as loans and receivables, refer note 14.

21. Deferred tax assets

Restated(1) 2014 2013 Note $m $m The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Employee benefits 32.9 24.6 General accruals 48.2 49.9 Tax loss carried forward 396.6 258.0 Other 12.6 10.6 490.3 343.1 Amounts recognised directly in equity and other comprehensive income Equity raising costs 0.7 1.4 Cash flow hedges 5.1 (17.5) 496.1 327.0 Set-off of deferred tax liabilities pursuant to set-off provisions 29 (349.2) (327.0) Net deferred tax assets 146.9 – Movements Opening balance 327.0 236.9 Recognised in profit or loss 147.2 121.6 Recognised in equity and other comprehensive income 21.9 (37.8) Acquired through business combinations – 6.3 Closing balance 496.1 327.0

(1) Refer to notes 3(b) and 7(c). Refer note 3(h) for details of the Group’s accounting policy on the recognition of deferred tax assets on deductible temporary differences and income tax losses and note 4(j) outlining critical accounting estimates and judgements made.

80 Virgin Australia F-117 22. Property, plant and equipment

Aircraft and aeronautic related Plant and Computer Finance Work in Buildings assets equipment equipment leased assets progress Total 2014 $m $m $m $m $m $m $m At cost(1) 19.8 3,510.5 253.3 58.4 24.6 53.6 3,920.2 Accumulated depreciation (12.9) (1,018.6) (140.9) (44.6) (0.8) – (1,217.8) and impairment Carrying amount at the end 6.9 2,491.9 112.4 13.8 23.8 53.6 2,702.4 of the year

Aircraft and aeronautic related Plant and Computer Finance Work in Buildings assets equipment equipment leased assets progress Total 2013 (Restated)(2) $m $m $m $m $m $m $m At cost(1) 95.4 4,018.6 229.5 46.6 24.6 40.0 4,454.7 Accumulated depreciation (29.6) (1,198.4) (121.8) (39.4) (0.1) – (1,389.3) and impairment Carrying amount at the end 65.8 2,820.2 107.7 7.2 24.5 40.0 3,065.4 of the year

(1) As at 30 June 2014, included in aircraft and aeronautic related assets are deposits and other costs incurred in respect of aircraft which have not yet been delivered totalling $119.1 million (2013: $138.0 million). (2) Refer to notes 3(b) and 7(c). (a) Reconciliations Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:

Aircraft and aeronautic related Plant and Computer Finance Work in Buildings assets equipment equipment leased assets progress Total 2014 $m $m $m $m $m $m $m Carrying amount at the beginning 65.8 2,820.2 107.7 7.2 24.5 40.0 3,065.4 of the year Additions – 277.8 36.4 12.6 – 40.6 367.4 Disposals (57.9) (285.0) (16.3) (0.2) – (6.2) (365.6) Depreciation (1.0) (210.7) (19.7) (6.1) (0.7) – (238.2) Impairment loss – (51.2) – – – – (51.2) Transfers(1) – (50.7) 4.4 0.3 – (20.8) (66.8) Foreign exchange movements – (8.5) (0.1) – – – (8.6) Carrying amount at the end 6.9 2,491.9 112.4 13.8 23.8 53.6 2,702.4 of the year

F-118 annual financial report 2014 81 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

22. Property, plant and equipment (continued) (a) Reconciliations (continued) Aircraft and aeronautic related Plant and Computer Finance Work in Buildings assets equipment equipment leased assets progress Total 2013 (Restated) $m $m $m $m $m $m $m Carrying amount at the beginning 90.8 2,630.7 68.2 5.9 – 15.7 2,811.3 of the year(1) Acquisitions through business combinations(2) 0.2 56.3 5.0 0.2 1.6 1.3 64.6 Other additions(1) 0.1 340.3 30.4 4.6 23.0 38.0 436.4 Disposals(1) (18.7) (34.1) – – – (1.3) (54.1) Depreciation(1) (6.6) (226.7) (9.6) (3.5) (0.1) – (246.5) Impairment loss – – – – – – – Transfers(3) – – 13.7 – – (13.7) – Foreign exchange movements(1) – 53.7 – – – – 53.7 Carrying amount at the end 65.8 2,820.2 107.7 7.2 24.5 40.0 3,065.4 of the year

(1) Refer to note 3(b). (2) Refer to note 7(c). (3) Transfers relate to amounts which were disclosed within work in progress at 30 June 2012 which were capitalised during the 2013 financial year. (b) Decreases in value of property, plant and equipment Changes in the use of certain assets in the prior year resulted in asset devaluations and subsequent accelerated depreciation totalling $0.8 million for the 2014 financial year (2013: $1.0 million). This accelerated depreciation expense has been included in depreciation and amortisation expense in the consolidated statement of profit or loss. In addition, the Group recognised a net loss on disposal of property, plant and equipment of $2.3 million (2013: $2.0 million). This loss has been included in other expenses from ordinary activities in the consolidated statement of profit or loss. Impairment loss – International operations The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting period to determine whether there is any indication of impairment. As at 30 June 2014, the Group assessed that the carrying amount of the International CGU had exceeded its recoverable amount due to a deterioration of performance on its short haul international market segment, in particular on the Bali route, due to increased capacity and competition, refer to note 23(b). The recoverable amount of the International CGU was based on its value-in-use, determined by discounting the future cash flows to be generated from the continuing use of the CGU. The cash flow projection covers a five-year period and is based on financial budgets approved by senior management. Value-in-use in 2014 was determined in a similar manner as in 2013. The carrying amount of the CGU was determined to be higher than its recoverable amount of $528.3 million and an impairment loss of $51.2 million (2013: n/a) was recognised. The impairment loss was fully allocated to the carrying value of property, plant and equipment assets attributable to the International CGU. The estimate of value-in-use was determined using a post-tax discount rate of 10.13% (2013: 9.73%) (equivalent pre-tax rate of 9.84% (2013: 12.25%)). (c) Non-current assets pledged as security Refer to note 25(b) for information on non-current assets pledged as security by the Group.

82 Virgin Australia F-119 23. Intangible assets

Work in Customer progress Work in Patents and contracts and – contract progress – Goodwill Software trademarks Brand names relationships intangible other Total 2014 $m $m $m $m $m $m $m $m At cost 134.5 246.5 0.5 4.6 20.8 35.6 33.2 475.7 Accumulated – (108.7) (0.5) – (4.2) – – (113.4) amortisation and impairment Carrying amount 134.5 137.8 – 4.6 16.6 35.6 33.2 362.3 at the end of the year

Work in Customer progress Work in Patents and contracts and – contract progress – Goodwill Software trademarks Brand names relationships intangible other Total 2013 (Restated)(1) $m $m $m $m $m $m $m $m At cost 134.5 206.7 0.5 4.6 20.8 15.9 19.5 402.5 Accumulated – (82.6) (0.5) – (0.8) – – (83.9) amortisation and impairment Carrying amount 134.5 124.1 – 4.6 20.0 15.9 19.5 318.6 at the end of the year

(1) Refer to note 7(c),(d). (a) Reconciliations Reconciliations of the carrying amounts for each class of intangible asset are set out below:

Work in Customer progress Work in contracts and – contract progress – Goodwill Software Brand names relationships intangible other Total 2014 $m $m $m $m $m $m $m Carrying amount at the beginning 134.5 124.1 4.6 20.0 15.9 19.5 318.6 of the year Additions – 25.6 – – 19.7 28.4 73.7 Disposals – (0.4) – – – – (0.4) Amortisation – (26.2) – (3.4) – – (29.6) Transfers(1) – 14.7 – – – (14.7) – Carrying amount at the end 134.5 137.8 4.6 16.6 35.6 33.2 362.3 of the year

(1) Transfers relate to amounts which were disclosed within work in progress at 30 June 2013 which were capitalised during the 2014 financial year.

F-120 annual financial report 2014 83 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

23. Intangible assets (continued) (a) Reconciliations (continued)

Work in Customer progress Work in contracts and – contract progress – Goodwill Software Brand names relationships intangible other Total 2013 (Restated)(1) $m $m $m $m $m $m $m Carrying amount at the beginning 43.8 31.0 – – – 26.2 101.0 of the year Acquisitions through business combinations 90.7 0.2 4.6 20.8 – – 116.3 Other additions – 96.0 – – 15.9 15.2 127.1 Disposals – (0.2) – – – – (0.2) Amortisation – (24.8) – (0.8) – – (25.6) Transfers(2) – 21.9 – – – (21.9) – Carrying amount at the end 134.5 124.1 4.6 20.0 15.9 19.5 318.6 of the year

(1) Refer to note 7(c),(d). (2) Transfers relate to amounts which were disclosed within work in progress at 30 June 2012 which were capitalised during the 2013 financial year. (b) Impairment testing The Group’s CGUs are identified according to operating segments. The Group has goodwill with a carrying value of $134.5 million (2013: $134.5 million) as per note 23(a). The Group also has an indefinite life brand name with a carrying value of $4.6 million (2013: $4.6 million) as per note 23(a). Goodwill and brand names are allocated entirely to the Domestic CGU. The recoverable amount is determined based on value-in-use calculations. The following key assumptions were used in determining the value-in-use:

Growth rate(1) Discount rate(2) 2014 2013 2014 2013 CGU % % % % Domestic operations 3.50 3.50 9.53 8.96 International operations 3.50 3.50 10.13 9.73

(1) Weighted average growth rate used to extrapolate cash flows beyond the budget period. (2) Post-tax discount rate applied to the cash flow projections. The equivalent pre-tax rates for the financial year ended 30 June 2014 were: Domestic 11.20% (2013: 11.14%) and International 9.84% (2013: 12.25%). These calculations use cash flow projections based upon financial budgets covering a five year period and are based on financial budgets approved by senior management. Cash flows beyond the five year period are calculated using the estimated growth rates stated above. The cash flows are based on management’s expectations regarding the market, including guest numbers, revenue yield and associated operating costs. The weighted average growth rates used are consistent with industry forecasts. The discount rate applied reflects the weighted average cost of capital based on the risk-free rate for ten year Australian government bonds adjusted for a risk premium to reflect the risk of the specific CGU. Descriptions of other key assumptions underlying the cash flow projections include: • The fuel price has been set with regard to the Brent forward curve adjusted for refining margins and hedge positions; • The AUD/USD exchange rate is set with regard to the prevailing spot rate; and • Load factors and average net fares were set having regard to historical experience and market conditions, fleet plans and competitor behaviour.

84 Virgin Australia F-121 23. Intangible assets (continued) (b) Impairment testing (continued) As a result of the impairment testing performed at the CGU level, the Group assessed that the carrying amount of the International CGU had exceeded its recoverable amount of $528.3 million and an impairment loss of $51.2 million was recognised in the current financial year as disclosed in note 22(b). The impairment loss was fully allocated to the carrying value of property, plant and equipment assets attributable to the International CGU. Given the impairment loss recognised in the International CGU during the current financial year, any adverse change in a key assumption used in calculating the recoverable amount would result in additional impairment in the International CGU. The Group has considered all reasonable changes in key assumptions, including growth rate and discount rate, and through sensitivity analysis concluded that there is no impairment from these changes in assumptions used in the value-in-use calculations for the Domestic CGU. (c) Indefinite life intangible asset In the prior year the brand name acquired as part of the acquisition of Skywest was assigned an indefinite useful life. This assessment was made on the basis that the Group has the ability to maintain the brand and the legal right to use the brand to generate future cash inflows through licensing or sale agreements. (d) Decreases in value of intangible assets In the prior financial year changes in the Group’s use of certain assets resulted in asset devaluations and subsequent accelerated amortisation expense totalling $5.3 million. This expense was included in depreciation and amortisation expense in the consolidated statement of profit or loss. There was no accelerated amortisation for the 2014 financial year.

24. Trade and other payables

2014 2013 $m $m Current Trade payables and accruals 609.2 570.6 Other payables – related parties 11.1 9.8 620.3 580.4 Non-current Other payables 7.4 6.6

Trade and other payables are non interest-bearing. The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 36. The Company has entered into a Deed of Cross Guarantee (Deed) with certain subsidiaries as described in note 43. Under the terms of the Deed, the Company has guaranteed the repayment of all current and future creditors in the event any of the entities party to the Deed is wound up. Details of the consolidated statement of financial position of all parties to the Deed are set out in note 43.

F-122 annual financial report 2014 85 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

25. Interest-bearing liabilities

2014 2013 $m $m Current Loans (aeronautic finance facilities) – secured(1) 296.5 263.4 Loans (bank) – secured(1) 24.1 99.0 Loans (bank) – unsecured 33.9 – Loan from associate – unsecured 4.2 9.3 Finance lease liabilities 1.5 1.8 360.2 373.5 Non-current Loans (aeronautic finance facilities) – secured(1) 1,562.5 1,493.1 Finance lease liabilities 28.0 23.3 1,590.5 1,516.4

(1) These amounts are net of deferred borrowing costs, in line with the Group’s accounting policy. (a) Terms and debt repayment schedule Terms and conditions of outstanding loans were as follows:

Face value Carrying amount Nominal interest rate $m $m Year of Currency maturity(1) 2014 2013 2014 2013 2014 2013 Secured bank loans ––Aircraft AUD 2019-2020 3.21% 3.37%-6.32% 346.0 700.7 343.5 696.0 ––Aircraft USD 2014-2024 2.41%-8.50% 0.70%-6.18% 1,562.3 1,096.8 1,515.5 1,060.5 ––Other AUD 2015 4.49% 6.58%-6.60% 24.1 100.0 24.1 99.0 Unsecured bank loans ––Other AUD 2015 4.99% – 33.9 – 33.9 – Loan from associate NZD 2014 6.68% 6.03% 4.2 9.3 4.2 9.3 Finance leases AUD 2014-2047 8.51%-13.00% 5.00% - 8.51% 29.5 25.1 29.5 25.1 2,000.0 1,931.9 1,950.7 1,889.9

(1) Based on the calendar year. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, refer to note 36. There have been no breaches in the financial covenants of any interest-bearing loans and borrowings in the current year. (b) Assets pledged as security The aeronautic finance facility liabilities are secured over assets purchased and issued capital of the following Group subsidiaries: • 737 2012 No.1 Pty Ltd; • 737 2012 No.2 Pty Ltd; • Virgin Australia Airlines Pty Ltd; • VA Leaseco No.4 Pty Ltd; • VBNC9 Pty Ltd; • VB LH 2008 No.1 Pty Ltd; • VB LH 2008 No.2 Pty Ltd; • Virgin Australia Regional Airlines Pty Ltd; and • Virgin Australia 2013-1 Issuer Co Pty Ltd.

86 Virgin Australia F-123 25. Interest-bearing liabilities (continued) (b) Assets pledged as security (continued) The carrying amounts of assets pledged as security for current and non-current interest-bearing liabilities are:

2014 2013 Non-current $m $m Fixed charge Aircraft and aeronautic related assets 2,302.6 2,618.2 Buildings 6.4 60.6 Plant and equipment 16.5 – 2,325.5 2,678.8

(c) Financing arrangements Unrestricted access was available at reporting date to the following lines of credit: 2014 2013 $m $m Total facilities available at reporting date: Standby letters of credit and bank guarantees 98.9 84.3 Aeronautic finance facilities 1,917.8 1,812.0 Bank loans 82.8 100.0 Loan from associate 14.0 12.6 Finance lease liabilities 29.5 25.1 2,143.0 2,034.0 Facilities utilised at reporting date: Standby letters of credit and bank guarantees 85.0 61.0 Aeronautic finance facilities 1,908.3 1,797.5 Bank loans 58.0 100.0 Loan from associate 4.2 9.3 Finance lease liabilities 29.5 25.1 2,085.0 1,992.9 Facilities not utilised at reporting date: Standby letters of credit and bank guarantees 13.9 23.3 Aeronautic finance facilities 9.5 14.5 Bank loans 24.8 – Loan from associate 9.8 3.3 Finance lease liabilities – – 58.0 41.1

(i) Standby letters of credit and bank guarantees The standby letter of credit facility is a committed facility available to be drawn down over the next year (2013: over the next year). The amount of the standby letters of credit facilities can be increased by the provision of additional security. The standby letters of credit are secured over at-call deposits of an equivalent amount. The weighted average interest rate on the facility at 30 June 2014 is 0.65% (2013: 0.75%). The bank guarantees are secured over deposits of an equivalent amount. The amount of the bank guarantee facilities can be increased by the provision of additional security. The weighted average interest rate on the facility at 30 June 2014 is 0.93% (2013: 1.24%).

F-124 annual financial report 2014 87 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

25. Interest-bearing liabilities (continued) (c) Financing arrangements (continued) (ii) Aeronautic finance facilities The aeronautic finance facilities are available to assist the Group to finance purchases of aeronautic related assets. The facilities are secured over assets purchased and issued capital of the subsidiaries listed in note 25(b). The weighted average interest rate on these facilities at 30 June 2014 is 4.41% (2013: 3.20%). During the year, the Group refinanced a collateralised pool of aircraft within the Group’s existing fleet through the use of an Enhanced Equipment Notes (EEN) facility. The EEN were issued in four classes (Class A to D) through consolidated structured trusts, backed by an underlying collateral pool of Boeing B737 and B777 aircraft. Proceeds from the EEN issue were allocated to repay existing aeronautic financing facilities and for general financing purposes. The Group entered into a subordinated loan arrangement with a carrying amount of US$60.0 million, AU$63.8 million. The subordinated loan is secured on a subordinated basis by interests in 34 aircraft. The weighted average interest rate on this facility at 30 June 2014 is 6.23% (2013: n/a). (iii) Bank loans Secured During the current year the Group entered into a new bank loan facility with a carrying value of $24.1 million, secured over the Group’s simulators and simulator training facility. The interest rate on this facility at 30 June 2014 is 4.49% (30 June 2013: n/a). The secured bank loan of $99.0 million held during the prior year, secured over the Company’s registered office, was repaid during the 2014 financial year. The weighted average interest rate on this facility at 30 June 2013 was 6.59%. Unsecured During the current year the Group entered into two new unsecured bank loan facilities with a carrying value of $17.0 million each. The weighted average interest rate on these facilities at 30 June 2014 is 4.99% (30 June 2013: n/a). (iv) Loan from associate (Virgin Samoa) During the year ended 30 June 2014, the Group drew down additional funding on its revolving, unsecured loan facility with Virgin Samoa, an associate of the Group, totalling NZ$2.0 million, AU$1.8 million (2013: NZ$11.0 million, AU$8.7 million) and made repayments of NZ$8.5 million, AU$7.3 million (2013: nil). As at 30 June 2014 the loan balance repayable is NZ$4.5 million, AU$4.2 million (2013: NZ$11.0 million, AU$9.3 million). The interest rate on the facility at 30 June 2014 is 6.68% (2013: 6.03%). (v) Finance lease liabilities The Group leases buildings, telecommunications and aircraft and aeronautical related assets under finance leases. Finance lease liabilities are payable as follows:

Future minimum lease Present value of minimum payments Interest lease payments 2014 2013 2014 2013 2014 2013 $m $m $m $m $m $m Within one year 4.7 4.4 3.2 2.6 1.5 1.8 One year or later and no later than five years 16.4 10.5 10.7 9.7 5.7 0.8 Later than five years 69.6 72.1 47.3 49.6 22.3 22.5 90.7 87.0 61.2 61.9 29.5 25.1

During the year the Group entered into a finance lease for telecommunications infrastructure. The lease term is until 2018 with three additional one year options to extend the lease until 2021. This finance lease contains an option to purchase the assets at the end of the term of the lease. During the 2013 financial year the Group entered into a finance lease agreement for the sale and leaseback of the Brisbane Hangar. The lease term is until 2047 and there is an additional 15 year option to extend the lease until 2062. This finance lease does not contain an option to purchase the asset at the end of the term of the lease. In addition, upon the acquisition of the Skywest Group during the 2013 financial year, the Group acquired finance leases for aircraft and aeronautic related assets. The remaining finance lease as at 30 June 2014 does not have a purchase option or escalation clause and expires in the next year. It contains an extension option of a minimum of 36 months at a reduced rent; then for a further minimum term of six months.

88 Virgin Australia F-125 25. Interest-bearing liabilities (continued) (c) Financing arrangements (continued) (vi) Subordinated term loan facility During the year ended 30 June 2014, the Group established new subordinated term loan facilities with Air New Zealand Limited, Etihad Airways P.J.S.C. and Singapore Airlines Limited as part of a program to further supplement and diversify the Group’s funding sources. The facilities were for an amount of AU$90.0 million in total, with pro-rata contributions from each shareholder based on their economic interest at the end of August 2013. The facilities were for a term of one year and were based on arms-length commercial terms. On 14 November 2013 the facilities were terminated. No amounts were drawn under this facility during the year ended 30 June 2014.

26. Provisions

Restated(1) 2014 2013 Note $m $m Current Employee benefits 39 92.7 92.3 Maintenance 18.7 22.9 Unfavourable contract terms 5.6 2.2 Other 3.4 5.9 120.4 123.3 Non-current Employee benefits 39 19.3 11.9 Maintenance 68.9 69.4 Unfavourable contract terms 10.7 2.6 Other 3.6 1.3 102.5 85.2

(1) Refer to notes 3(b) and 7(c). (a) Movements in provisions Movements in each class of provision during the financial period, except for employee benefits, are set out below:

Unfavourable contract Maintenance terms Other Total 2014 $m $m $m $m Opening carrying value (restated)(1) 92.3 4.8 7.2 104.3 Provisions made 55.8 14.1 4.9 74.8 Provisions released (60.5) (2.6) (5.1) (68.2) Closing carrying value 87.6 16.3 7.0 110.9

(1) Refer to notes 3(b) and 7(c). (b) Provision for maintenance Refer to note 3(b)(i) for the basis for determining maintenance provisions relating to operating lease agreements. Assumptions for the provision for maintenance include expected use of the aircraft during the lease term, forecast maintenance obligation dates and forecast contractual maintenance rates. CPI was applied to certain current labour and market costs and the provisions are discounted as specified in note 3(s). The nominal discount rate applied was 9.0% (2013: 8.5%).

F-126 annual financial report 2014 89 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

26. Provisions (continued) (c) Provision for unfavourable contract terms As part of restructuring its aircraft fleet, the Group recognised a provision for unfavourable aircraft lease terms (onerous contracts). These lease agreements expire between March and April 2017. The prospective unfavourable portion of the rental payments associated with these lease agreements have been valued on an incremental cash flow basis. During the year ended 30 June 2013, as part of the acquisition of Skywest, the Group recognised a provision for unfavourable aircraft lease terms. These lease agreements were held with former related parties of Skywest Airlines Pte Ltd and are not considered to be at normal market terms. These lease agreements expire between August 2014 and March 2017 (2013: April 2014 and March 2017). The prospective unfavourable portion of the rental payments associated with these lease agreements have been valued on an incremental cash flow basis. (d) Other provisions Other provisions includes provisions for property make-good clauses contained in operating leases of premises. These provisions were recognised during the 2013 financial year as part of the acquisition of Skywest. These lease agreements expire between 2014 and 2022.

27. Unearned revenue 2014 2013 $m $m Current Unearned passenger revenue 552.3 509.1 Credit vouchers 12.6 14.1 Other unearned revenue 242.8 212.9 807.7 736.1

28. Other liabilities

2014 2013 $m $m Current Future lease payments 0.3 0.3 Other – 0.8 0.3 1.1 Non-current Future lease payments 6.5 6.9

During the 2014 and 2013 financial years, a number of sale and leaseback transactions took place which resulted in gains on sale being deferred against future lease payments. Refer to note 3(o)(iv) which discusses the Group’s accounting policy on these transactions.

90 Virgin Australia F-127 29. Deferred tax liabilities

Restated(1) 2014 2013 Note $m $m The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Depreciation 232.4 240.2 Other 116.8 93.8 349.2 334.0 Set-off of deferred tax liabilities pursuant to set-off provisions 21 (349.2) (327.0) Net deferred tax liabilities – 7.0 Movements Balance at the beginning of the year 334.0 263.5 Recognised in profit or loss 15.2 63.3 Acquired through business combinations – 7.2 Balance at the end of the year 349.2 334.0

(1) Refer to notes 3(b) and 7(c).

30. Share capital

2014 2013 $m $m Ordinary shares, fully paid 1,166.8 814.8 Treasury shares held by the KEPP Trust(1) (19.5) (20.1) 1,147.3 794.7

Number of Shares (m) Balance at 1 July 2012 2,190.0 Issue of shares by KEPP 6.5 Issue of shares for cash 258.1 Issue of shares in business combination 112.9 Balance at 30 June 2013 2,567.5 Balance at 1 July 2013 2,567.5 Issue of shares by KEPP 2.2 Issue of shares for cash 925.0 Issue of shares executive remuneration 8.6 Balance at 30 June 2014 3,503.3

F-128 annual financial report 2014 91 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

30. Share capital (continued) (b) Terms and conditions of ordinary shares With the exception of shares held in trust under the KEPP, holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation. At 30 June 2014, the trustee for the KEPP holds 11.5 million (2013: 13.7 million) shares. A participating employee is not entitled to any income or other rights (including voting rights) derived from any shares acquired by the trustee under KEPP unless and until the shares are transferred to the employee for nil consideration, following satisfaction of any vesting conditions – refer to note 40(b). (c) Issue of ordinary shares Transactions during the financial year ended 30 June 2014 On 30 June 2013, the vesting conditions associated with Senior Executive Option Plan (SEOP) Issue 12, were partially met resulting in the issue of 8.3 million shares on 18 September 2013 and an increase in share capital of $2.2 million. Refer to note 40(a). On 30 June 2013, the vesting conditions associated with Senior Executive Option Plan (SEOP) Issue 14, were partially met resulting in the issue of 0.3 million shares on 18 September 2013 and an increase in share capital of $0.1 million. Refer to note 40(a). On 1 July 2013, vesting conditions associated with Tranche 1 of Key Employee Performance Plan 2012 were met resulting in the issue of 2.2 million performance rights and an increase in share capital of $0.6 million. Refer to note 40(b). On 14 November 2013, the Group announced the intention to issue 925.0 million new shares, pursuant to the terms of the fully underwritten pro-rata, non-renounceable entitlement offer, comprising an institutional component (Institutional Entitlement Offer) and a retail component (Retail Entitlement Offer). On 29 November 2013, 740.6 million shares were issued under the Institutional Entitlement Offer at a price of $0.38 per share resulting in an increase in share capital of $281.4 million. Transaction costs associated with the capital raising were capitalised and offset against share capital. On 17 December 2013, 184.4 million shares were issued under the Retail Entitlement Offer at a price of $0.38 per share, resulting in an increase in share capital of $70.1 million. Transaction costs associated with the capital raising were capitalised and offset against share capital. Of the total shares issued under the Institutional Entitlement Offer and the Retail Entitlement Offer, 633.8 million shares were issued to Air New Zealand Limited, Etihad Airways P.J.S.C. and Singapore Airlines Limited. Transactions during the financial year ended 30 June 2013 On 1 July 2012, upon vesting of the employee share plans, 6.5 million performance rights represented by shares were issued from the KEPP Trust, a consolidated entity of the Group, resulting in an increase in share capital of $2.2 million. On 16 November 2012, Singapore Airlines Limited subscribed for 245.6 million shares in VAH at a price of $0.4288 per share, resulting in an increase in share capital of $105.3 million. On 19 April 2013, the Group completed payment of the Scheme Cash and Securities consideration for the acquisition of 100% of the issued share capital in Skywest Airlines Pte Ltd. This included the issue of 112.9 million new shares in VAH, resulting in an increase in share capital of $48.5 million. On 22 April 2013, Singapore Airlines Limited subscribed for 12.5 million shares in VAH at a price of $0.4288 per share resulting in an increase in the share capital of $5.4 million.

92 Virgin Australia F-129 31. Reserves (a) Nature and purpose of reserves (i) Foreign currency translation reserve Exchange differences arising on translation of foreign operations are recognised in the foreign currency translation reserve, as described in note 3(d). The reserve is recognised in profit or loss when the net investment in the foreign operation is sold, liquidated, has share capital repaid or is abandoned partially or in full. (ii) Hedging reserve – cash flow hedges The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that is recognised directly in equity, as described in note 3(k). Amounts are recognised in profit or loss when the associated hedged transaction affects profit or loss, or recognised as part of the acquisition price of property, plant and equipment. (iii) Share-based payments reserve The share-based payments reserve is used to recognise the grant date fair value of options and performance rights issued as described in note 3(r)(v).

32. Dividends (a) Dividends No dividends were declared and paid by the Company in the current or prior year. No final dividend has been declared or paid for 2014 (2013: nil) or subsequent to year end. (b) Franked dividends

2014 2013 $m $m Dividend franking account Franking credits available for subsequent financial years based on a tax rate of 30% (2013: 30%) 76.4 76.4 Exempting franking credits account based on a tax rate of 30%(1) 4.2 4.2

(1) The Company acquired these exempting franking credits in the prior year upon acquisition of the Skywest Group. The above available amounts are based on the balance of the dividend franking account as at the end of the financial year, adjusted for: a) franking credits that will arise from the payment of the amount of the current tax liabilities; b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date; and d) franking credits that the entity may be prevented from distributing in subsequent years. The ability to utilise the franking credits is dependent upon the ability to declare dividends. In accordance with the tax consolidation legislation, the Company as the head entity in the Australian tax-consolidated group has assumed the benefit of the above franking credits. The Group’s New Zealand subsidiary, Virgin Australia Airlines (NZ) Ltd has franking credits totaling NZD $7.6 million as at 30 June 2014 (2013: NZD $7.6 million). The ability to utilise the franking credits is dependent upon the ability to declare dividends.

33. Capital expenditure commitments

2014 2013 $m $m Commitments payable for the acquisition of property, plant and equipment, including aircraft and aeronautic 3,383.7 3,348.1 related assets, contracted for at the reporting date but not recognised as liabilities

F-130 annual financial report 2014 93 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

34. Operating leases (a) Operating leases as lessee

2014 2013 $m $m Non-cancellable operating lease expense commitments Commitments in relation to operating leases contracted for at the reporting date but not recognised as liabilities, payable: ––Within one year 376.7 339.5 ––One year or later and no later than five years 1,447.8 1,326.6 ––Later than five years 1,310.0 1,338.0 3,134.5 3,004.1

In accordance with normal industry practice, the Group is responsible for maintenance costs of operating leased aircraft for the term of the lease. The Group leases property, plant and equipment, principally aircraft, under non-cancellable operating leases expiring from one to twelve years from 30 June 2014 (2013: one to twelve years). Aircraft lease payments are payable in US dollars. There are options on some leases to renew the leases after the end of the original lease period. Some leases provide for additional rent payments that are based on changes in a local price index. There are no restrictions imposed by the leases in relation to additional debt raising or entering into further leases. (b) Operating leases as lessor

2014 2013 $m $m Future minimum lease payments receivable under non-cancellable leases: ––Within one year 15.3 15.5 ––One year or later and no later than five years 17.2 33.0 32.5 48.5

35. Contingent liabilities and contingent assets Details of contingent liabilities and contingent assets where the possibility of future payments/receipts is not considered remote are set out below, in addition to details of contingent liabilities and contingent assets, which although considered remote, the directors consider should be disclosed. The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. (a) Contingent liabilities not considered remote (i) Bank guarantees and letters of credit The Group has provided bank guarantees and standby letters of credit to third parties as guarantees of payment for fuel, aircraft lease security deposits and maintenance reserve deposits, non-aircraft operating lease commitments and other arrangements entered into with third parties. The amount of bank guarantees and standby letters of credit issued as at the end of the 2014 financial year was $85.0 million (2013: $61.0 million). (b) Contingent liabilities considered remote (i) Other guarantees Refer to note 41(b)(iv) for details of guarantees provided by the Group to Tiger and its related entities.

94 Virgin Australia F-131 36. Financial instruments The Group has exposure to a variety of financial risks, including market risk, credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group manages these risk exposures using various financial instruments. The Board has determined hedging limits for financial risks and these are documented in the Treasury Risk Management Policy. Transactions entered into are to be carried out within these guidelines approved by the Board. Implementation of this Policy is delegated to management, who have flexibility to act within the bounds of the authorised policy limits. Group policy is to not enter, issue or hold derivative financial instruments for speculative trading purposes. Compliance with the policy is monitored on an ongoing basis through regular reporting to the Board. (a) Market risk Market risk is the risk that changes in market prices, such as fuel prices, foreign exchange rates, interest rates and equity prices, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market exposures, within tolerances. The Group enters into derivatives, and also incurs financial liabilities, in order to manage market risks relating to fuel prices, foreign exchange rates and interest rates. All such transactions are carried out within the guidelines set by the Board in the Treasury Risk Management Policy. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss. (i) Fuel price risk Price risk arises on the Group’s exposure to jet fuel prices. The Group’s fuel price risk management strategy aims to provide the airline with protection against sudden and significant increases in fuel prices while ensuring that the airline is not competitively disadvantaged in the event of a substantial decline in the price of fuel. Risk management Group Treasury is responsible for managing this exposure by using commodity swap, option contracts and other fuel related derivative contracts. These contracts are designated at Group level as hedges of price risk on specific volumes of future jet fuel consumption. The Group’s risk management policy is to hedge anticipated jet fuel consumption for subsequent financial periods subject to limits determined by the Board. Realised gains or losses on these contracts arise due to differences between the actual fuel prices on settlement, the forward rates of the derivative contracts and the cost of option premiums paid. During the year, the net gain arising from fuel hedging activities for the Group was $35.4 million (2013: gain of $42.3 million). Of this net amount, a gain of $80.9 million (2013: loss of $6.8 million) represents the realised element of the hedges which has been recognised in fuel expense, and a loss of $45.5 million (2013: gain of $49.1 million) represents the unrealised element of the hedges (including changes in option time value) and realised option premium which has been recognised in ineffective cash flow hedges and non-designated derivatives (losses)/gains.

Sensitivity analysis The following table summarises the sensitivity of the Group’s financial assets and liabilities to a reasonably possible change in fuel prices. An AUD 30 (2013: AUD 30) per barrel (bbl) increase/(decrease) in the price of fuel (with no change in refining margin) would have increased/ (decreased) equity and the profit or loss (before tax) by the amounts shown below. This analysis assumes that all other variables remain constant and based on the designated hedge relationship as at the reporting dates. The analysis is performed on the same basis for 2013.

AUD 30/bbl increase AUD 30/bbl decrease Carrying amount Profit/(loss) Equity Profit/(loss) Equity $m $m $m $m $m 2014 Net financial asset ––Derivative asset 15.2 38.0 95.2 (28.0) (62.4) 2013 Net financial asset ––Derivative asset 54.9 180.7 18.6 (140.5) (18.3)

F-132 annual financial report 2014 95 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

36. Financial instruments (continued) (a) Market risk (continued) (ii) Foreign exchange risk Exposure to foreign exchange risk The Group undertakes transactions in US dollars, including the cost of purchasing fuel, aircraft, aircraft lease payments and the sale of airline passenger tickets. The Group also undertakes transactions in New Zealand dollars. The Group’s exposure to foreign exchange risk at the reporting date was as follows, based on notional amounts (presented in AUD):

Restated(1) 2014 2013 AUD USD NZD AUD USD NZD $m $m $m $m $m $m Cash and cash equivalents 2.1 232.3 17.3 0.1 147.4 28.9 Trade and other receivables – 78.8 6.0 0.9 15.0 4.2 Other financial assets – 168.5 – – 146.8 – Trade and other payables (10.2) (97.5) (10.2) (12.3) (67.1) (3.4) Gross statement of financial position exposure (8.1) 382.1 13.1 (11.3) 242.1 29.7 Forward exchange contracts (2) – 676.5 – – 587.6 –

(1) Refer to note 3(b). (2) Relates to forecast cash flow exposure pertaining to operating expenses and aircraft lease rentals. The following significant exchange rates applied during the year: Average rate Reporting date spot rate AUD 2014 2013 2014 2013 USD 0.9189 1.0313 0.9400 0.9275 NZD 1.1150 1.2548 1.0754 1.1871

Risk management In order to protect against exchange rate movements, the Group enters into Australian dollar denominated fuel contracts as well as forward exchange contracts and option contracts to purchase US dollars. These contracts are hedging highly probable forecasted purchases for the ensuing financial periods. The contracts are timed to mature when the operating expenses or capital expenditure are expected to be settled. Realised gains or losses on these contracts arise due to differences between the actual spot rates on settlement, the forward rates of the derivative contracts and the cost of option premiums paid. During the 2014 financial year, the net gain arising from foreign exchange hedging activities for the Group was $45.4 million (2013: loss of $7.4 million) as a result of the Australian dollar depreciating below the average hedged price. Of this net amount, a gain of $41.0 million (2013: loss of $7.4 million) represents the realised element of the hedges which has been recognised in the relevant expenditure category which the contract was hedging, and a gain of $4.4 million (2013: no gains or losses) was recognised in respect of the unrealised element of hedges and non-designated derivatives (including changes in option time value) and realised option premium in ineffective cash flow hedges and non- designated derivatives (losses)/gains.

96 Virgin Australia F-133 36. Financial instruments (continued) (a) Market risk (continued) (ii) Foreign exchange risk (continued) Sensitivity analysis The following table summarises the sensitivity of the Group’s financial assets and liabilities to a reasonably possible change in the exchange rate to the US dollar. A 10% (2013: 10%) appreciation/(depreciation) of the AUD against the USD would have increased/(decreased) equity and profit or loss (before tax) by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2013. USD 10% increase in AUD USD 10% decrease in AUD Carrying amount Profit/(loss) Equity Profit/(loss) Equity $m $m $m $m $m 2014 Financial assets ––Non-derivative asset 479.6 (43.6) – 53.3 – ––Derivative asset – – – – – Financial liabilities ––Non-derivative liability (1,650.6) 8.9 141.2 (10.8) (172.6) ––Derivative liability (11.3) (0.7) (63.4) 0.4 73.0 (35.4) 77.8 42.9 (99.6) 2013 (Restated)(1) Financial assets ––Non-derivative asset 309.2 (28.1) – 34.4 – ––Derivative asset 58.7 0.4 (50.8) (1.3) 65.4 Financial liabilities ––Non-derivative liability (1,053.1) 6.1 96.6 (7.5) (118.1) ––Derivative liability – – – – – (21.6) 45.8 25.6 (52.7)

(1) Refer to note 3(b). (iii) Interest rate risk Exposure to interest rate risk The Group holds both interest-bearing assets and interest-bearing liabilities; therefore, the Group’s income and operating cash flows are subject to changes in market interest rates. The Group’s main interest rate risk arises from long-term borrowings, short-term borrowings and finance leases. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. At the reporting date, the interest rate profile of the Group’s interest-bearing financial instruments was: Carrying amount 2014 2013 $m $m Fixed rate instruments Financial assets 539.3 278.7 Financial liabilities (1,423.4) (699.3) (884.1) (420.6) Variable rate instruments Financial assets 233.0 260.6 Financial liabilities (527.3) (1,190.6) (294.3) (930.0)

F-134 annual financial report 2014 97 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

36. Financial instruments (continued) (a) Market risk (continued) (iii) Interest rate risk (continued) Risk management The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps to hedge part of this exposure. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. The maturity profiles and settlement dates of the swaps exactly match the amortisation profile and repayment dates on the underlying loans. During the year, the net loss arising from interest rate hedging activities for the Group was $10.2 million (2013: loss of $6.0 million). This is a result of actual interest rates being lower than the average hedged rates. This net loss represents the effective portion of the hedges which has been recognised in finance costs. In October 2013, all remaining interest rate swaps were closed out as part of the aircraft refinancing transaction referenced in note 25(c)(ii).

Sensitivity analysis For the year ended 30 June 2014, an analysis demonstrating the sensitivity of financial instruments to a reasonably possible change in interest rates is provided in the table below. • Fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model; therefore a change in interest rates at the reporting date would not affect profit or loss. • Variable rate instruments The Group accounts for variable rate financial assets and financial liabilities at amortised cost using the effective interest rate method. A 100 basis point increase/(decrease) in interest rates would have increased/(decreased) equity and profit or loss (before tax) by the amounts shown below. This analysis assumes that all other variables remain constant.

100 bp increase 100 bp decrease Carrying amount Profit/(loss) Equity Profit/(loss) Equity 2014 $m $m $m $m $m Fixed rate instruments Interest rate swaps – – – – – Variable rate instruments Financial assets 233.0 2.3 – (2.3) – Financial liabilities (527.3) (5.3) – 5.3 – (3.0) – 3.0 –

100 bp increase 100 bp decrease Carrying amount Profit/(loss) Equity Profit/(loss) Equity 2013 $m $m $m $m $m Fixed rate instruments Interest rate swaps (9.3) – 2.7 – (2.8) Variable rate instruments Financial assets 260.6 2.6 – (2.6) – Financial liabilities (1,190.6) (11.9) – 11.9 – (9.3) 2.7 9.3 (2.8)

Any gains or losses deferred in equity in respect of effective hedges are recycled to profit or loss to match against the underlying interest expense on the variable rate instrument.

98 Virgin Australia F-135 36. Financial instruments (continued) (a) Market risk (continued) (iv) Equity price risk For part of the prior year, the Group was exposed to equity price risk with respect to equity warrant and conversion options as a result of entering into a convertible loan agreement with Skywest. Following the Group’s acquisition of Skywest in April 2013 this transaction was eliminated as a pre-existing relationship at that date. No equity warrants are held at 30 June 2014 and 30 June 2013. (b) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from trade debtor counterparties (travel agents, industry settlement organisations and credit provided direct to customers), other counterparties (including related parties), deposits and unrealised gains on derivative financial instruments. (i) Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer or counterparty. Significant loans and receivables credit risk are assessed based on trading performance of the counterparty. The demographics of the Group’s customer base, including default risk of the industry, have less of an influence on credit risk. A significant proportion of the Group’s revenue is received through credit cards, however there are no significant concentrations of credit risk. The Group has credit policies in place under which each new trade debtor is analysed individually for creditworthiness before the Group’s standard payment terms are offered. Purchase limits are established for each counterparty and reviewed on a regular basis to ensure that sales made on credit terms are made to counterparties with appropriate credit history. The Group continuously monitors counterparty credit limits on defaults, incorporating this information into credit risk controls. (ii) Investments, deposits and derivatives The Group limits its exposure to credit risk by only investing in liquid securities with counterparties and entering into derivative contracts with counterparties that have an investment grade credit rating. Exposure to credit risk The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was: Carrying amount Restated(1) 2014 2013 Note $m $m Cash and cash equivalents 13 783.8 580.5 Trade and other receivables 14 249.9 188.7 Commodity contracts used for hedging: assets 16 19.3 54.9 Forward exchange contracts used for hedging: assets 16 – 58.7 Other financial assets 17 200.4 149.0 1,253.4 1,031.8

(1) Refer to note 3(b).

Impairment losses The ageing of the Group’s trade and other receivables at the reporting date was: Gross Impairment Gross Impairment 2014 2014 2013 2013 $m $m $m $m Not past due 237.6 (0.3) 168.1 – Past due 1-30 days 5.3 (0.3) 9.1 – Past due 31-60 days 2.4 – 6.0 – 61+ days 5.3 (0.1) 5.8 (0.3) 250.6 (0.7) 189.0 (0.3)

F-136 annual financial report 2014 99 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

36. Financial instruments (continued) (b) Credit risk (continued) Impairment losses (continued) The Group has established a provision for doubtful debts for trade and other receivables that represents its estimate of incurred losses. The main components of this provision are a specific loss component that relates to individually significant exposures. The movement in the Group’s provision for doubtful debts in respect of trade and other receivables during the year was as follows:

2014 2013 $m $m Balance at 1 July 0.3 4.2 Impairment loss recognised 1.0 2.0 Write-off of bad debts (0.6) (5.9) Balance at 30 June 0.7 0.3

Impairment (losses)/gains on doubtful debts are included in other expenses from ordinary activities in the consolidated statement of profit or loss. The provision for doubtful debts at 30 June 2014 of $0.7 million (2013: $0.3 million) relates to specific receivables that are considered doubtful. The provision for doubtful debts account in respect of trade and other receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amount is considered irrecoverable and is written off against the financial asset directly. At 30 June 2014 the Group does not have any collective impairment on its trade and other receivables (2013: no collective impairment). Of the trade and other receivables as at 30 June 2014, deemed neither past due nor impaired, there are no customers who represent more than 5% (2013: 5%) of the total balance of trade and other receivables. The average credit period on revenue is 19 days (2013: 16 days). Upon default the credit of customers immediately ceases. No interest is charged on trade receivables. (c) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity risk is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Refer to note 2(b) where the Group’s net current liability position has been considered. (i) Risk management Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding as required and the ability to close-out market positions if necessary. Due to the dynamic nature of the underlying businesses, Group Treasury aims at maintaining flexibility in funding by keeping adequate liquidity available. The Group aims to ensure that it has sufficient cash on demand to meet expected operational expenses, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot be predicted, such as natural disasters. The Group also maintains various lines of credit, which are detailed in note 25(c). The Group has contractual commitments for the acquisition of property, plant and equipment, which are detailed in note 33. (ii) Aircraft financing During the year, the Group undertook a number of aircraft and related financing transactions. These transactions included: • Sale and leaseback of seven Boeing B737 aircraft; • Sale and leaseback of one Embraer E190 engine; and • Refinancing of twenty-three Boeing B737 and one Boeing B777 aircraft, refer note 25(c)(ii). During the 2013 financial year, the Group undertook a number of aircraft financing transactions. These transactions included: • Sale and leaseback of three Boeing B737 aircraft; • Sale and leaseback of one Boeing B777 engine; and • Mortgaging of five Boeing B737 aircraft.

100 Virgin Australia F-137 36. Financial instruments (continued) (c) Liquidity risk (continued) (iii) Exposure to liquidity risk The following are the contractual maturities of financial liabilities including estimated interest payments and including the impact of netting agreements:

Carrying Contractual Less than More than amount cash flows 1 year 1-2 years 2-5 years 5 years 2014 $m $m $m $m $m $m Non-derivative financial liabilities Secured loans (1,883.1) (2,243.3) (409.9) (372.4) (926.4) (534.6) Unsecured loans (33.9) (34.5) (34.5) – – – Loan from associate (4.2) (4.2) (4.2) – – – Finance lease liabilities (29.5) (90.7) (4.8) (4.6) (11.7) (69.6) Trade and other payables (627.7) (627.7) (620.3) (7.4) – – Derivative financial asset and liabilities Commodity contracts used for hedging: ––Inflow 19.3 19.3 17.3 2.0 – – ––Outflow (4.1) (4.1) (4.1) – – – Forward exchange contracts used for hedging: ––Inflow – – – – – – ––Outflow (11.3) (11.3) (7.6) (3.7) – – Interest rate swaps used for hedging: ––Inflow – – – – – – ––Outflow – – – – – – (2,574.5) (2,996.5) (1,068.1) (386.1) (938.1) (604.2)

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. As at 30 June 2014, the Group has financial covenants in relation to financing arrangements relating to cash balances and property values. Any breach of covenants may require the Group to repay the relevant loans earlier than indicated in the above table. As at 30 June 2014, the Group was compliant with these covenants. The net inflows/(outflows) disclosed represent the contractual undiscounted cash flows relating to derivative financial assets/(liabilities) held for risk management purposes as at 30 June 2014. The Group may exercise the ability to close out the instruments prior to contracted maturity in line with the Group’s hedging policy. The disclosure shows net cash flow amounts for derivatives that are net cash settled.

F-138 annual financial report 2014 101 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

36. Financial instruments (continued) (c) Liquidity risk (continued) (iii) Exposure to liquidity risk (continued)

Carrying Contractual Less than More than amount cash flows 1 year 1-2 years 2-5 years 5 years 2013 $m $m $m $m $m $m Non-derivative financial liabilities Secured loans (1,855.5) (2,138.8) (419.6) (332.3) (695.3) (691.6) Unsecured loans – – – – – – Loan from associate (9.3) (9.3) (9.3) – – – Finance lease liabilities (25.1) (87.0) (4.4) (2.8) (7.7) (72.1) Trade and other payables (587.0) (587.0) (580.4) (6.6) – – Derivative financial assets and liabilities Commodity contracts used for hedging: ––Inflow 54.9 54.9 47.9 7.0 – – ––Outflow – – – – – – Forward exchange contracts used for hedging: ––Inflow 58.7 58.7 48.9 9.8 – – ––Outflow – – – – – – Interest rate swaps used for hedging: ––Inflow – – – – – – ––Outflow (9.3) (10.2) (6.0) (3.3) (0.9) – (2,372.6) (2,718.7) (922.9) (328.2) (703.9) (763.7)

At 30 June 2014, the Group held various types of derivative instruments that were designated as cash flow hedges of future forecast transactions. These were: • Hedging of future jet fuel purchases by commodity forward contracts and option contracts; and • Hedging of future foreign currency payments by forward exchange contracts and option contracts. The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to occur:

Expected cash flows Carrying Less than More than amount 1 year 1-2 years 2-5 years 5 years Total 2014 $m $m $m $m $m $m Interest rate swaps: ––Liabilities – – – – – – Commodity contracts used for hedging: ––Liabilities (4.1) (4.1) – – – (4.1) ––Assets 19.3 17.3 2.0 – – 19.3 Forward exchange contracts used for hedging: ––Liabilities (11.3) (7.6) (3.7) – – (11.3) ––Assets – – – – – – 3.9 5.6 (1.7) – – 3.9

102 Virgin Australia F-139 36. Financial instruments (continued) (c) Liquidity risk (continued) (iii) Exposure to liquidity risk (continued)

Expected cash flows Carrying Less than More than amount 1 year 1-2 years 2-5 years 5 years Total 2013 $m $m $m $m $m $m Interest rate swaps: ––Liabilities (9.3) (5.2) (3.2) (0.9) – (9.3) Commodity contracts used for hedging: ––Liabilities – – – – – – ––Assets 54.9 47.9 7.0 – – 54.9 Forward exchange contracts used for hedging: ––Liabilities – – – – – – ––Assets 58.7 48.9 9.8 – – 58.7 104.3 91.6 13.6 (0.9) – 104.3

The cash flows outlined above are expected to impact profit or loss in the same periods in which the cash flows are expected to occur. (d) Capital management Capital management is a key focus of the Board and senior management and it is the Group’s policy to maintain a strong capital base that will ensure continuing investor, creditor and market support for the future development of the business. The Board monitors the liquidity of the Group including unrestricted cash balances. Future financing requirements including those relating to aircraft purchases are monitored with determination of financing being based on competitively priced financing alternatives available at the time of the financing transaction. Compliance with debt covenants is monitored. The Group’s mix of interest-bearing liabilities as at 30 June 2014 consisted of aeronautic finance facilities, loans from banks, loans from associates and finance lease liabilities, of which 18.47% (2013: 19.76%) were current facilities and 81.53% (2013: 80.24%) were non-current facilities. There were no significant changes in the Group’s approach to capital management during the 2014 financial year. Refer to note 2(b) where the Group’s net current liability position has been considered. (e) Fair values The Group’s accounting policies and disclosures may require the measurement of fair values for both financial and non-financial assets and liabilities. The framework for measuring fair values is discussed in note 3(w). (i) Fair value hierarchy Financial instruments carried at fair value can be classified according to their valuation method. The different methods are defined as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. as derived from prices); and • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). When measuring the fair value of financial assets and liabilities, the Group uses market observable data where available. There have been no transfers between levels of the fair value hierarchy during the financial year.

F-140 annual financial report 2014 103 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

36. Financial instruments (continued) (e) Fair values (continued) (ii) Estimation of fair values The following table shows the carrying amounts and fair values of financial assets and liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

Quoted Observable Carrying market price inputs amount Fair value (Level 1) (Level 2) 2014 Note $m $m $m $m Financial assets carried at fair value Fuel hedging contracts – cash flow hedges 16 19.3 19.3 – 19.3 Forward foreign exchange contracts – cash flow hedges 16 – – – – 19.3 19.3 – 19.3 Financial assets carried at amortised cost Cash and cash equivalents 13 783.8 783.8 – – Trade and other receivables 14 249.9 249.9 – – Other financial assets 17 200.4 200.4 – – 1,234.1 1,234.1 – – Financial liabilities carried at fair value Fuel hedging contracts – cash flow hedges 16 4.1 4.1 – 4.1 Forward foreign exchange contracts – cash flow hedges 16 11.3 11.3 – 11.3 15.4 15.4 – 15.4 Financial liabilities carried at amortised cost Trade and other payables 24 627.7 627.7 – – Loans (aeronautic finance facilities) 25 1,859.0 1,962.6 859.6 1,103.0 Finance lease liabilities 25 29.5 29.5 – 29.5 Other financial liabilities 25 62.2 62.2 – – 2,578.4 2,682.0 859.6 1,132.5

104 Virgin Australia F-141 36. Financial instruments (continued) (e) Fair values (continued) (ii) Estimation of fair values (continued)

Quoted Observable Carrying market price inputs amount Fair value (Level 1) (Level 2) 2013 Note $m $m $m $m Financial assets carried at fair value Fuel hedging contracts – cash flow hedges 16 54.9 54.9 – 54.9 Forward foreign exchange contracts – cash flow hedges 16 58.7 58.7 – 58.7 113.6 113.6 – 113.6 Financial assets carried at amortised cost Cash and cash equivalents 13 580.5 580.5 – – Trade and other receivables 14 188.7 188.7 – – Other financial assets 17 149.0 149.0 – – 918.2 918.2 – – Financial liabilities carried at fair value Fuel hedging contracts – cash flow hedges 16 – – – – Interest rate swap contracts – cash flow hedges 16 9.3 9.3 – 9.3 Forward foreign exchange contracts – cash flow hedges 16 – – – – 9.3 9.3 – 9.3 Financial liabilities carried at amortised cost Trade and other payables 24 587.0 587.0 – – Loans (aeronautic finance facilities) 25 1,756.5 1,804.8 – 1,804.8 Finance lease liabilities 25 25.1 25.1 – 25.1 Other financial liabilities 25 108.3 109.3 – – 2,476.9 2,526.2 – 1,829.9

F-142 annual financial report 2014 105 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

36. Financial instruments (continued) (f) Master netting arrangements or similar agreements The Group enters into contractual arrangements such as the International Air Transport Association (IATA) and International Swaps and Derivatives Association (ISDA) Master Agreements where, upon the occurrence of a credit event (such as default) a termination value is calculated and only a single net amount is payable in settlement of all transactions that are capable of offset under the contractual terms. Offsetting has been applied to derivatives in the consolidated statement of financial position where the Group has a legally enforceable right to set off and there is an intention to settle on a net basis. The Master Agreements contractually bind the Group and the counterparty to apply close out netting across all outstanding transactions only if either party defaults or other pre-agreed termination events occur. As such, they do not meet the criteria for offsetting in the consolidated statement of financial position. The following table sets out the carrying amounts of recognised financial assets and liabilities that are subject to the above agreements.

Gross Net amounts Related Gross amounts set presented amounts not amounts of off in the in the set off in the recognised consolidated consolidated consolidated financial statement statement statement assets and of financial of financial of financial liabilities position position(1) position Net amount 2014 Note $m $m $m $m $m Financial assets Cash and cash equivalents 13 223.1 – 223.1 (36.3) 186.8 Trade and other receivables 14 24.2 – 24.2 (23.3) 0.9 Derivative financial assets 16 29.6 (10.3) 19.3 (6.8) 12.5 276.9 (10.3) 266.6 (66.4) 200.2 Financial liabilities Trade and other payables 24 (23.3) – (23.3) 23.3 – Derivative financial liabilities 16 (25.7) 10.3 (15.4) 9.2 (6.2) Interest-bearing liabilities 25 (33.9) – (33.9) 33.9 – (82.9) 10.3 (72.6) 66.4 (6.2)

Gross Net amounts Related Gross amounts set presented amounts not amounts of off in the in the set off in the recognised consolidated consolidated consolidated financial statement statement statement assets and of financial of financial of financial liabilities position position(1) position Net amount 2013 Note $m $m $m $m $m Financial assets Trade and other receivables 14 20.1 – 20.1 (20.1) – Derivative financial assets 16 123.6 (10.0) 113.6 – 113.6 143.7 (10.0) 133.7 (20.1) 113.6 Financial liabilities Trade and other payables 24 (28.5) – (28.5) 20.1 (8.4) Derivative financial liabilities 16 (19.3) 10.0 (9.3) – (9.3) (47.8) 10.0 (37.8) 20.1 (17.7)

106 Virgin Australia F-143 37. Subsidiaries The consolidated annual financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 3(c): Equity Holding Name 2014 2013 Virgin Australia Holidays Pty Ltd 100% 100% Red Jet Foundation Pty Ltd 100% 100% VA Leaseco No.4 Pty Ltd 100% 100% VAH Newco No.1 Pty Ltd 100% 100% VAH Newco No.2 Pty Ltd(1) 100% 100% VB 800 2009 Pty Ltd 100% 100% VB E190 2009 No.2 Pty Ltd 100% 100% VB E190 2009 Pty Ltd 100% 100% VB Investco Pty Ltd 100% 100% VB Leaseco No.2 Pty Ltd 100% 100% VB Leaseco Pty Ltd(1) 100% 100% VB LH 2008 No.1 Pty Ltd 100% 100% VB LH 2008 No.2 Pty Ltd 100% 100% VB PDP 2010-11 Pty Ltd 100% 100% VB Training Pty Ltd 100% 100% VB Ventures Pty Ltd 100% 100% VBNC5 Pty Ltd 100% 100% VBNC9 Pty Ltd 100% 100% Velocity Rewards Pty Ltd 100% 100% Virgin Australia Airlines Pty Ltd(1) 100% 100% Virgin Tech Pty Ltd(1) 100% 100% Virgin Australia (NZ) Holdings Pty Ltd(1) 100% 100% Virgin Australia (NZ) Employment and Crewing Ltd 100% 100% Virgin Australia Airlines Holdings Pty Ltd 100% 100% Virgin Australia International Operations Pty Ltd(1) 100% 100% 737 2012 No.1 Pty Ltd 100% 100% 737 2012 No.2 Pty Ltd 100% 100% VA Regional Leaseco Pty Ltd(2)(3) 100% 100% A.C.N. 098 904 262 Pty Ltd(1)(3) 100% 100% Virgin Australia Regional Airlines Pty Ltd(1)(3) 100% 100% Captivevision Capital Pte Ltd(3) 100% 100% F11305 Pte Ltd(3) 100% 100% Skywest Airlines Pte Ltd(3) 100% 100% Skywest Airlines (S) Pte Ltd(3) 100% 100% VA Hold Co Pty Ltd(4) 100% – VA Lease Co Pty Ltd(4) 100% – Virgin Australia 2013-1 Issuer Co Pty Ltd(4) 100% – Velocity Frequent Flyer Pty Ltd(5) 100% – Key Employee Performance Plan Trust(6) – – Red Jet Foundation Charitable Trust(6) – – The Loyalty Trust(6) – –

F-144 annual financial report 2014 107 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

37. Subsidiaries (continued)

Equity Holding Name 2014 2013 VH-ZHA: MSN 17000180 Owner Trust(7) – – VH-ZHB: MSN 17000187 Owner Trust(7) – – VH-ZHC: MSN 17000191 Owner Trust(7) – – VH-ZHD: MSN 17000227 Owner Trust(7) – – VH-ZHE: MSN 17000247 Owner Trust(7) – – VH-ZHF: MSN 17000255 Owner Trust(7) – – Virgin Australia 2013-1A Trust(7)(8) – – Virgin Australia 2013-1B Trust(7)(8) – – Virgin Australia 2013-1C Trust(7)(8) – – Virgin Australia 2013-1D Trust(7)(8) – – Virgin Australia International Airlines Pty Ltd(9) – – Virgin Australia International Holdings Pty Ltd(9) – – Virgin Australia Airlines (NZ) Ltd(9) – – Virgin Australia Airlines (SE Asia) Pty Ltd(9) – –

(1) Persuant to ASIC Class Order 98/1418 (as amended), these controlled entities are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports for the financial year ended 30 June 2014. Refer note 43 for further information. VB Leaseco Pty Ltd was pursuant to the class order from 2 June 2014. (2) This entity changed its name during the 2014 financial year from Capital Lease Australian Portfolio One Pty Ltd to VA Regional Leaseco Pty Ltd. (3) During the financial year ended 30 June 2013, the Company gained control of these entities by virtue of acquiring 100% of the issued share capital in Skywest. Details of this acquisition are disclosed in note 7. (4) These entities were incorporated on 27 August 2013. (5) This entity was incorporated on 22 May 2014. (6) The Company administers the Key Employee Performance Plan Trust, The Loyalty Trust and Red Jet Foundation Charitable Trust through appointed Trustees. (7) The Company consolidates these trust entities despite holding no issued capital, as it controls the trust entity as the Company is exposed to or has rights to variable returns from its involvement with the trust entity and has the ability to affect those returns through its power over the trust entity. (8) These consolidated structured trusts were incorporated on 4 October 2013. (9) The Company consolidates these entities despite holding minimal issued capital, as it controls the entity as the Company is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All entities are incorporated in Australia, with the exception of the following:

There are no significant restrictions on the Company’s ability to access or use the assets and settle the liabilities of the Group.

108 Virgin Australia F-145 37. Subsidiaries (continued) During the year the Group voluntarily entered into liquidation process for the following subsidiaries:

Equity Holding Name 2014 2013 V Australia Airlines Pty Ltd – 100% VB 700 2009 Pty Ltd – 100% VB Leaseco No.3 Pty Ltd – 100% VB LH 2010-11 No.1 Pty Ltd – 100% VB LH 2010-11 No.2 Pty Ltd – 100% VBIANC1 Pty Ltd – 100% VBNC1 Pty Ltd – 100% VBNC2 Pty Ltd – 100% VBNC3 Pty Ltd – 100% VBNC4 Pty Ltd – 100% VBNC8 Pty Ltd – 100% VBNC10 Pty Ltd – 100% Virgin Australia Pty Ltd – 100% Virgin Australia Airlines Services Pty Ltd – 100%

These entities were placed into voluntary (solvent) liquidation on 18 March 2014, as they were no longer required in the Group’s corporate structure. As at 30 June 2014 these entities are under the control of the liquidators. These entities will be deregistered at the end of the liquidation process which is expected to occur by the end of September 2014. These entities hold no assets nor have any liabilities. Control was transferred to the liquidator as part of the liquidation process, and as a result the Group no longer consolidates these entities in the consolidated financial statements. (a) Involvement with unconsolidated structured entities The table below describes the types of structured entities that the Group does not consolidate. The Group sponsors these entities on the basis that it is a majority user of these entities.

Type of structured entity Nature and Interest Interest held by the Group Asset-backed financing entity(1) Holder of the purchase agreement Nil

F-146 annual financial report 2014 109 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

38. Reconciliation of loss after income tax to net cash from operating activities

Restated(1) 2014 2013 $m $m Loss for the financial year (355.6) (98.1) Adjustments for: Depreciation 238.2 246.5 Amortisation 29.6 25.6 Share of net losses/(profits) of equity accounted investees 48.7 (0.1) Loss on disposal of property, plant and equipment 2.3 2.0 Amortisation of deferred borrowing costs 9.4 5.2 Equity-settled share-based payment expenses 5.5 2.4 Movement in derivative balances (52.7) 75.6 Unrealised foreign exchange movements – non-operating activities 0.9 (16.1) Amortisation of deferred loss/(gain) on sale and leaseback assets 3.0 – Impairment losses 56.9 – Lapsed aircraft options – 1.2 (13.8) 244.2 Changes in operating assets and liabilities: (Increase)/decrease in trade and other receivables (28.8) (43.8) (Increase)/decrease in inventories (6.3) (10.1) (Increase)/decrease in other assets (53.8) 28.4 (Increase)/decrease in deferred and current tax assets (145.4) (4.4) (Increase)/decrease in derivative financial instruments 100.4 (156.2) (Decrease)/increase in trade and other payables 61.0 47.4 (Decrease)/increase in provisions 14.4 (1.3) (Decrease)/increase in unearned revenue 71.6 36.8 (Decrease)/increase in deferred tax liabilities (7.0) (19.6) (Decrease)/increase in other liabilities – 1.9 Net cash (used in)/from operating activities (7.7) 123.3

(1) Refer to note 3(b).

110 Virgin Australia F-147 39. Employee benefits

2014 2013 $m $m Current Salaries and wages accrued 16.3 13.5 Provision for employee bonuses 9.3 7.6 Provision for annual leave 57.0 56.1 Provision for long service leave 26.4 28.6 109.0 105.8 Non-current Provision for long service leave 19.3 11.9

(a) Superannuation plans The Group contributes to several defined contribution superannuation plans. The amount recognised as an expense for the year ended 30 June 2014 was $65.8 million (2013: $55.2 million).

40. Share-based payments (a) Executive option plans The Group has established the following executive option plans. The options have been granted to senior executives of the Group.

Plan Vesting Periods and Conditions Senior Executive Option Plan Senior executives (excluding the CEO) were granted zero price options in the 2012 financial year under SEOP 15. (SEOP) Issue 15 The terms of the grants were: • Issued on 29 February 2012, the options are exercisable if there is growth in the Company’s TSR over a three year period (commencing 1 July 2011 and ending on 30 June 2014) relative to the median of the S&P/ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the testing date, 30 June 2014 are determined using the VWAP for VAH shares traded on the ASX on each of the 30 trading days up to and including the relevant date. • The table below sets out the percentage of the options that vest depending on the Company’s TSR relative to the comparator group as at the testing date: The Group’s relative TSR growth % of options that vest Below 50th percentile 0% 50th percentile 50% Between 51st and 74th percentile 2% (for each percentile ranking above 50%) 75th percentile 100% • The zero exercise price options offered under the plan can only be exercised if the performance hurdle is achieved at the conclusion of the three year performance period. • Any vested options are exercisable during the period commencing on the date on which the 2014 annual results are announced and concluding on 30 June 2015.

F-148 annual financial report 2014 111 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

40. Share-based payments (continued) (a) Executive option plans (continued) Plan Vesting Periods and Conditions Senior Executive Option Plan The CEO was granted zero exercise price options in the 2012 financial year under SEOP 16. The terms of the (SEOP) Issue 16 grants were: • Issued on 29 February 2012, 50% of the options are exercisable if there is growth in the Company’s TSR over a three year period (commencing 1 July 2011 and ending on 30 June 2014) relative to the median of the S&P/ ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the testing dates, 30 June 2014 and 30 June 2015, will be determined using the VWAP for VAH shares traded on the ASX on each of the 30 trading days up to and including the relevant date. • The table below sets out the percentage of the options that vest depending on the Company’s TSR relative to the comparator group as at the testing date: The Group’s relative TSR growth % of options that vest Below 50th percentile 0% 50th percentile 50% Between 51st and 74th percentile 2% (for each percentile ranking above 50%) 75th percentile 100% • The remaining 50% of the options are exercisable if corporate performance measures determined by the Board are met. The performance measures include specific targets in relation to the growth of corporate, government and alliances partners’ related business, performance of the Velocity Frequent Flyer program and Group safety outcomes. • Of the options that vest, 60% vest on 30 June 2014 and 40% will vest on 30 June 2015. Options that vest will be exercisable no later than 12 months after vesting, after which they will lapse. Senior Executive Option Plan Senior executives (excluding the CEO) were granted zero price options in the 2013 financial year under SEOP 17. (SEOP) Issue 17 The terms of the grants were: • Issued on 1 May 2013, the options are exercisable if there is growth in the Company’s TSR over a three year period (commencing 1 July 2012 and ending on 30 June 2015) relative to the median of the S&P/ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the testing date, 30 June 2015 will be determined using the VWAP for VAH shares traded on the ASX on each of the 30 trading days up to and including the relevant date. • The table below sets out the percentage of the options that will vest depending on the Company’s TSR relative to the comparator group as at the testing date: The Group’s relative TSR growth % of options that vest Below 50th percentile 0% 50th percentile 50% Between 51st and 74th percentile 2% (for each percentile ranking above 50%) 75th percentile 100% • The zero exercise price options offered under the plan can only be exercised if the performance hurdle is achieved at the conclusion of the three year performance period. • Any vested options are exercisable during the period commencing on the date on which the 2015 annual results are announced and concluding on 30 June 2016. Senior Executive Option Plan The CFO was granted zero exercise price options in the 2013 financial year under SEOP 18. The terms of the (SEOP) Issue 18 grants were: • Issued on 1 May 2013, the options are exercisable if the CFO remains in continuous employment with the Virgin Australia Group of companies in a Group Executive role or higher throughout the period 1 July 2012 to 30 June 2015. • Exercised entitlements will be satisfied by either an allotment of new securities or by an on-market purchase of existing securities, at the Board’s discretion. • Any vested options are exercisable during the period commencing on the date on which the 2015 annual results are announced and concluding on 30 June 2016.

112 Virgin Australia F-149 40. Share-based payments (continued) (a) Executive option plans (continued) Plan Vesting Periods and Conditions Senior Executive Option Plan The CEO was granted zero exercise price options in the 2013 financial year under SEOP 19. The terms of the (SEOP) Issue 19 grants were: • Issued on 1 May 2013, 50% of the options are exercisable if there is growth in the Company’s TSR over a three year period (commencing 1 July 2012 and ending on 30 June 2015) relative to the median of the S&P/ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the testing dates, 30 June 2015 and 30 June 2016, will be determined using the VWAP for VAH shares traded on the ASX on each of the 30 trading days up to and including the relevant date. • The table below sets out the percentage of the options that will vest depending on the Company’s TSR relative to the comparator group as at the testing date: The Group’s relative TSR growth % of options that vest Below 50th percentile 0% 50th percentile 50% Between 51st and 74th percentile 2% (for each percentile ranking above 50%) 75th percentile 100% • The remaining 50% of the options are exercisable if corporate performance measures determined by the Board are met. The performance measures include specific targets, each of which are equally weighted in relation to the growth of corporate, government and alliances partners’ related business, performance of the Velocity Frequent Flyer program, Group safety outcomes and productivity enhancements. • Of the options that vest, 60% will vest on 30 June 2015 and 40% will vest on 30 June 2016. Options that vest will be exercisable no later than 12 months after vesting, after which they will lapse. Senior Executive Option Plan The CEO was granted zero exercise price options in the 2014 financial year under SEOP 20. The terms of the (SEOP) Issue 20 grants were: • Issued on 20 December 2013, 50% of the options are exercisable if there is growth in the Company’s TSR over a three year period (commencing 1 July 2013 and ending on 30 June 2016) relative to the median of the S&P/ ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the testing dates, 30 June 2016 and 30 June 2017, will be determined using the VWAP for VAH shares traded on the ASX on each of the 30 trading days up to and including the relevant date. • The table below sets out the percentage of the options that will vest depending on the Company’s TSR relative to the comparator group as at the testing date: The Group’s relative TSR growth % of options that vest Below 50th percentile 0% 50th percentile 50% Between 51st and 74th percentile 2% (for each percentile ranking above 50%) 75th percentile 100% • The remaining 50% of the options are exercisable if corporate performance measures determined by the Board are met. The performance measures include specific targets in relation to the growth of corporate and government revenue targets, performance of Tiger, performance of the Velocity Frequent Flyer program and Group safety outcomes. • Of the options that vest, 60% will vest on 30 June 2016 and 40% will vest on 30 June 2017. Options that vest will be exercisable no later than 12 months after vesting, after which they will lapse.

F-150 annual financial report 2014 113 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

40. Share-based payments (continued) (a) Executive option plans (continued) The following plans were active during 2014, but had expired by 30 June 2014.

Plan Vesting Periods and Conditions CEO Co-Investment Scheme • The CEO was granted a one-off issue of $400,000 zero exercise price performance rights on commencement (CEOCIS) under the CEOCIS in exchange for purchasing $200,000 of the Company’s shares. Under the terms of the scheme Mr Borghetti was restricted from trading the purchased shares for two years from 8 May 2010. • The number of performance rights issued was determined having regard to the 20 day weighted average share price of the Company’s shares up to and including the date of announcement on 2 March 2010 of the CEO’s appointment. • The performance rights vest and become exercisable on the achievement of a minimum share price hurdle to be achieved at the end of the performance period from 8 May 2010 to 30 June 2013. The performance hurdle is met where the Company’s 20 day weighted average share price at the end of the performance period is 25% higher than the 20 day weighted average share price at 8 May 2010. • The exercise period was 30 June 2013 to 30 June 2014 however the performance rights expired immediately as they did not vest on the vesting date. CEO Commencement LTI • The CEO was granted zero exercise price options on the date of the 2010 Annual General Meeting on (SEOP) Issue 13 24 November 2010. These options were subject to a three year performance period to 7 May 2013. • The performance hurdle was growth in the Company’s TSR over the performance period relative to the median S&P/ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the vesting date are determined using the 30 day VWAP for VAH shares. Satisfaction of the performance hurdle was tested on 7 May 2013 and in respect of any options that remained unvested tested again on 31 December 2013. • The vesting outcome at the end of the performance period was based on the following TSR schedule: The Group’s relative TSR growth % of options that vest Below 50th percentile 0% 50th percentile 50% Between 51st and 74th percentile 2% (for each percentile ranking above 50%) 75th percentile 100% • Subject to Board discretion, the participant must also be employed by the Group throughout the performance period. • The exercise period for any unvested options was between the date on which the Group’s 2013 annual results were announced and concluded on 30 June 2014. The expiry date for exercise of vested options was 30 June 2014. Senior Executive Option Plan Senior executives (excluding the CEO) were granted zero exercise price options in the 2011 financial year under (SEOP) Issue 12 SEOP 12. The terms of the grants were: • Issued on 10 March 2011, the performance period covers the three years from 1 July 2010 to 30 June 2013. • The performance hurdle was that growth in the Company’s TSR over the performance period exceeds that of the median S&P/ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the vesting date will be determined using the 30 day VWAP for VAH shares. Satisfaction of the performance hurdle is tested on 30 June 2013 and in respect of any options that remain unvested tested again on 31 December 2013. • The vesting outcome at the end of the performance period is to be based on the following TSR schedule: The Group’s relative TSR growth % of options that vest Below 50th percentile 0% 50th percentile 50% Between 51st and 74th percentile 2% (for each percentile ranking above 50%) 75th percentile 100% • Subject to Board discretion, the participant must also be employed by the Group in a General Manager’s role or higher throughout the performance period. • The exercise period for any vested options was between the date on which the Group’s 2013 annual results were announced and concluded on 30 June 2014. The expiry date for exercise of vested options was 30 June 2014.

114 Virgin Australia F-151 40. Share-based payments (continued) (a) Executive option plans (continued) Plan Vesting Periods and Conditions Senior Executive Option Plan The CFO was granted zero exercise price options in the 2012 financial year under SEOP 14. The terms of the (SEOP) Issue 14 grants were: • Issued on 11 October 2011, the options were exercisable if there was growth in the Company’s TSR over the period from 11 April 2011 to 30 June 2013 relative to the median of the S&P/ASX 200 Index (excluding financial services and resource companies). Base TSR and TSR on the vesting date are determined using the 30 day VWAP for VAH shares with one additional testing date (being 31 December 2013) in respect of any of the options that remained unvested following testing on 30 June 2013. • The vesting outcome at the end of the performance period is to be based on the following TSR schedule: The Group’s relative TSR growth % of options that vest Below 50th percentile 0% 50th percentile 50% Between 51st and 74th percentile 2% (for each percentile ranking above 50%) 75th percentile 100% • The zero price exercise options offered under the plan can only be exercised if the performance hurdle is achieved at the conclusion of the three year performance period, or at the three year and six month re-test. • Any vested options were exercisable during the period commencing on the date on which the 2013 annual results were announced and concluded on 30 June 2014. The expiry date for exercise of vested options was 30 June 2014. All options are granted for no consideration. When exercisable, each option is convertible into one ordinary share. Set out below are summaries of options granted under the plans by the Group: During the year (number) Number Number Number of of options of options options at at year vested and beginning Options Options Options Options end on exercisable of year granted forfeited lapsed exercised issue at year end Exercise Option plan Grant date ’000 ’000 ’000 ’000 ’000 ’000 ’000 price Expiry date 2014 CEO SEOP 13(1) 24-Nov-10 4,116 – – (4,116) – – – $0.00 30-Jun-14 SEOP 12(1) 10-Mar-11 12,106 – – (3,793) (8,313) – – $0.00 30-Jun-14 SEOP 14(1) 11-Oct-11 414 – – (141) (273) – – $0.00 30-Jun-14 SEOP 15(1) 29-Feb-12 13,386 – (2,919) (2,930) – 7,537 7,537 $0.00 30-Jun-15 SEOP 16(1) 29-Feb-12 4,942 – – (692) – 4,250 2,550 $0.00 30-Jun-15/16 (2) SEOP 17(1) 1-May-13 7,027 – (1,702) – – 5,325 – $0.00 30-Jun-16 SEOP 18(1) 1-May-13 653 – – – – 653 – $0.00 30-Jun-16 SEOP 19(1) 1-May-13 2,796 – – – – 2,796 – $0.00 30-Jun-16/17(3) SEOP 20(1) 20-Dec-13 – 2,868 – – – 2,868 – $0.00 30-Jun-17/18 (4) Total 45,440 2,868 (4,621) (11,672) (8,586) 23,429 10,087 Weighted average exercise price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

F-152 annual financial report 2014 115 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

40. Share-based payments (continued) (a) Executive option plans (continued)

During the year (number) Number Number Number of of options of options options at at year vested and beginning Options Options Options Options end on exercisable of year granted forfeited lapsed exercised issue at year end Exercise Option plan Grant date ’000 ’000 ’000 ’000 ’000 ’000 ’000 price Expiry date 2013 CEOCIS(1) 8-May-10 659 – – (659) – – – $0.00 30-Jun-14 CEO SEOP 13(2) 24-Nov-10 4,116 – – – – 4,116 – $0.00 30-Jun-14 SEOP 12(2) 10-Mar-11 15,050 – (2,944) – – 12,106 8,313 $0.00 30-Jun-14 SEOP 14(2) 11-Oct-11 414 – – – – 414 273 $0.00 30-Jun-14 SEOP 15(2) 29-Feb-12 18,094 – (4,708) – – 13,386 – $0.00 30-Jun-15 SEOP 16(2) 29-Feb-12 4,942 – – – – 4,942 – $0.00 30-Jun-15/16(3) SEOP 17(2) 1-May-13 – 7,027 – – – 7,027 – $0.00 30-Jun-16 SEOP 18(2) 1-May-13 – 653 – – – 653 – $0.00 30-Jun-16 SEOP 19(2) 1-May-13 – 2,796 – – – 2,796 – $0.00 30-Jun-16/17(4) Total 43,275 10,476 ( 7,6 52) (659) – 45,440 8,586 Weighted average exercise price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

(1) CEOCIS is the CEO Co-Investment Scheme. (2) SEOP is the Senior Executive Option Plan. (3) Of the options that vest, 60% vest on 30 June 2014 and 40% will vest on 30 June 2015. Options vested will be exercisable no later than 12 months after vesting, after which they will lapse. (4) Of the options that vest, 60% vest on 30 June 2015 and 40% will vest on 30 June 2016. Options vested will be exercisable no later than 12 months after vesting, after which they will lapse. The weighted average remaining contractual life of share options outstanding at the end of the financial year was two (2013: three) years. Fair value of options granted The assessed fair value at grant date of options granted during the period are:

2014 2013 Plan Grant Date $ $ SEOP 17 1 May 2013 n/a 0.247 SEOP 18 1 May 2013 n/a 0.455 SEOP 19 1 May 2013 n/a 0.247 SEOP 20 20 December 2013 0.287 n/a

The fair value of options at grant date is determined in one of two ways, depending on the terms of the options: a) Fair value is independently determined utilising assumptions underlying the Black-Scholes methodology to produce a Monte Carlo simulation model which allows for the incorporation of performance hurdles that must be met before the SEOP vests. The valuation is undertaken in a risk-neutral framework whilst allowing for variables such as volatility, dividends, the risk-free rate, the withdrawal rate and performance hurdles along with constants such as the strike price, term and vesting periods. b) Fair value is determined as the value of the shares at grant date less the value of the dividends forgone over the vesting period. Expected volatility is estimated by considering historic average share price volatility.

116 Virgin Australia F-153 40. Share-based payments (continued) (a) Executive option plans (continued) Fair value of options granted (continued) The model inputs for options granted during the period include: 2014 2013 SEOP 20 SEOP 17 SEOP 18 SEOP 19 a) Exercise price $0.00 $0.00 $0.00 $0.00 b) Grant date 20 December 2013 1 May 2013 1 May 2013 1 May 2013 c) Expiry date 30 June 2017/18 30 June 2016 30 June 2016 30 June 2016/17 d) Share price at grant date $0.385 $0.455 $0.455 $0.455 e) Expected volatility of the Company’s shares 40% 46% n/a 46% f) Expected dividend yield 0% 0% 0% 0% g) Risk-free rate Australian Australian n/a Australian Government Government Government Bond Yields Bond Yields Bond Yields

(b) Employee share plans The following plans were active during 2014:

Share Plan Date Established Details Restrictions Key Employee 11 September 2013 Directors may grant performance A participating employee is not entitled to any income Performance Plan rights to eligible full-time or permanent or other rights (including voting rights) derived from any (KEPP 13) 2013 part-time employees of the Group, shares acquired by the Trustee under KEPP 13 unless other than a non-executive director of and until the shares are transferred to the employee, a member of the Group. The Company following satisfaction of any vesting conditions. The vesting has appointed CPU Share Plans Pty conditions require employees to hold and not sell any of Limited as Trustee to acquire and hold their initial purchase of shares and to remain an employee shares under KEPP 13. The Trustee throughout the period. will transfer shares held by it to a 4,379,721 performance rights were issued on participating employee when the 11 September 2013 under KEPP 13 with a grant date vesting conditions in relation to a of 11 September 2013. Issued in three tranches, 58% performance right have been satisfied of the performance rights are eligible to vest on 1 July or have been waived by the Board. 2014, a further 28% are eligible to vest 1 July 2015 and The Company provides all monies the remaining 14% are eligible to vest on 1 July 2016. required by the Trustee to acquire The performance rights are exercisable during the period shares for the purposes of KEPP 13, commencing on the date on which the respective year’s including costs and duties. annual results are announced and concluding on 30 June of the subsequent year, upon which the rights will lapse if unexercised. Key Employee 6 September 2012 Directors may grant performance A participating employee is not entitled to any income Performance Plan rights to eligible full-time or permanent or other rights (including voting rights) derived from any (KEPP 12) 2012 part-time employees of the Group, shares acquired by the Trustee under KEPP 12 unless other than a non-executive director of and until the shares are transferred to the employee, a member of the Group. The Company following satisfaction of any vesting conditions. The vesting has appointed CPU Share Plans Pty conditions require employees to hold and not sell any of Limited as Trustee to acquire and their initial purchase of shares and to remain an employee hold shares under KEPP 12. The throughout the period. Trustee will transfer shares held by 5,409,856 performance rights were issued on 1 May it to a participating employee when 2013 under KEPP 12 with a grant date of 6 September the vesting conditions in relation to a 2012. Issued in three tranches, 40% of the performance performance right have been satisfied rights are eligible to vest on 1 July 2013, a further 40% are or have been waived by the Board. eligible to vest on 1 July 2014 and the remaining 20% are The Company provides all monies eligible to vest on 1 July 2015. The performance rights are required by the Trustee to acquire exercisable during the period commencing on the date on shares for the purposes of KEPP 12, which the respective year’s annual results are announced including costs and duties. and concluding on 30 June of the subsequent year, upon which the rights will lapse if unexercised.

F-154 annual financial report 2014 117 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

40. Share-based payments (continued) (b) Employee share plans (continued) Set out below are summaries of performance rights granted by the Group under the Key Employee Performance Plan (KEPP) and the Employee Share Grant (ESG):

Number of Number of Number of performance Number of performance Number of performance rights performance Number of rights performance rights vested and rights performance vested and rights at the granted exercised forfeited rights at exercisable beginning of during during during the end of at the end of the year the year the year the year the year the year ’000 ’000 ’000 ’000 ’000 ’000 2014 KEPP 12 5,410 98 (2,186) (1,095) 2,227 – KEPP 13 – 4,380 – – 4,380 – 5,410 4,478 (2,186) (1,095) 6,607 – 2013 ESG 5,873 – (5,873) – – – KEPP 11 580 – (580) – – – KEPP 12 – 5,410 – – 5,410 – 6,453 5,410 (6,453) – 5,410 –

Fair value of performance rights granted The assessed fair value at grant date of performance rights granted during the period are:

2014 2013 Plan Grant Date $ $ KEPP 12 6 September 2012 n/a 0.440 KEPP 13 11 September 2013 0.433 n/a

The fair value of performance rights at grant date is independently determined utilising a discounted cash flow technique taking into account the share price at the grant date and dividends forgone over the vesting period of the performance rights. The model inputs for performance rights granted during the year include: 2014 2013 KEPP 13 KEPP 12 a) Exercise price $0.00 $0.00 b) Grant date 11 September 2013 6 September 2012 c) Expiry date 1 July 2015/16/17(1) 1 July 2014/15/16(2) d) Share price at grant date $0.433 $0.440 e) Expected volatility of the Company’s shares n/a n/a f) Expected dividend yield 0% 0% g) Risk-free rate Australian Australian Government Bond Government Bond Yields Yields

(1) Of the performance rights which vest, 58% will expire on 1 July 2015, 28% will expire on 1 July 2016 and 14% will expire on 1 July 2017. (2) Of the performance rights which vest, 40% will expire on 1 July 2014, 40% will expire on 1 July 2015 and 20% will expire on 1 July 2016.

118 Virgin Australia F-155 40. Share-based payments (continued) (b) Employee share plans (continued) Fair value of performance rights granted (continued) Set out below are summaries of shares in Virgin Australia Holdings Limited held within the Key Employee Performance Plan: Shares at the Distribution Shares beginning of Acquired by the Plan during the at the end the period during the period period of period Fair value Number Number per share Number Number ’000 ’000 $ ’000 ’000 2014 13,665 – – (2,186) 11,479 2013 20,118 – – (6,453) 13,665

Share Plan Date Established Details Restrictions CEO 12 19 November 2012 On 19 November 2012 the CEO was On 1 July 2013 100% of the options vested as the CEO granted 860,699 zero exercise price remained in continuous employment with the Virgin options in respect of a portion of his Australia Group of companies as CEO throughout the short term incentive remuneration for period 1 July 2012 to 30 June 2013. the financial year ended 30 June 2012, Entitlements were exercised and satisfied by an on-market which was deferred in shares. purchase of existing securities. The number of shares purchased totalled 1,055,195 due to fluctuations in the share price since the grant date of the option plan in order to satisfy the financial value of the remuneration awarded. CEO 13 19 November 2013 On 19 November 2013 the CEO was 100% of the options are exercisable if the CEO remains granted 813,712 zero exercise price in continuous employment with the Virgin Australia Group options in respect of a portion of his of companies as CEO throughout the period 1 July 2013 short term incentive remuneration for to 30 June 2014. the financial year ended 30 June 2013, Exercised entitlements will be satisfied by an on-market which was deferred in shares. purchase of existing securities. Any vested options are exercisable during the period 1 July 2014 to 30 June 2015.

Set out below are summaries of options granted to the CEO under STI remuneration plans by the Group:

Number Number Number of options Number of options Number of of options vested and of options Number of vested and options at the granted exercised forfeited options at exercisable beginning of during during during the end of at the end of the year the year the year the year the year the year ’000 ’000 ’000 ’000 ’000 ’000 2014 CEO 12 861 – (861) – – – CEO 13 – 814 – – 814 814 861 814 (861) – 814 814 2013 CEO 12 – 861 – – 861 861 – 861 – – 861 861

F-156 annual financial report 2014 119 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

40. Share-based payments (continued) (c) Short term incentive remuneration plans (continued) Fair value of options granted The assessed fair value at grant date of options granted during the period are: 2014 2013 Plan Grant Date $ $ CEO 12 19 November 2012 n/a 0.472 CEO 13 19 November 2013 0.361 n/a

The fair value of options at grant date is independently determined utilising a discounted cash flow technique taking into account the share price at the grant date and dividends forgone over the vesting period of the options. The model inputs for options granted during the year include: 2014 2013 CEO 13 CEO 12 a) Exercise price $0.00 $0.00 b) Grant date 20 November 2013 20 November 2012 c) Expiry date 30 June 2015 30 June 2014 d) Share price at grant date $0.380 $0.472 e) Expected volatility of the Company’s shares n/a n/a f) Expected dividend yield 0% 0% Australian g) Risk-free rate Government n/a Bond Yields

(d) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the year as part of employee benefit expense were as follows:

2014 2013 $’000 $’000 Options issued under employee option plans 4,074 1,365 Shares issued under employee share plans 1,472 990 Shares issued under employee STI remuneration plans 147 147 5,693 2,502

41. Related parties (a) Key management personnel disclosures (i) Key management personnel compensation The key management personnel compensation comprises: 2014 2013 $’000 $’000 Short-term employee benefits 9,510 9,355 Long-term benefits 61 44 Post-employment benefits 223 306 Share-based payments 2,007 2,503 Termination benefits 149 – 11,950 12,208 All key management personnel are employed by Virgin Australia Airlines Pty Limited.

120 Virgin Australia F-157 41. Related parties (continued) (a) Key management personnel disclosures (continued) (ii) Loans to key management personnel For the 2014 financial year, there were no loans made, guaranteed, secured or outstanding in relation to key management personnel or their related parties (2013: nil). (iii) Other transactions with key management personnel A number of key management personnel hold positions in other subsidiaries of the parent entity that result in them having control or significant influence over the financial and operating policies of those entities. A number of these entities transacted with the Group in the reporting period. The details of these transactions are disclosed in note 41(b). Personal travel by key management personnel and their related parties is undertaken on terms no more favourable than those of employees, as per Group policy. (b) Non-key management personnel disclosures The Group has a related party relationship with its subsidiaries, refer to note 37, its associate and joint venture, refer to note 20, and its key management personnel (refer to part (a) of this note for disclosures in respect of key management personnel). (i) Controlling entity The ultimate parent entity in the Group is Virgin Australia Holdings Limited. (ii) Transactions with related parties The following transactions occurred with related parties:

2014 2013 $’000 $’000 Purchase of goods and services – non-key management personnel related entities “Virgin”, “Virgin Holidays” and “Virgin Australia” brand name royalty paid to other related party(1) – 18,088 Sale of goods and services Revenue for airline and other services to joint venture 3,477 – Revenue for wet lease to associate 20,188 18,859 Revenue for airline services to associate 15,644 11,559 Finance income/(costs) Finance income for unsecured loans advanced to joint venture(2) 1,310 – Finance costs for unsecured loan received from associate(3) (339) (264) Dividends received Dividends received from associate – 381

(1) Royalties are payable to Virgin Enterprises Ltd (VEL) which are determined to be on an arms-length basis. VEL is controlled by Virgin Group Holdings Ltd (VGHL). On 25 June 2013, VGHL diluted its shareholding in the Group resulting in de-recognition of the Group as an associate of VGHL. (2) Refer to note 8 for details relating to the loans advanced to Tiger. (3) Refer to note 25(c)(iv) for details relating to the loan received from Virgin Samoa.

F-158 annual financial report 2014 121 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

41. Related parties (continued) (b) Non-key management personnel disclosures (continued) (iii) Outstanding balances The following balances are outstanding at the reporting date in relation to transactions with Virgin Samoa (associate) and Tiger (joint venture):

2014 2013 Note $’000 $’000 Key management personnel and key management personnel related entities Current receivables ––Virgin Samoa (sales of goods and services) 4,063 3,770 ––Tiger (sales of goods and services) 149 – ––Tiger (unsecured loans)(1) 14 14,948 – Non-current receivables ––Tiger (unsecured loans)(1) 14 23,580 – Current payables ––Virgin Samoa (purchases of goods and services) 11,800 10,034 ––Virgin Samoa (unsecured loan)(2) 4,184 9,266

(1) During the year, the Group entered into two unsecured loan facilities with Tiger. Under one facility, the Group advanced US$54,099 thousand, AU$58,389 thousand, and receives interest at a rate of LIBOR + 5%, which at 30 June 2014 is 5.23% (30 June 2013: n/a). The Group received repayments during the period on this facility of US$32,199 thousand, AU$35,056 thousand. Amounts are repayable on an amortising basis to May 2016. The other facility extended of AU$25,000 thousand attracts monthly interest at a rate equivalent to the prevailing Reserve Bank of Australia cash rate, which at 30 June 2014 is 2.50% (2013: n/a) and is repayable on 7 July 2017. As at 30 June 2014 the total loan balance repayable, including interest receivable, is $49,607 thousand (2013: n/a). After recognising losses exceeding the Group’s equity investment value in Tiger against the value of loan receivables, refer to note 8, the carrying value of the loans receivable at 30 June 2014 is AU$38,528 thousand. (2) Refer to note 25(c)(iv). No provision for doubtful receivables has been raised in relation to any outstanding balances and no expense has been recognised in respect of bad or doubtful debts due from related parties. (iv) Guarantees As at 30 June 2014, the Group has provided various joint and several guarantees for Tiger and its related entities of $486,719 thousand (2013: n/a) for aircraft facilities and $20,000 thousand (2013: n/a) for banking facilities. Tiger Holdings has assumed 40% of these obligations under the Deed of Undertaking and Indemnity with the Group. (v) Shareholder services agreement During the year, the Group entered into a Shareholder Services Agreement with Tiger, whereby the Group provided treasury, corporate governance and legal services for a total fee of $280,000 per annum. (vi) Terms and conditions Refer to note 41(b)(iii) above for terms relating to loans receivable from and payable to Tiger and Virgin Samoa, respectively.

122 Virgin Australia F-159 42. Auditor’s remuneration Details of amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit services provided during the year are set out below:

Restated(1) 2014 2013 $’000 $’000 Audit and review services Auditors of the Company – KPMG – Audit and review(1) 1,632 2,232 Other services Auditors of the Company – KPMG – Other assurance services(2) 482 339 – Other services Taxation services 95 – Other 157 5 734 344

(1) 2013 comparatives have been restated to reflect the final total 2013 remuneration for audit related services agreed after the year ended 30 June 2013. (2) Other assurance services relate to assurance services rendered in relation to sustainability, compliance with service level agreements and other non-financial statement assurance procedures.

F-160 annual financial report 2014 123 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

43. Deed of Cross Guarantee Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries identified in note 37 are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports and Directors’ Report. It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee (Deed). The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Corporations Act 2001, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The Deed came into effect on 18 June 2007. A consolidated statement of profit or loss, consolidated statement of profit or loss and other comprehensive income and retained (losses)/ profits and consolidated statement of financial position, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed is set out as follows:

Restated(1) 2014 2013 Consolidated statement of profit or loss $m $m Revenue and income 3,309.6 3,169.5 Net operating expenses (3,562.0) (3,432.7) Loss before tax related income tax benefit and net finance costs (252.4) (263.2) Finance income 46.7 41.5 Finance costs (141.6) (71.5) Net finance costs (94.9) (30.0) Loss before income tax benefit (347.3) (293.2) Income tax benefit 152.3 35.8 Net loss for the year (195.0) (257.4)

Consolidated statement of profit or loss and other comprehensive income and retained (losses)/profits Loss for the year (195.0) (257.4) Other comprehensive (loss)/income for the year, net of income tax Items that may be reclassified subsequently to profit or loss (52.7) 75.5 Total comprehensive loss for the year (247.7) (181.9) Transfers to reserves 52.7 (75.5) Retained profits at the beginning of the year 103.4 360.8 Movement in retained profits due to entities entering the Deed Group 192.9 – Retained profits at the end of the year 101.3 103.4

(1) Refer to notes 3(b) and 7(c).

124 Virgin Australia F-161 43. Deed of Cross Guarantee (continued)

Restated(1) 2014 2013 Consolidated statement of financial position $m $m Current assets Cash and cash equivalents 744.1 529.6 Trade and other receivables 1,071.5 776.0 Inventories 32.0 26.5 Derivative financial instruments 17.3 96.8 Other financial assets 21.1 12.7 Other current assets 5.8 3.0 Current tax assets - 2.5 Assets classified as held for sale 61.1 - Total current assets 1,952.9 1,4 47.1 Non-current assets Trade and other receivables 23.6 1.8 Derivative financial instruments 2.0 16.8 Other financial assets 546.9 464.5 Deferred tax assets 245.6 40.8 Property, plant and equipment 2,247.9 1,574.3 Intangible assets 358.6 315.8 Other non-current assets 30.2 18.4 Total non-current assets 3,454.8 2,432.4 Total assets 5,407.7 3,879.5 Current liabilities Trade and other payables 1,311.8 1,147.1 Interest-bearing liabilities 474.0 251.4 Derivative financial instruments 11.7 - Provisions 123.5 121.1 Unearned revenue 318.3 285.8 Total current liabilities 2,239.3 1,805.4 Non-current liabilities Trade and other payables 14.0 9.0 Interest-bearing liabilities 1,397.2 575.9 Derivative financial instruments 3.7 9.3 Provisions 114.8 111.9 Unearned revenue 248.1 273.3 Total non-current liabilities 1,777.8 979.4 Total liabilities 4,017.1 2,784.8 Net assets 1,390.6 1,094.7 Equity Share capital 1,166.8 814.1 Reserves 122.5 177.2 Retained profits 101.3 103.4 Total equity 1,390.6 1,094.7

(1) Refer to notes 3(b) and 7(c).

F-162 annual financial report 2014 125 Notes to the consolidated financial statements (continued) For the year ended 30 June 2014

44. Parent entity disclosures As at, and throughout the financial year ended 30 June 2014, the parent entity of the Group was Virgin Australia Holdings Limited. (a) Financial results and position of the parent entity

2014 2013 $m $m Result of the parent entity Profit for the year 65.0 46.1 Total comprehensive income for the year 65.0 46.1 Financial position of the parent entity at year end Current assets 1,008.0 778.2 Total assets 1,813.0 1,409.4 Current liabilities 432.1 446.8 Total liabilities 432.1 446.8 Total equity of the parent comprising of: Share capital 1,166.8 814.8 Share-based payments reserve 18.2 16.9 Retained earnings 195.9 130.9 Total equity 1,380.9 962.6

(b) Parent entity contingencies The Company does not have any contingent assets or contingent liabilities at 30 June 2014 (2013: nil). (c) Parent entity capital commitments for acquisition of property, plant and equipment The Company does not have any capital commitments at 30 June 2014 (2013: nil). (d) Parent entity guarantees in respect of debts of its subsidiaries The Company has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of a number of its subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in note 43.

45. Events subsequent to reporting date (a) Board representation On 4 July 2014, the Group appointed three Non-Executive Directors to the Board of Virgin Australia Holdings Limited: • Mr Goh Choon Phong, Singapore Airlines Limited (Alternate Director: Mr Marvin Tan); • Mr James Hogan, Etihad Airways P.J.S.C. (Alternate Director: Mr James Rigney); and • Mr Christopher Luxon, Air New Zealand Limited (Alternate Director: Mr Robert McDonald). The appointments have occurred following the adoption of a Nominee Director Protocol (Protocol) which sets out the procedures to be followed by the Board, its major shareholders and their nominated representatives on the Board. The Protocol intends to assist in managing potential issues relating to conflicts of interest and confidential information and ensure the Board continues to service the interest of all shareholders. The appointment of the three Non-Executive Directors had no financial effect on the Group at 30 June 2014. (b) Velocity Frequent Flyer program The Group has executed documents for the sale of a 35% minority interest in the Velocity Frequent Flyer program for total consideration of $336.0 million. Completion of the transaction is subject to customary conditions and regulatory approvals, including Foreign Investment Review Board approval, finalisation of due diligence items and completion of final transaction documents. No other material matters have arisen since 30 June 2014.

126 Virgin Australia F-163 Directors’ declaration

1. In the opinion of the directors of Virgin Australia Holdings Limited (the Company): (a) the consolidated financial statements and notes that are set out on pages 44 to 126 and the Remuneration report in section 5 in the Directors’ Report, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2014 and of its performance for the financial year ended on that date; (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. There are reasonable grounds to believe that the Company and the group entities identified in note 37 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities pursuant to ASIC Class Order 98/1418. 3. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2014. 4. The directors draw attention to note 2(a) to the financial statements, which includes a statement of compliance with International Financial Reporting Standards.

Signed in accordance with a resolution of the directors:

Neil Chatfield John Borghetti Director Director Dated at Sydney, 29 September 2014

F-164 annual financial report 2014 127 Independent auditor’s report to the members of Virgin Australia Holdings Limited Report on the financial report We have audited the accompanying financial report of Virgin Australia Holdings Limited (the company), which comprises the consolidated statement of financial position as at 30 June 2014, and consolidated statement of profit or loss, consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 45 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In note 2(a), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view 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 the directors, as well as evaluating the overall presentation of the financial report. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: a) the financial report of the Group is in accordance with theCorporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2014 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a).

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG Liability limited by a scheme approved under International Cooperative (“KPMG International”), a Swiss entity. Professional Standards Legislation.

128 Virgin Australia F-165 Independent auditor’s report to the members of Virgin Australia Holdings Limited (continued) Report on the remuneration report We have audited the Remuneration report included in pages 24 to 40 of the Directors’ Report for the year ended 30 June 2014. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion In our opinion, the remuneration report of Virgin Australia Holdings Limited for the year ended 30 June 2014, complies with Section 300A of the Corporations Act 2001.

KPMG

A W Young Partner Sydney, 29 September 2014

F-166 annual financial report 2014 129 REGISTERED OFFICE OF VIRGIN AUSTRALIA 56 Edmondstone Road Bowen Hills, Brisbane, Queensland, 4006, Australia

INITIAL PURCHASER Goldman, Sachs & Co. 200 West Street New York, NY 10282

LEGAL ADVISORS

To Virgin Australia To Virgin Australia as To the Initial Purchaser To the Initial Purchaser as to United States law to Australian law as to United States law as to Australian law Herbert Smith Freehills LLP Herbert Smith Freehills Milbank, Tweed, Hadley King & Wood Mallesons 50 Raffles Place ANZ Tower & McCloy LLP Level 61, Governor Phillip Tower #24-01 Singapore Land Tower 161 Castlereagh Street 28 Liberty Street 1 Farrer Place Singapore 048623 Sydney, NSW 2000 New York, NY 10005 Sydney, NSW 2000 Australia Australia

INDEPENDENT AUDITORS KPMG 10 Shelley Street Sydney, New South Wales, 2000 Australia

TRUSTEE, PAYING AGENT, TRANSFER AGENT AND REGISTRAR The Bank of New York Mellon 101 Barclay Street Floor 4-East New York, NY 10286 US$50,000,000

Virgin Australia Holdings Limited

8.50% Senior Notes due 2019

OFFERING CIRCULAR

Goldman, Sachs & Co.

, 2015