2016 MANAGEMENT REPORT Bogotá D.C. March 2017

Informe de gestión 2016 • Holdings S.A. 1 Letter from the Executive President

G4-1 ur goal is to provide details of the progress we made in We opened the Maintenance, Repair and Inspection 2016 on the path to change and transformation that Aeronautics Center (MRO) in Rionegro, in ’s Avianca has embarked on. Antioquia province, with an initial investment in 2016 of We established a single reporting period so that we USD 42,081 million, where more than 600 technicians could present the results of our efforts in accordance and engineers currently work, all of them experts in the with the regulations and expectations of each of the Airbus A318, A319, A320, A321 and ATR72 fleets and who Organization’s stakeholders. are currently in the process of being accredited to provide We want to share the change perspective in our engineering and maintenance services for aircraft in the business approach, the Organization’s long-term vision, its Boeing 787 and Airbus 330 fleets. The MRO meets LEED challenges, and the way in which we create value for each sustainable construction standards and has been endorsed one and for the environment. by Colombia’s Civil Aeronautics Authority, the US Federal In 2016, we set out on the path we have called our 2020 Aviation Administration (FAA), and the European Aviation Flight, connecting the world to . We chose Safety Agency (EASA). our destination as making Avianca a digital company that In a difficult year for the global economy and for our flies aircraft. The oldest continuously operating sector, we succeeded in adhering to the performance range in the world and the first in America, with a significant we promised the market. And we made two momentous improvement in our customers’ experience through our achievements. On the one hand, we formed the managerial use of the best technology and the best human talent, so team responsible for operating the extremely rigorous we always give more. customer care processes and for the development of

2 2016 Management Report• S.A. world-class human talent, establishing a new corporate culture that reflects our humanly effective leadership model and takes technology on board in order to deliver to the customer an exceptional travel experience. On the other hand, we also established our flight plan for 2020, setting out the Avianca vision and mission, which are centered around the customer as both the beginning and end of our service strategy. In 2016 we reinforced our governance and our conduct towards our stakeholders. We are implementing a new risk management model based on three lines of defense, namely responsibility, clear processes and the intensive use of technology, which together enable us to be sure that we are doing what is correct and doing it well. The organization has appreciated that the key to sustainable management that generates value for all our stakeholders lies in relating with them strategically, with a view to achieving our goals. Avianca thus becomes a transformation agent for the societies where it operates by contributing economic, social and environmental value, thereby illustrating its excellent corporate citizen status. Sustainability is present in every one of the decisions we make as professionals and individuals, so that it becomes a hallmark of our organization. To achieve this, the most important thing is for each of us to be conscious of this need and to consider the consequences of what his or her own conduct is having and will have on the Organization, on society, and on his or her family. 2015 and 2016 have been years that have brought major global challenges in the field of sustainability, especially in the context of the Paris Summit climate change agreement and the Sustainable Development Objectives (SDO). We at Avianca are convinced that the best way to achieve our goals is to do so in a sustainable manner, generating value not only for the Company but Hernán Rincón for all society. This is why we have an approach to work that has to adapt to present and future challenges and trends and should contribute to global agendas. The causes of climate change have their direct origin in human and organizational activities, and we should therefore responsibly administer our impacts. We recognize that the Sustainable Development Objectives (SDO) form a global agenda down to 2030, and here the way in which the material matters presented in this report are managed undoubtedly contributes greatly, and will continue to do so. We will be ready to work as a team with the governments of the countries where we operate, with civil society and with the private sector, in order to ensure that these objectives are met and that we leave the new generations the legacy we hope for.

2016 Management Report• Avianca Holdings S.A. 3 Contents

8 ABOUT THIS REPORT 24 PERFORMANCE BY SEGMENT 24 Passenger Transportation 25 Cargo Transportation 10 WORLD AIR TRANSPORTATION 25 Deprisa MARKET ENVIRONMENT 28 Other lines of business 10 International Passenger Market 29 Where we operate 11 Domestic Passenger Market 30 The past, driving force for the future 11 Air Cargo Transportation Market 32 Our Integrated Management System 34 Awards and Certifications

12 ABOUT AVIANCA HOLDINGS S.A. 12 Corporate Profile, Avianca Holdings S.A. 36 OUR CORPORATE STRATEGY 12 Nature of the Company and legal status 36 To fly higher 13 Companies which make up Avianca Holdings S.A. 37 Our Strategic North to 2020 14 Significant changes in 2016 38 Our responsible and sustainable management 14 2016 Avianca Holdings S.A. performance strategy 14 Financial and Operations Results 40 In line with international standards and initiatives 15 Passenger Airline operation indicators 40 Alliances for Sustainability 15 Integrated improve their market position 40 Strategic Relations 16 International Market 16 Domestic markets (Colombia, and ) 46 CORPORATE GOVERNANCE 46 Avianca Holdings S.A. Board of Directors 16OUR PASSENGER AND CARGO 46 About Board of Directors members TRANSPORTATION FLEET 49 Executive Committee 49 Top Management Diversity 50 Legal Situation 17 FLEET RENEWAL 50 Subsequent facts 51 Annual Avianca Holdings S.A. Corporate Governance Report 18 DESTINATIONS, ROUTE NETWORK AND ALLIANCES 18 New Services on International Routes 74 RELATIONS WITH STAKEHOLDERS 18 Increased International and Domestic Frequencies 76 SOCIAL, ENVIRONMENTAL AND ECONOMIC 18 Hubs MATERIALITY 18 Shared codes, interline and intermodal agreements 19 80 SOCIALLY RESPONSIBLE MANAGEMENT

4 2016 Management Report• Avianca Holdings S.A. 80 I. PASSENGER AND CARGO (SAFETY) 98 IV. RESPONSIBLE HUMAN TALENT MANAGEMENT 80 The importance to Avianca Holdings and its 98 The importance to Avianca Holdings and its stakeholders stakeholders 82 Notable facts, 2016 98 Notable facts, 2016 82 Risk management and reporting culture 98 Employment 82 Flight Operations Monitoring - FOM/FDA 102 Innovation in our human talent model 83 Other projects 103 Technology for better talent 83 Measuring performance and operating risk manage- 103 Formalization agreements ment monitoring 103 Training and education 83 Promotion of operational safety 104 Performance evaluation 84 Line Operations Safety Audit - LOSA 105 Welfare and job flexibility 84 Certifications 105 Challenges in 2017 and the future 84 Challenges in 2017 and the future

85 GROUND AND AIR PROTECTION (SECURITY) 106 V. SAFE AND HEALTHY WORKING 85 The importance to Avianca Holdings and its ENVIRONMENT stakeholders 106 The importance to Avianca Holdings and its stakehol- 85 Notable facts, 2016 ders 85 Challenges in 2017 and the future 107 Notable facts, 2016 107 Accident rate, absenteeism and health performance in 2016 86 CUSTOMER EXPERIENCE 117 Challenges in 2017 and the future (TRAVEL EXPERIENCE) 86 The importance to Avianca Holdings and its stakeholders 118 VI. CONTRIBUTION TO SOCIETY 86 Notable facts, 2016 118 The importance to Avianca Holdings and its stakehol- 87 The customer at the center of our strategy ders 88 Customer plan 118 Notable facts, 2016 88 Digital Foundations 118 Avianca Holdings social programs 89 Customer first 118 Miles Bank 90 Our products and services 118 Corporate volunteer program 92 ‘Carla’: our virtual assistant 120 Strategic alliances 93 Customer satisfaction: our continuous 122 Children for Americ improvement indicator 123 Avianca Solidarity 93 NPS for Frequent Flier Program 124 Other humanitarian aid through Avianca Solidarity 94 Complaints and claims 125 Challenges in 2017 and the future 96 On Time Performance (OTP) and Schedule 126 Development that respects the environment Completion 96 Challenges in 2017 and the future

2016 Management Report• Avianca Holdings S.A. 5 126 VII. DEVELOPMENT THAT RESPECTS THE 140 Waste water ENVIRONMENT 126 The importance to Avianca Holdings and its stake- 140 XI. RESPONSIBLE WATER MANAGEMENT holders 140 The importance to Avianca Holdings and its stake- 127 Environmental management standardization holders 129 Environmental Policy 140 Notable facts, 2016 130 Notable facts, 2016 141 Challenges in 2017 and the future 130 Training and environmental awareness 142 Generating Economic Value 130 Expenses and investment in the environment

142 XII. RESPONSIBLE SUPPLY 131 IMPACT MITIGATION AND ADAPTATION TO 142 The importance to Avianca Holdings and its stake- CLIMATE CHANGE holders 131 The importance to Avianca Holdings and its stake- 142 Notable facts, 2016 holders 143 New supply model 131Notable facts, 2016 144 Supplier development and evaluation 131 Aircraft fleet emissions 145 Local supplies 132 Carbon Reduction and Compensation Plan for 145 Human Rights follow-up on our suppliers International Aviation- CORSIA 146 Challenges in 2017 and the future 133 CO2 emissions by aircraft on ground, Bogotá station 134 Fuel saving strategies 146 XIII. GENERATING ECONOMIC VALUE 135 Fuel consumption 148 Prospects for 2017 and the future 136 Fuel value of A1 jet fuel consumed by AVH 149 Audited Financial Statements 150 Certification 151 CRI-G4 content index, core option 137 IX. NOISE IMPACT MITIGATION 163 Attachments 137 The importance to Avianca Holdings and its stake- holders 137 Obligatory reductions

138 WASTE MANAGEMENT 138 The importance to Avianca Holdings and stake- holders 138 Notable facts, 2016 138 Waste management initiatives 139 Our Waste Management

6 2016 Management Report• Avianca Holdings S.A. Informe de gestión 2016 • Avianca Holdings S.A. 7 About this report

Report by the Board of Directors, the Chairman and other members of Management to the Ordinary General Meeting of Shareholders and stakeholders of Avianca Holdings S.A.

G4-28 he Board of Directors, Chairman and other members of G4-30 management have pleasure in presenting this report on activities performed and the annual results obtained from our economic, social, environmental and good corporate governance management during the period between January 1 and December 31, 2016 1.

G4-23 Unlike previous years, and with a view to fully getting across our business vision, which seeks to generate value, and our commitment to sustainable management of the operations by companies which come under the Avianca Holdings S.A. umbrella, we have brought together in this document the Management Report, the Annual Corporate Governance Report and the Sustainability Report, thereby adhering to applicable corporate reporting standards, regulations and initiatives and meeting the information expectations of our stakeholders. In this report you will be able to find full details of all the challenges we as an organization faced in 2016, how we have prepared for 2017, and how we are managing financial, social and environmental risks, impacts and opportunities, in line with the results of the exercise to identify and prioritize relevant issues that we conducted during the respective year.

G4-32 The guidelines established in Version G4 of the “Global Reporting Initiative” (GRI) guide for drawing up sustainability reports were followed when producing this publication, under the “essential conformity” option.

G4-33 The financial information included in this report is presented in accordance with International Financial

8 2016 Management Report• Avianca Holdings S.A. Information Standards, and consolidated and separate and the companies which operate the ’s financial statements are included which have been audited lines of business. by the External Auditor Ernst & Young. Non-financial Should actions executed by one or several of the data and general information are taken from primary and companies which make up the Holding Company be secondary information sources in the documentary records presented in this report, the Company which performed of Company areas and processes, some of which are such action will be mentioned specifically. And when controlled by our management systems and are subject to reference is made to ‘the companies which make up periodic internal and external audits during the year. the Holding Company’, ‘the operating companies’ or ‘companies which come under the Holding Company G4-31 The report is available on the official Avianca umbrella’, the actions should be understood to have been Holdings S.A. website: http://www.aviancaholdings.com/ executed by each and every one thereof or to have been informes-anuales. Should you require further information, implemented for them. or if you have any queries, suggestions or opinions relating to this report, please contact the Corporate Other Representations Citizenship Division at the following email address: Avianca Holdings has complied with legal regulations [email protected]. currently in force relating to copyright and intellectual property rights. Limits and Scope Pursuant to Article 1 in Law 603 of 2000, Avianca The words ’the Holding Company’, ’the Company’ or Holdings declares that the corresponding licenses are held ’the Organization’ will be used in this report to refer to for the software it uses and that it accordingly complies Avianca Holdings S.A., as controlling and investment with regulations governing intellectual property and company. The word “Organization” will be used to refer copyright. to Avianca Holdings S.A. and member companies thereof, By virtue of Article 87 in Law 1676 of 2013, Avianca particularly in the description of practices and programs Holdings declares that it permits the free circulation of that cover both the controlling and investment company invoices issued by sellers or suppliers.

1 G4-29 The last report published was for the year 2015. 5

2016 Management Report• Avianca Holdings S.A. 9 World Air Transportation Market Environment2

The world air industry continued to grow in 2016, with 3,700 million passen- gers being transported safely around the world, according to the latest Inter- national Air Transport Association - IATA 2 - report. . Despite worldwide political instability, uncertainty over possible terrorist attacks and moderate economic activity, the air transportation market repor- firm stability and growth figures. Global demand (RPK 3) was 6.3% 4 up on 2015, a record figure in excess of the annual average of 5.5% for the last ten years. Meanwhile, capacity (ASK 5) grew by 6.2%, with a load factor of 80.5%.

International Passenger Market The international passenger market continues to • In North America, there was much more traffic on grow solidly, with increases in demand in all regions. routes that fly over the Pacific than on those which fly over Global capacity was 6.9% up, international passenger the North Atlantic. North reported 2.6% transportation rose by 6.7%, and the load factor stood growth in international demand and 3.3% in capacity. The at 79.6%, a drop of 0.2%. Results were as follows in the load factor fell by 0.5%, to 81.3%. regions. • were notable, for the fifth • Latin American airlines, although affected by political consecutive year, for being in the region with the highest and economic instability throughout 2016, continue to consolidated growth and boasting the third biggest grow in a sustained manner. International passenger market in the world, in terms of international passenger demand was 7.4% up, capacity rose by 4.8%, and the load numbers. The growth in capacity (13.7%) was higher than factor was 81.3%. the increase in demand (11.8%), resulting in a 1.3% drop • European carriers achieved the highest load factor, in the load factor, to 74.7%. 82.8%, despite this being 0.1% down on the 2015 figure. • Asia-Pacific reported the second highest increase in International demand and capacity increased by 4.8% demand, with 8.3% growth: a very good result in view of and 5.0%, respectively, thanks to an upturn in the second 6.9% average for the last five years. Capacity was 7.7% up, half of the year after a slight fall in the first six months and the load factor reached 78.6%. of 2016. • African airlines were boosted by the heavy demand on

2 IATA Another Strong Year for Air Travel Demand in 2016. Retrieved February 02, 2017 from http://www.iata.org/pressroom/pr/Pages/2017-02-02-01.aspx 3 Revenue Passenger per Kilometer. 4 Without leap year adjustment. 5 Available Seats per Kilometer

10 2016 Management Report• Avianca Holdings S.A. routes to/from Asia and the Middle East and performed Air Cargo Transportation Market better than any year since 2012. Capacity and demand In 2016, air cargo transportation, measured in FTK 6, was grew at a rate of 7.4%, and the load factor was stable at 3.6% up on 2015. This increase is almost twice the average 67.7%. growth figure of 2.0% in the last five years.

Domestic Passenger Market Capacity, meanwhile, grew by 5.3%. Although it was a positive year for the industry, mainly due to the increase in EResults were also positive on the domestic market. exports, 2017 will be a year of challenges because of the In general, domestic journeys were 5.7% up and capacity stagnation in world trade and protectionist policies in key rose by 5.1%. The load factor increased by 0.5%, to markets. All regions except for Latin America reported 82.2%. Apart from , the principal markets reported positive results, mainly due to the good performance of significant growth, especially in India and China. Despite European carriers. the 5.5% fall in its demand, Brazil had the best load factor since 1990 (80.1%).

6 Freight Tonnes per Kilometer

2016 Management Report• Avianca Holdings S.A. 11 About Avianca Holdings S.A.

Understanding our business Making Avianca Holdings a digital company that flies in Colombia, Aerolíneas Galápagos S.A. AeroGal, aircraft is the destination we have chosen for ourselves. incorporated in Ecuador, and companies in the so-called This explains why every step we took in 2016 was in the TACA Group: TACA International Airlines S.A., incorporated context of the change and transformation route, and is in , Líneas Aéreas Costarricenses S.A. (LACSA), today leading us towards that goal. incorporated in , Trans American Airlines S.A. • We can boast the best human talent in the region for (known as TACA Peru), incorporated in Peru, Servicios reaching our objectives: over 22,000 direct and indirect Aéreos Nacionales S.A. (SANSA), incorporated in Costa personnel at 81 bases whose attitude, experience and Rica, Aerotaxis La Costeña S.A., incorporated in , abilities bring the operations of the companies that come Isleña de Inversiones C.A. de C.V. (ISLEÑA), incorporated in under the Avianca Holdings umbrella to life and enable Honduras, and Aviateca S.A., incorporated in . them to meet corporate targets. The principal investments by the Holding Company • Our LifeMiles loyalty program has more than seven include investments in passenger, cargo and specialized million members, who benefit from countless options to messenger or courier air transportation companies, earn miles and redeem them at hotels and on services and and companies which engage in activities related to air products around the world. transportation services, such as tourism, engineering, • Over 29 million passengers enjoyed the service and maintenance, entertainment and ground assistance Latin excellence that typify the passenger airlines that services that support the operation of other carriers. come under the Avianca Holdings S.A. umbrella in 2016. • Through the advisory services of experts from the Nature of the Company and firm Boston Consulting Group, in 2016 we determined the legal status make-up of the managerial team that will be responsible for setting in motion the highest and most rigorous G4-7 Avianca Holdings S.A. was incorporated in customer care processes, in line with the objectives we the Bahamas in October 2009 as SK Holding Limited, have set ourselves as an organization. and its domicile was changed to in 2011. It • We made progress on determining the flight plan for has been reformed several times, the most recent 2020, initially establishing the new Avianca Holdings S.A. being approved at an ordinary session of the General vision and mission, our ‘Strategic North’, which defines Meeting of Shareholders held in Panama on March 31, where we are heading and our commitment to the 2016. Its capital stock is represented in 660,800,003 customer as the focal point of our service strategy. ordinary shares with voting right and 340,507,917 • In our cargo transportation line, aircraft-aircraft cargo preference shares without voting right, making a total movements in the second half of 2016 were 188% up on of 1,001,307,920 outstanding shares. 78.09% of the the previous year. ordinary shares with voting right are held by Synergy Aerospace Corp., a company incorporated in Panama Corporate Profile, whose final beneficiaries are the brothers Germán and Avianca Holdings S.A. José Efromovich, while the remaining 21.91% belong to Kingsland Holdings Limited, a company incorporated G4-3, G4-4, G4-5 Avianca Holdings S.A. is a company in the Bahamas whose final beneficiaries are Roberto incorporated in Panama which acts as an umbrella for Kriete and his family. Its administrative bodies are the various air companies, among others, that operate General Meeting of Shareholders, the Board of Directors, domestically and internationally: Aerovías del Continente and Dignitaries. Americano S.A. and Tampa Cargo S.A.S., incorporated

12 2016 Management Report• Avianca Holdings S.A. Companies which make up Avianca Holdings S.A.

Avianca Holdings S.A. (Panamá)

LifeMiles B.V. Taca Holdings Latin Airways Aerolineas (Curacao) Limited Group Corp Galapagos S.A. Bahamas (Panama) (Ecuador) 70% 100% 100% 90.62% Others Service Others 1 30% Companies 0.02% 100%3

Aircraft Aerovias del Ownership Continente 2 Americano Entities S.A. Avianca (Colombia) 100% 5.02%

Taca S.A. Aircraft Panamá Ownership Entities 2 100% 100%3

Service Lineas Aereas Companies1 Costarricenses S.A. 3 (Costa Rica) 100% 92.4%3 Tampa Cargo S.A.S. Trans American (Colombia) Airlines S.A. 1 Companies that render services 3 include companies whose special (Perú) 100% purpose is to hire personnel or provide operating and other 4 services 100% 2 Companies incorporated for the special purpose of fleet financing. 3 Share through different Taca International companies. Airlines S.A. 4 Share through different companies, including shares with (El Salvador) and without voting right. 96.84%

2016 Management Report• Avianca Holdings S.A. 13 Significant changes in 2016 • Formation of the company Loyalty Co. S.A. de C.V., domiciled in El Salvador, by means of Public Deed dated January 14, 2016, whose shareholders are LifeMiles B.V., a company incorporated in Curacao, and Aviation Services Holdings Corp., a company incorporated in Panama. • Incorporation of the company Loyalty Miles Services, domiciled in Costa Rica, by means of Public Deed 216 dated February 17, 2016, whose shareholder is LifeMiles B.V., a company incorporated in Curacao. • Formation of the company Tri-Aircraft Leasing II, LLC, domiciled in Delaware, , by means of certificate of incorporation dated June 22, 2016, whose shareholder is Avianca Leasing LLC, a company incorporated in Delaware, United States. • Incorporation of the company Uni-Aircraft Leasing II, LLC, domiciled in Delaware, United States, by means of certificate of incorporation dated November 30, 2016, whose shareholder is Avianca Leasing LLC, a company incorporated in Delaware, United States. • Application in December 2016 to the Delaware Division of Corporation to cancel the mercantile record of the companies SAM 1009 LLC, SAM 4011 LLC, SAM 4001 LLC, SAM 3988 LLC, SAM 3992 LLC.

2016 Avianca Holdings S.A. performance

Financial and Operating Results Operating profit on the 2016 fiscal year totaled At the 2016 year end, Avianca Holdings S.A. reported a 5.1% drop in income, from USD 4,361.3 million to USD 4,138.3 million. Operating costs, excluding the fuel effect, USD 258.5 fell by 1.3%, from USD 3,135.7 million to USD 3,049.6 million million. This figure includes both operation growth and expenses deriving from fleet changes. In line with the increase in routes and frequencies, the fuel cost totaled USD 785.3 million, 22% less than the cost in 2015. The operating profit on the 2016 period was USD 258.5 million, USD 39.7 million up on the operating profit reported in 2015. The net result includes a net loss on difference on exchange effect of USD 23.9 million. The financial position of Avianca Holdings S.A. deteriorated in comparison with its 2015 results, since its working capital decreased 7 while its ability to meet short- term debts (current ratio 8 ) fell by USD 0.06 (9.1%) and its 7 For calculating working capital, income received by way of indebtedness ratio fell to 1% below 2015 levels. prepayment for tickets purchased but not flown is excluded from current liabilities for both years, since it is not a liability subject to cash disbursement. 8 For calculating current ratio, income received by way of prepayment for tickets purchased but not flown is excluded from current liabilities for both years, since it is not a liability subject to cash disbursement.

14 2016 Management Report• Avianca Holdings S.A. Passenger airline operation indicators Integrated airlines improve their As a result of actions aimed at complementing the route market position network, optimizing the fleet and integrating its hubs, the Connection and coverage options via airlines in the company maintained a balance in terms of operational group expanded during 2016, with more seats offered performance. Thus, together with a 5.9% increase in ASK on routes in the international network, which reached (Available Seats per Kilometer) capacity, the volume of 105 destinations in 28 countries on the continent of operations grew by 1.9% (in cycles) and the number of America and in . Notable in this context was the passengers carried rose by 4.2%. The average load factor introduction of a direct flight from Bogotá to Cuzco, was 81.1%. connecting to Mexico, , New York and London. The Avianca Holdings S.A. ex-fuel CASK (average cost per Similarly, there was an increase in frequencies on current seat per kilometer flown, excluding fuel costs) fell by 6.8%, routes from Bogotá, Medellín and to Madrid and due to the company’s efforts in its operation to face up to from the Bogotá hub to (), , the macroeconomic environment in the economies where San Juan () and Punta Cana. Avianca Holdings operates, together with the changes As a result of the position the service has won for it- made in the fleet in order to optimize the operation and self on strategic markets and the capacity adjustments, various initiatives aimed at optimizing the company’s the airlines attached to the Holding Company handled operating and administration costs. Meanwhile, the RASK 29,479,948 passengers in the period from January to De- (revenue available per seat per kilometer) fell by 10.4%. cember, 2016. This figure is 4.2% up on the same period in 2015, when 28,290,274 passengers were carried. Seat capacity (ASK) was 5.9% up on 2015, and the load factor of 81.1% was an increase of 1.4% on the 2015 figure.

2016 Management Report• Avianca Holdings S.A. 15 International Market figure was 17,054,095. Capacity, measured in ASK, rose by The number of passengers carried in 2016 on 1.6% in this period, while passenger traffic (RPK) increased international routes by airlines attached to the Holding by 4.1%. The load factor was 79.4%, 1.9% up on the 2015 Company rose to 11,857,287, an increase of 5.5% on the figure in these countries. number of international passengers carried in 2015, when the figure was 11,236,179. Capacity, measured in ASK, rose Our passenger and cargo transportation by 7.1%, while passenger traffic, measured in RPK, increased fleet by 8.7%. As a result of this, the load factor on international routes was 81.6%, 1.3% up on the 2015 figure. In order to achieve our corporate objectives, our airlines can rely on the best talent, an operating fleet designed Domestic markets (Colombia, Peru and Ecuador) to offer more space and comfort, and processes whose The total number of passengers carried in Colombia, technology and innovation enable us to anticipate and Peru and Ecuador by airlines affiliated to Avianca espond to the needs of our stakeholders. Holdings in the period from January to December, 2016 Our passenger and cargo transportation fleet at the was 17,622,661, an increase of 3.3% on the number of 2016 year end was as follows9 passengers carried in the twelve months of 2015, when the

Operating fleet Three passenger of 174 passenger hubs. aircraft Located in Bogotá, and , enabling us to guarantee speedy connections between domestic and international flights.

Our business model describes how we operate as an organization. Our service and the fact that we operate in various countries and through Cargo Three cargo numerous Air Operation transportation operations Centers (AOC) and hubs are fleet centers what differentiate us.

Miami, Bogotá y El Salvador 9 Two 190s are subleased to Aerolitoral S.A. de C.V., three Airbus 319s are subleased to OceanAir Lihnas Aéreas S.A., and one Airbus A330F is subleased to OceanAir Lihnas Aéreas S.A. .

16 2016 Management Report• Avianca Holdings S.A. Owned/ Aircraft Financial Operating Total Lease Lease Airbus A-318 10 10 Airbus A-319 23 7 30 Airbus A-320 34 28 62 Airbus A-321 5 6 11 Airbus A-330 1 8 9 ATR-42 2 2 ATR-72 15 15 Boeing 787 6 4 10 Cessna Grand Caravan 13 13 Embraer E-190 10 2 12 109 65 174 Two of the Airbus 319 aircraft listed are subleased to OceanAir Linhas Aéreas S.A. and two Embraer 190s are subleased to Aerolitoral S.A. de C.V. This leaves 170 passenger aircraft attached to the Avianca Holdings operation at the end of the period.

Aeronave Cantidad Aerolinea Airbus A330F 5 Tampa Airbus A330F 1 Avianca Airbus A300F 5 Aerounión Boeing 767F 2 Aerounión Total 13 One Airbus A330F (signed to Avianca) in the table above is subleased to OceanAir Linhas Aéreas S.A. and five Airbus A300Fs and two Boeing 767Fs are subleased to Aerounión. At the end of the period, Tampa Cargo had an operating fleet of five Airbus A330Fs.

Fleet Renewal • Two (2) Cessna Caravan 208s, with capacity for 12 The airlines attached to the Holding Company continued passengers, allocated to regional operations in Central the aircraft fleet renewal, simplification and modernization America. process in 2016, with a view to offering our customers a • One (1) Airbus 300 B4F , acquired by better experience, in line with the safety and technology Avianca and operated by Aerounión. needs they require. Our aircraft have an average age of Our target for 2017 is to introduce the first four Neo 6.73 years, below the average age for the industry. aircraft with new generation engines, which are much As a result of this process, we introduced ten new more efficient in terms of fuel and make 50% less noise aircraft in 2016, as described below. and produce 50% less carbon emissions. • Three (3) Boeing 787s with capacity for 250 passengers. These are medium-sized, wide-bodied aircraft, In 2017, our travelers will be able to enjoy onboard made 50% of compound materials that are stronger and internet on all our flights, to which end we will fit our fleet lighter than aluminum, and they include lower noise levels with the technology that meets our customers’ needs. and a lower fuel consumption. • Four (4) Airbus 320s, with aerodynamic wingtip devices (sharklets) that contribute to an average fuel saving of 3.5% on long-distance routes, equivalent to an annual CO2 reduction of 700 tonnes per aircraft.

2016 Management Report• Avianca Holdings S.A. 17 Destinations, route network and Hubs alliances Significant progress was made in 2016 on integrating We continued to strengthen the route network our hubs in Bogotá (Colombia), San Salvador (El Salvador) in 2016 by introducing direct flights or connecting and Lima (Peru), thereby improving the Company’s load ones via the company’s hubs. As a result, we flew to factor and market position. 105 destinations in 28 countries. Thanks to code share • Bogotá, Colombia operations or interline agreements with international An average of 3,241 flights were made per week from the airlines and Star Alliance partner airlines, we offer hub in Colombia’s capital to 24 cities around the country. passengers the possibility of continuing to hundreds of To this total were added daily flights to six destinations in cities on the five continents. North America, ten in , 13 in Mexico, Central Detailed below are additional services that were America and the , and a comprehensive range of introduced by passenger airlines in the past year. over 42 flights per week from points in Colombia to Madrid, Barcelona and London, in Europe. New services on international routes: • San Salvador, El Salvador • Bogotá / Cuzco + 3 frequencies per week Over 618 flights per week were operated from the hub in San Salvador, from and to nine destinations in North Increased international and domestic America, six in South America and 12 in Mexico, Central frequencies: America and the Caribbean. • Lima, Perú An average of 482 flights per week were operated through the hub in Peru’s capital city to 15 points in South Return Route Weekly Frequencies America, six in Mexico, Central America and the Caribbean, Bogotá / Madrid +4F / Total 18 one in North America, and six within Peru itself. Medellín / Madrid +1F / Total 3 Cali / Madrid +2F / Total 7 Shared codes, interline and Guayaquil / Cali +2F / Total 7 intermodal agreem Bogotá / San Juan de Puerto Rico +2F / Total 7 In 2016, the integrated airlines continued to offer Bogotá / Punta Cana +2F / Total 13 services under code share operations with thirteen airlines, Bogotá / Buenos Aires +3F / Total 7 thus covering countries within Latin America and beyond Bogotá / Santiago de Chile +7F / Total 21 the continent. The biggest demand under this modality Cuzco / Lima +3F / Total 38 is with links in Spain and London to the rest of Europe,

18 2016 Management Report• Avianca Holdings S.A. connecting with , and , to City - Mérida - Miami route. North America with , and Silver Current interline marketing agreements with other Airways, to Mexico with , to other destinations airlines on the five continents have enabled in Latin America with Copa and Ocean Air (Avianca Brazil), to improve routes between Latin America and the rest of and to Asia with , Eva Air and Etihad. the world. 2016 cargo volumes in interline transshipment As a result of these code share agreements, we can offer were 18% up on 2015. an additional 105 destinations and 165 routes, thereby Due to improvements to aircraft-aircraft connectivity complementing the network operated directly by Avianca. at the Bogotá hub and market diversification strategies, At the same time, we have over 80 interline agreements incremental capacity was translated into additional kilos for with airlines on the five continents, plus three intermodal the network, with a diversification of origins to destinations agreements, with rail company RENFE in Spain and with like Madrid, New York, London and Los Angeles, in that rail operator Great Western Railway and interurban bus order. Implementation of this project contributed to the company National Express in Great Britain. following major growth in kilos being achieved: We also adhered to frequent flier reciprocity agreements • 341% origin Lima to destinations MAD, BCN, LHR with the 28 airlines in the Star Alliance network, and to and JFK agreements for exchanging benefits with the Iberia and • 297% origin Santiago (Chile) to LAX, JFK and MAD Aeroméxico frequent flier programs. • 72% origin Buenos Aires to JFK and LAX

Star Alliance Avianca S.A. and TACA International Airlines S.A. joined Star Alliance, the biggest global airline network in the world in terms of daily flights, route network, service excellence and number of member air companies, in 2012, and AeroGal, which currently operates under the Avianca brand name, likewise joined in 2014. The alliance brings together 28 internationally acclaimed airlines which together operate over 4,600 aircraft, with 18,500 flights per day to 1,321 airports in 192 countries. We continued to adhere to the Star Alliance cooperation We fly to commitment in 2016, offering our travelers the possibility of accessing this worldwide network. LifeMiles frequent 105 fliers not only have access to the Alliance’s entire network destinations, thanks of flights and to over 1,000 VIP lounges, they can also to our code share accrue miles in order to improve their Elite status and redeem them through the best loyalty programs in the agreements. world. G4-6, G4-8 Through our route network we seek to offer our customers more coverage and connectivity options as 28 well as better cargo options, and in September 2016 we accordingly began operating to London with the Boeing Countries 787 Dreamliner in the passenger fleet, thereby also enabling us to offer a 245% increase in tonnes carried, due to its greater cargo capacity. Additionally, the third Bogotá-Madrid frequency 5 was increased from mid-November using the bellies of Continents passenger aircraft, thereby increasing capacity on that route. As far as cargo operations are concerned, Avianca Cargo consolidated its presence on routes from and Chile to the United States as a result of marketing agreements with OceanAir. Similarly, Aerounión, a group investment, launched its cargo operation on the Mexico

2016 Management Report• Avianca Holdings S.A. 19 These are our destinations and our route network

20 2016 Management Report• Avianca Holdings S.A. 2016 Management Report• Avianca Holdings S.A. 21 22 2016 Management Report• Avianca Holdings S.A. 2016 Management Report• Avianca Holdings S.A. 23 Performance by segment

Passenger transportation This line of investment consists of our airlines, which serve 105 destinations in 28 countries and aim to connect Latin America to countries in the region and the rest of the world. This business represents almost 86% of Avianca Holdings S.A. consolidated income, and explains why we strive every day to make our service stronger and to innovate in it so that our customers’ experience exceeds their expectations. Between January and December 2016, the airlines attached to the Holding Company carried a total of 29,479,948 passengers, an increase of 4.2% on the same period in 2015. Capacity, measured in ASK (available seats per kilometer flown) rose by 5.9%, while passenger traffic, measured in RPK (paid passengers per kilometer flown), was 7.8% up.

Load Factor 81.1%

Passenger traffic, Capacity, measured in RPK measured in ASK (paid passengers (Available Seats per kilometer per Kilometer flown) rose by flown), increased by 7.8% 5.9%

Total passengers 29,479,948

24 2016 Management Report• Avianca Holdings S.A. Cargo transportation

Committed to providing efficient solutions to the by Colombia’s Civil Aeronautics Authority, and second logistical needs of today’s world, Avianca Holdings S.A. is place In&Out in Miami, with a 38% market share for working to dispatch and receive documents, packages and Colombia and 11.3% for Miami, respectively 12 . merchandise with the best delivery times on the market. Similarly, Company performance was outstanding during Air cargo transportation is another important line the St. Valentine season. 9,620 tonnes of flowers were of investment for Avianca Holdings S.A. For this, the transported between January 18 and February 7, on 155 organization has a cargo business unit bearing the flights form Bogotá, Medellín and . Four charter flights commercial name Avianca Cargo, whose mission were also operated to Los Angeles and San Juan. specializes in handling goods and merchandise, either 11,470 tonnes of flowers were transported to Miami in cargo aircraft and/or by using available capacity in around Mother’s Day, on 170 flights between April 11 passenger aircraft bellies. and May 2, in order to meet the high demand at that time of year. There were also 13 charter flights, four to Los Cargo volumes: Angeles, one to San Juan, and another to Mexico. According to IATA 10, the worldwide air freight market Taken as a whole, this line represents over 11% of grew by 3.5%. The regions where the greatest growth was Avianca Holdings S.A. consolidated income, and we thus observed were the Middle East and Europe, where the synchronized our operation in accordance with the speed figures were 6.5% and 6.2%, respectively. In Latin America of the business world and our customers’ needs. the figure fell by 5.3%, while North America remained stable at 0.9%. . However, Avianca Cargo capacity (in Available Tonnes per Kilometer - ATK) in cargo aircraft was 3% up on 2015 in 2016, while cargo capacity in passenger aircraft (ATK) the same year increased by 11% 11. Thus, despite the contracting Latin American market, cargo volumes carried by our airlines (in RTK, paid tonnes of cargo per kilometer) increased by 1%, broken down as 10% growth in bellies and a fall of 3% in cargo aircraft. Meanwhile, Avianca Cargo occupied first place for international cargo traffic, according to statistics supplied

+860 +220 +556 domestic countries covered by sales points in destinations Deprisa International Colombia

+117 +4,000 +3M +de 300 sales points in active companies mass channel vehicles and 300 the United States as customers customers motorbikes

2016 Management Report• Avianca Holdings S.A. 25 Our achievements in 2016 Significant progress was made with Deprisa - the transportation and logistics solutions unit for the domestic and international market - in terms of our growth and expansion strategy and also in consolidating the business by modernizing its infrastructure and introducing new technological tools and establishing a greater presence in the packages market in Colombia.

International Market. The Avianca route network, coupled to the service points and its new partners, enabled us to explore and diversify the market. Thus, with Avianca Express we reached Costa Rica and clinched business deals with suppliers in Honduras and Mexico. There was an estimated 112% growth in income in 2016, compared with 2015, on routes to Central America.

Customers: • Continuing with our consolidation strategy for the packages market, with Deprisa, income in this segment was 20.3%14 up on the 2015 figure, and the Deprisa Merchandise product also rose by 33% in the same period. • The packages segment has boosted Deprisa sales since 2013, with the market share in this sector increasing by 50%15.

Infrastructure: As far as the infrastructure for this line of business is concerned, we continued to adapt the various stations in the different cities so they could cope with the growth in packages: • Pereira hub (Colombia). We opened this hub at a strategic point in the Coffee Region, enabling us to increase our presence in the region and optimize the operation in this part of the country. • Stations and Airports. Places where we operate in various intermediate cities have already been provided with more space and greater comfort for carrying out processes. Girardot, Montería, Popayán, Riohacha and Valledupar, in Colombia, were but some of the stations where work was done during the year.

13 Income in USD. 1 4 Income in COP. 15 Estimates based on 2016 year-end results vs. Evalueserve 2015 market quantification study projections

26 2016 Management Report• Avianca Holdings S.A. 2016, a year when we made progress the phase of the cycle that each particular consignment on strengthening key factors in is at. We can thus take action aimed at reducing faults, keeping our service promise. redirecting deliveries and adhering to the service promise. • Technological integrations. Deprisa customers can couple their dispatch, stock or invoicing system to Alertran using the technology integration we have been introducing with our corporate customers. To date, there are five customers in the B2B (Business to Business) segment that are already integrated at the different levels offered by the system (admission of bills of lading and tracking). Integrations are a strategic challenge for Deprisa Security: Commercial Management in 2017. In terms of security, Deprisa made a number of • Mobile Route Devices. para ruta. El 100% de nuestra important achievements. flota cuenta con equipos que le permiten a los Courier • We introduced four anti-explosives biosensors at registrar en tiempo real la recolección o entrega de los stations in Bogotá, Medellín, Cali and as a envíos. second security barrier for events related to dangerous merchandise. New transportation model In order to continue the Company’s growth, Deprisa will Service: begin to operate with a flexible transportation model that In order to provide an efficient and excellent service, will enable it to meet land transportation logistical needs, this year we set in motion initiatives aimed at improving thus offering the following benefits. service based on the attitude and knowledge of Deprisa • Improving service levels with new administration tools. staff: • Cutting costs and making the operation more efficient. • The ‘We Are One’ workshop succeeded in training 95% • Having suppliers who specialize in services such as of our staff in service skills. Participants received SENA deliveries in chain stores and intermediate products. certification. • Expanding market options in order to contract with • We carried out training in empowerment skills, contingency vehicles. teamwork, skills development and effective communication • Increasing the transportation supplier base, thus at workshops for leaders. guaranteeing business continuity. • With support from insurance company AIG, Bogotá sales point advisers were trained in the adequate packing Results: of consignments and the respective impact thereof. Deprisa reported a 3.3% growth in sales in 2016. Meanwhile, according to the Colombian Federation Technology of Cargo Carriers by Road (COLFECAR) overland This year we made a start on introducing various transportation industry income fell by 1.2%, while sector technological tools that will enable us to be more efficient GDP had increased by no more than 0.3% by the end of the in our processes: third quarter of 2016. • Senda. This tool uses georeferencing to identify the Meanwhile, the EBIT margin for 2016 was 9.0% 16, 3.5% location of consignments awaiting delivery or collection down on the 2015 figure. Deprisa maintained its leading by area in each city, vehicles and motorbikes available in position on the domestic air freight market in Colombia, the different sectors, route to be taken, order of stops, and with a 44% share at November 2016 17; domestic air cargo delivery priorities. All this is with a view to keeping to the kilos were 4.5% up at the November cutoff date, according times established. Introduction of this system, and also of to Civil Aeronautics Authority figures. Monitor, will be completed in 2017. • Monitor. Using this tool, we can provide a more efficient administration of consignments, since it offers greater control in real time of all processes involved in

16 Deprisa Financial Results. Preliminary Oracle closure, January 2017 17 Accumulated share, January - November 2016. Source: Civil Aeronautics Authority

2016 Management Report• Avianca Holdings S.A. 27 There can be no doubt that 2016 has been a year of • Airport services: Attending to passengers and on major achievements for Deprisa: a period in which we ramp, operational dispatch, baggage and charter and made progress on strengthening key factors for adhering private flights. Service rendered in Colombia and Costa to our service promise. Rica. • Engineering and maintenance services: Overhaul services, online maintenance in Colombia, Colombia, the United states and Peru, aeronautics workshops, rental and calibration of tools. . • Training services: Basic international cargo, dangerous Other lines of business merchandise (DGR and health), technical and operational training and diploma course in onboard services. LifeMiles • Training schools: Airport and Onboard Services Through LifeMiles B.V., a company incorporated in Assistant (ASA) and Aircraft Line Technicians. Curacao,, we provide administration services for the • Flight simulator: ATR72 and A320. passenger airline LifeMiles Frequent Flier program. Some In 2016, enjoyed a number of major notable features of 2016 are detailed below. achievements, reporting sales worth USD 30.9 million, , • Operations began as a separate company 9% up on the 2015 figure. • There is a Project Management Office, which allows Airport services: We reported sales totaling USD 12 for carrying out close and effective follow-up on business million, because the economic and sector environment plan landmarks. in Colombia encouraged international airlines to begin • There is also a LifeMiles Bonus Program.. operations in Colombia’s principal cities, thus enabling the •A new office was opened in San Salvador, El Salvador. business unit to offer and win new business. • The key service metrics are at the best levels in history Here we would like to stress clients such as Delta in (Complaints Index (IQ) & Probable Operational Detractors Rionegro and Cartagena and Iberia in Cali and Rionegro. (LOD). Similarly, we succeeded in bringing Aeroméxico to Bogotá • Over seven million members, 8.5% up on the last and introducing to the VIP lounge service. We quarter in 2015. also dealt with charter flights for the airlines Ruslan and • 10.6% increase in commercial members on the last Spire Flight Solution, and we renegotiated the contract for quarter in 2015, with a total of 314 members. attending Satena in Bogotá, Barranquilla and other cities in Colombia. Avianca Tours Online maintenance: As part of the internationalization Avianca Tours is the business unit of Aerovías del plan, we brought JetBlue into the client portfolio in Continente Americano S.A. Avianca through which Quito through Aerogal, and also in Guatemala. In we provide services relating to the organization and Colombia, , Air Europa and Etihad became clients marketing of travel packages and tourism services other through Tampa. We reported income totaling USD 3.2 than air transportation. million. Through this line of business we aim to ensure that Overhaul services: We continued to support the our customers in Colombia can plan their vacations at Colombian Air Force with overhauls for the B767, with destinations in South America, North America, Central its scope increasing 70% compared with 2015, and we America, the Caribbean and Europe, put together envisage the scope doubling in 2017. We also provided packages using our whole route network, and find offers services for OceanAir through Tampa and services for for tourism services such as accommodation, car rental, Aerogal, Aviateca and Isleña. We reported income totaling tours, excursions, activities, admission to parks and events USD 6.8 million. at other destinations in addition to those covered by our Simulator services: We reactivated our marketing air operations. of the A320 simulator for LAN Chile. The ATR72-600 simulator remains in service, for the companies Avianca Services (Mexico), () and Because flying begins on the ground, through Avianca LIAT ( and Barbuda). At the year end, we reported in Colombia we have a business unit called Avianca this equipment having been used for 2,737 hours, clearly Services which specializes in the provision and marketing illustrating how use has been optimized in comparison of airport, engineering, maintenance and training services with previous years. We reported income totaling USD 1.4 for organizations in the aeronautics and related sectors. million.

28 2016 Management Report• Avianca Holdings S.A. Training: We ended the year with 328 students having current business in the cities where Avianca Holdings S.A. taken part in the Airport and Onboard Services Assistant operates. program. The third and fourth promotions graduated, and • Opportunities exist for the Airports segment to open in in 2017 we expect the fifth and sixth promotions to do Quito and for it to be expanded in San José (Costa Rica). likewise. On the other hand, we the fourth promotion for • Opportunities exist for online maintenance in San the Aircraft Line Technician program, ending the year with Salvador and in San José (Costa Rica), for overhaul services 105 students, and in 2017 we envisage graduating the first in Guatemala, and for aeronautics workshops in Lima. promotion. The two programs reported sales totaling USD • And the aim as far as training is concerned is top continue 0.8 million. to promote the Airport and Onboard Services Assistant • Avianca Services aims to strengthen and expand and Aircraft Line Technician programs

Where we operate

Where we operate Colombia Aerovías del Continente Americano S.A. Avianca Tampa Cargo S.A.S. Ecuador Aerolíneas Galápagos S.A AeroGal El Salvador TACA International Airlines S.A. Costa Rica Líneas Aéreas Costarricenses S.A. LACSA Servicios Aéreos Nacionales S. A. SANSA Perú Trans American Airlines S.A. Nicaragua Aerotaxis La Costeña S.A. Honduras Isleña de Inversiones C.A. de C.V. Isleña Guatemala Aviateca S.A.

2016 Management Report• Avianca Holdings S.A. 29 The past, driving force for the future

Avianca is the oldest continuously-operating airline in the world. In 2016 it celebrated 97 years of connecting Latin America together and linking it with the world. Our experience is the best starting point as we strive towards new goals..

Timeline

1919 1931 1940 1950- Colombia’s insignia airline The airline “Transportes and Compañía is formed in Barranqui- Aéreos Centroamerica- Servicio Aéreo lla, Colombia, under the nos TACA” is founded in Colombiano - SACO - 1960 name “Sociedad Colombo Tegucigalpa, Honduras, merge to form Aerovías Avianca, in Colombia, and Alemana de Transporte and in 1934 this expands Nacionales de Colombia TACA, in Honduras, mo- Aéreo, SCADTA” (“Colom- its operations towards S.A., Avianca. dernize their fleets with bo-German Air Transport El Salvador, Guatemala, There were various DC4 and C54, Boeing and Company, SCADTA”). Nicaragua, Costa Rica and factors in common ABC1-11 aircraft. Panama with a fleet of 14 for a group of leading, aircraft. successful and competitive airlines to be formed in Latin America.

1994 1989 1986 1973 Three leading companies TACA heads a consolidation Aerovías de Galapagos, The company in the Colombian of the air industry in the AeroGal, commences “Transportes Aéreos airline sector, namely region by acquiring LACSA, passenger and cargo Mercantiles Avianca, SAM (Sociedad of Costa Rica, Aviateca, transportation operations Panamericanos TAMPA Aeronáutica de Medellín) of Guatemala, Nica, of in Ecuador. Cargo S.A.” is formed in and (Helicópteros Nicaragua, SANSA, of Colombia. Nacionales de Colombia), Honduras, and a further together make up the five regional operators. Avianca system.

30 Informe de gestión 2016 • Avianca Holdings S.A. 1997 2000 2002 2010 Avianca, LACSA, Nica, TACA expands into South Avianca, SAM and ACES The Avianca and TACA Honduras and America with the TACA (Aerolíneas Centrales de TACA union is made TACA El Salvador are Peru brand and operation Colombia) form Alianza official. consolidated into the of the hub in Lima. Summa. The alliance is TACA Group. wound up in November 2003, and the Avianca brand name becomes stronger on the market.

2011 2012 2013 2015 AviancaTaca Holding sets Avianca is unified as a AviancaTaca Holding S.A. Avianca consolidates in motion an expansion single commercial brand changes its trade name its operation with plan that includes 12 new for the integrated airlines. to Avianca Holdings S.A. hubs in El Salvador, routes and the addition It purchases 51 latest- It enters the capitals Peru and Colombia. of 155 direct frequencies generation Airbus A320 market on the New York to more than 105 Neo aircraft. It joins the Stock Exchange. destinations in America most important airline and Europe. Avianca has network in the world, Star a preference share issue Alliance. (March 2011). Since the integration, various key events have enabled us to progress toward achieving our corporate goals. 2016 Company management changes and a start is made on a transformation process which aims to make Avianca a world- class airline that connects Latin America to the world, one with the best people and the best technology for serving its customers.

Informe de gestión 2016 • Avianca Holdings S.A. 31 Our Integrated Management System

G4-12 The Avianca Holdings S.A. Integrated Management System harmoniously blends the elements we use on a daily basis for delivering products and services that meet not only all the standards we have adopted but also the requirements of our stakeholders and the expectations of our users and customers, based at all times on process management in the context of the Company’s strategic north. See the following processes map.

Avianca Macro-Processes Map

MANA PLANNING AND STRATEGIC MANAGEMENT COMPREHENSIVE MANAGEMENT SYSTEM GEMENT

AIR TRANSPORTATION MARKETING OPERATION AND PASSENGER AIR SERVICE (PASSENGER TRANSPORTATION FLEET)

PLANNING AND PLANNING AND MARKETING CARGO AND COURIER PLANNING DESIGNING AIR TRANSPORTATION OPERATION AND PRODUCTS AND RESOURCES SERVICES PLANNING, MARKETING AND RENDERING AERO- BUSINESS NAUTICS AND AIRPORT SERVICES ENGINEERING AND MAINTENANCE CUSTOMER RELATIONS FREQUENT FLIER PROGRAM UNDERSTANDING CUSTOMERS AND MARKETS CUSTOMER SATISFACTION

CUSTOMER NEEDS AND EXPECTATIONS OVERALL SAFETY

HUMAN TALENT FINANCIAL TECHNOLOGY AND BUSINESS MANAGEMENT MANAGEMENT MANAGEMENT

FLEET MANAGEMENT SUPPORT LEGAL MANAGEMENT PROVISIONING INFORMATION COMMUNICATIONS AND CORPORATE AND GENERAL MANAGEMENT AND CORPORATE AFFAIRS SERVICES IMPROVEMENT

* The macro-processes in our Management System are identified graphically on the “Macro-Processes Map”. This shows the sequence of our value chain, which is based on customer needs and expectations and achieves customer satisfaction by managing strategic, business and support processes.

32 2016 Management Report• Avianca Holdings S.A. Now, in order to ensure that our processes are executed services by continually improving corporate performance in the best way possible, our management system contains and customer satisfaction, guaranteeing service a number of subsystems: Strategic Management System, standardization, meeting requirements and achieving Social and Environmental Responsibility System, Quality positive results for the Organization. Management System, Culture System, Risks System, and Comprehensive Security System. The aim of each of these Risks System: subsystems is to guide and reinforce management in each Our Risks System aims to identify, evaluate, control, of its work areas, provide guidance, and coordinate and document and mitigate the different types of risks at all align practices in order to achieve the Company’s goal of times in an orderly manner and proactively, in order to being the world’s favorite Latin American airline. achieve corporate objectives and the Strategic North, based on preventing events that might affect this. Strategic Management System: With this system we plan, translate, execute and follow Comprehensive Security Management System: up on Company strategy. We have a fully implemented a Comprehensive Security Management System, the objective of which is to identify, Social and Environmental Responsibility System: evaluate, control, document and mitigate the different The Social and Environmental Responsibility System types of risks at all times in an orderly manner and helps care for the environment and for the development proactively, in order to comply with and continually improve of stakeholders through concrete, measurable, honest comprehensive security standards (operational, corporate, and ethical actions aimed at guaranteeing sustainable civil aviation, information, industrial and occupational), development of the business in economic, social and and to protect the tangible and intangible assets of the environmental terms. Organization.

Quality Management System: The aim of our Quality Management System is to achieve excellence in the administration of our processes and

2016 Management Report• Avianca Holdings S.A. 33 Awards and certifications

We received various prizes and awards in 2016, and these translate into a list of the duties and commitments taken on by each and every member of the organization and illustrate the commitment to the success of the company in the present and the future.

Third place out of the 100 companies Made member of the“eCommerce and Internet with the Best Reputation in Business Hall of Fame” por ser for winning the Colombia and the best Human Talent (2016) eCommerce Award three times.

Cía de Talentos LatAm - Avianca, Talent Business magazine The Business Year awarded Company, the company of the Avianca Aeronautics Center in Rionegro the Salvador youngsters’ dreams (2016) “Eco-friendly Aviation 2016”, award for building the Maintenance, Repair and Overhaul (MRO) in accordance with USGBC Green Business Corp. guidelines.

Our loyalty program has won the FreddieAwards, in recognition of the efforts of Business Traveller - Best Airline in South an industry that has more than 300 million members America and Latin America (2016) throughout the world.

Ecommerce Day 2016 – Avianca, eCommer- Perú ce Tourism leader in the region and Prize awarded by Airport Operator LAP for the best leader in Colombia for the third consecutive time performance in environment, safety and (2016) occupational health.

Colombia Costa Rica Eco-Friendly Aviation Award granted by Award to Taller Star for being the operator with The Business Year for the new MRO in Rionegro, for the best performance, according to environmental its commitment to environmental agency inspections. sustainability.

Award to Taller Star for Avianca Cargo occupies first place, for the first time, as being the operator with the “ of the year”, ”, an award granted by Miami Dade Aviation best follow-up and Department in recognition of the airline being the best cargo airline in Miami for its work handling of findings in the last two years, stressing its progress in innovation, technology, increased physical reports. and human structure, operating certifications and relations with third parties.

We also worked on the theme of excellence in our processes and services in 2016, and were thus awarded, or had endorsed, certifications that enable us to meet the highest international quality standards.

34 2016 Management Report• Avianca Holdings S.A. Certifications

ISO 9001, ISO 14001 and OHSAS 18001 (2K) (2011-2016) certification For all organizations that are part of Avianca Holdings S.A.

Deprisa ISO 9001 and ISO 28000 certification, Supply Chain Security Management System (2015)

Maintenance Certifications Our airlines hold ISOA certificates guaranteeing the highest safety standards in We hold operator and repair airport and maintenance operations, an essential requirements for belonging station certifications which to Star Alliance. allow us to undertake Online Maintenance and Overhauls on our fleet.

IOSA (International Air Transport Avianca Recertification (2015-2017) Association - IATA - Operational TACA Internacional Recertification (2015-2017) Safety Audit) LACSA Recertification (2015-2017) TACA Perú Recertification (2015-2017) Aerogal Recertification (2014-2016) Aviateca Recertification (2014-2016) Islaña Recertification (2014-2016)

ISAGO (International Air Recertification for Avianca - Bogotá (2014-2016) Transport Association - IATA - Safety Audit for Ground Operations)

Avianca Cargo Certifications

Avianca Cargo, AV Cargo Certification Avianca Cargo First Member of Cargo IQ, as member of airline in LatAm IATA-approved Cargo the International to obtain EQUIP Quality Program Association for the accreditation Transportation of (coolcare) Pets and Animals

2016 Management Report• Avianca Holdings S.A. 35 Our Corporate Strategy

As it looks to the future, the oldest airline in Latin America concentrates on the experience of a customer who is more connected and who wants to simplify the processes involved when it comes to traveling.

To fly higher North is being adhered to. The Presidential Committee In 2015, we ended our 2010-2015 strategic cycle will also carry out monthly follow-up on the plan, and and began a full review of the Holding Company’s entire key aspects of how areas are executing it, in terms of the strategy, so as to redefine our framework for action for the results obtained, will be reviewed every six months. following three years (2017-2020). After this exhaustive design of the transformation G4-42. As part of this review, our Chairman and those process, we have entered a new era of service and culture in charge of our corporate strategy analyzed the strategic focused on developing human talent, with emphasis on the plans that had been executed, stressing the targets met customer experience and the modernization of structure, (brand positioning, optimization of processes, technological processes and procedures. changes, etc.), evaluated gaps therein, and defined new By establishing our “Strategic North to 2020”, we have plans that will allow us to fly higher, be sector leaders in prepared ourselves to be a reference point for connecting each country where we operate, and make a difference the world to Latin America, with the strategy of digitalizing based on the customer experience. . operating processes and using tools to develop excellence Similarly, the Board of Directors approved the in our customer care a fundamental part of this. corporate strategy, not only to the extent that it is in Innovation, meanwhile, becomes particularly relevant, line with the interests and objectives of our shareholders since we will seek to deliver a digital experience to our but also because it provides a response to the economic, customers that meets their need for connectivity and environmental and social opportunities and impacts of the speed with processes that are easier and more efficient entire operation. and that go beyond merely purchasing a ticket. In accordance with our Corporate Good Governance The customer is thus at the very heart of our strategy, code, this strategy will be examined once a year by our and those who bring that strategy to fruition are a unique Board of Directors, with a view to establishing a short-term team focused on serving him. Avianca therefore becomes strategic plan, putting strategic challenges to the different stronger as a world-class company that carries the Latin areas and evaluating the extent to which our Strategic spirit to all its destinations.

36 Informe2016 Management de gestión 2016Report• • Avianca Avianca Holdings Holdings S.A. S.A. STRATEGIC N RTH

OUR OUR

WE WILL CONNECT THE WITH THE BEST PEOPLE AND TECHNOLOGY WORLD TO LATIN AMERICA, FOR AN EXCEPTIONAL EXPERIENCE, ALWAYS SEEKING we will be the worlds favorite to give more Latin American airline.

CORPORATE VALUES

We live for safety We innovate to give more • We protect our customers and the trust they • We use the best technology for a world-class place in us. service. • We win their favor by guaranteeing that every • We dare to test and experiment in order to journey will be safe, from beginning to end. give more. • We always ask ourselves what we can do We are upright better. • We act transparently and with honesty and respect for everyone. We are happy in our work • We are, and are recognized to be, part of a • Avianca is where we like to be, with its open transparent culture. doors. • We value the harmony between our working We serve with passion life and our personal life. • We work in a warm and friendly manner, with • We acknowledge our colleagues and like to be empathy and enthusiasm. acknowledged • Serving others in a practical and proactive way fills us with satisfaction. We create a sustainable impact • We are responsible in our business practices. We are one • We work for the sustainable development of • We progress together, to get results. our allies and stakeholders, and our own. • We honor our fellow team members and those • We generate shared value through our actions. we serve. • In diversity we find complementariness.

2016Informe Management de gestión Report• 2016 • Avianca Holdings S.A. 37 Our responsible and sustainable management strategy

Based on successful integrations with different 1. Promoting harmony based around ethics and companies in Latin America, we have grown rapidly and corporate values, which facilitates stakeholders inclusion have earned a position for ourselves as the Latin reference and participation in line with achieving the organization’s airline around the world. We focus on generating economic, objectives, through key issues relating to sustainability. social and environmental value for our stakeholders, 2. Forging and maintaining relations based on mutual meeting their expectations in the context of our relevant cooperation with strategic publics, with a view to boosting affairs, exhaustive communication with our publics, and development initiatives that are compatible with the management of our response capability. business (air transportation for people and cargo), in line The fundamental purpose of this strategic guidance is with the Company’s sustainability plan objectives. to contribute to the wellbeing and development of the 3. Supporting initiatives, programs and projects with Company’s stakeholders while favoring the business result, a high social, economic and environmental impact in by means of the following. markets that influence our operations.

Provide a world-class experience

Develop long-term Reinforce hubs alliances with and optimize strategic the route partners network

Consolidate Boost operational diversification excellence in sources of with maximum value efficiency

38 2016 Management Report• Avianca Holdings S.A. Programs and initiatives along each axis impact key stakeholders

ENVIRONMENTAL ECONOMIC SOCIAL MANAGEMENT MANAGEMENT MANAGEMENT We generate value for the We understand the impacts of We guarantee sustainable Organization’s stakeholders Environmental Management by profitability through actions by boosting programs that seek to Holding Company airlines which generate value for the support the wellbeing and correctly manage them business and finance and development of communities through strategies that guarantee sector by means of honest, in areas of influence the rational use of natural transparent management. of the operations. resources and the implementation of cleaner production practices. We also work to meet the demands stipulated in regulatory frameworks and to contribute to mitigating effects on the environment

Our environmental management commitment • To optimize operating costs and processes and make We are conscious of our environmental impact and thus them flexible. focus on a proactive management of the environmental • To optimize the Company’s capital structure. impacts caused by the operation. This has resulted in our • To implement strategies to increase income and being identified as a leading company in the field of clean productivity. production processes. Our work focuses on the following • To continually improve financial risk management. points. Our social management commitment • Improved environmental care skills. • Efficient use of water and energy. On social matters, we are committed to providing • Pourings management. passengers and users with quality services while • Follow-up on high impact suppliers. participating in public and private initiatives to improve • Environmental inspections. the living conditions of the Latin American population. Our • Management of dangerous and conventional waste. objectives are as follows. • Promotion of cleaner production projects. • Dealing with demands by authorities and interested • To foster social health, education and cultural projects parties. that will contribute to improving the quality of life of our • Handling of environmental contingencies. people and the communities where the airlines belonging •Monitoring of atmospheric emissions indicators.. to the Holding Company operate. • To earn traveler loyalty by providing a quality service Our economic management commitment and by getting them to effectively join programs that We are conscious of our role as generators of value for which project them as promoters of social action. the business and finance sector, and on economic matters we seek the following.

2016 Management Report• Avianca Holdings S.A. 39 In line with international standards and Alliances for sustainability initiatives G4-15 At Avianca Holdings S.A. and in the companies G4-16 In all countries where each company affiliated to that come under its umbrella, we have always carried the Holding Company operates, we have, or are members out our operation responsibly and with respect for the of, associations which in some form or other coordinate environment, our staff, and communities in our areas of responsibility actions and best practices in the sector in or- influence. We generate value in society through our best der to transform current trends and promote a culture of practices, best processes and best service. This explains sustainability that permeates business strategies and de- why we have been reporting our performance on economic, velopment in the regions where we have a presence. social and environmental matters for the last four years In countries like Mexico, Guatemala, El Salvador, Hon- through reports that adhere to the parameters established duras, Nicaragua, Costa Rica, Panama, Aruba, Curacao, in Global Reporting Initiative, GRI, guidelines. Ecuador and Colombia we are therefore active members We appreciate the importance of global initiatives like of national chambers of commerce and tourism, air trans- the Sustainable Development Objectives, which are a portation or airline company associations, national cargo universal call to adopt measures aimed at bringing poverty carrier federations and industry associations, which enable to an end, protecting the planet and guaranteeing that us to play an active role in promoting a sustainable culture everyone can enjoy peace and prosperity, or international in the sector. initiatives like the United Nations’ Ten Global Compact Principles, which form a framework for action to align private sector strategies in four thematic areas: human Strategic relations rights, environment, decent work, and anticorruption. We have started out on our route toward incorporating The Senior Vice-Presidency, Strategic Relations, was these initiatives and adopting them in order to bring our formed in 2016 as a fundamental structure for us to relate management into line with the postulates of the most with our stakeholders, which are directed towards meeting important global corporate citizenship initiative and hence our strategic objectives, in particular, and adhering to our contribute to the sustainable development of our region. Strategic North, in general.

40 2016 Management Report• Avianca Holdings S.A. Our customers and the media, governments, authori- If organizations, like people, are ties and public, private and civil society organizations in to achieve their objectives, it general that we interact with are our very raison d’être depends on the quality of their and enable us to achieve our goal. relations. If organizations, as well as people, are to achieve their goals, it depends on the quality of their relations. Avianca should be an agent of transformation for the markets in which it operates, leading value proposals that contribute to the economic development of those societies. A Corporate Citizenship Division was also formed, in late 2016, and this will draw up relationship and sustaina- ble management strategies for the organization and coor- dinate high-impact social and environmental investment programs aimed at constructing social, economic and en- vironmental value from what we do. The External and Internal Communications Divisions, relations with Government, relations with investors, pu- blic relations management and Social Media also all come under this same Vice-Presidency, thereby forming a highly modern strategic relations structure that brings techno- logy, knowledge and human warmth to our relations with stakeholders.

2016 Management Report• Avianca Holdings S.A. 41 Type of Name of alliances or Alliance Importance associations Country Chambers of The purpose of chambers of commerce Mexico-Peru Chamber of Mexico Commerce and business associations is to defend Commerce and business responsible private initiative, foster associations competition and improve productivity El Salvador Chamber of El salvador in a given sector or national territory. It Commerce is vitally important for the companies attached to Avianca Holdings S.A. to join Colombo-American Chamber of the principal organizations in the industry Commerce in every country where we operate, in Salvadoran-Peruvian Chamber order to achieve the following. of Commerce and Industry

• Improve performance in our sector. Colombo-Salvadoran Chamber •Mediate between economic agents, with a view to developing the economies of our Tegucigalpa Chamber of Honduras region and increasing exports and imports Commerce and Industry of goods and services and investment. . •Promote stronger, responsible and San Pedro Sula Chamber of sustainable free trade. Commerce and Industry •Represent and defend private sector interests. Nicaragua Chamber of Nicaragua • Encourage and support sustainable Commerce and Services management of private, public and civil society organizations in the region and Panama Chamber of Commerce Panamá dialogue for constructing sustainable development. Chamber of Commerce Aruba Curacao Chamber of Curasao Commerce and Industry Colombo-Ecuadorean Ecuador Chamber of Commerce - CAMECOL

Colombo-Venezuelan Colombia Chamber of Commerce Colombo-American Chamber of Commerce AMCHAM ANDI Chamber of Shared Service Centers Salvadoran Industrial Association Colombian National Association of Businessmen - ANDI

42 2016 Management Report• Avianca Holdings S.A. Type of Name of alliances or Alliance Importance associations Country Chambers Boosting the sustainable development of Guatemala Chamber of Guatemala of Tourism tourism in the different countries where Tourism and Tourism we operate is important for Avianca Visit USA Committee, Associations Holdings because it is how we promote Guatemala joint growth in this sector and in the El salvador aeronautics sector. Salvadoran Tourism We also foster competitiveness and Corporation - CORSATUR support for making our region a world- Salvadoran Chamber of class tourist destination. Tourism - CASATUR Through these alliances we achieve the following. Honduran National Chamber Honduras of Tourism - CANATURH •Boost the sustainable development of tourism. Nicaraguan National Chamber Nicaragua •Support the construction of of Tourism - CANATUR management skills and relations in the industry and in the tourism sector. Hotel Industry Association Aruba •Have up-to-date information available AHTA about tourism in different countries. Aruba Tourism Association

Curacao Tourism Board Curasao

Curacao Hospitality and Tourist Association

Chamber of Tourism Ecuador

Ecuadorean Association of Travel Agents and Tourism (ASECUT) Bogotá District Tourism Colombia Institute Medellín Bureau Cartagena Bureau Bogotá Bureau Pereira Bureau Santander Tourism Corporation Visit USA Discover Brazil Committee Colombian Association of Travel Agents and Tourism ANATO Procolombia National Tourism Fund - FONTUR Colombian Hotels Association - COTELCO

2016 Management Report• Avianca Holdings S.A. 43 Type of Name of alliances or Alliance Importance associations Country

Air Transport Fostering cooperation between National Chamber of Air Mexico Company airline companies and protecting Transport (CANAERO) Chambers through association the interests and of each of their members is Guatemalan Association of Air Guatemala Associations another vitally important issue for Lines - AGLA the Company, and we therefore have twelve alliances of this type. El Salvador Association of Air El Salvador Lines - ASLA

Honduran Association of Air Honduras Lines - AHLA

Air Lines Association - ALA Nicaragua

Air Lines Association - ALA Costa Rica

Panama Air Lines Association Panamá - ALAP

International Association of Air Perú Transportation Companies - AETAI

Association of International Ecuador Airline Representatives in Ecuador - ARLAE

Colombian Air Transportation Colombia Association - ATAC

Association of International Airlines in Colombia - ALAICO

National Federation of Road Cargo Carriers - COLFECAR

44 2016 Management Report• Avianca Holdings S.A. At international and regional level, we are also members alternative fuels for aviation. of organizations that share our principles and values and • Star Alliance, an that aims to improve therefore pursue objectives that are in common with our profitability through alliances and route networks and to own. Some of these associations are listed below. share experiences in order to improve the performance of • International Air Transport Association (IATA), a each airline in the group. commercial association that represents 265 airlines in the • IATA Fuel Quality Pool (IFQP), an alliance consisting of world and through which we take part in workload reduc- a group of air companies who actively share fuel inspection tion initiatives and savings initiatives with respect to the and workload reports at different points around the world number of fuel supplier inspections. We actively share in an effort to provide a high standard in supervising com- fuel inspection reports in order to meet the requirement pliance with quality and operational safety requirements by regulators to inspect facilities and to reduce costs as- by fuel suppliers. sociated with this. Similarly, IATA provides support, in Finally, since there are other issues that are of interest conjunction with “The IATA Fuel Quality Pool” (IFQP), in to us because they are strategic for the Company, becau- training and accrediting inspectors and in access to ins- se they are internationally relevant and/or because they pection reports on suppliers at airports to which IFQP are important to our stakeholders, we have also signed the members fly. alliances listed below. • Sustainable Aviation Fuel Users Group (SAFUG). All members of this association have signed a sustainability commitment, and we are members of the Sustainable Bio- fuel Round Table or ISEAL Alliance, since our objective is to speed up the development and marketing of sustainable

Subject Alliance Country Importance

Technology Mexican Association With this association we aim to support the development Mexico (AMIPCI) and competitiveness of Mexico via Internet. Colombian Chamber of Colombia Our objective is to promote best practices in the eCommerce digital industry and thus support growth in the sector and in the economy in general through the use of technological tools for the purchase and sale of goods and services.

Education Bogotá and To support and receive training in the design and Cundinamarca Human implementation of training, advisory and research Management Association services. ACRIP Other Conferencia Relationship with Colombian Customs (DIAN) for Latinoamericana de the handling of urgent consignments by air and Compañías Express - fast delivery consignments. CLADEC We also aim to accompany entities that regulate the fast delivery of consignments sector, in order to promote best practices that will make Colombia a country that is ever more competitive.

All these strategic alliances help us to position ourselves and to contribute as a responsible and dedicated organization to the develop- ment of Latin America and hence make it a competitive region.

2016 Management Report• Avianca Holdings S.A. 45 Corporate Governance

On the subject of our Corporate Avianca Holdings S.A. Board of Directors Governance and Control Architecture, we have drawn up the Annual The following persons served as members of the Board Corporate Governance Report which of Directors in the period from March 2016 to March 2017: is included in the Annual Report as an • Germán Efromovich integral part thereof and is submitted • Roberto José Kriete separately to the General Meeting of • José Efromovich • Alexander Bialer Shareholders for consideration. • Raúl Campos • Isaac Yanovich • Álvaro Jaramillo • Juan Guillermo Serna • Ramiro Valencia • Mónica Aparicio Smith 18 • Oscar Darío Morales

Chairman of the Board of Directors: Germán Efromovich In the period between January 1, 2016 and January 17, 2016, Fabio Villegas Ramírez held the post of Chief Executive Officer (CEO) and Legal Representative. From January 18, 2016 to April 3, 2016 Álvaro Jaramillo Buitrago held the post of Interim Chief Executive Officer (CEO) and Legal Representative. Hernán Rincón has held the post of Chairman and Legal Representative since April 4, 2016. External Auditor: Ernst & Young Audit S.A.S.

About Board of Directors members

1. Germán Efromovich – Born in Bolivia, brought up in Brazil, Colombian by adoption. Mechanical Engineering graduate from the University of Brazil, FEI, in São Paulo. He began his professional career in 1976 with Grupo SGS. Since 1977 he has had numerous business interests in the oil market in Brazil. Backed by the development and

18 Mónica Aparicio Smith resigned from the Board of Directors on October 25, 2016.

46 2016 Management Report• Avianca Holdings S.A. 1 2 3 4 5 6

7 8 9 10 11

expansion of companies in various production sectors, became involved in various business activities, principally more than 35 years ago he formed what is today known related to the field of medicine, in the production and as the , a business with marketing of radioactive materials for diagnosing cancer diversified business interests. The Group currently holds diseases. For the last 35 years he has taken part in the investments in hydrocarbons and energy, shipbuilding, oil development and expansion of various companies in what industry services and technical inspections, radiochemistry, is today known as the Synergy Group, an organization which radio-medicines, agriculture and aviation. has investments in the aeronautics, energy generation, naval engineering and hydrocarbons sectors. 2. Roberto José Kriete–Salvadoran. Economics graduate from University of Santa Clara, 4. Alexander Bialer – Brazilian. California with an MBA from Boston College, Boston, Mechanical Engineering graduate from the Aeronautics Massachusetts. Technological Institute (ITA) in Brazil. He holds a Chairman of the Kriete Group’s Investment Company, postgraduate degree in Systems Management from the which administers local and international investments in Getulio Vargas Foundation in the same country. aviation, real estate, agroindustry and hotels, among other His work experience, which dates back more than things. He has also served as Director of Escuela Superior 40 years, has been in the implementation of systems, de Economía y Negocios (Economics and Business strategic planning, marketing, mergers and acquisitions, School - ESEN) in El Salvador, Alternate Director of the and corporate governance. Management Council of Hotel Real Intercontinental in El Salvador, Chairman of the Gloria de Kriete Foundation 5. Raúl Campos - Brazilian. and of Agape. Member of the TELMEX International He holds a degree from the Catholic University in Rio Managerial Council and of the Carlos Slim Foundation’s de Janeiro and a Master’s degree in Economics from the Carso Health Institute. Founder and Managerial Council American University in Washington, D.C. Postgraduate member of the airline Volaris (Mexico), and Chairman of studies at George Washington University saw him the Board of Directors of the company Taca International specializing in Finance and Development. Airlines S.A. until August 2015. He began his professional career with the International Bank for Reconstruction and Development (IBRD - World 3. José Efromovich -Born in Bolivia, brought up in Brazil, Bank, 1969-1974). He then joined Petrobas, where he held obtained Colombian nationality in 2008. various directorship posts. In 2006 he was elected Execu- Civil engineering graduate from the Mackenzie School tive Director, Communication, at the Brazilian Institute of of Engineering in São Paulo, Brazil. Investor Relations (IBRI). He joined Synergy Group in 2007 IHe began his professional career at Inca, a Brazilian as Finance Director. He currently works as a private consul- construction company. In 1977 he went freelance and tant on corporate matters.

2016 Management Report• Avianca Holdings S.A. 47 6. Isaac Yanovich* - Colombian His professional career has covered the public and Industrial Engineering graduate from Los private sectors, notable posts held including General University in Colombia and the University of Pittsburgh, Manager of Empresas Públicas de Medellín, Manager Pennsylvania, USA, with additional studies at M.S. Industrial of Fábrica de Licores de Antioquia, Chairman of the Management Institute of Technology MIT., Massachusetts, Comfamiliar Managerial Council (CAMACOL) and Chairman USA. of the University of Antioquia Supreme Council. Minister Notable aspects of his curriculum vitae include his work of Mines and Energy during the government of President as founding partner and Director of Investment Banking at Andrés Pastrana, Ambassador in New Zealand, Governor Betainvest S.A., Executive Vice-President of Tecnoquímicas of Antioquia province, Mayor of Medellín and Education S.A., and Chairman of Invesa S.A., Lloreda Grasas S.A. and Secretary in Medellín. . 10. Mónica Aparicio Smith* - Colombian 7. Álvaro Jaramillo* - Colombian Economics graduate from Los Andes University Business Management graduate from Universidad del She works as an independent consultant to multilateral Norte.. organizations. She has held the following posts: Executive He has worked as Chairman of Invercrédito, Avianca Director of the Guarantees Fund for Financial Institutions, and . In 1997 he founded IQ Outsourcing S.A., Banco Santander Head of Country and CEO in Puerto a services company focusing on Operations Processing Rico and in Colombia, International and Monetary Vice- Management, with image-based technology. He is President at Banco de la República, Colombian government currently Interim Executive President of Avianca Holdings representative before the World Bank, Head of the S.A. National Planning Department’s Public Investments Unit, and Economist attached to the national government’s 8. Juan Guillermo Serna* -Colombian Advisers Office for Coffee Affairs at the National Coffee Business Management graduate, economist with a Growers Federation, among others. Master’s degree in Economics from the National University of Colombia. 11. Oscar Darío Morales* - Colombian He has held various posts during his professional career CPublic Accountancy graduate from Javeriana with different companies in the public and private sectors, University in Cali, Colombia, with a specialization in Finance notably Chairman of Organización Terpel S.A., Director of from the same university. the Guarantees Fund for Financial Institutions, Economic He has worked as Corporate Financial Vice-President at Secretary to the Presidency of the Republic, Financial Vice- Carvajal S.A. Posts he has held have included the following: President of Organización Corona S.A., National Director of Managing Partner, Colombia, and Chairman of the Board of Budget and Auditing for the Coffee Growers Federation in Directors at Deloitte Latin America (Colombia), Managing New York, and Secretary General of the National Securities Partner, Central America and the Caribbean, Costa Rica Commission. and Panama, at Deloitte & Touche (2001-2007), Managing Partner, Colombia and Managing Partner, Cali and Tax 9. Ramiro Valencia* -Colombian Consultancy and Audit Manager at Arthur Andersen (1995- Law graduate and Humanist from Pontificia Bolivariana 2001), Finance Manager at Riopaila Castilla (1992-1995), University and Javeriana University, respectively. and Finance Manager at Wyeth (1982-1991): *Independent members of the Board of Directors

48 2016 Management Report• Avianca Holdings S.A. Executive Committee

Details are given below of our Executive Committee, as at February 2017.

Business functions: 5 Support functions: 7 CEO

Hernan Rincon Senior Vice-President Vice-President Customers Vice-President Executive Strategic Business Units Vice-President Executive and Network Strategy Vice-President Senior and Technical Operations Vice-President Senior and Income Marketing Sales, Vice-President Senior Finance Vice-President Senior Human Talent Vice-President Senior Digital and Technology Vice-President Senior Relations Strategic Vice-President Senior Council General Vice-President Senior and Ethics Safety, Compliance Vice-President Senior and Administration Procurement

Santiago Gerardo Eduardo Miguel Silvia Roberto Ana María Manager María Paula Elisa Eduardo Diana Diago Grajales Asmar Montoya Mosquera Held Rubio Maria Paula Duque Murgas Mendoza Calixto Duque

Top Management Diversity

G4-LA12 At the 2016 year end, gender and age proportions in top management were as follows:

At the end of February2017

Under Between Between Over the Minority Men Women Total the age 30 and 40 and age of groups of 30 40 50 50 Members of 10 0 10 0 0 2 8 0 Board Directors Percentage: 100.00% 0.00% 0.00% 0.00% 20% 80% 0.00% Managerial 9 4 13 0 0 8 5 0 Committee Percentage: 69.23% 30.77% 0.00% 0.00% 61.54% 38.46% 0.00%

2016 Management Report• Avianca Holdings S.A. 49 Legal situation

Avianca Holdings S.A. has implemented policies which enable it to guarantee that intellectual property and copyright regulations governing use of the software installed by its subsidiary companies in the countries where they operate are complied with. The Company has met the demands made of it by the different supervision and control entities and has complied with legal regulations governing its activity.

Subsequent facts

On January 31, 2017, the Company announced to the market the following three material events

Avianca Holdings S.A. (“AVH” or the “Company”) hereby states the following:

1. That it restates its commitment to continue searching for the strategic partner that the Company has referred to previously, and that based on the analysis it has conducted of the various offers submitted as part of such process, AVH has decided to enter into a strategic commercial alliance agreement with United Airlines, the terms of which are the subject of negotiation. The Avianca Board of Directors authorized Avianca to conduct all analyses and take all other steps which might be necessary for the potential strategic-commercial alliance with United Airlines.

2. Meanwhile, AVH has been informed by Synergy Aerospace Corp., in its capacity as controlling shareholder, that it has given its approval for proceeding with a capitalization of AVH totaling up to USD 200,000,000. Synergy has informed Avianca that its goal is for the capitalization to be open so that all Company shareholders can participate pro rata, including preference shareholders. The final terms of the capitalization are subject to the necessary corporate and regulatory approvals by AVH.

Finally, the controlling shareholder has informed the Company of its intention to carry out the necessary activities and obtain the necessary authorizations for achieving the integration of AVH with OceanAir Linhas Aereas S.A. (Avianca Brazil) on terms that are fair and reasonable for both parties. OceanAir is controlled by Synergy Aerospace Corp.

Yours truly,

Hernán Rincón Chairman

The members of the Board of Directors duly adopt the present report.

Germán Efromovich Roberto José Kriete José Efromovich Alexander Bialer Raul Campos Isaac Yanovich Álvaro Jaramillo Juan Guillermo Serna Ramiro Valencia Oscar Darío Morales

Bogotá, March 2017

50 2016 Management Report• Avianca Holdings S.A. Annual Avianca Holdings S.A. Corporate Governance Report

G4-13 Avianca Holdings S.A. (henceforth the Company • Respect for the rights of shareholders and investors and or the Holding Company) has a Corporate Governance equal treatment of everyone in a particular stakeholders structure which establishes general guidelines for • Application of Corporate Governance practices which managing the integrated companies, notwithstanding each enable legal obligations and commitments taken on with of them individually adopting policies in order to adhere to investors and the stock market to be complied with. the bylaws or regulatory framework, as applicable. • Generation of an ethics culture in the Organization. The management model that is applied enables all The Company has the following Governance Structure, companies to know, adopt and apply the guidelines which enables it to guarantee an adequate control established by Avianca Holdings S.A. environment. The goals that the Organization pursues by adopting Corporate Good Governance practices are as follows • Generation of value through transparent corporate management.

G4-34 Governance structure

CORPORATE GOOD SUPPORT COMMI- GOOD DOCUMENTS GOVERNANCE TTEES GOVERNANCE • Avianca Holdings S.A. POLICIES • Audit and Corporate TOOLS Social Compact • Code of Ethics and Rules Governance Committee • Relations with •Corporate Good of Conduct for •Finance and Investments Shareholders and Investors Governance Code Business Committee Office • Board of Directors • Anti-Corruption Policy •Compensation and Hu- • Ethics Line Regulation • Policy and Procedure for man Talent Committee •Vice-Presidency, Safety, • Gen. Meeting of the Negotiation of • Ethics Committee Ethics and Shareholders Regulation Shares and Stock by Compliance • Audit and Corporate Company Directors Governance • Policy for the Committee Regulation Comprehensive System for • Finance and Preventing and Investment Committee Controlling the Asset Regulation Laundering and Financing • Compensation and of Terrorism Human Talent Risk Committee Regulation

2016 Management Report• Avianca Holdings S.A. 51 G4-49 With respect to its stock market obligations, in 2016 Avianca Holdings S.A. met applicable regulatory demands by the Financial Superintendency of Colombia, the Colombian Stock Exchange and the Securities and Ex- change Commission (SEC), and as stipulated in internal policies and procedures established by the Company for guaranteeing a proper management of its affairs. Through Internal Audit and Audit and Corporate Governance Board Committee reports, the Board carried out follow-up and monitoring on adherence to practices implemented by the Organization on the subject of Corporate Governance and internal control. The Company delivered information through the fo- llowing channels. • Comprehensive Stock Market Information System (SIMEV) •Securities and Exchange Commission (SEC) • Website: www.aviancaholdings.com • Non Deal Roadshows (NDR) • Quarterly results conferences • Direct contact with the Relations with Investors area.

1.Property structure

1.1 Capital stock Ordinary shares, 2016 The capital stock is represented in six hundred and sixty million eight hundred thousand and three (660,800,003) ordinary shares with voting right and three hundred and forty million five hundred and seven thousand nine hun- 21.91% dred and seventeen (340,507,917) preference shares wi- thout voting right, making a total of one thousand and one million three hundred and seven thousand none hundred and twenty (1,001,307,920) shares, distributed in the fo- llowing manner.

•Ordinary shares 78.09% of the ordinary shares with voting right are held by Synergy Aerospace Corp., a company incorporated in Panama whose final beneficiaries are the brothers Germán 78.09% Efromovich and José Efromovich, and 21.91% belong to Kingsland Holdings Limited, a company incorporated in the Bahamas whose final beneficiaries are certain mem- bers of the family of Mr. Roberto Kriete. Synergy aerospace corp Kingsland holdings limited

52 2016 Management Report• Avianca Holdings S.A. • Preference shares 34.01% of outstanding shares, namely 340,507,917 shares, are shares without voting right and with preferen- tial dividend. 13.60% of this percentage are traded on the in the form of American Depo- sitary Shares (ADR), and 20.41% are traded on the Colom- bian Stock Exchange.

1.2 Shareholding As at December 31, 2016, the 1,001,307,920 outstan- ding shares, including Avianca Holdings S.A. ordinary and preference shares, are distributed in the following manner.

Shareholding structure

14.46% Floating

20.41%

34.01%

13.60% 51.53%

Synergy Aerospace Corp. Kingsland Holdings LTDA Avianca Holdings S.A. ADS Program Others

2016 Management Report• Avianca Holdings S.A. 53 1.3 Principal shareholders The following list shows the principal shareholders in Avianca Holdings S.A. (who hold ordinary or pre- ference shares) as at December 31, 2016.

Avianca Holdings S.A. Shareholding, December 31, 2016 20 Principal Shareholders

Nº Shareholder Ordinary Preference Total Total % Shares Shares Shares Share 1 Synergy Aerospace Corp 516,000,000 516,000,000 51.53 3 Kingsland Holdings Limited 144,800,003 144,800,003 14.46 2 Avianca Holdings S.A ADR Program 136,146,424 136,146,424 13.60 4 Fondo de pensiones obligatorias 19,427,680 19,427,680 1.94 Protección moderado 5 Fondo de pensiones obligatorias 12,889,725 12,889,725 1.29 Porvenir moderado 6 Fondo Bursatil Ishares Colcap 10,452,536 10,452,536 1.04 7 Fondo de pensiones obligatorias 5,604,968 5,604,968 0.56 Colfondos moderado 8 Norges Bank-CB New York 5,070,981 5,070,981 0.51 9 Fidubogotá - PA PLAN INCENTI 4,320,632 4,320,632 0.43 AVIANCA TACA HOLDING 10 Fondo de cesantías Porvenir 4,282,456 4,282,456 0.43 11 Vanguard Emerging Markerts Stock 3,841,682 3,841,682 0.38 Index Fund 12 Vanguard Total International Stock 3,815,061 3,815,061 0.38 Index Fund 13 Fondo de cesantías Protección 3,303,162 3,303,162 0.33 Largo Plazo 14 Banco BTG Pactual SA Cayman Branch 3,184,984 3,184,984 0.32 APT 15 The Emerging Markets Small CAP 2,637,267 2,637,267 0.26 Series of the DFA I 16 Fondo Bursatil Horizons Colombia 2,631,769 2,631,769 0.26 Select de SP 17 Bancard International Investment INC 2,091,881 2,091,881 0.21 18 Almazara S.A.S 2,073,757 2,073,757 0.21 19 Global x/ FTSE Colombia 2,043,031 2,043,031 0.20 20 ETF 20 Fondo de pensiones obligatorias 1,934,161 1,934,161 0.19 Protección Mayor R Other 114,755,760 114,755,760 11.46 Total Outstanding Shares 660,800,003 34,.507,917 1,001,307,920 100.00 Reacquired Shares - Total Subscribed and Paid shares 660,800,003 340,507,917 1,001,307,920 100.00

54 2016 Management Report• Avianca Holdings S.A. 1.4 Indirect Board of Director members’ share in Company capital As at December 31,2016, certain members of the Board of Directors had an indirect share in the capital stock, as follows.

Indirect share through Ordinary Preference Board Member Shares % Shares % German y Jose Efromovich Synergy Aerospace Corp (1) 516,000,000 78.09% 0 0.0% Roberto Kriete Kingsland Holdings Limited (2) 144,800,003 21.91% 0 0.0%

(1) Company incorporated in accordance with the laws 1.7 Joint Action Agreement entered into by and of the Republic of Panama, wholly owned by Synergy between Synergy Aerospace Corp. and Kingsland Group Corp., a company likewise incorporated in Panama,. Holdings Limited Messrs. Germán and José Efromovich hold the decisive The Company and its controlling shareholders, Synergy vote with respect to Synergy shares. Aerospace Corp. and Kingsland Holdings Limited, are party to the Joint Action Agreement which was entered into on (2) Special purpose company incorporated in accordance September 11, 2013, the terms of which, with reference with the laws of the Bahamas, 100% indirectly owned to corporate government aspects, are incorporated into by Atlantis Trust. Mr. Roberto Kriete and his family hold the Social Compact. Certain relevant aspects of the said voting power with respect to Kingsland Holdings shares. Agreement are indicated below. . The Agreement regulates the rights held by the Synergy 1.5 Relations of a family, commercial, and Kingsland shareholder groups to appoint a number of contractual or company nature that exist between directors in proportion to the participation each one has the holders of significant shares and the company, in the ordinary shares of the Company, and obliges the or between the holders of significant shares Company to take whatever action might be necessary to themselves. enforce the respective provisions. The notes to the Financial Statements include details of It also states that a majority of Company directors relations of a commercial and contractual nature between will be independent, in accordance with the rules and the holders of significant shares and the Company regulations of the New York Stock Exchange (NYSE). Company operations are the responsibility of 1.6 Negotiations by members of the Board Management, directed and supervised by the Board of of Directors, top management and other Directors; however, the Agreement grants Synergy and administrators with shares and other securities Kingsland the right of prior approval before submission issued by the Company. to the Board of Directors in the case of certain strategic In 2016, the Company Secretary was not aware of any transactions by the Company and its Material Subsidiaries, members of the Board of Directors, Top Management staff including, among others, the following: or other Administrators negotiating shares or securities • Mergers and consolidations issued by the Company. • Certain acquisitions or investments in excess of USD

2016 Management Report• Avianca Holdings S.A. 55 30 million on one single occasion and in excess of an • A modification to the Company’s dividend policy. aggregate USD 75 million during any fiscal year, except as The Agreement likewise includes rights for shareholder already contemplated in the Company’s annual budget. Kingsland Holdings Limited to sell its shareholding in • The Company’s annual budget and business plan. the event that Synergy Aerospace Corp. enters into a • Capital expenses in excess of USD 120 million, except as transaction which implies a change in control of Synergy, already contemplated in the Company’s annual budget. as defined in the Agreement. • Substantial changes to the Social Compact and company documents. 1.8 Own shares in the possession of the Company •Share issues with voting right. As at December 31, 2016, Avianca Holdings S.A. has no • Transactions with parties related to the shareholders reacquired own shares. party to the Agreement, Company Directors or Officers, or any member of the Family or affiliate thereof. 2. Company management structure Similarly, under the terms of the Joint Action Agreement, certain transactions by the Company and its Material 2.1 Governing bodies and Board of Directors Subsidiaries require a majority vote by Board members and make-up the approval of a majority of the independent directors, as G4-38 The Company’s governing bodies are shown on follows. the following diagram • The filing and/or withdrawal of litigation in excess of USD 5 million. • The filing of any bankruptcy or insolvency proceedings and/or winding-up or liquidation proceedings or winding- up or liquidation agreement. • Certain indebtedness situations. • The adoption of or amending of any share incentive plan. • The formalization of certain material or long-term contracts or licenses.

Audit and Corporate General Meeting of German Efromovich Governance Shareholders (Presidente) Committee José Efromovich Roberto Kriete Alexander Bialer Raul Campos Finance and Isaac Yanovich (*) Board of Direc- Investment Oscar Morales (*) tors Committee Juan Guillermo Serna (*) Ramiro Valencia (*) Mónica Aparicio (**) Alvaro Jaramillo (*) Compensation and Human (*) Members Chairman - CEO Talent Committee Independientes

56 2016 Management Report• Avianca Holdings S.A. 2.2 Dates of first and current Board of Directors appointment

Date of Current Date of First Name Status Appointment Appointment German Efromovich Principal March 31 de 2016 March 23 de 2010 Jose Efromovich Principal March 31 de 2016 March 23 de 2010 Alexander Bialer Principal March 31 de 2016 March 23 de 2010 Raul Campos Principal March 31 de 2016 April 17 de 2015 Isaac Yanovich * Principal March 31 de 2016 March 23 de 2010 Álvaro Jaramillo* Principal March 31 de 2016 March 23 de 2010 Ramiro Valencia* Principal March 31 de 2016 March de 2010 Juan Guillermo Serna* Principal March 31 de 2016 March de 2010 Roberto Kriete Principal March 31 de 2016 March de 2010 Monica Aparicio Smith** Principal March 31 de 2016 October11 de 2013 Oscar Dario Morales* Principal March 31 de 2016 April 10 de 2012

*Independent Members ** Mónica Aparicio resigned from the Board of Directors on October 25, 2016.

2016 Management Report• Avianca Holdings S.A. 57 2.3 Board committees: • Board committes G4-35, G4-42, G4-45 The Board of Directors has the following Committees, whose members and principal functions and activities in 2016

• Audit and Governance Committee

Members Principal Functions Principal Activities Performed in 2016 •Isaac The Committee The Committee performed the following activities in 2016. Yanovich* performed the following - Verification of and follow-up on recommendations made at previous Audit •Juan duties in 2016. Committee sessions. Guillermo - Follow-up on execution of the audit plan approved by the Committee for Serna* Supporting the 2016 and executed by the internal auditors. •Monica Board of Directors in - Review and approval of 2016 budget and Internal Audit training plan. Aparicio Smith* supervising the quality, - Review of compliance with 2015 audit plan. •Oscar Dario reliability and integrity -Review of the results of relevant unplanned audits carried out by Internal Morales* of the Company’s Audit. accounting policies and -Follow-up on 2015 and 2016 internal audit reports. consolidated financial -Approval of Continuous Audit project and increase in funds for Internal Audit statements, supervising and new structure. compliance with - Review of 2015 SOX results. legal requirements in - Review of 2016 SOX work plan and progress thereon. terms of regulations, -Review of SOX results in testing during 2016 , prior to publication. Together and checking the with possible impacts and action plans implemented by different areas. independence, suitability - Analysis of financial statements at December 31, 2015. and performance both -Analysis of quarterly 2016 financial statements prior to publication. of the Company’s - Follow-up on the Company’s financial development. internal auditors and the -Analysis and impact of changes to contracts, transactions, payment external auditors. agreements with Related Parties. - Special approvals by Board. -Update and progress, 2016 External Audit plan (E&Y), change in work team, follow-up on work done and fees review. -Review and analysis, RFP External Auditors. -Approval of audit fees, 2015 Branch Financial Statements. -20F review prior to publication (including Material Weakness) and 20F vs. 6K comparison, financial results. -Review of Internal Audit, External Audit, 2015 Audit Committee results, evaluations, performance. -Review and diagnostic analysis, Fraud Prevention Program. -Misc. authorizations to be passed to Board of Directors. -Approval of amendment to the Company’s Code of Ethics. -Follow-up on Ethics Line issues and action taken thereon. -Management Report to be submitted to Board and General Meeting. -Report on the Company’s Internal Control System to be submitted to the Board and General Meeting. - Approval of modification to Board of Directors’ committee regulations to comply with stipulations in Country Code (Audit Committee, Compensation and Human Talent Committee, Finance and Investments Committee).

58 2016 Management Report• Avianca Holdings S.A. • Compensation and Human Talent Committee

Members Principal Functions Principal Activities Performed in 2016

•Jose Efromovich The Committee - Approval for payment of the E+ bond for the year 2015 •Ramiro Valencia* performed the following and previous years deriving from Opex savings. •Roberto Kriete duties in 2016. - Review of and adjustment to the Compensation and •Monica Aparico Human Talent Committee’s internal regulation. •Isaac Yanovich Ensuring that the - Approval of c-level and vice-presidents’ salary increases. Compensation Policy - Approval of retirement benefit packages for executives. of members of Top - Suggesting candidates to be presented to the Board for Management was the CFO post. adhered to, together - Approval of the Human Talent strategy and mission for with transparency Avianca Holdings and for the Attraction, Development, and dissemination of Training, Labor Relations, Services Center and retributions in accordance Compensation processes. with Company policies - Suggesting organizational structure for reporting to the and the law. CEO for Board approval.

• Finance and Investment Committee

Members Principal Functions Principal Activities Performed in 2016 •Germán Efromovich The Committee The Committee performed the following activities in 2016, •Roberto Kriete performed the following among others. •Alexander Bialer duties in 2016. - Detailed follow-up on corporate cash, including a breakdown •Alvaro Jaramillo* of sources and uses, restricted cash, and analysis of variation vs. •Juan Guillermo Serna* Supporting the Board of budget / outlook. •Oscar Dario Morales* Directors in establishing - Follow-up on additional cash generation initiatives. financial and risk - Rates and fuel correlation for analyzing potential income. management policies. - Initial definition of and follow-up on the Horizon project. The Finance Committee - Progress on negotiations with Airbus for CAPEX deferment. also has the authority to - Follow-up on the Company’s risk rating, leverage metrics and make recommendations covenants, analyzing impacts and recommending action to be to the Board of Directors taken in the event of default thereon being foreseen. on the Company’s capital - Recommendation to the Board of directors about the optimum structure. indebtedness structure for the company. - Follow-up on the indebtedness strategy, debt structure and servicing the debt. - Analysis of exposure to fuel prices and interest rates, and follow- up on the execution of hedging strategies. - Review of inter-company credit policies. - Analysis of the AVH Profit and Loss Statement, fuel curve, and comparison vs. outlook and budget. - Update on E+ costs program and CAPEX rationalization actions. - Review of and recommendations to the Board of Directors on the 2017 cash budget,.

2016 Management Report• Avianca Holdings S.A. 59 2.4 Summary CVs of members of the Board of G4-40 The procedure for appointing members of the Directors: Board of Directors is described in Article 8 of the Company’s Information relating to the summary CVs of members Social Compact. The full text is available for consultation on of the Board of Directors is contained in the Annual Report. the Company website: www.aviancaholdings.com

2.5 Changes in the Board of Directors during 2.9 Board of Directors remuneration policy 2016 Members of the Board of Directors receive the sum of Mónica Aparicio Smith resigned from the Board of USD 1,000 by way of fees for taking part in meetings of Directors on October 25, 2016. the Board of Directors and meetings of the Committees on which they sit. 2.6 Participation by members of the Board of The Company pays traveling expenses, accommodation Directors of the parent company in subsidiary and transportation as required for attending meetings of companies. the Board of Directors and Board Committees. Mr. Germán Efromovich, Chairman of the Avianca In addition, members of the Board of Directors receive Holdings S.A. Board of Directors, is in turn a member of unlimited tickets for themselves and their spouse to the Boards of Directors of Taca International Airlines destinations served by the airlines which come under the S.A., Aerovías del Continente Americano S.A. Avianca and Avianca Holdings S.A. umbrella. LifeMiles B.V. Mr. José Efromovich, in addition to being a member of 2.10 Remuneration for members of top the Avianca Holdings S.A. Board of Directors, is a member management of the Board of Directors of Aerovías del Continente The top management Remuneration Policy is based Americano S.A. Avianca. on fairness and competitiveness criteria, and takes into Mr. Roberto Kriete, in addition to being a member of account the extent and the direct and indirect impact the Avianca Holdings S.A. Board of Directors, is a member of the contribution made by each post to achieving the of the Board of Directors of Aerovías del Continente Company’s results. Americano S.A. Avianca and was a member of the Board of Compensation consists of salary, variable compensation Directors of Taca International S.A. until August 18, 2015. and long-term incentives. The aim of variable compensation is link Company 2.7 Policies approved by the Board of Directors results to Top Management Compensation by defining in 2016 key management indicators which will guarantee that During 2016, the Board of Directors approved the corporate objectives will be achieved. following policies. • Policy for the Comprehensive System for Prevention 2.11 Board of Directors quorum and Control of the Asset Laundering and Financing of In accordance with the provisions stipulated in Article 53 Terrorism Risk (SIPLAFT), approved by the Board of in National Assembly of Panama Law 32 dated February 26, Directors of Avianca Holdings at its ordinary session on 1927 relating to Stock Companies, a majority of members August 17, 2016. of the Board of Directors shall be required to be present for • Amendment to the Investment and Cash Policy, there to be a quorum for purposes of deciding on company approved by the Board of Directors of Avianca Holdings at business. The Social Compact states no different rule. its session on January 17, 2016 and ratified at its session on July 13, 2016. 2.12 Details of attendance at meetings of the Board of Directors and Committees during 2016. 2.8 Appointment of members of the Board of Directors

60 2016 Management Report• Avianca Holdings S.A. • Board of Directors

12 27 16 24 16 13 11 8 13 17 7 19 26 4 16 16 Name Jan Jan feb feb mar apr may jun jul aug sep oct oct nov nov dec German Efromovich x x x x x x x x x x x x x x x Jose Efromovich x x x x x x x x x x x x x x x x Alexander Bialer x x x x x x x x x x x x x x x x Raul Campos x x x x x x x x x x x x x x x x Isaac Yanovich* x x x x x x x x x x x x x x x x Alvaro Jaramillo* x x x x x x x x x x x Ramiro Valencia* x x x x x x x x x x x x x x x x Juan Guillermo Serna* x x x x x x x x x x x x x x x x Roberto Kriete x x x x x x x x x x x x x x x x Monica Aparicio Smith* x x x x x x x x x x Oscar Darío Morales* x x x x x x x x x x x x x x x x

* Independent Members ** Mónica Aparicio resigned from the Board of Directors on October 25, 2016.

• Audit and Corporate Governance Committee

Name 27 24 16 13 28 11 13 17 1 19 26 2 16 Jan feb mar apr apr may jun aug sep oct oct nov dec Isaac Yanovich* x x x x x x x x x x x x Juan Guillermo Serna* x x x x x x x x x x x x x Monica Aparicio Smith* x x x x x x x x x x Oscar Darío Morales* x x x x x x x x x x x x x

• Compensation and Human Talent Committee

Name 27 26 16 11 8 12 16 19 16 Jan feb mar may jun jul aug oct dec Jose Efromovich x x x x x x x x x Ramiro Valencia* x x x x x x x x x Roberto Kriete x x x x x x x x Monica Aparicio Smith x x x x x x x Isaac Yanovich x x x x x x x x x

2016 Management Report• Avianca Holdings S.A. 61 • Finance Committee

27 16 13 8 13 7 19 16 Name Jan mar apr jun jul sep oct dec Alexander Bialer x x x x x x x x Alvaro Jaramillo* x x x x x x x x Juan Guillermo Serna* x x x x x x x x Roberto Kriete x x x x x x x Oscar Darío Morales* x x x x x x x x

2.13 Chairman of the Board of Directors: duties d) to maintain order during the meeting; and key issues e) to comply with and enforce the Board of Directors G4-39, G4-42 In accordance with the Social Compact, regulation; and the Chairman of the Board should not be an executive of f) to decide on questions or queries that might the Company. Mr. Germán Efromovich was appointed by arise with respect to application of the Board of Directors the Board of Directors at a Board of Directors session held regulation. in August 2014. The duties of the Chairman, or of whoever might act in 2.14 Secretary to the Board of Directors: duties his stead, are as follows. and key issues a) To chair the meeting; The Company shall have a Secretary, who shall also be b) to formally open and close the meeting; Secretary to the Board of Directors. Should the Company c) to allow persons to speak and order a speaker to Secretary not be present, the Board of Directors shall elect end his presentation when the time allotted has expired; a member of the Board by a majority vote of members

62 2016 Management Report• Avianca Holdings S.A. present, and such person shall act as Secretary at the The Code of Ethics and Business respective meeting. The Secretary shall have the following Conduct Regulations regulates duties. how conflicts of interest are a)To verify the quorum for deliberation and decision- handled at Avianca Holdings. making purposes before the meeting starts; b)to certify at the meeting the manner in which the same was called and that relevant information about each matter to be discussed thereat was duly dispatched; c)to draw up the minutes of the respective Board of Directors’ meeting, submit them for approval and sign the same as Secretary; and the said person shall refrain from engaging in the respective d)other duties which might be established in the law, act and/or operation. the Social Compact and the Board of Directors Regulation. 3.2 Details of the most relevant operations with 2.15 External advisory services received by the associated parties in the opinion of the Company, Board of Directors including operations between companies in the The Board of Directors received no external advisory Conglomerate. services in 2016. The Company currently carries out financial and commercial transactions with related parties, and such 2.16 Information about Board of Directors transactions are carried out under market conditions in the evaluation processes carried out and a normal course of commercial activities and under terms summary of the results thereof which would apply to transactions with third parties. Pursuant to the Good Governance Code, each year The notes to the Financial Statements include details members of the Board of Directors carry out a self- of transactions with related parties for the years ending evaluation of their management and an evaluation of the December 31, 2016 and 2015. collective body, and they submit the results to the Board. 3.3 Conflicts of interest that have arisen and action taken by members of the Board of Directors 3. Operations with associated parties G4-41 . No cases of Conflict of Interest arose during 2016. Operations where there was a potential conflict 3.1 Board of Directors powers with respect of interest were divulged to the Audit Committee and to this type of operation and conflict of interest approved by the Board of Directors by virtue of their being situations subject to market conditions. The Code of Ethics and Standards of Business Conduct approved by the Board of Directors regulates the way in 3.4 Mechanisms for resolving conflicts of interest which conflicts of interest are handled. Situations which between companies in the same Conglomerate, represent a potential conflict of interest by a member of the and application thereof during the year Board of Directors are evaluated by the Audit Committee G4-41 The duties of the Audit and Governance and submitted to the Board of Directors for a final decision. Committee include reviewing operations between Situations which represent a potential conflict of interest companies which come under the Avianca Holdings S.A. by persons associated via a contract of employment are umbrella. This review may identify situations which give rise analyzed by the Ethics Committee. to a potential conflict of interest, in which case applicable In accordance with the regulation contained in the Code actions are taken to overcome the conflict situation or of Ethics and Standards of Business Conduct, any act or determine that the operations will not take place. operation which gives rise to a potential conflict of interest In accordance with the foregoing, the Company’s may only be authorized when it does not harm the interests Internal Control System report is now duly presented. of the Organization, and provided that market conditions which might be applicable are respected, if the act or 4. Internal Control System operation has been carried out with a third party. The authorization should be put in writing, and the The Company is of the opinion that the control person involved should be notified directly. Until such time architecture is a vital component of good corporate as notification of the authorization has been duly served,

2016 Management Report• Avianca Holdings S.A. 63 governance, one which brings together aspects related to the Internal Control System and the Integrated Management System with a view to guaranteeing a governance structure and a number of policies and guidelines that are in line with achieving its strategic The Code of Ethics and Business objectives. Conduct Regulations was The Company’s Internal Control System is based on amended by the Board of values and principles and is carried out through policies, Directors in 2016, when Ethics standards, procedures, actions and behaviors and in accordance with applicable regulations. Line reporting channels were The aim is thus to reasonably ensure that the risks to modified. which Avianca Holdings is exposed in the course of its activities will not affect it achieving its strategic objectives.

4.1 Control environment G4-DMA G4-2, G4-14, G4-58 In 2016, the Company undertook a restructuring of control environment responsibilities. The new Senior Vice-Presidency of mitigate and prevent the Asset Laundering and Financing Security, Ethics and Compliance was formed, whose of Terrorism Risk (LAFT) risk and guaranteeing that current mission is to lead, develop and maintain the Organization’s regulations governing the prevention of LAFT risks in the risk and compliance management strategy. It is made up countries where the companies which come under the of the following divisions: Internal Evaluation and Risk Avianca Holdings S.A. umbrella operate are adhered to. Management, Control and Compliance, Operational Safety In order to implement the aforementioned System Risk Management, Corporate Safety Risk Management, for Prevention and Control of the Asset Laundering Health and Safety at Work and Environment Risk and Financing of Terrorism Risk (SIPLAFT), the Avianca Management, and Information Security and Human Holdings S.A. Board of Directors appointed a Compliance Factors Security Risks Management. Officer for Avianca Holdings S.A. and its integrated The Vice-Presidency’s operating strategy is thus based companies. on the triple line of defense model, which sets out to Avianca Holdings S.A. also strengthened its control reinforce risk and control management by aligning roles architecture in 2016 by creating its Ethics and Compliance and responsibilities. The first line of defense consists of Program, which was approved by the Avianca Holdings process leaders, who are responsible for identifying and S.A. Board of Directors in December 2016. The Program administering their risks. The second line monitors the is structured in accordance with the guidelines established design and creation of controls for the former and advises by the US Department of Justice in the “United States risk management. The third line independently verifies Federal Sentencing Guidelines” and brought into line control efficiency. with the international COSO standard. The principal aim The Organization also has an Ethics Committee, which of the Program is to promote a culture of respect for and guarantees that the conduct established in the Code compliance with ethical, legal and corporate standards, for of Ethics and Standards of Business Conduct and in the which prevention, detection, monitoring and remediation Organization’s policies in force at the time is complied actions are prescribed, as follows. with, interpreted and penalized where applicable. The Ethics Committee submits periodic reports to the Audit Committee on reports of and consultations on matters relating to illicit acts, fraud and conflicts of interest. The Code of Ethics and Standards of Business Conduct was modified by the Board of Directors in 2016, in order to change Ethics Line reporting channels. The Board of Directors of Avianca Holdings S.A. also adopted the Comprehensive System for Prevention and Control of the Asset Laundering and Financing of Terrorism Risk (SIPLAFT) policy in August 2016, with a view to implementing a system within the Company to

64 2016 Management Report• Avianca Holdings S.A. The Ethics and Compliance Program is the starting point for constructing a risk management-focused culture.

• Identification and appraisal of risks by processes. • Control documentation Risk Remedying infringe- Identification ments and improving prevention • Improve risk con- trols •Sanctions

Remedyng Culture Prevention

Preventing inappropriate conduct by implementing controls: • Responsibilities • Policies and procedures • Education Detection • Incentives

Detection of inappropriate conduct and risk factors: • Ethics Line, managing cases and administration •Due diligence •Auditing and proactive data analysis

The Senior Vice-Presidency of Security, Ethics and implementing systems for the detection and management Compliance, which was formed as part of the Ethics and of risks and the prevention, detection and remedying Compliance Program, will implement the program in of conduct, processes, controls and procedures, all in line with international internal control standards and the accordance with laws and regulations. triple line of defense model, where the first line of defense The third line of defense is the responsibility of Internal consists of those responsible for the process, who should Audit. This independently and objectively checks that the identify risks, implement controls and guarantee that control environment is adequate in terms of corporate standards, processes and procedures are complied with. governance, risk management and internal control. The Senior Vice-Presidency of Security, Ethics and Compliance is responsible for the second line of defense, by

2016 Management Report• Avianca Holdings S.A. 65 Regulatory compliance ethics and compliance culture

Management tone: honesty, integrity and ethical behavior

First line of defense: Second line of defense: Third line of defense: Evaluation of Risk Systems PERSONS and Management INTERNAL AUDIT RESPONSIBLE FOR Comprehensive Security: PROCESSES * Safety *Security *Human Factors *Information Security

Control and Compliance EXTERNAL AUDIT

Finally, the Company has a Strategic Management 4.2 Risk evaluation System, the main purpose of which is to plan, align and Avianca Holdings S.A. has a Corporate Risk Management carry out strategic follow-up on Avianca Holdings S.A., System whose principal objective is to manage in advance its subsidiary companies and companies with which it vulnerabilities or events which could have a negative effect consolidates its financial statements, in order to guarantee on corporate objectives being achieved and the everyday that the strategy is executed and operable and that the management of its operation by administering different Company’s objectives are being complied with. The Strategic types of risks. The model consists of a policy, processes North is defined as part of this process, and includes the and procedures that have been designed on the basis of Mission, Vision, Values and Strategic Objectives. In 2016, international standards like ISO 31000 and COSO, which the Company therefore defined its new Strategic North for enable risks at strategic and operational levels to be the period from 2017 to 2020, as part of a formal planning adequately identified, appraised, controlled and mitigated. exercise. As mentioned above, this system is centralized and is This new Strategic North takes on board the best of the responsibility of the Senior Vice-Presidency of Security, the path already trodden and strengthens it in order Ethics and Compliance. The principal risk perspectives are to ensure that the flight plan to 2020 can be adhered as follows. to. The Company’s new Mission, which describes the Organization’s raison d’être, what it does and why it does it, •Operational security reads as follows: “We connect the world with Latin America • Corporate security in our effort to always give more”. This is followed by the •Environment new Vision, which states what the Organization wants to • Health and safety at work achieve by 2020: “With the best technology and people for • Information security an exceptional experience, we will be the world’s favorite • Strategic matters Latin American airline”. Similarly, the Company will take a •Fraud new step forward in 2017 in its projection as the favorite •Asset laundering and the financing of terrorism Latin American airline of all travelers around the world.

66 2016 Management Report• Avianca Holdings S.A. Work done in 2016 centered around four main In 2016 we trained 14,275 staff in cornerstones of corporate risk management. the Code of Ethics and Business A. Senior Vice-Presidency of Security, Ethics and Conduct Regulations, and 12,716 Compliance. The Vice-Presidency was formed, and its staff, 11 Members of the Board principal objective was established as the development of Directors and 12 members of of a new Governance, Risks and Compliance model based on best international practices that will enable risk the Managerial Committee in management based on the three lines of defense to be Anticorruption Policy. consolidated.

B. Strategic risks. The strategic risks map was updated, based on the Company’s 2016 strategy, and it seeks to laundering of assets and financing of terrorism risks, based identify and appraise risks that do not permit the goals of on the best international standard and on risk management Avianca Holdings S.A. to be reached. The map was updated practices established by the Organization. on the basis of input from different risk management systems, internal audit findings, and the strategic projects 4.3 Description of risks policy and application and risks of the Organization’s different business units. This thereof during the year map was approved by the Executive Committee. Likewise, The Corporate Risk Management System has a risk follow-up was conducted on the mitigation plans drawn up management policy that establishes guidelines for in 2015 and the effectiveness of the most representative adequately identifying, appraising and mitigating strategic plans was audited. and operational risks. The policy guidelines for four principal elements: policy scope, roles and responsibilities, C. Business continuity. With a view to being able to appetite for risk, and risk management administration manage our operation in the event of a major interruption, process and methodology. an alternative operations center was established for the SOC, from where operations will be carried out in 4.4 Response and supervision plans for principal such a situation. For adequate administration of this, a risks protocol was drawn up based on before, during and after The process for identifying, analyzing and monitoring the contingency. This protocol was tested by means of a strategic risks is carried out annually, and was updated simulation and different desktop tests. during 2016. The CEO, Vice-Presidents, directors and experts on the subject were all involved in this exercise. D. Comprehensive System for Prevention and Control Finally, the map was approved and monitored by the of the Asset Laundering and Financing of Terrorism Executive Committee. The result is the following risks and Risk (SIPLAFT). A system was devised for managing the treatments:

A. Risks relating to the Company

Risks Treatment Plan

a.Sources of finance • Adapting growth plans in line with the Company’s financial conditions.

b.Changes in •Review of and improvements to our customers’ consumer preferences experience in all interactions with the airline.

2016 Management Report• Avianca Holdings S.A. 67 B.Risks in the surroundings

Risks Treatment Plan

a. Cybernetic incidents • Improvements to the strategy for detecting and responding to cyber- attacks.

b.Changes in the •Continuous monitoring of political and macro- political climate and in economic changes and drawing the strategy up macroeconomic variables under different scenarios. •Formation of the Ethics and Compliance Program c. Changes in legislation and as a basis for implementing new applicable regu- regulations lations.

C. Risks related to the aeronautics industry

Risks Treatment Plan

a. Limitations on airport • Adaptation of the Company’s itineraries infrastructure at hubs. network.

• Reinforcement of the Company’s digitalization b. Highly competitive air of processes strategy. industry and more advances in innovation and new technologies.

4.5 Materialization of risks during the year 4.6 Control activities The various events that occurred in the Company during Based on risks identified by the Company, control 2016 were related to three risks materializing: changes in activities are carried out that help mitigate them so that the political environment and in macroeconomic variables, the objectives of business processes can be achieved. highly competitive air industry, and effect on results due to Avianca Holdings S.A. thus took the following actions dependence on exchange rates. during 2016. The panorama in Latin America in 2016 was a Using as reference framework the COSO report, which challenging one, due to the fall in commodities prices, takes on board recommendations made by the Public especially oil, which in turn had a significant impact on Company Accounting Oversight Board (PCAOB) by currency devaluation, rising inflation and the flight of undertaking an analysis of the internal control environment capital. The dependence of these economies on raw with a top-down approach and lifting controls at entity materials has put countries like Colombia and Peru in a level, until reaching Controls in Processes (manual and complicated situation, since the continual fall in prices has automatic) identified as critical, based on a materiality translated into a weakening of demand. analysis that covers subsidiary companies classified as Due to these economic trends, there was a downturn relevant to the Holding Company. Key Control tests during the year in the number of international passengers were performed, and these were duly documented on originating in Colombia, Ecuador and Peru, principally matrices that identify the risks in each process as well as because the exchange rate has a collateral effect on mitigating controls for them, process flow diagrams, and tourism. This has meant that there has been a significant an evaluation and analysis of the correct segregation effect in the last year on the incomes of passengers on the of functions for key activities, at process, technological principal airlines in the region. platform and information systems level, that support the

68 2016 Management Report• Avianca Holdings S.A. business’ critical financial information, which contributed to with online communication campaigns, primary groups, the monitoring and reinforcement of an adequate Internal and through various internal and external communication Control Environment in the Company for generating the channels. In 2016 we provided training in the Ethics financial statements. Code and Business Conduct Standards for 14,275 staff members, and in the Anti-Corruption Policy to 12,716 4.7Information and communication members of staff, 11 members of the Board of Directors 4.7.1 Communication strategy and 12 members of the Managerial Committee. G4-SO4 Avianca Holdings S.A. and its integrated Some of the communication initiatives carried out in companies constantly receive training and information 2016 are detailed below. relating to ethics and compliance policies, and the Company has therefore made e-learning and face-to-face training available to the different stakeholders, together

Prevention 2016

Activity Target public Persons impacted Corporate Induction Initial training New intakes 1.966 New Ethics Line Launch Staff and 21.000 Campaign - 2015 and 2016 strategic allies Annual Ethics and Staff 21.000 Anti-Corruption Policy Campaign Annual Ethics and Anti-Corruption Staf 2.500 Policy Campaign Deprisa Deprisa E-learning courses Ethics Code certification course Direct staff 14.275 Anti-Corruption Policy Course Direct staff 12.416 certification Face-to-Face Ethics and Anti-Corruption, 2016 Critical areas 300 training Other dissemination Ethics window Primary staff 21.000 divulgación groups Corporate screens Staf 21.000 Human Talent posters Staff 21.000

Boletín Somos Avianca Express Staff 21.000 Mensajero Express Deprisa Deprisa staff 2.500 “Somos Avianca” magazine Direct staff 15.000 Website Customers Suppliers - Staff “Avianca en revista” Customers Suppliers - Staff Face-to-face training, suppliers Suppliers Strategic allies bulletin Suppliers Contracts Suppliers (Ethics and Anti-Corruption clause)

2016 Management Report• Avianca Holdings S.A. 69 In addition, the Avianca Holdings Board of Directors Management submitted the Company’s financial approved the “D. Communication of and Training in results and indicators and reports relevant to the pertinent the Ethics and Compliance Program”, through which decision-making processes to members of the Audit a specialized training program in Compliance for the Committee and the Board of Directors at sessions held Company will be implemented. The Board of Directors will throughout the year. be the prime promoter of this, with a view to continuing Meanwhile, in the first quarter of 2016 the Audit to consolidate an ethics, control and compliance culture Committee studied and approved the 2016 Internal Audit within the Organization. Plan, which was based on:

4.7.2. Ethics Line • Risk analyses (ERM, risks identified by Audit, risks The new Ethics Line is outsourced to Navex Global, identified by IT); which has made an online site available to investors, • Evaluation of Financial Statements; customers, suppliers and staff where they can post queries • Perception of key users (members of Audit Committee, and complaints relating to compliance with the Ethics Board of Directors, shareholders, Top Management and Code and Business Conduct Standards, the Anti-Corruption key users); Policy, and other internal policies: http://aviancaholdings. • Statistics (volumetric, fraud trend analysis, analysis of ethicspoint.com results in previous reports); and •Compliance (SOX, laws, FCPA, Anti-Corruption, etc.). 4.8 Monitoring The Committee reviewed and analyzed internal audit The Board of Directors is responsible, through the Audit reports relating to 2016 Audit Plan compliance and the Committee, for supervising the effectiveness of the various results obtained from executing the same, in conjunction components of the Internal Control System. Management, with management. These reports included observations in turn, is responsible for providing assurance about the relating to internal control effectiveness during the fiscal effectiveness of the Control Architecture and for carrying year, and these were reported promptly to the different out proper supervision of relevant business processes. areas audited. No material deficiencies or critical weaknesses that Similarly, the Audit Committee studied and analyzed might have affected the integrity and truthfulness of reports drawn up by External Audit during 2016, including financial information or compliance with applicable the year-end report with its corresponding notes, and no accounting standards were detected during 2016 in risk situations or material internal control deficiencies the internal control system and reports presented by capable of having significant effects on the financial management and issued by Internal Audit, External Audit, statements were observed. the Audit Committee and the Board of Directors. As far as control and supervision of the Organization’s operating and technical areas is concerned, the Quality

70 2016 Management Report• Avianca Holdings S.A. Assurance - Operations and Quality Assurance - 5.General Meeting of Shareholders Maintenance divisions are responsible for supervision to ensure that the Organization complies with Aeronautical 5.1 General Meeting functional differences Regulations in in each of the countries where Avianca between the minima system established in current Holdings operates. In order to ensure the said supervision regulations and that defined in the Company’s there is a corporate-level supervision program which Bylaws and regulation governing the General checks that internal policies and overall safety and quality Meeting. requirements are adhered to in each of the processes. Given that the Company is one that is incorporated in The fundamental objective of this program is to ensure , Republic of Panama, and that it is governed by that air operations and the technical component thereof regulations currently in force in that country, we are in the are conducted in accordance with the highest safety, process of adopting bet Corporate Governance practices quality and reliability standards. For validating the extent aimed at taking on board Country Code recommendations, to which the operating and technical system complies, which enable us to guarantee shareholder rights at the the Organization is certified by IATA through the IOSA General Meeting. program for the airlines Avianca S.A., Taca International, 5.2 Measures adopted during the year to Taca Peru, LACSA, Aerogal, Aviateca and Isleña, and foster shareholder participation, information to through the ISAGO program for rendering specialized shareholders and communication with them. airport services to client airlines at the Bogotá station via The Company has an investor relations division which the Avianca Services business unit. is responsible for providing shareholders with information. Around 1,616 audits were performed in 2016, and This are has arranged the following information channels the results and respective follow-up were administered and contact points. through the different internal committees established by • Website: www.aviancaholdings.com the Company. No critical findings were discovered, and the Investors can find the following information on this web- operating risk level was within the margins established for site a safe operation.

2016 Management Report• Avianca Holdings S.A. 71 Avianca Holdings S.A 5.3 General Meeting of Shareholders attendance • Who we are details • Investment lines At the ordinary session of the General Meeting of • Strategic North Shareholders held on March 31, 2016, a number of • Director profiles shareholders who hold 100% of the Company’s ordinary • History shares were present directly or by representation. • Social Responsibility and Sustainability Corporate governance 5.4 Details of principal agreements made • General Meeting of Shareholders The principal issues discussed at the General Meeting of • Board of Directors Shareholders were to put the Management Report by the • Board of Directors’ Committees Board of Directors, the Chairman and other Management •Shareholding to shareholders present for consideration and approval. Relations with investors The report submitted by the External Auditor was also •News made known, and the Financial Statements drawn up in • Relevant information / SEC records accordance with NIIF (IFRS) regulations were presented • Quarterly results for consideration and approval. • Why invest in Avianca Holdings Finally, the election of members of the Board of • Financial Statements Directors was held and their fees were established, and the • Operating statistics projected profits were approved. • Analyst coverage •Corporate presentations • 20 F / Annual Reports Yours truly, • Coming activities • Shares and bonds • Direct contact with the Investor Relations area If an investor requires further information or an explanation of some subject in particular, he can contact the Investor Relations area as follows: Hernán Rincón • Telephone: 5877700 Executive President • E-mail: [email protected] • Request for information form on website: on this form The members of the Board of Directors duly adopt the an investor can request information or further details. present report • Meeting with the Investor Relations area If an investor so requires, he may request a meeting, in which case the Director of Investor Relations will name the person who should contact him. • Events and Non Deal Roadshows (NDR) Germán Efromovich The Investor Relations area holds and/or attends events Roberto José Kriete and road shows with a view to providing and/or amplifying José Efromovich information and clearing up investor doubts about the Alexander Bialer Company. Raul Campos • Quarterly results conference Isaac Yanovich The Investor Relations Division holds a quarterly Álvaro Jaramillo online conference aimed at the investor community and Juan Guillermo Serna the market in general, for the purpose of presenting the Ramiro Valencia Company’s financial and operating results. Oscar Darío Morales This online conference is headed by the Company’s Vacante Executive President (CEO) or Executive Financial Vice- President (CFO), who deals with queries and concerns raised by investors taking part in the forum. Bogotá, March 2017

72 2016 Management Report• Avianca Holdings S.A. Informe de gestión 2016 • Avianca Holdings S.A. 73 Relations with stakeholders

Shareholders

Customers Suppliers and contractors

Regulators and Communities NGOs

Staff

In all the companies that come under the Avianca the industry and an internalization of the best international Holdings S.A. umbrella, we are conscious of the importance practices and standards as external reference. of adequate relations with our stakeholders, and this G4-26, G4-27 To appreciate the expectations and explains why we seek to forge and maintain mutual demands of out stakeholders and to be able to evaluate cooperation relations through actions that contribute to some of the principal risks and opportunities associated sustainability, business and the generation of value for all with the business and establish lasting, stable relationships, and enable us to adhere to the strategic objectives that at Avianca Holdings we promote various interactions guide our flight plan to 2020. that are reflected through face-to-face spaces, media, G4-24, G4-25, G4-49 To this end, in 2016 we conducted interpersonal relationships, etc. a review of our stakeholders through a sector analysis, taking the best companies in the world that have robustly systematized the concerns of stakeholders impacted by

74 2016 Management Report• Avianca Holdings S.A. 2017 challenges In 2017 we will look strategically and in depth at our variables such as the following. stakeholders’ involvement in managing our relations • The degree to which the different stakeholders are through new dialogue platforms and communication integrated into the decision-making process. channels, with a view to adequately taking into account • The power of stakeholders to impact the company. . their expectations in the context of our Strategic North. • Reflection on the possible risks of not meeting a particular Similarly, we will work to prioritize our stakeholders in stakeholders demand. order to focus on actions that will enable us to fly higher • Level of activity and involvement with the company and and make a greater contribution to social development. other groups in the market. This prioritization exercise will take into consideration

Stakeholders Sub-Group Relationship Mechanisms Recurring issues (Communication Channels)

Clients Business clients *NPS survey. •Service quality VIP clients *Website (permanent) LifeMiles clients * Email (eventual) * Focus Group

Shareholders Institutional investors * Website (permanent) • Investment Reference shareholders * Email (eventual) yields Minority shareholders * Quarterly investor conference • Maintaining high Obligation/bond holders * Annual report corporate governance Preference share holders * General Meeting of Shareholders standards (transparency) * Ethics Line (permanent)

Staff Contractor staff * Intranet, printed bulletins, • Growth and Direct staff notice boards, Email (permanent) development opportunities. Staff representatives * Primary groups (periodic). • • Welfare for them * Occupational health parity and ther families committees (periodic). *Harmony committees (periodic) *Suggestion boxes (permanent) * Ethics Line (permanent)

Suppliers and Strategic suppliers • Supply agreements.. contractors Work and maintenance • Payment conditions contractors. Suppliers. and credit capacity.

Communities * Annual report. • Social projects and investments .

Regulators International * Anual report • Compliance with and NGOs regulatory bodies. * Periodic reports regulation. Sector regulators • Request for periodic Market regulators . financial, fiscal and National and/or sustainability information supranational •Strategic relations. Administration. Local Partner NGOs

2016 Management Report• Avianca Holdings S.A. 75 Social, environmental and economic materiality

G4-18 . Contacting our stakeholders and informing them whether they are in line with the principal expectations, of activities and actions by our integrated organizations which are fundamental to a holistic understanding of the with respect to them has always been a priority for us. It is most important issues for adhering to our organization’s why in recent years we have presented our management Strategic North. report using the reporting methodology issued by The The sustainability context was fundamental to Global Reporting Initiative (GRI), which on this occasion has understanding the most recurring and relevant aspects been done in accordance with version G4, with the essential in the global environment, which were a vital input for “conformity” option. Similarly, it meets the requirements defining and prioritizing which of them are relevant of the New York and Colombian stock exchanges and our not only to our internal management and that of our regulatory authorities in the countries where we operate. stakeholders but also for bringing us into line with global G4-22, G4-23 For carrying out the process of sustainability trends. determining content, we internally identified and reviewed The approach to world problems and international trends the materiality established in previous years, with a view in the management of financial, social and environmental to validating the relevance of issues identified previously impacts were thus a major contribution to our materiality and establishing new alignments for corporate strategy analysis, since they gave rise to strategic opportunities to and for our organization’s current value promise and support regional sustainable development initiatives, the the contributions this makes to the global challenges of international environmental regulation context, and the sustainable development implications of compliance for management. As part of this process, we took into account external It should be stressed that although no dialogues were reference points in the aeronautics sector and issues in line held with stakeholders outside the Organization, the with those managed by the sector and the competition, materiality exercise will be carried out in greater depth in international sustainability standards like the Sustainability 2017 and the perceptions and expectations of our publics Accounting Standards Board (SASB) and the Dow with respect to material issues will be identified, so as Jones Sustainability Index (DJSI), impacts identified by to be able to establish an exhaustive materiality for the companies deemed to be regional or international leaders Organization. in the industry, and the views of our Top Management on G4-19, G4-20, G4-21 As a result of this exercise, we now existing issues. present details of the material issues that were reviewed We also took into consideration the fact that they are and validated by our Top Management and which reflect dynamic and connected through the strategic relationship issues that are relevant to our sustainable management with stakeholders. The principal financial, social and and the coverage of each one. environmental impacts were likewise evaluated, together with the challenges that these represent for the future and

76 2016 Management Report• Avianca Holdings S.A. Passenger and cargo safety Protection Responsible on the provisioning ground and in the air

Customer Generation of experience economic / Travel value experience

Waste Strategic Responsible management management relationship with of human stakeholders talent

Responsible Health and management safety at of water work

Impact Contribution migration Impact to society due to migration and noise adaptation to climate Social change Environmental Economic

Informe de gestión 2016 • Avianca Holdings S.A. 77 Coverage of material issues

Material Issue Coverage within the Coverage outside the Organization vOrganization

I.Passenger and cargo safety x x II. Protection on the ground and in the air x x (Security)

III. Customer experience / Travel experience x x

IV. Responsible management of human Talent x

V. Health and safety at work (Safe and x healthy work environment VI. Contribution to society x

VII. Development that respects the x x environment

VIII. Mitigation of impact and adaptation to x x climate change IX. Mitigation of impact due to noise x x X. Waste management x XI. Responsible management of water x XII. Responsible provisioning x x XIII.Generation of economic value x x

78 2016 Management Report• Avianca Holdings S.A. Informe de gestión 2016 • Avianca Holdings S.A. 79 Socially Responsible Management

I.Passenger and Cargo Safety

he importance to Avianca Holdings and its stakeholders G4-DMA Providing a safe and pleasant journey is our commitment and value promise to our customers, and this is based on a strict adherence to operating requirements and procedures in accordance with local and international standards on the subject of air safety, especially those issued by the International Civil Aviation Authority. G4-PR1 To back up this promise, Avianca has an Operational Safety Management System (SMS) which acts as a guide for all areas and direct, indirect and third party personnel involved in our service cycle, I order to carry out a safe and reliable operation at all levels. Our Safety, Ethics and Compliance Vice-Presidency leads, develops and maintains the Company’s risk management and compliance strategy, and also conducts monitoring to ensure that processes are executed in the correct manner, in accordance with laws and industry guidelines. In order to ensure an effective risk management, we have defined a management model based on three lines of defense. • The first line consists of process leaders, who are responsible for identifying and managing risks in the processes they are responsible for. • The second line monitors the design and establishment of controls for the former and advises and facilitates risk management. • The third line independently and autonomously verifies the effectiveness of the controls we have designed for each of the risks in our operation. We have also reinforced the internal structure, in order to provide a prompt and assertive response on key safety issues in our operations, relating to:

80 2016 Management Report• Avianca Holdings S.A. Operational Safety (Safety)

Human Protection Factors (Aviation Security)

Digital Occupational Security Safety, Health and Environment

Control and Compliance Internal Evaluation

• Operational safety, where we administer the Operational • Control and compliance, where we are reinforcing our in- Safety Management System and generate information so ternal control system by incorporating effective controls that decisions can be made by each Company leader. both for the operation and for financial management and • Protection (Aviation Security), where we administer the practices in the fight against corruption following guideli- Security Management System - SMS and check that pro- nes contained in the Sarbanes Oxley law. tection procedures for people, crew, aircraft and facilities • Digital security, related to all information technology are adequate and ensure their integrity in the event of illi- processes and audits, inspections and statistical analyses, cit, terrorist and related acts. in order to monitor their security. • Occupational safety, health and environment, where we • Human factors, an essential aspect of the man - machi- promote a safe and healthy environment for our personnel ne relationship, which arise between our ground personnel and related third parties, and we also monitor responsible and crew and the systems, equipment and aircraft that management of our impact on the environment. they operate. •Internal evaluation, by means of processes and procedu- res that form part of our Quality Management System, and following the guidelines established by the Federal Aviation Authority - FAA.

2016 Management Report• Avianca Holdings S.A. 81 Notable facts, 2016

Risk management and reporting culture The indicator which measures the operating risk in all In 2016 we continued to encourage a proactive reporting airlines that come under the umbrella of our Holding Com- culture for dangers among our staff in operating areas, and pany was also four percentage points down on the 2015 fi- as a result we achieved a 16% increase in the number of re- gure, illustrating the effectiveness of risk mitigation actions ports made, most of them in an acceptable risk zone. taken by the operating areas and of prevention in the mate- rialization of events.

Reports per 1000 cycles per airline

2015 2016 Airline VAR (%) GU 47 WC 81 QT 4 TO 24 LR 19 2K 26 AV 17 TA 9 RZ 0 GU WC QT TO LR 2K AV TA RZ

Flight Operations Monitoring - FOM/FDA Destabilized approaches have fallen by approximately of our Holding Company also fell by over 60% in the same 70% in comparison with the mid-2015 ratio. Destabilized period of time. approaches by other airlines that come under the umbrella

Event trend by Airline 60 Avianca 50 Others Industry standard around 30 40

30

20

10 It should be stressed that we cu- 0 rrently have a destabilized approach ratio that is below the average for the region (IATA “FDX” ratio, 2015). 5-06 5-07 5-08 5-09 5-10 5-11 5-12 6-01 6-02 6-03 6-04 6-05 6-06 6-07 6-08 6-09 6-10 6-11

82 2016 Management Report• Avianca Holdings S.A. We also monitor other events using the Flight Data out a benchmarking against the average for their pilot Analysis program, and the number of these also fell in group. 2016. Examples include activation of the Ground Proximity • Study into the influence of flight changes, daily flights, Warning System (GPWS), VFE excess, and speed of wheels consecutive assignations and other factors that cause fa- on take-off, thanks to joint work between our Operation tigue on the occurrence of events that affect operational Security area and the areas responsible for each case and/ safety. or COA. The Flight Operations Monitoring program is currently Measuring performance and operating risk mana- in the process of being implemented by the regional airli- gement monitoring nes in Central America (Aviateca and Isleña); in the case of In 2016, at the same time as the safety indicator was ad- the latter, the process has already been approved by the ded to director-level control panels, we introduced the Operational Safety Control Panel, thus reinforcing the authorities. decision-making process with respect to the allocation of We are currently carrying out multiple database corre- resources for ensuring that the operation is conducted sa- lation projects (Operations, METAR, maintenance, delays, fely. scheduling, FDA and safety reports, among others), in or- der to undertake a “Big Data” and “Analytics” process ba- Promotion of operational safety With a view to proac- sed on Avianca information. tively identifying operating risks and maintaining a safety This will enable us to identify trends, patterns and whe- culture, we have established communication channels in re there is room for improvement both in operating proce- order to raise awareness even more of the need for a safe dures and in savings. This project is at an advanced stage and healthy work environment among our staff. and results will soon be seen that will have a big impact In 2016 we produced a total of 150 statements in mis- in training, operations, dispatch, safety and maintenance cellaneous media, such as bulletins, alerts, and publication areas, among others. in the ‘Somos Avianca’ magazine, 14% up on 2015 and with coverage extended to all bases where we operate. Other projects • Support for the Evidence Based Training (EBT) process • Study into the causes of brake overheating in the A325 fleet. • Website fir pilots, where they can consult their personal event indicators recorded in the FDA program and carry

Communications per month

25 Total 2015 Total 2016 20

15

10

5

0

Jul Jan Jun Apr Oct Feb Dec Mar Aug Nov May Sept

2016 Management Report• Avianca Holdings S.A. 83 Line Operations Safety Audit - LOSA Assessment (FOSA) required by the authorities as part of The report applicable to each airline was delivered the certification for each of the airports where this type of to the respective Safety Administrators and, in turn, navigation is used. we presented the results at the Safety Committee to Currently, Avianca Holdings has approval for the all operating areas. The threats and errors identified in Operational Safety Management Systems (SMS) and the report were entered into AQD in order to facilitate IATA Operational Safety Audit (IOSA) for the following follow-up thereon and closure thereof, which should be operators: Taca International S.A., Avianca S.A., LACSA monitored by the respective operating areas of the Local S.A., Trans American Airlines S.A., Aerogal S.A., Isleña de Technical Committee so that the corresponding mitigation Inversiones S.A. de C.V., Aviateca S.A. and Tampa Cargo action can be taken. S.A. o Avianca S.A. holds ISAGO (IATA) certification, because Certifications of its flights to Europe, and also EASA Third Party Operator In the IATA Operational Safety Audit - IOSA applicable Approval (TCO). to Taca International and the IATA Safety Audit for Ground Operations - ISAGO for Avianca Services, we obtained Challenges in 2017 and the future a result of 100% compliance with Operational Safety • To implement the Flight Operations Monitoring program standards, with no findings or observations made in the with regional airlines in Central America, such as Aviateca course of those audits. S.A. and Isleña de Inversiones S.A. de C.V.. In the case Likewise, the operator Avianca S.A. was awarded of Isleña, the process has already been approved by the Third Party Operator Approval (TCO) from the European corresponding authority. EASA authority, which is granted on the basis of meeting • To establish correlation projects for various Operational Safety standards and as a result of the databases, such as Operations, METAR, maintenance, approval that was granted in 2011 for our Operation delays, scheduling, FDA and safety reports, with a view Safety Management System (SMS) by Colombia’s Civil to carrying out a Big Data and Analytics process with Aeronautics Authority. Avianca information. We will thus be able to identify As far as operations subject to RNP AR (Required trends, patterns and where there is room for improvement. Navigation Performance - Authorization Required) The results of this project will be seen in various areas of procedures are concerned, in 2016 we accompanied the the Organization, such as Training, Operations, Dispatch, certification process initiated with the corresponding Safety and Maintenance. authorities for the airlines Taca International S.A., LACSA S.A., Avianca S.A. and Trans American Airlines S.A., carrying out the respective Flight Operations Safety

84 Informe de gestión 2016 • Avianca Holdings S.A. II. Ground and Air Protection (Security)

The importance to Avianca Holdings and its stakeholders G4-DMA Protecting the integrity of people, systems, equipment, aircraft and facilities is a priority in a world that is increasingly becoming more exposed to threats and dangers, and that integrity should be managed both within and outside organizations. G4-PR1 In order to counteract and manage this risk, we apply processes established in our Security Management System - SeMS which are enforceable with respect to our personnel and suppliers and third parties related to our ground and air operations. Similarly, we coordinate our prevention and detection activities with airport authorities, supervision and control authorities and emergency bodies at places where potential risks or proven facts exist that might affect the security, stability and tranquility of our operations before, during and after the flight. At Avianca we promote a zero tolerance culture with respect to conduct that might threaten our corporate values or be considered unsafe, unethical or criminal. Ethical conduct and a strict adherence to regulations are non- negotiable requirements and form the basis for ensuring that all flights, for both cargo and passengers, are secure and reliable. com. This communication channel protects a person’s identity, thus shielding him or her from any retaliation, and Notable facts, 2016 also guarantees that consultations, ethical dilemmas and • In August 2016 we approved the Policy for the complaints are treated in the strictest confidence. Comprehensive System for the Prevention and Control of • We organized the Ethics Code course, which was taken Asset Laundering and Financing of Terrorism (SIPLAFT), by 14,274 direct members of staff. which is applicable not only to processes, operations and • We disseminated the annual Ethics Code and Deprisa business relations but also to all our staff, suppliers and Anti-Corruption Policy campaign, which was offered to related third parties. 2,500 staff. • We supported national and international authorities in •We trained 12,416 direct members of staff in the Anti- the so-called “Operation Blue Bird”, which resulted in ten Corruption Policy via e-learning. members of Company staff being captured in March 2016. The operation was the result of rigorous work dating back Challenges in 2017 and the future several years, aimed at counteracting the illegal trafficking • To reinforce follow-up on and prevention of drug of foreign exchange, narcotics and other substances using trafficking using our fleet. our Company as a vehicle therefor. • To optimize the security costs structure. • We organized communication campaigns for our • To carry out the transition to the three lines of defense in personnel so that they could gain a full understanding of the safety: operation processes, monitoring and auditing. Ethics Line, which is consulted about the scope and extent • To make around 22,000 third party suppliers of goods of regulations and staff responsibilities, and also receives and services responsible in terms of good safety and complaints about failures to comply with regulations or security practices. suspect conduct. These consultations and complaints may be anonymous, and can be made by staff or third parties. This line is administered by Navex Global, an independent organization that functions 24 hours per day, seven days per week, and is available at http://aviancaholdings.ethicspoint.

2016 Management Report• Avianca Holdings S.A. 85 III. Customer Experience

The importance to Avianca Holdings and its Notable facts, 2016 stakeholders • In 2016, we at Avianca Holdings S.A. worked to G4-DMA. Customers are the focal point of our consolidate a new service culture model and to structure Organization, and providing a service that is on a par with or coordinate technological innovations that will allow us the best airlines in the world and surprising every one of to migrate customer service to a digital experience that our travelers with differentiated attention is therefore our exceeds expectations. objective, our goal, and our raison d’être. • We continued to lead customer satisfaction surveys at We work to implement actions that will enable us different points of contact on the experience map, with a to guarantee travelers superior attention and win their score of 57% according to the Net Promoters Score (NPS) loyalty, because we appreciate that it is our customers methodology, an aviation industry reference. who make us fly higher. • We had a team consisting of over 3,200 flight We therefore want our customers, from the first point attendants and around 6,000 direct staff for airport and of contact and wherever they might be in the world, to feel ground operation functions, all of whom illustrate in each a special, different connection with us: an easy, practical of their actions the service attitude that characterizes us. and, above all, warm experience that always makes them • We introduced the “Rausch Experience” strategy choose one of our airlines to take them from one place for our business class customers on flights to Europe, as to another, to connect dreams and/or to clinch business part of our efforts to innovate in our onboard service with deals. menus designed by these renowned chefs and thus offer We know we will achieve these goals, because we have comfort and quality on our flights. the following: • Our network and our itineraries are a differentiating • The best technology, and introducing it will enable factor that helps us remain connected to our customers, us to carry out processes more efficiently, make us more and for that reason we increased the frequency of our productive, and will generate a closer, personalized flights to Europe in 2016, more precisely with daily Bogotá relationship with our customers. - London, Madrid - Cali and Bogotá - Madrid flights. • The best human talent in the region, given that • Likewise, we started to operate a daily flight from providing an exceptional travel experience is the natural Bogotá to Cuzco, thereby reinforcing tourism from consequence of a human talent that lives for the service countries in the region and even from Europe and other culture and inspires transformation. continents. These two focal points will enable us to make Avianca a digital company that flies aircraft, to earn it a position as a relevant and sustainable player in the sector, and to achieve a profitability that boosts not only our growth but also that of the region as a whole.

86 2016 Management Report• Avianca Holdings S.A. The customer at the center of our strategy.

Engagement Purchase Pre-flight Day of Post-flight flight

Publicity Functioning, and promotion / Point of sale Before ATO maintenance & Disembarkation Brand cleanliness

Travel agency Check-in Food / Drink Connections

Corporate customer sales Security and Entertainment & Baggage and force migration comfort customs

VIP lounge Interior layout

Boarding Onboard gate service

IROPS

Social media

Call Center

CRM

Handling complaints

Frequent flier

Digital experience

Informe de gestión 2016 • Avianca Holdings S.A. 87 We thus have 24 moments of truth with our customers. connections and baggage handling, in accordance with our Some of them are crucial points of contact, while others customers’ requirements and profile. are transverse to the whole experience we want to create. And to achieve these value proposals or commitments to The programs we have worked on in order to meet the our customers, we worked specifically on the following needs of our customers at each point are as follows. points in 2016. • Diagnosis. We analyzed where we were at by means of Customer plan work interviews and sessions and corporate indicators, and The aim of this strategy is to define the service experience we referenced these to the industry. we want our customers to enjoy at the 24 points of contact • Vision. We determined how we want the travel experience with the airline, at different stages of their journey plan: to be perceived at each point of contact. engagement, purchase, pre-flight, journey and post-flight. • Objectives and initiatives. We identified where we will • Engagement. In this first phase we want to position the focus our efforts, looking for quick wins. brand as the worldwide favorite for flying to and from With these structural foundations, in 2017 we will define Latin America and as an airline that strives to always give priorities for the action plan, persons responsible, and the more and not compete solely on price. necessary technological support. •Purchase. We aim to create support strategies for the sale process by means of technological tools and the Digital Foundations development of commercial and service skills in our staff. Digital transformation is a transformation of the whole • Pre-flight. We propose to innovate, speed up and facilitate airline, backed by digital technologies. customer attention processes at the airport by offering a This strategy sets out to transform Avianca Holdings customized, preferential and differentiated service, where into a leading organization in the digital field through customer comfort is on a par with the best airlines in the innovation, which is why in 2016 we defined the digital region and the world. ideas and functionalities that will allow us to become a • Journey. We want to provide an exceptional onboard digital airline, a leader n the industry, that flies aircraft. service with functional, high-quality interiors and systems, The objectives we pursue with this plan are: and by delivering customized services that surprise the traveler and enable him to choose whatever benefits he might prefer. • Post-flight. We undertake to offer speedy, efficient and differentiated assistance in special services processes,

CREATE INNOVATION AND LEADERSHIP IN THE INDUSTRY

To improve To transform To the To increase daily processes improve To reduce customer income and activities decision costs experience in the making operation

88 2016 Management Report• Avianca Holdings S.A. Customer first Our value proposal with this program is to develop and personalized services, self-service for the passenger, and implement technological tools that will make it possible automatizing irregularities. for us to provide the customer with a superior digital 4. To increase income by selling without intermediaries, experience by optimizing processes and interacting with introducing new sale models, updating the internal sales the customer from the time of purchase to post-sale. platform, and making the corporate customer loyal. The focal points of our work are as follows: 5. And, finally, to reduce sale costs. 1. To get to know customers, identify them, and have Customer First thus envisages implementing new information available about each one of them. developments that meet the airline’s current needs 2. To provide supporting analyses for the strategic decision- (optimizing processes) and enable us to offer our travelers making process in the Company. better attention in each interaction. 3. To improve our customer experience by optimizing the services portfolio on offer, automatizing processes, improving Avianca.com performance, delivering

Customer Journey

Engagement Purchase Pre-flight Day of flight During flight Post-flight

• Knowing the •Simplicity • Self-service • Self-service • Recognition •Feedback customer • Recognition • Consultation • Recognition • Communication • Complaints / • Personalized • Payment • Changes • Speed • Personalized Claims offer options • Notifications • Mobility attention • Post-flight offer • Expand services •Irregularities • Changes • Reduce sales • Contact • Notifications costs • Baggage •Irregularities • Contact • Compensation

Touchpoint Inventory Customer Direct Airports Ancillary Commercial digital & RM Contact Connect & Crew

2016 Management Report• Avianca Holdings S.A. 89 Our products and services Similarly, with a view to innovating and improving the o Connecting gate: This allows passengers to know the traveler experience, the projects listed below are current- gate they should go to for their next flight. Implementa- ly in progress, and through them we aim to offer a world- tion is the responsibility of the Vice-Presidency, Airports class product and the best service, where comfort, on- and Information Technology. board entertainment and personal space are synonymous o iPod: This allows passenger information to be integra- with kindness and friendliness throughout the process. ted via iPod with the aircraft’s entertainment system. To achieve this, we have the following. o Sky office: This enables Microsoft files to be created • A content selection strategy that enables passengers and edited, and saved on a USB storage device. It is com- to enjoy a variety of up to around 220 contents, depending patible with Excel, Word and PowerPoint. on aircraft type, flight length and/or destination. We also have new applications on B787 and Ex1 aircraft. • QT entertainment system with the following applica- • Avianca apps and Avianca Tours app tions: o Flight map. Currently there are two versions: Ixplore 2.0 and Voyager. Availability depends on the aircraft.

• Avianca apps and Avianca Tours app

90 2016 Management Report• Avianca Holdings S.A. • LifeMiles app and Hospitality (onboard menu)

• Gate connect and USB media player

2016 Management Report• Avianca Holdings S.A. 91 ‘Carla’: our virtual assistant

In December 2016 we presented ‘Carla’, the new is therefore subject to connectivity and to this platform Avianca virtual assistant that our customers can use to functioning, and the Facebook and Facebook Messenger receive assistance with check-in, flight status, itinerary, terms and conditions of use and privacy policies also baggage tracking and reimbursement consultation apply. services, and also access reminders, translations and the weather forecast. All this will be possible by entering It should be pointed out that the ‘Carla’ digital services AviancaOnMessenger from a smartphone and sending are currently only available in Spanish. The check-in the word “Help”. service is available only for domestic routes in Colombia and only allows one person to check in. If the reservation This channel is on the Facebook Messenger platform is for various passengers, they should go through the (http://www.facebook.com/AviancaOnMessenger/) and check-in process on the website or by mobile.

92 2016 Management Report• Avianca Holdings S.A. Customer satisfaction: our continuous improvement indicator We at Avianca Holdings S.A. work every day to ensure that the customer’s voice transcends and that it is heard when procedures are being defined that take his expectations into account and benefit him. This is why we use the Net Promoters Score measurement methodology to measure his satisfaction and constantly improve. We conduct the measurement on a quarterly basis (8 measurements per year) with random customers at boarding gates, and the purpose of the NPS measurement is to evaluate the level of customer satisfaction at the different points of contact on the experience map and thus measure our customers’ level of loyalty and the probability of their recommending our company rather than the competition. G4-PR5. The global NPS result for the second half of 2016 thus classified Avianca Holdings S.A. as the leading company in the markets analyzed, with a score of 57% in the balance between promoters and detractors.

2S’2016 Core Airlines

100% 80% 57% 54% 54% 52% 60% 44% 43% 43% 40% 19% 15% 20% 0% -20% AV DL LA CM UA B6 AA IB 5Z

The general NPS for each airline is adjusted in order to maintain the market passenger traffic share by region.

Now, the strategic objective has been to retain first place 12 months who have been members of the frequent flier in the ranking, although in 2017 we will be in the process of program for at least three years. Although the methodo- looking for alternatives that will allow us to widen the gap logy varies slightly from that of the general NPS, since the over a specific competitor or the second in the ranking. survey is conducted online, it also allows us to get detai- led regional (Colombia, Central America and Peru, among Net Promoter Score for Frequent Flier Program others) and level (Diamond, Gold, Silver, Basic) criteria. The objective of the Net Promoter Score measurement The question asked in this survey is “How willing are you for our Frequent Flier Program is to find out member per- to recommend the Avianca Frequent Flier Program to your ception and satisfaction in terms of its policies, benefits relatives and/or friends?”. and services. To this end, a sample is sought of basic and elite customers with more than two journeys in the last

2016 Management Report• Avianca Holdings S.A. 93 The result19 for the frequent Flier Program for the four- th quarter of 2016, as a balance between promoters and detractors, was 59%, corresponding to around 500 basic points above the result for the previous quarter.

"How willing are you to recommend the Avianca Frequent NPS results, 2016 Flier Program to your relatives and/or friends?”

100% 80% 60% 40% 57% 52% 53% 59% 20% 0% -20% Q1 Q2 Q3 Q4

N 1639 2225 1052 1355 COL 53% 53% 63% 45% CAM 58% 48% 49% 68% PER* 58% 48% 76% 14% ECU* 73% 56% 47% 65% *Sample fewer than 100 in ROW* 54% 62% 42% 61% one or more months.

We appreciate that, in the strategic context, major Bogotá airport. improvements can be made to the results obtained in The gap between Avianca and the second-placed airline specific regions. We know that important markets like in the ranking nevertheless fell from 500 basic points to Peru require various actions that will enable the number of 300 basic points. It is important here to stress that the passengers belonging to the loyalty program to increase, NPS results of the main competitors also improved in the actions that promote the program by introducing the second half of the year. services and attributes they demand. Avianca Holdings thus continues to lead the markets Complaints and claims where the measurement is made, despite a setback in The objective when measuring the complaints index the fourth quarter of 2016. Although operational factors is to obtain an order of magnitude for the proportion of affected the result in the final months of the year, these travelers who make a complaint at some point in our ser- were greater in the second half of the year compared to vice process. The type of complaint can thus be classified the equivalent period in 2015 and the first half of 2016. depending on the type of process (Call Center, Airports, Similarly, the measurement is sensitive to various VIP Lounges, Commercial, Frequent Flier Program, Main- significant operational events that affect customer tenance, Flight Attendants, etc.). satisfaction, due to default on the value commitment. The In line with the above, unit indicators can be determined setback in the fourth quarter of 2016 was due to the fall on the basis of the number of travelers carried, with a view in operation compliance indicators, caused principally by to establishing the number of complaints received in a spe- the work that was being done on the northern runway at cific period of time. The standard measurement unit in the

19 The survey was conducted at the SAL, SJO, LIM, BOG, CLO and MDE stations.

94 2016 Management Report• Avianca Holdings S.A. industry is number of complaints per 10,000 travelers. indicating a slight improvement in 2016 but with room for The Avianca Holdings Complaints Index for the month reducing the figure even further. of December 2016 thus showed a result of 9.97 complaints The distribution of complaints through experience or per 10,000 travelers, with a consolidated figure for the year points of contact is given below. of 8.95 complaints per 10,000 travelers. The latter result for 2015 was 9.32 complaints per 10,000 travelers, thus

Engagement Purchase Pre-flight Journey Post-flight

Publicity and Efficiency and sales • Information / dealing • Complaints about • Disembarkation promotion; clarity channel processes with irregularities functioning of in remote position; in terms and • CCE (414) (3228) seats, bathrooms, Delays to buses, conditions of • Web (255) • Exoneration entertainment system umbrellas, pax with promotions(1665) • Sales points: friend- processes (9 905 (649) disability* Priority Source: Social Media liness, Information contacts) • Flight attendant for connections (167) • LifeMiles policies attitude (98) Baggage, top 3: •Travel agencies in- (905) • Onboard food 1. Damage (2k) complete information • Reimbursements (quality, variety / 2. Delay (801) Source: CRM (310) general perception) 3. Pilfering (724) • Attention in VIP 174 contacts; 68 lounge (98) complaints • Seat pre-selection** Source: CRM Source: CRM 4% 9% 48% 6% 38%

Percentage for Percentage for total total interactions CRM contacts

Our strategic objectives for 2017 are aimed at ensuring that the complaints classification allows us to adequately manage the change in processes that need adjustment 9.32 within the Organization. complaints per As far as the most important complaints are concerned, 10,000 travelers we will concentrate our efforts on providing customers with solutions for situations that cause the greatest discomfort. Finally, we will use our different communication platforms for the reporting and handling of complaints.

2016 Management Report• Avianca Holdings S.A. 95 On Time Performance (OTP) and Schedule Completion

On Time Performance (OTP) is the percentage of flights was needed on the northern runway and, additionally, that arrive with a delay of less than 15 minutes. Schedule operations at night were cancelled, resulting in numerous Completion, meanwhile, measures the percentage of complexities at the already saturated El Dorado airport. flights operated with respect to the number published in Because of the hub arrangement that Avianca Holdings itineraries. has proposed at this airport, these works had a significant The annual OTP result for Avianca Holdings in 2016 impact and led to a complex, challenging scenario which was 75.59%, while the result for Schedule Completion was meant that the results obtained the previous year could 98.09%. Although 2015 was a landmark for operational not be bettered. compliance, with an annual OTP of 84.48% and a Schedule Despite this, the Company has reported the best Completion figure of 98.53%, 2016 was affected principally operating results in its recent history in the last three by incidents with the operation at Bogotá airport during years. the second half of the year. In particular, repair work

Schedule 2016 was affected by OTP operating incidents at Year (% flights) Completion (% flights) Bogotá airport in the second 2016 79.59 98.09 half of the year. 2015 84.48 98.53 2014 75.28 98.06 2013 72.49 97.98 2012 71.38 98.30 2011 73.84 98.30

Challenges in 2017 and the future

2017 represents, without doubt a big opportunity to shi- o To develop mechanisms for facilitating the experience in ne, with our customers as the stars of this flight, and this Avianca process accumulation processes. year therefore offers a number of important challenges on o To develop mechanisms for facilitating the experience in the technological, strategic and infrastructure fronts; cha- the redemption of products. llenges that will allow us to deliver a differentiated service Similarly, to our customers and to earn for ourselves the position of • We will continue to consolidate our three star projects, being the favorite airline in Latin America and the world. We which will enable us to achieve our goal of connecting the will focus on the following points. world with Latin America, while seeking to always give more. • Avianca loyalty program • With OPAIN, the National Infrastructure Agency and the o To improve the experience of the Avianca customer who Civil Aeronautics Authority, we organized the transfer of is a member of the basic or elite Avianca LifeMiles program. the entire Avianca S.A. domestic operation to the Puente o To administer processes associated with operation and Aéreo in the city of Bogotá, and in 2017 we envisage imple- performance with respect to Avianca, LifeMiles and Star menting this plan successfully. Alliance. • We will continue to differentiate ourselves on the market o To boost LifeMiles prospects and members’ participation for having the best people and the best technology to ser- in the different channels and regions. ve our customers.

96 2016 Management Report• Avianca Holdings S.A. Informe de gestión 2016 • Avianca Holdings S.A. 97 IV. Responsible Human Talent Management

The importance to Avianca Holdings and its stakeholders get better staff satisfaction in terms of professional G4-DMA Our staff are the Company’s spinal chord. It is realization, and finally, transmit a world-class experience thanks to them that we have managed to become the best to our customers and users. Latin American airline, and for that reason our activities are aimed at attracting and developing the best talents in the Notable facts, 2016 region and the world, while at the same time we work to • With a view to progressing towards excellence and consolidate a work culture that reflects our Latin essence facing up to market challenges, in 2016 we worked and excellence in everything we do. on consolidating a human talent management model Human talent management in our Organization is thus that guarantees our having a robust, dedicated team, conceived as having the customer at the center of our committed to meeting the Company’s operational, service strategy, and the goal of our 21,061 members of administrative and service needs. staff, at 81 operating bases, is that every contact with users • We transferred all Avianca schools in Bogotá to a should be an opportunity to demonstrate the added value centralized building and got authorization from the the Company offers in terms of achievement orientation, Colombian authorities to begin classes. This allows for best service attitude, integrity in everything we do, and greater cohesion between academic courses and enables responsibility in our business practices. us to continue to consolidate the service we offer in this We also want our staff to have an exceptional branch. experience at their place of work, and we therefore foster labor relations that facilitate harmony between work life Employment and personal life and boost high performance based on G4-10 Since human talent is a key factor in the three cornerstones: pursuing a common objective, mutual Organization achieving satisfactory results, we continue to respect, and an extensive knowledge of duties. work to attract and retain the best talent, since we are sure With a view to meeting new Company needs and that by doing so we succeed in our task of connecting Latin adhering to the Strategic North that we established for America with the world. 2020, in 2016 we began a job reorganization process which, backed by technology, will allow us to achieve better market performance, have more efficient processes,

Women Men General Total 7,945 13,116 21,061

98 2016 Management Report• Avianca Holdings S.A. TYPE OF CONTRACT HC GENDER Region HC

CONTRACT OFFER 5,016 CAM 1,744 FIXED CONTRACT OFFER 460 CAR 18 CO 4,798 PERMANENT CONTRACT 7,939 EUR 34 TEMPORARY CONTRACT 463 NAM 158 FIXED TERM CONTRACT 1 SAM 1,193 FIXED TERM - CONTRACT REVIEW 665 Total FEMALE 7,945 FIXED TERM - COMPREHENSIVE 168 CAM 3,399 FIXED TERM - LAW 50 4,094 CAR 9 CO 7,856 INDEF. TERM - CONTRACT REVIEW 89 EUR 32 INDEF. TERM - COMPREHENSIVE 190 NAM 217 INDEF. TERM - LAW 50 1,787 SAM 1,603 INDEF. TERM - TRADITIONAL 189 Total MALE 13,116 General Total 21,061 General Total 21,061

TYPE OF Gender HC GENDER Region HC PERSON Staff CAM 5,143 Staff FEMALE 5,988 CAR 27 MALE 9,597 CO 7,181 Total Staff 15,585 EUR 66 Third Party FEMALE 1,957 NAM 372 MALE 3,519 SAM 2,796 Total Third Party 5,476 Total Staff 15,585 General Total 21,061 Third Party CO 5,473 NAM 3 SAM 1,603 Total Third Party 5,476 General Total 21,061

Informe de gestión 2016 • Avianca Holdings S.A. 99 Type of person Type of contract HC Staff PERMANENT CONTRACT 7,939 TEMPORARY CONTRACT 463 FIXED TERM CONTRACT 1 FIXED TERM - CONTRACT REVIEW. 665 FIXED TERM - COMPREHENSIVE 168 FIXED TERM - LAW 50 4,094 INDEF. TERM - CONTRACT REVIEW 89 INDEF. TERM - COMPREHENSIVE 190 INDEF. TERM - LAW 50 1,787 INDEF. TERM - TRADITIONAL 189 Total Staff 15,585 Third Party CONTRACT OFFER 5,016 FIXED CONTRACT OFFER 460 Total Third Party 5,476 General Total 21,061

Number of contracts issued G4-9, G4-LA1 21,061 people were thus part of our opera- tion in 2016, with different types of contract, and we issued 3,189 new contracts that will enable us to meet the needs of our Organization and contribute to the development of the regions where we operate. Our rotation rate also impro- ved, from 18.34 in 2015 to 16.1 in 2016, principally as a re- sult of implementing key strategies for developing and com- mitting our human talent. One of the challenges we face in 3,656 2,344 2017 will be to identify the areas where rotation is greatest, in order to continue improving our management. G4-11, G4-LA2 Meanwhile, 1,703 of the 7,289 workers employed by Avianca Colombia are affiliated to a union (23%). 76.5% (5,578 workers) benefit from the Voluntary Benefits Plan, and the remaining eight are Company direc- tors who are neither VBP beneficiaries nor union members. 4,254 3,189

2013 2014 2015 2016

100 2016 Management Report• Avianca Holdings S.A. Number of contracts issued Number of persons who resigned Rotation rate By age Under the age of 30 2,167 By age Under the age of 30 2.104 25% Persons between 30 and 50 990 Persons between 30 and 50 1,298 11.8% Persons over the age of 50 32 Persons over the age of 50 107 6% By gender

Men 1,988 By gender Men 2,142 16.3% Women 1,201 Women 1,367 17.1% By region

COL/EUR 2,491 By region COL/EUR 2,637 20.7% CAM 427 CAM 613 11.8% SAM 247 SAM 31 8.2% NAM 20 NAM 226 8.1% CAR 4 CAR 2 4.2% Total contracts issued 3,189 Total who resigned or left 3,509 16.6%

Contracting rate

18.34% 16.57%

2015 2016

Informe de gestión 2016 • Avianca Holdings S.A. 101 Innovation in our human talent model At the end of 2016 we carried out an innovation Business partners: They offer the Organization and project to reinforce our management, and from this there the leaders of each of its units advanced human talent emerged a new human talent model that not only enables solutions, thereby ensuring business orientation. The us to strengthen our profile as a competitive, world-class Human Talent Vice-Presidency implements and follows up organization but also highlights and ratifies the fact that on all the defined processes and strategies. There is one our staff are our allies or partners in complying with our business partner for each area of the Organization. goal of always giving more. Operation Centers: These are responsible for Our model accordingly has three key elements that operational activities in the Organization, such as job are interwoven and will enable us to develop leaders and certification processes, vacations, payroll or social security strategic talents to support global business performance system affiliations. and thus allow us to guarantee that talent management Experts Centers: These administer performance processes will be implemented with service levels management, and therefore determine rules of conduct, that facilitate achievement of the strategy. The three administer compensation and benefits plans, human fundamental roles are described below. development plans and performance in each area.

HR Centers of Excellence

Innovation requirements to be designed

Administrative HR Business needs to be Business delivered needs Partners

Administrative needs to be delivered

Partners • Guarantee business orientation HR Operational Services

102 2016 Management Report• Avianca Holdings S.A. Technology for better talent Civil Aeronautics Authority authorization for classes to Thanks to the Be One project, Avianca made progress in commence. 2016 with systematizing the following processes. • Leadership School. The Company has defined its own • Gradual adaptation of the self-management process by leadership model, called “Humanly Effective Leadership”, the Organization’s staff. which is being implemented in all the airlines that come • Improvements to the website and a greater social media under its umbrella. Workshops have been arranged for presence for application invitations in the field of attracting area leaders, to reinforce managerial skills and strategy talent. through training in six modules which cover the different dimensions of the Avianca leader relationship and are Training and education directed toward effectiveness of the Organization’s values. G4-DMATraining our staff not only enables us to have sui- • Corporate Induction Course. This course was given to table personnel for carrying out our operations in a safe new recruits in the different areas in 2016. The course and productive manner, it also allows us to reinforce and is held either virtually or face-to-face, and presents a develop the technical, social and leadership skills that hu- general overview of issues like the Organization’s history, man beings need if they are to perform in any spheres, and its Strategic North, corporate values, the organizational at Avianca Holdings we therefore have various strategies culture and structure, internal programs and security at that enable us to achieve these objectives and grow, hand in hand with our staff. Avianca. Training and education initiatives focused principally on Finally, the design of an Onboarding program is worth the following in 2016. highlighting. The objective of this is to provide staff with • Establishment of the Center for Operational Excellence more assistance via strategies and activities aimed at (COE). This center has been established to support all training improving and reinforcing the recruitment process. activities for flight attendants, maintenance technicians and G4-LA9 The average number of hours spent on training operations personnel. It is also where the flight simulator per year and per employee was 101.79. The measurement is being located. This cost USD 9,617 million, including was done by regions, and the breakdown by technical and installation, tariffs and taxes, and will be used for the six- regulated training. monthly tests that pilots have to take for their certification processes. An investment of USD 39,339 million has been allocated to the COE. When the COE opened in 2016, it allowed all Avianca schools in Bogotá to move to a centralized building on 26th Street, near El Dorado Airport, with Colombian

900 800 700 600 500 400 300 200 100 0 + IT CTO Total AREAS OTHER OTHER ATO+OPT Comercial Comercial BAGGAGE Regulated Regulated

2016 Management Report• Avianca Holdings S.A. 103 Hours training by sex Men Women Total Number of hours 332,568 479,632 812,200 Number of persons 3,882 4,097 7,979 Average hours 85.67 117.07 101.79

Hours training 2016 by area Concept Regulated CTO BAGGAGE ATO+OPT COMERCIAL OTHER AREAS TOTAL + IT Hours training 147,240 38,144 4,264 350,488 92,612 179,452 812,200 Number of employees 2,784 47 65 1,333 1,754 1,996 7,979 Average hours 52.89 811.57 65.60 262.93 52.80 89.91 101.79

Performance evaluation Percentage of staff who received regular performance and professional In order to evaluate the performance of our human development evaluations talent and thus increase and boost their development, we are devising a plan to implement the Oracle Fusion 2014 platform, which will enable the performance process 2015 to be standardized at organization level. It will be fully 2016 implemented in 2018. In 2016, 18.5% of our staff (direct administrative posts) were, on average, the subject of regular performance and professional development evaluations, although we envisage increasing performance evaluation coverage in 2017 by including other areas of the Organization. G4-LA11 The variation is due to the increase in total 70% Company staff. It fell from 2014 to 2015, since it excluded the operations group.

17% 18%

104 2016 Management Report• Avianca Holdings S.A. Percentage of employees who received performance evaluations in 2016 by sex Men Women Average 16% 21% 18.5% Our goal for this indicator in 2016 was 17% (*Target population 3,810). .

Welfare and job flexibility that should be maintained. We recognize that a good work team is built up by • Organizational culture survey. strengthening good working conditions and with constant support from the Company in developing the personal Challenges in 2017 and the future and professional quality of life of its staff. It is for this • We will continue the Avianca Organizational Culture reason that we constantly invest in initiatives that foster Study in the first half of 2017. With the results obtained, employee satisfaction and a corporate culture where we we will hold face-to-face culture-building sessions and will are all in the place where we like to be. implement improvement plans. In 2016 we designed and began to apply an Avianca • We will make progress on defining a scheme for organizational culture study which aims to enable us to measuring the annual performance of Avianca staff. This understand how staff visualize the Company, so that we work will begin in the first half of 2017. can draw up plans of action that will allow us to generate • We will fully implement the Avianca Academy, value through our everyday actions. consolidating the Center for Operational Excellence (COE) To this end, the following activities were carried out, study center. related to the discovery, planning and diagnosis phases. • We will implement the program to identify high-potential • Certification workshop for the human talent business staff in the different areas of the Organization. partners team on the Denison organizational culture • We will work on migrating the corporate induction model. program to the virtual environment during the first half • Communication campaign to disseminate the reason for of 2017. conducting the study. • Interviews with executives, to find out their opinions on opportunities and challenges and the cultural strengths

Informe de gestión 2016 • Avianca Holdings S.A. 105 V. Safe and Healthy Working Environment The importance to Avianca Holdings and its stakeholders and Environment Management System (SSMA), which G4-DMA Health and occupational safety are a administers the health and safety of our staff based on prerequisite for each and every one of our operations, international technical references and strictly complies and they follow the precepts established in our Industrial with the most demanding standards in the industry and Safety Policy, which has been brought into line with national legislation. International Air Transport Association (IATA) criteria and This Management System establishes three specific obligations and labor legislation in each of the countries lines of defense, namely: where we operate. • the SSMA Management System as such, To honor our commitment to the wellbeing of our staff, • internal and external audits, and we guarantee, promote and facilitate the following. • operational control procedures that are adapted to suit •The allocation of funds and human, technical and the risks inherent in the activities of each area. . infrastructure resources for implementing and carrying out All health and safety at work management guidelines the policy. and progress are followed up on by our Comprehensive •The implementation of effective, comprehensive safety Safety Committee, made up of representatives from the management systems. operation and human talent areas. • Operation in line with a safety framework that complies We also have an area that is responsible for the Human with local laws and the best practices in the industry. Factors and Operating Risks Program, through which we •Prioritization of safety over and above commercial needs. guide the behavior, abilities and attitudes of people involved • he establishment, promotion, training in and optimization in the operation with clear, precise and unified initiatives for of safety measures for staff. all regions, so that they can adhere to standards that enable •The application of a voluntary error reporting system that them to guarantee the safety of staff and travelers. is confidential and has no sanctioning purposes. Not only do we require explicit compliance from our As part of the evolution in the way the Company staff, we go further and extend this requirement to our manages risks, starting from prevention, the Safety, Ethics suppliers of goods and services, applying strict contracting, and Compliance Vice-Presidency was formed in 2016, supervision and control standards that will guarantee that and in 2017 it will make changes to certain directives, they meet the requirements stipulated in the Health, Safety management forms, goals and reports on matters relating and Environment Management System. to safety, of course including the wellbeing of our staff. Meanwhile, we also highlight our Health, Safety

106 2016 Management Report• Avianca Holdings S.A. Notable facts, 2016 One of the fundamental causes of injury was in-flight Indicators have pointed to staff performance being operational events, which resulted in countless accident at safe at both administrative centers and operation bases in work reports by crew, the most significant case seeing nine recent years. reports on the same flight, the highest number of events Our fundamental challenge in 2016 was to reduce involving flight attendants. the accidents at work rate, especially by preventing We have implemented the necessary controls so that risks deriving from height, blows and bruising among follow-up can be conducted on this behavior, and we have cabin crew, traffic accidents and osteo-muscular injuries. also established more effective awareness activities in our However, the growth in the operation during this period operations and for our staff. should be considered, which implied a significant increase Some of the actions we have taken to reduce accident in man-hours worked and, hence, a variation in Health and rates are detailed below. Occupational Safety indicators. • Mass campaigns with flight attendants, and Meanwhile, we prioritized preventing absenteeism communicating lessons learned through internal media. from work for medical reasons, carrying out a “Formula • Otological study (follow-up on hearing problems) of flight 10” culture campaign to promote self-care and safe attendant staff, to prevent barotraumas (air pressure). performance among all our staff and third parties that we • Study with polystyrene glasses for onboard service. interact with. • Study of safety position for landings and take-offs. •Safety culture campaign (Formula 10). Accident Rate Indices21: Despite our efforts to generate a safe working culture, the injury rate from accidents at work stood at 5.06 in 2016, slightly above the figure of 4.2 in 2015, due to greater exposure of around an extra 600,000 man-hours worked and the increase in flights and routes over the previous year.

Accident at Work Injury Index

6 Accident at Work Injury Index 2013 2014 2015 2016 5 2.78 3.95 4.2 5.06

4

Index by region 3 COL SAM CAM Global 8.28 2.62 2.92 5.06 2

1 Injury index by sex 0 Men Women 2013 2014 2015 2016 4.28 6.38

21 The information refers to direct staff, except where the word “contractors” is mentioned. In such case, the rate given is the consolidated figure for external workers from the following companies: Clave Integral CTA, Servicopava Cooperativa de Trabajo Asociado and Misión Temporal Ltda., based in Colombia.

2016 Management Report• Avianca Holdings S.A. 107 Accident at Work Injury Index, Contractors

18 Accident at Work Index, Contractors

16 2013 2014 2015 2016 14 16.57 13.35 13.82 14.4 12 Principal companies 10 Clave Misión Servicopava Total 8 Integral Temporal external 6 3.66 3.60 17.30 14.40 4 Accident at Work Index, 2 Contractors, by sex 0 Hombres Mujeres 2013 2014 2015 2016 18.80 6.65

At the same time, we reinforced accident prevention protection equipment. by giving periodic training in Health and Safety at Work, • Control of contractor activities. updating danger matrices and awareness campaigns for these, and observing and intervening in behavior. Central America (CAM): The accident rate was 3.1% A brief summary of activities carried out in the regions down on 2015, due to fewer such events occurring in Costa is given below. Rica and El Salvador. In Costa Rica this indicator was 32% down on the South America (SAM): In South America (Ecuador previous year, as a result of the implementation of and Peru), the injury indicator was 14% down, due promotion and prevention measures. Some of these were principally to the fall in Peru, where it was 13% down on as follows. 2015 and where the area where the highest number of • Meetings with leaders of the most vulnerable areas to accidents was reported (71% of all accidents in 2016) was review cases and risk mitigation plans, empowering them cabin crew (flight attendants). to implement the same. In Ecuador, meanwhile, the number of events reported • Reinforcement of workplace inspections in two directions: was up, due to a stronger culture of reporting accidents (a) with process leaders (Area Managers) to correct issues at work at the Quito and Guayaquil stations as a result of and determine improvements, and (b) SSMA (Safety, Health and Safety at Work campaigns. Work continues to Health and Environment) inspections aimed at looking for be done at other stations in the country, with a view to specific changes that will lead to safe behavior, principally preventing events being under-reported. in lifting loads. The following promotion and prevention activities can • Making personnel aware of indicators, the principal causes be highlighted from 2016. of accidents and risk factors in areas where decisions are • Training sessions on four compulsory Health and Safety made at operation level. at Work courses. • Holding of Health and safety at Work workshops for new • Regulatory industrial safety course. intakes and for reinforcing current staff. • Staff awareness campaigns in the use of personal In El Salvador, the index relating to days lost due to

108 2016 Management Report• Avianca Holdings S.A. accidents at work was down on the 2015 figure while the Avianca Holdings: injury index rose. This was due mainly to the fact that the Our actions in 2016 were aimed at reducing and accidents that occurred in 2016 led to fewer days’ absence preventing accidents at work, and we set these in the than in 2015, but that despite there being fewer accidents, context of the “Formula 10” campaign, involving work on they resulted in more days off work. the following fronts. The following prevention and promotion measures • Health and Safety at Work, designed to foster a safe and warrant a particular mention. healthy working environment in order to prevent accidents • Including subjects relating to preventing accidents in at work and illnesses from occurring and to mitigate the briefings. consequences thereof. • Modifying maintenance implements in order to prevent • Corporate Safety, preventing illicit acts from occurring injuries (ladders, platforms, etc.). that endanger the safety of travelers, staff, crew, aircraft • Making leaders and supervisors aware of the use of and facilities by implementing processes based on civil Personal Protection Elements (PPE). aviation regulations. • Campaigns to use PPE with visits to the workplace. • Operational Safety (SMS), where reactive, proactive and In the case of Guatemala, the index was 28% up on the predictive strategies to identify dangers and reduce the 2015 figure, due to there being one more event than the operating risk are applied, thereby preventing incidents year before. and accidents on the ground and in the air. Actions taken to promote prevention were as follows. It should be stressed that in accordance with our • Better control over the execution of operating processes reporting culture, the data used for calculating the injury by adjusting procedures. due to accidents at work index include all events, even those • Introducing a task observation program in order to check that did not lead to disability or required only one day off for that policies and procedures are being put into practice the respective medical care. correctly in maintenance tasks and that equipment is being used correctly. Accident rate categorization22 • Training by management in the importance of preparing According to the internal classification of events, the equipment prior to the arrival of a flight, in order to ensure results for 2016 were as follows. that safe procedures are being followed.

2016 Accident Rate, Avianca Holdings

Disabling events 53.36% Events with no days’ disability 35.62% Events with 1 day 4.71% In Itinere 4.04% Traffic Accidents 3.36% Sporting Accidents 1.91%

22 Within the Organization, this calculation is done with 1,000,000 as a constant and the target was 10.6; a conversion was done to present it in accordan- ce with a constant of 200,000 that has been used in this report. This clarification is made because this constant is used in internal reports and the data are therefore different from what is reported here.

2016 Management Report• Avianca Holdings S.A. 109 With respect to the accident rate categorization for The commonest causes of these events were blows the companies and stations we analyzed, 43.95% of (39.8%), sprains (26.35%) and ear traumas (6.84%). The events reported occurred inside an aircraft, 14.46% on three parts of the body most affected, according to the the platform, and 7.7% on public highways. events reported, were hands (16.03%), spine (12.78%) and feet (8.86%).

Work Illness Index, Work Illnesses Index Contractors

0.25 0.035

0.03 0.2 0.025 0.15 0.02

0.015 0.1 0.01 0.05 0.005

0 0 2013 2014 2015 2016 2013 2014 2015 2016

Work Illnesses Index Work Illness Index, Contractors 2013 2014 2015 2016 2013 2014 2015 2016 0,03 0.03 0.02 0.03 0.13 0.23 0.14 0.18

Index by region Index by company COL SAM CAM Global Clave Misión Servicopava External Integral Temporal 0.08 0 0 0.03 0.20 0.00 0.18 0.18

Index by sex Index by sex Men Women Men Women 0.05 0.00 0.24 0.06

110 2016 Management Report• Avianca Holdings S.A. Colombia: Six illnesses in men in Colombia were occurred less frequently than work illnesses. Using an classified as work illnesses in 2016, four of them associated interdisciplinary specialist medical care service, we provide with osteo-muscular issues, one associated with psychiatry staff with periodic medical checks and follow-up, as well and one associated with neurological issues. as diagnostic, therapeutic and pharmacological aids to To prevent these injuries in the region, we have the prevent the said illnesses from progressing and to improve Epidemiological Supervision for the Prevention of Osteo- our staff’s quality of life. Muscular Injuries System, which contains programs aimed No illnesses were classified as work illnesses during at promoting healthy work and lifestyles, preventing 2016 in South America and Central America. Painful Shoulder Syndrome (SHD), preventing upper . limb Muscular-Skeletal Disorders (DME-ES), preventing AVH: Illnesses were classified as work illnesses only in Cervicodorsalgia, preventing Unspecific Lumbar Pain (DLI) Colombia in 2016, and no such illnesses were reported in and Disc Disease, as well as advice on dealing with pain and other countries. The index was 48% up on the previous injuries. year. Neurological and psychiatric illnesses have

Days Lost Index

30 Days Lost Index 25 2013 2014 2015 2016 13,34 17.96 23.94 24.84 20 Index by region 15 COL SAM CAM Global 10 40.64 14.85 13.22 24.84

5 Index by sex 0 Men Women 2013 2014 2015 2016 28.94 22.43

Days Lost Index, Contractors

60 Days Lost Index, Contractors 2013 2014 2015 2016 50 52.43 48.73 42.68 42.96 40 Index by company Clave Misión Servicopava External 30 Integral Temporal 15.84 15.69 50.27 42.96 20

10 Index by sex Men Women 0 59.15 14.36 2013 2014 2015 2016

2016 Management Report• Avianca Holdings S.A. 111 Colombia: In 2016, 41 days were lost in Colombia per CAM: In 2016, 13 days were lost per 200,000 hours 200,000 hours worked, unlike 2015 when 30 days were lost worked, unlike 2015 when 23 days were lost per 200,000 per 200,000 man-hours worked. This reflects the fact that man-hours worked, a drop in severity of 43% from 2015 despite there being more accidents, the severity thereof to 2016. The most representative drop was among males, was 34% down on 2015. where the index was 58.4% down on the previous year. The main increase was among females, with this index AVH: The number of days lost, including all stations for being 53% up on the 2015 figure. which information is available, is 22.43 for men and 28.94 SAM: In 2016, 15 days were lost per 200,000 hours for women, indicating that for every 200,000 hours worked worked, unlike 2015 when 13 days were lost per 200,000 approximately 22 days are lost for men and 29 for women man-hours worked, an increase in severity of 19% from due to accidents at work or work illnesses. 2015 to 2016. The increase in men was 30.05% up on the previous This index takes into account the number of days’ year. disability due to General Illness, Accident at Work and Work Illness

Absenteeism Index, Contractors Absenteeism Index 700 4500 600 4000 3500 500

3000 400 2500 300 2000 1500 200 1000 100 500 0 0 2013 2014 2015 2016 2013 2014 2015 2016

Absenteeism Index Absenteeism Index, Contractors 2013 2014 2015 2016 2013 2014 2015 2016 2,968.46 3,606.75 3,585.86 4,034.36 561.9 513.3 537.82 628.68

Index by region Index by company COL SAM CAM Global Clave Misión Servicopava External 7,624.41 1,014.28 1,812.44 4,034.36 Integral Temporal 217.32 276.99 736.26 628.68

Index by sex Index by sex Men Women Men Women 4,758.53 3,607.66 626.50 632.54

112 2016 Management Report• Avianca Holdings S.A. Colombia: The diagnoses that resulted in the most The control measures that were implemented consisted days absent were respiratory system illnesses, certain of training sessions, talks, accident at work reports and infectious and parasitic illnesses, illnesses in the osteo- inspections of improvement actions. muscular system and joint tissue, ear and mastoid CAM: . This index was 56% up on the previous year, with apophasis illnesses and illnesses in the digestive system. a rise in each of the three countries evaluated due to the With a view to preventing and reducing these types fact that previously only those issued by company doctors’ of absences, the following activities were carried out: surgeries were considered whereas now a better source training aimed at preventing infectious / contagious of information is available and this has enabled better illnesses originating in the respiratory and gastrointestinal controls to be kept of absenteeism due to medical causes. systems, maintaining the Epidemiological Supervision Systems, the Work Reincorporation and Adaptation Costa Rica: The number of days’ absence due to Program, the Preventing the Use of Alcohol and Drugs common illness fell. The diagnostic groups where the Program, Prevention Activities in Health for Cancer, the highest number of absences were reported, and the actions Prevention of Hearing Injuries in Flight Program, and the taken, are explained below. Cardiovascular Risk Prevention Program. • Respiratory, due to the low temperatures recorded. SAM: This index was 48% up on the previous year, with Action taken: influenza vaccination campaign, hand- a rise in each of the two countries evaluated due to the washing campaign. fact that there is now a better source of information, and • Gastrointestinal: elimination of parasites, hand-washing this has allowed for a better control of absenteeism for campaign. The figure for absences due to this cause was medical reasons. lower than in 2015. • Osteo-muscular: lumbar reinforcement. Ecuador: The highest number of days absent were • Additionally, work was done with the different areas on due to general illness, which increased in 2016 due to two gathering specific information, so that more information factors. can be available for analyzing absenteeism. • A better record of absenteeism can be kept by using the Oracle system for recording illnesses. El Salvador: The most frequent diagnoses were • Cases of prolonged absences occurred due to high-risk associated with the following. pregnancies, heart surgery and oncological complaints. . • Respiratory system complaints The main causes of absence due to general illness were • Digestive tract complaints associated with the following complaints: • Osteo-muscular system illnesses • Osteo-muscular • Infectious and parasitic illnesses • Respiratory Measures implemented have included health at work • Digestivas training, talks at briefing sessions and campaigns and • Otorhinolaryngologys follow-up inspections, with emphasis on self-care and • Gynecology according to the risks inherent in each post. The action taken to reduce absenteeism consisted AVH: This indicator was higher for both males and of training sessions, inspections, fostering the reporting females. During 2016, for every 200,000 hours worked culture and self-care. there were absences totaling 4,719 days due to general illness, accidents at work and work illnesses. Peru: The highest number of days absent were due To a large extent, this increase can be explained by the to general illness, and the 2016 figure was above that fact that technological tools were introduced for gathering reported for 2015. information about absenteeism. The principal diagnoses were associated with the following groups. • Traumas, poisoning, and some other consequences of external causes • Osteo-muscular and joint tissue system illnesses • Respiratory system complaints • Mental and behavioral disorders • Digestive system illnesses

2016 Management Report• Avianca Holdings S.A. 113 Professional illnesses

Exposure to noise when performing Work with chemical substances that platform activities or working in major contain BTX (benzene, toluene, xylene) maintenance / overhaul areas that could or are exposed to ionizing radiation that cause neuro-sensorial hearing loss. could cause occupational cancer.

8000 400

7000 350 373 7,582 7,516 6000 300 330 305 5000 250

4000 200

3000 150

2000 100 124 1,929 1000 1,520 50

0 0 2013 2014 2015 2016 2013 2014 2015 2016

114 2016 Management Report• Avianca Holdings S.A. Activities that imply inadequate or forced postures, manual manipulation of loads or repetitive movements that could cause osteo-muscular injuries.

15000

14500 14,631 14,376 14000

13500

13000 13,308 12500

12000 12,450 11500

11000 2013 2014 2015 2016

Number of staff whose profession has a high incidence or risk of illness

2013 2014 2015 2016 Exposure to noise when performing platform activities or working in major maintenance / overhaul areas that could cause 1,520 1,929 7,582 7,516 neuro-sensorial hearing loss. Work with chemical substances that contain BTX (benzene, toluene, xylene)or are exposed to ionizing radiation that could 305 330 124 373 cause occupational cancer. Activities that imply inadequate or forced postures, manual manipulation of loads or repetitive movements that could cause 12,450 13,308 14,376 14,631 osteo-muscular injuries. s

G4-LA7 The number of staff exposed (22,52023 workers) G4-LA6 As far as fatalities are concerned, none24 has risen over the years, due to the Company’s growth, and occurred in 2016 that were associated with Health and it could go on increasing as we expand our operations. Risk Safety at Work, thus continuing the result for this indicator materialization (classified work illnesses) has nevertheless that was reported in 2015. been kept under control.

23 The figure indicated is a consolidated one covering staff employed by the following companies: Tampa Cargo S.A., Aerovías del Continente Americano S.A., Ae- rolíneas Galápagos S.A., Trans American Airlines S.A., Aviaservicios S.A., Aviateca S.A., Pitasa S.A., Taca International Airlines S.A., Líneas Aéreas Costarricenses S.A., Servicio Terrestre Aéreo y Rampa S.A., Servicios Aeronáuticos PilotCrew-CR S.A., Taca Costa Rica S.A., Pilotos de Taca S.A. de C.V., Taca International Airlines S.A., and Technical and Training Services S.A. de C.V., located in Colombia, Ecuador, Peru, Costa Rica, El Salvador and Guatemala. 24 The figure indicated relates to staff employed by the following companies: Tampa Cargo S.A., Aerovías del Continente Americano S.A., Aerolíneas Galápagos S.A., Trans American Airlines S.A., Grupo Taca de Chile S.A., Aviaservicios S.A., Aviateca S.A., Taca International Airlines S.A., Líneas Aéreas Costarricenses S.A., Pilotos de Taca S.A. de C.V. and Taca International Airlines S.A., located in Colombia, Ecuador, Peru, Chile, Bolivia, Venezuela, Costa Rica, El Salvador and Guatemala.

2016 Management Report• Avianca Holdings S.A. 115 Number of fatalities, direct staff Number of fatalities, contractors

Number of staff per year Number of staff per year 2013 0 2013 0 2014 1 2014 0 2015 0 2015 0 2016 0 2016 0

We set ourselves a target of having no more than eight illnesses classified as professional, and the figure reported was six, thus meaning that in 2016 we achieved our target. This indicator is controlled by implementing epidemiological supervision systems and monitoring work illness classifications, due to the fact that the number of persons exposed is related to the total number of personnel. The progress made in health and safety at work has an impact on corporate indicators, internal processes and global annual results. Notable among the different actions taken are the following. • Bringing together a single health and safety at work system that not only meets needs in every country where the Company operates but also complies with all the regulations in those countries was a landmark in guaranteeing wellbeing through good group practices. • Assistance from the very start of the most important corporate projects in order to ensure that standard criteria in the industry in terms of health, safety and the environment are included in them. Participation in in the structuring of specialist technical maintenance Finally, the Company is doing work to incorporate a processes at the new Avianca Aeronautics Center (MRO) new Safety Defense Model into the self-care culture in the at José María Córdova International Airport in Rionegro is different areas, so that leaders can directly administer risk particularly worth highlighting, as this guarantees that the matrices and make their teams aware of the importance of safety of the staff who work there is in line with the highest implementing the guidelines established for each process. international standards in the aeronautics sector. G4-LA5 At the 2016 year end, 100%25 of staff are • In terms of learning and development, work was done on represented on formal committees set up by Company improving staff skills in managing operational risks. representatives and their staff that meet periodically to • Technological tools for gathering information about follow up on and investigate health and safety at work absenteeism were brought into operation. conditions and indicators.

25 The figure relates to staff employed by the following companies: Tampa Cargo S.A., Aerovías del Continente Americano S.A., Aerolíneas Galápagos S.A., Trans American Airlines S.A., Grupo Taca de Chile S.A., Aviaservicios S.A., Aviateca S.A., Taca International Airlines S.A., Líneas Aéreas Costarricenses S.A., Pilotos de Taca S.A. de C.V. and Taca International Airlines S.A., located in Colombia, Ecuador, Peru, Chile, Bolivia, Venezuela, Costa Rica, El Salvador and Guatemala.

116 2016 Management Report• Avianca Holdings S.A. Percentage of workers represented G4-LA8 Finally, we highlight the fact that 100%26 of on formal health and safety matters relating to health and safety are covered in formal committees agreements with unions. These agreements have been kept in force and no modifications have been made over the year 120% on matters relating to Health and Safety at Work.

100% Challenges in 2017 and the future 80% • To restructure the ground emergencies plan. • To increase learning and improve staff skills. 60% • To include the structuring of the health, safety and environment program in the Company’s strategic projects. 40% • To unify the Comprehensive Management Model in all countries. • To extend the coverage of the Occupational Health and 20% Safety Committees in Avianca Holdings S.A. subsidiaries. • To reinforce the three lines of defense in the risk 0% management model (Management System, workplace 2013 2014 2015 2016 audits and controls), which will allow for better control of risk factors and will increase the self-care commitment in our staff and among related third parties.

26 The information relates to staff of the following companies: Tampa Cargo S.A., Aerovías del Continente Americano S.A. and Trans American Airlines S.A., located in Colombia and Peru. The conventions of the nine principal unions in these companies was taken into consideration for this report.

2016 Management Report• Avianca Holdings S.A. 117 VI. Contribution to Society Avianca Holdings social programs

The importance to Avianca Holdings and its Miles Bank stakeholders Under this program, we provide round trip transportation G4-DMA Our commitment to society is to contribute from and to towns and cities on routes operated by Avianca and generate social value in line with our Strategic North for children from families in the lower income brackets who and through actions we engage in with our stakeholders need to travel in order to receive specialist medical care and and through structured social programs and projects surgery. on matters relating to education, health, culture and With miles contributed by the Organization and by humanitarian aid that contribute to improving quality members of the LifeMiles frequent flier program, in 2016 of life in the communities where we operate. We work we managed to collect 11,575,000 miles and to benefit a through alliances with public and private entities and we total of 218 persons through 437 tickets issued (including incorporate our staff, through the corporate volunteer beneficiary children and an accompanying adult), a valuable program, where they become social promoters and direct contribution to their being able to receive medical care and their spirit of service toward society. to protect their health and welfare. There were a total of 142 cases on domestic flights and 76 on international ones. Notable facts, 2016 Corporate volunteer program G4-SO1 In line with the development of a plan of Through our corporate volunteer program “I cooperate”, action aimed at contributing to community wellbeing and we encourage awareness and a valuable service attitude quality of life, in 2016 we consolidated social initiatives among staff in our Organization, who voluntarily devote via our five strategic programs, which we carried out in part of their time and energy to welfare and development the countries where the Company operates directly and activities with communities in areas where we operate. bearing in mind that 100% of our destinations (105 at the The program functions through interdisciplinary groups 2016 year end) may come to be, at any given moment, of volunteers from different areas and posts. We continued potential places where our programs are applied. this volunteer program in 2016, when we supported 37 partner foundations, including the following.

118 2016 Management Report• Avianca Holdings S.A. Country City Entity Focus

Colombia Barranquilla Futuros Valores Education Bogotá Aldeas Infantiles SOS Education Dr. Clown Foundation Health ÁMESE Health Amigos del Planeta Animal Care Best Buddies Education Bucaramanga Servidores del Servidor Education Cali Paraíso de la mascota Animal Care Fundación Maria Luisa Education Cúcuta AMCAF – Ana Francisca Catholic Education Mission Association Manizales Niños de los Andes Foundation Education Medellín Dulce Compañía Education and Health Pereira Sirviendo con Amor Corporation Education El Salvador San Salvador Aldeas Infantiles SOS Education Ayúdame a Vivir Foundation Education Centro Escolar Dr. Victorino Ayala Education Parvularia Licda. María Aracely Education Escamilla de Lara Consulta Externa VIH Hospital Health Bloom Griselda Zeledón School Education for the Deaf Éxodo Foundation Education Peru Lima Kantaya Education Aldeas Infantiles SOS Education Ecuador Quito, Patronato San José (Quito) Education Guayaquil Aldeas Infantiles SOS Education y Manta (Quito y Guayaquil) Jóvenes contra el Cáncer (Quito) Health Bibliorecreo (Quito) Education Puerto López Municipality Education 28 April school (Manta) Education Guatemala Ciudad de Ronald McDonald´s House Health Guatemala Burns Clinic Health Aldeas Infantiles SOS Education Best Buddies Education Costa Rica San José Comedor San Lázaro Education El Rodeo School, Ciudad Colón Education Aldeas Infantiles SOS Education

2016 Management Report• Avianca Holdings S.A. 119 In 2016 the interdisciplinary volunteer groups were in- volved in play, motivation and leisure activities with pro- gram beneficiaries in Colombia, El Salvador, Peru, Ecua- dor, Guatemala and Costa Rica. The amount invested by the Organization in 2016 in volunteer activities was USD 10,060.

Historic performance of corporate volunteer groups.

Projects Entities Year undertaken involved Volunteers Countries impacted 2008 1 1 62 El Salvador 2009 7 6 287 El Salvador, Costa Rica and Peru 2010 9 5 252 El Salvador, Honduras, Costa Rica, Nicaragua and Bolivia 2011 18 6 238 El Salvador, Guatemala, Honduras, Costa Rica, Colombia 2012 12 - - El Salvador, Guatemala, Estados Unidos and Colombia 2013 31 25 - Colombia, Peru, El Salvador, Costa Rica, Guatemala, Ecuador and United States 2014 88 38 - Colombia, Peru, El Salvador, Costa Rica, Guatemala and Ecuador 2015 96 36 643 Colombia, Peru, El Salvador, Costa Rica, Guatemala and Ecuador

Strategic alliances In 2016 we forged strategic alliances with 67 entities / This program provides different types of support in foundations, focusing on health, education, culture and the form of tickets with discounts of up to 100%, waivers humanitarian aid initiatives. In particular, we progressed for changing dates of commercial-rate tickets, baggage in the humanitarian aid field with , a rapid response exemption and cargo movements, etc. US organization that links airline companies with duly pre- qualified non-governmental organizations.

Historic results of support through strategic alliances:

Organizations Tickets Donations (company Year involved granted and staff). 2008-2009 450 3.104 $220.158 2010 103 46 $112 2011 70 377 $80.449 2012 141 328 $293.564 2013 156 872 $1.071.492 2014 132 637 $387.622 2015 250 312 $262.159 2016 67 292* $156.918 TOTAL 1.369 5.968 $2.584.508 *Only includes tickets granted with a 100% discount.

120 2016 Management Report• Avianca Holdings S.A. Cultural support for transporting works of art for benefic support:

Year Support granted Comments

2012 Avianca Art Collection - 46 works 10-year loan agreement with the Bogotá Museum of Modern Art for 154 works. Exhibition in BOG and temporary exhibition at BAQ Museum of Modern Art 2012 Transfer of Romero Brito work From MIA to BOG for exhibition at new El Dorado Airport

2012 Guatemala Fashion Art Transfer of 51 works to MIA

2013 Transfer of works by Federico Uribe Pereira Museum of Art (route MIA-BOG Envío de México a Bogotá, Proyecto Cultural Grandes 2013 54% discount on dispatch of 160 Cultural Project: Great Masters of Popular Art of Latin art works America and Colombian Handicrafts (route MEX-BOG)

2013 Transfer of 60 works of art and Pereira Museum of Art (route MED-PEI). Via Crucis of the Fernando Botero exhibition Passion of Christ collection. 2013 Avianca Art Collection - 46 works Tolima Museum of Art in IBE, Zenú Museum of Contemporary Art in MTR, Caldas Museum of Modern Art in MZL and Museum of Modern Art in BGA. 2014 Transfer of works by Federico Uribe Transfer of works of art from MIA to BOG for exhibition in the PEI Museum of Art. 2014 Avianca Art Collection - 46 works Rayo Museum in Roldanillo, Valle in CLO, Visual Arts Museum at Jorge Tadeo Lozano University 2015 Avianca Art Collection - 46 works Pereira Museum of Art, Specialist Anapoima Museum in BOG

2016 Avianca Art Collection Cartagena Museum of Modern Art and Culture and Fine Arts Institute in Duitama

2016 Management Report• Avianca Holdings S.A. 121 Children for America

This program encourages and boosts school performance and making dreams come true for the children of Latin America, in conjunction with public and private entities. They are rewarded for their academic performance with a trip to one of Avianca’s destinations in the region. The journey is offered on any of the routes operated by Avianca in countries like Peru, Ecuador, Costa Rica and Colombia. 186 tickets were donated in 2016, for an accumulated total of 3,025 since 2007, the year when this initiative commenced.

Cases Tickets Year donated Beneficiary entities 2007-2010 0 2,000 BOG Education Secretariat Mario Foundation 2011 5 196 Five entities in Colombia 2012 2 33 Cases within Colombia 2013 7 104 Cigarra Foundation, FUNDEVIDA Foundation, Anselmo Foundation, FUNSTALL Foundation, Servir Corporation, Niños con Cáncer Entity, Amor y Esperanza Foundation 2014 12 153 Ceres Foundation, Patio Bonito Foundation, Tejido Social Foundation, Amar Foundation, Caso Médico Particular, Amor y Esperanza Foundation, Grenart 2015 20 353 Alonso Ortíz Medical Center, Anselmo Foundation, CEA Foundation, Santa Alianza, Promoción Humana. Aldeas Infantiles SOS (Colombia)El Rodeo School (Costa Rica) 2016 16 186 Aldeas Infantiles SOS Colombia (12), Carabineritos de la Policia Colombia (14), FUNDES Foundation (20), Pies Descalzos Foundation (5), Servicio Juvenil Foundation (12), Se Vale Soñar Foundation (20), Ministry of Defense, Colombia (2), Kantaya Peru (7), Cumpliendo Sueños Particular (2), Funanselmo (4), Ateneo Education Institution, Pradera, Valle del Cauca (20), EFAP Foundation (20), Amor y Esperanza Foundation (20), Sol en los Andes Foundation (8), Santa Alianza Foundation (20). Total 62 3,025

122 2016 Management Report• Avianca Holdings S.A. Avianca Solidarity

Having to face up to a social emergency resulting from a EL Salvador, Mexico, Venezuela and other parts of Ecuador natural disaster or a tragedy can happen at any time and in for transporting doctors, rescue workers, psychologists and any region where we operate. firemen. The Avianca Solidarity social program channels support Avianca Solidarity has a commitment from various areas through mechanisms like transferring people (medical and of the Organization, including Revenue, Travel Bureau, technical personnel, trained pets, volunteers and victims), Avianca Cargo and Deprisa. It also works with embassies moving goods and merchandise to meet humanitarian and government entities, teams of volunteers specializing in needs, and transferring and repatriating bodies. rescue work and natural disasters (Red Cross, firemen and 2016 was notable for the support given by Avianca staff to rescue workers, for example), and entities that collect and various of the colleagues after the earthquake that occurred send humanitarian aid. in April in the city of Manta, in Ecuador. Those affected We ratify our social commitment by providing support received articles and funds to meet their basic needs. for transfers by land or air and cooperating with support Items were donated by colleagues, who joined forces to networks to help in emergency situations in every region collect USD 10,423. This donation was used mainly to buy where we operate, making our physical and human resources supermarket vouchers for those most seriously affected. available to serve society The aid also included 761 tickets from Spain, Colombia,

2016 Management Report• Avianca Holdings S.A. 123 Avianca capacity to help victims of the aid provided by Avianca staff, illustrating the soundness Chapecoense tragedy of the Company’s policies and processes as well as the The Bolivian airline Lamia accident on November Organization’s response capability in this type of situation. 28, 2016 shortly before the aircraft reached José María Córdova International Airport in Rionegro (Antioquia) was Other humanitarian aid through Avianca Solidarity very painful and aroused our people’s spirit of solidarity. • Donation of 3,563 blankets to the National Navy’s Ralph A group of around 15 of our staff were part of the Binney Association, the Marine Infantry, the National Avianca interdisciplinary team at the site of the tragedy, Police and Acción Social Naval in Cartagena, Colombia. and in coordination with airport operator Airplan they • Donation of onboard materials to entities like Fecupal, supported and assisted relatives and survivors of the air Aldeas Infantiles SOS, Patronato San José, Jóvenes contra crash. The aircraft was carrying the players and technical el Cáncer Foundation, Casa Somos, Quiport and the staff of the Chapecoense soccer team from Brazil, which ProVida Foundation, in Ecuador. was to have played in the final of the Copa Suramericana. • JSocial Jeans Days, dedicated by staff to entities A group of journalists who were to have covered the event, associated with Yo Colaboro. together with club directors, were also on the flight. The support, which ranged from psychological care to meeting the needs of the injured and their relatives, mitigated the pain and impotence, thanks to a wide-ranging operation that materialized itself in the humanitarian

124 2016 Management Report• Avianca Holdings S.A. Baggage Donations, Year Tickets exemptions (Kg) staff and company Emergencies served

2010 90 - $589,884 Winter weather in Colombia 2011 100 - Transfers of doctors and volunteers to areas affected by rain in Colombia, Honduras and El Salvador 2012 4 12,466 $293,564 Exemptions in COL, SAL, PE, NAM, Spain, PTY, ECU, BOL and Canada. Donations to foundations and entities

2013 - 12,466 $618,504 Aid to hurricane victims in Mexico and aid to foundations and entities (Teleton SAL and COL, Cardioinfantil and other entities in Colombia and El Salvador)

2014 - 5,723 2015 - 6,860 Humanitarian aid entities cases 2016 761 448 $10,423 Earthquake in Ecuador Total 955 28,809 $1,512,375

Challenges in 2017 and the future prioritizing aids and coordination to maximize the impact of air consignments. • To forge mutual benefit alliances with leading • To establish a global alliance with UNICEF with a work international organizations in social, educational and proposal on three fronts: Click for Change, Avianca cultural projects aimed at improving the quality of life in Solidarity (emergency response) and Volunteer Work. communities where we operate. • Participar en los principales escenarios y vincularnos • To formalize the strategic alliance with Airlink, which offers a las principales iniciativas relacionadas con la gestión airlines support through mechanisms like understanding sostenible y la generación de valor compartido. the disaster situation, identifying humanitarian needs,

2016 Management Report• Avianca Holdings S.A. 125 Development that respects the environment

VII. Development that respects the environment

The importance to Avianca Holdings and its stakeholders We at Avianca Holdings S.A. are committed, in each and every one of our operations, to defining and executing innovative, high impact environmental practices, in order to contribute to the sustainable development of our society. To comply with our mission, not only do we follow the guidelines established in the ISO 14.001 environmental management system in our work, plus extensive national and international regulations and specific rules governing the aviation industry, such as IOSA and ISAGO, we also adopt initiatives that enable us to exceed legal demands and work with conviction on preventing, controlling, mitigating and compensating for any impact caused as a result of our activities. We perform our environmental management on numerous fronts.

• Comprehensive work with the social responsibility area • Assistance with projects • Environmental inspections • Management of environmental contingencies • Dealing with requirements by authorities and interested parties • Efficient use of water and energy • Pourings management • Follow-up on high-impact suppliers • Monitoring of atmospheric emissions indicators • Management of dangerous and conventional waste • Promoting Cleaner Production Projects • Improving environmental care skills • Plans for dealing with environmental contingencies

126 2016 Management Report• Avianca Holdings S.A. Environmental management standardization

Avianca Holdings S.A. is committed to caring for its staff and the environment, and has accordingly been working on implementing its Health and Safety at Work System and Environmental Management System, taking as reference standards OHSAS 18001 and ISO 14001, res- pectively, and current regulations. These management systems enable the Organization to mitigate occupatio- nal risks and significant environmental impacts and also to adhere to legal requirements and other commitments it has taken on, and we accordingly detail below our pro- gress year by year and our target for the future.:

Harmonized SSMA Management Systems

The challenge lies in achieving harmonization and implementing SSMA 2016 management systems at stations where AVH operates using a single 2018 management model

Progress was made on closing legal gaps and fully meeting ISO 14001 and OHSAS 18001 requirements. Work continued on customizing general procedures and data gathering tools, and 2014 analyzing the principal indicators. Objectives for 2015 2018 were reviewed and updated in 2015.

Certain general procedures were standardized. Area objectives for 2015 were defined as a team. Work continued on closing legal gaps 2013 and meeting ISO 14001 and OHSAS 18001 requirements.

EMS integration commenced at AVH, general objectives were 2011 determined, and management guidelines were defined. 2012

2016 Management Report• Avianca Holdings S.A. 127 Persons working at each of our stations and environmental management standardization focus.

FRA 1 ESP

EEUU 47 366

CUB MEX 90 20 SDQ HON 9 253 NIC GUA 57 CR 539 SAL VEN 2,867 1,137 71 PTY COL AHOL 41 9,999 14 ECU 1,073

PERU BRA 1,563 BOL 39 5

PAR 14 CHILE

49 ARG URU 51 7 Dx. Executed Dx. Pending

128 2016 Management Report• Avianca Holdings S.A. Environmental policy

It is through our Environmental Policy that companies which come under the Avianca Holdings umbrella define Environmental Management System directives, establish objectives and set targets. These companies restate their commitment to caring for the environment and to the rational use natural resources, and undertake to do the following in their operations.

Implement Reduce Reduce Reduce the mechanisms fossil fuel greenhouse gas generation for preventing consumption emissions and of pollution in noise dangerous their activities waste

Comply with applicable Promote an environmental Continually environmental legislation and improve their commitment with other com- environmental among staff, mitments of an performance suppliers and environmental contractors nature

The companies that come under the Avianca Holdings series of strategies aimed at guaranteeing the rational umbrella have a Corporate Health, Safety and Environment use of natural resources by means of actions that not only Division (SSMA), which disseminates general directives and enable the demands of regulatory frameworks that govern standardizes the most appropriate SSMA practices in all the companies’ operation and contribute to mitigating areas where they operate. effects on the environment to be complied with, but also G4-14 It is important to mention that understanding allow the principal environmental impacts in the air sector, and adequately managing impacts on the environment namely greenhouse gas emissions from the operation of is a responsibility that the companies which come under aircraft, the generation of dangerous waste in maintenance the Avianca Holdings S.A. umbrella take on through activities on the ground and the effects of noise by aircraft, Environmental Management, which brings together a to be identified and promptly managed.

2016 Management Report• Avianca Holdings S.A. 129 Notable facts, 2016

Training and environmental awareness We thus trained 7,242 members of staff in environmen- Delivering an exceptional travel experience is the natu- tal matters and continued with the Environmental Mana- ral consequence of a human talent that ‘lives’ not only the gement and Management of Environmental Contingencies service culture but also the commitment to care for the Corporate Induction Module - intermediate level, using the environment. virtual e-learning training tool, a resource that simplifies In 2016 we provided training in significant environmen- access by our staff to the contents and offers better co- tal issues we have identified in the various activities enga- verage. ged in by our companies. Some issues relate to the ade- Additionally, in order to reinforce these actions and quate management of waste, the efficient use of natural with the aim of repeating messages, we held awareness resources, and environmental contingencies. sessions and face-to-face workshops, which help build a culture of respect and care for the environment.

Number of staff trained, Module AVH 2014 AVH 2015 AVH 2016

Let’s progress with Environmental 7,107 2,879 2,950 Management, Induction Face-to-face Waste Management 770 901 573 Face-to-face Environmental 652 832 1,071 Contingency Management Environmental Management System 666 631 1,176 Induction, Contractors 889 804 1,472 Total 10,789 6,048 7,242

Expenses and investment in the environment

Environmental expenses incurred and investments made by our companies’ operations in 2016, excluding the purchase of new aircraft, ground equipment and infras- tructure, totaled 482,590 dollars.

Colombia North America, -Europa Central America South TOTAL and the Caribbean America 312,042 + 101,556 + 68,992 = 482,590 USD USD USD USD

130 2016 Management Report• Avianca Holdings S.A. VIII. Impact mitigation and our work, using the best technology and offering the best adaptation to climate change service quality in environmental terms.

The importance to Avianca Holdings and its stakeholders Notable facts, 2016 G4-DMA Air travel has become an essential element in today’s way of life, and its growing use is becoming one Aircraft fleet emissions of the principal challenges facing our Organization, which According to studies by the United Nations views climate change as a fundamental issue because it Intergovernmental Panel on Climate Change (IPCC27), has a direct effect on its operations. aviation produces around 2% of the carbon dioxide (CO2) Higher global temperatures and increased rainfall produced by different human activities. Similarly, due to can be clearly seen in these changes of climate, as can investments made by the industry in new technologies alterations to the direction of winds and extreme weather and adequate operating procedures, air transport has situations that could affect the performance of our aircraft managed to keep its emissions at a growth level that and, therefore, the efficiency of our operation and our is not proportional to the number of passengers, which service. increases by 5% each year, on average. We at Avianca Holdings appreciate the importance of The emissions generated by aircraft engines consist changing our behavior patterns relating to the burning of approximately of 70% CO2 and around 29% H2O, while fossil fuels (oil, coal and gas), which are used to produce the remaining 1% consists of NOx, CO, SOx, VOCDM28, energy and release greenhouse gases (CO2) into the particles, and other oil elements. atmosphere, and with a view to consolidating our position as a sustainable Organization, we follow the guidelines established in the environmental management system in

27 Volatile Organic Compounds Different from Methane. These are compounds formed principally of hydrocarbons belonging to some of the following chemical groups: alcohols, aldehydes, ketones, alkanes, aromatics and halogen derivatives. They are typically substances that can be easily vaporized at air temperature, and many of them are colorless and odorless. 28 Carbon Offsetting and Reduction Scheme for International Aviation

2016 Management Report• Avianca Holdings S.A. 131 Carbon Reduction and Compensation Plan for International Aviation - CORSIA

Since it is conscious of the need to implement programs or actions that foster an understanding of and adaptation to climate change, the United Nations aviation body, at its plenary session during its 39th period of meetings, agreed to recommend that the aeronautics industry adopt the definitive text of a resolution on the Global Market Based Measure (GMBM). From this there came into being the International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which seeks to complement a set of mitigation measures that the air transportation industry is already applying, in order to reduce CO2 emissions by international aviation. The actions envisaged in the plan, and which we have committed ourselves to, include improvements and technical and operational advances in the production and use of sustainable alternative fuels for aviation. Future implementation of CORSIA will commence with a preliminary phase from 2021 to late 2023, followed by a first phase, from 2024 to the end of 2026. Participation in climate change. both these initial phases will be voluntary, and the second G4-EN15 This year, emissions deriving from the operation phase, from 2027 to 2035, could see all states involved. of our aircraft in absolute CO2 value, thus rose by 4.78% Similarly, it is important to point out that exemptions have in comparison with last year. This is related to the growth been permitted in this plan for less advanced countries in operating activities in the Holding Company’s subsidiary (PMA), Small Insular Developing States (SIDS), Developing companies. Emissions were calculated using density for the Countries without Coastline (PDSL), and states with very JET A1 of 3,0972 kg/gl and an emission factor of 3.15. low international aviation levels. With this context and the role we play as leading airline in Latin America in mind, in 2016 we continued to work on measuring our emissions and on strategies that will contribute to preventing pollution and the effects of

ABSOLUTE GREENHOUSE GAS EMISSIONS BY AIRCRAFT IN tCO2

COA 2011 2012 2013 2014 2015 2016 Avianca 1,643,694 1,923,000 2,121,311 2,220,445 2,528,927 2,727,331 Taca 1,291,468 1,369,152 1,410,814 1,498,503 1,441,165 1,451,847 Aerogal 202,593 150,310 159,427 153,989 192,694 191,063 Tampa 211,148 257,327 268,687 309,800 331,904 330,321 Regionals 31,731 30,203 28,707 9,522 11,714 14,707 Total 3,380,634 3,729,992 3,988,946 4,192,259 4.500.167 4.715.269

132 2016 Management Report• Avianca Holdings S.A. Kg of CO2 PER 100 RPKs

COA 2011 2012 2013 2014 2015 2016 Avianca 12.08 12.05 11.94 12.03 12.05 11.62 Taca 11.02 11.00 10.87 11.08 10.98 10.80 Aerogal 19.52 22.30 36.15 25.76 14.56 14.86 Regionals 21.56 25.19 112.41 35.74 29.82 38.79 Total Kg Emissions 3,169,485,474 3,472,664,289 3,720,258,148 3,882,459,459 4,174,500,039 4,384,948,014 AVH sin QT 100 RPks 265,125,590 291,901,506 312,108,753 326,016,545 354,778,749 382,329,083 AVH 11.95 11,.0 11.92 11.91 11.77 11.47

CO2 emissions per 100 passengers per kilometer flown CO2: This is directly proportional to fuel consumption, and a for AOCs AV, TA, 2K and Regionals in 2016 were 2.55% 15% reduction per flight is therefore estimated. down on the previous year, due to the fuel consumption G4-EN18 Absolute value CO2 emissions from the ope- reduction strategies implemented by the companies that ration of ground support equipment at the Bogotá station come under the Holding Company’s umbrella. were 2.88% up in 2016, due to growth in the operation. Meanwhile, after acquisition of the A320 aircraft, the fo- G4-EN19 CO2 emissions per hour worked were 0.31% llowing reductions in emissions have been estimated. down on the CO2 emission figure reported for 2015, due to NOx: the consumption control strategies that were implemen- • A320ceo: 20% margin with levels of CAEP/6 de NOx ted. • A320neo: 50% margin with levels of CAEP/6 de NOx

CO2 emissions by aircraft on ground, Bogotá station Kg of CO2 per equipment hour worked

12.8 8000 12.6 7000 12.4 12.2 6000 12 5000 11.8 4000 11.6 3000 11.4 2000 11.2 1000 11 0 10.8 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016

Ton CO2 emissions, Ground Support Equipment, Bogotá

2016 Management Report• Avianca Holdings S.A. 133 Fuel saving strategies

G4-EN27 Implementing fuel saving strategies is impor- tant for Avianca Holdings S.A. not only in order to reduce costs but also to contribute to caring for the environment, Use of RNAV-AR and we have therefore implemented various strategies Procedure over the years, such as the following. 12,215 gal/year Estrategias de ahorro de combustible

Iddle Reverse Decelerated APU/GPU Single Engine Taxi on Lading approaches Optimization 2,144,36 336,754 928,362 2,122,493 gal/year gal/year gal/year gal/year

Washing Thrust Reduction Reduced Flaps engines and Altitude Landing Overfuelling aircraft 356,591 105,592 37,839 163,132 gal/year gal/year gal/year gal/year

By continuing to implement these strategies, we saved enter the disembarkation zone. This procedure reduces 6,207,674 gallons of fuel in 2016, equivalent to not emitting fuel consumption and increases the useful life of the 60,563 tonnes of CO2. The general manner in which each engine. of these strategies was implemented is described below. • APU/GPU Optimization • Single Engine Taxi The Auxiliary Power Unit (APU) is a third turbine, which On runways where the distance between the boarding provides the aircraft with electricity, hydraulic pressure and or disembarkation gate and the runway is great, aircraft air conditioning, for which it uses Jet A1 fuel. The Ground taxiing is done on a single engine. When the aircraft is Power Unit (GPU) is a ground unit that provides the aircraft leaving the airport, the strategy is referred to as Single with energy while it is at the airport, for which it uses diesel Engine Taxi Out, and when it is arriving at the airport, it is fuel. APU/GPU optimization consists of reducing APU called Single Engine Taxi In. use at airports where a GPU service is available, provided that the cost of using a GPU is not higher than the costs • Iddle Reverse on Landing of using the APU. Maximum APU use is established in the On long runways, it is possible to land the aircraft APU use policy, based on airport temperatures. without the turbine expelling air forwards for braking. With the use of the engines, and without reaching maximum power, a speed is maintained that allows the aircraft to

134 2016 Management Report• Avianca Holdings S.A. • Reduced Flaps Take Off Existen tres (3) posibles configuraciones de despeThere • Washing engines and aircraft are three possible flap configurations for take off. Flaps are The increased frequency for washing aircraft engines part of the wings, and enable the aircraft, by virtue of their means that the layer of grease that is produced by use different positions, to increase or decrease air resistance. is controlled, since this compresses the air intake to When runway conditions so permit, flap configuration the combustion chamber, leading to a higher engine can be adjusted in order to optimize fuel consumption by temperature and a less efficient combustion process, while reducing air resistance at the moment of take off. washing the aircraft improves the aerodynamic process by eliminating resistance, and this translates into less fuel • Thrust Reduction Altitude being used. If engine power is reduced at an altitude of less than 1,500 feet during take off, the time that the aircraft is • Decelerated approaches flying at maximum thrust is reduced, thereby reducing fuel This consists of maintaining a clean configuration during consumption and wear and tear on the engines. approach where reduced engine power and speed brakes are used, thereby achieving a reduction in the amount of • Reduced Flaps Landing. fuel burned and a reduction in noise levels. At the moment of landing, a configuration below Full Flaps is used when runway conditions so permit, in order to Fuel consumption reduce air resistance and thus optimize fuel consumption. G4-EN3 Our absolute value fuel consumption for 2016 was 4.78% up on the volume reported in 2015. This is • Overfuelling related to the growth in terms of route network and The real amount of fuel supplied to aircraft is monitored, frequencies of the companies that come under the Avianca with a view to avoiding overfuelling compared with what Holdings umbrella. This measurement includes the Air is established on the fuelling order, which indicates how Operator Certificates (AOC) for Avianca S.A. (AV), Taca much fuel is needed for the aircraft to fly the planned (TA), AeroGal (2K), Tampa (QT) and Regionals. route plus additions as stipulated in applicable legislation.

2016 2011 Fuel consumption 3 46,5 93 12 ,9 ,0 10 3 ,3 7 3 8 4

3 8 2 , 3

2 2012

0

,

9

4 0

6 6

1

, 2

6 3 2015 , 2 3 1

8 0 ,4 3 6 ,8 4 08 2013 29 4 ,70 3,001

2014

2016 Management Report• Avianca Holdings S.A. 135 Fuel value of A1 jet fuel consumed by AVH

G4-EN5 Likewise, the Jet A1 fuel value in 2016 was 4.78% up on the value reported in 2015, and this, too, is related to the growth in terms of route network and frequencies of the companies that come under the Avianca Holdings umbrella.

Fuel value in TJ 2011 2016 4 7,3 4 29 01 6, 6

5

2 , 2012 2

2

0

6

3

, 0 2015 0 2

5 4 ,8 55 2013 58 ,692 2014

Liters of fuel consumed per 100 RPKs

COA 2011 2012 2013 2014 2015 2016 Avianca 4.69 4.68 4.63 4.67 4.67 4.51 Taca 4.28 4.27 4.22 4.30 4.26 4.19 Aerogal 7.57 8.65 14.03 9.99 5.65 5.77 Regionals 8.52 9.96 44.43 14.13 11.79 15.33 Total gal fuel AVH 324,869,516 355,945,082 381,323,328 397,948,732 427,882,638 449,453,374 excl. QT 100 RPks 265,125,590 291,901,506 312,108,753 326,016,545 354,778,749 382,329,083 AVH 4.64 4.62 4.62 4.62 4.56 4.45

G4-EN7 In 2016, A1 Jet fuel consumption per 100 pas- the fuel consumption reduction strategies implemented sengers per kilometer flown for the AOCs AV, TA, 2K and by the companies that come under the Holding Company’s Regionals was 2.53% down on the previous year, due to umbrella.

136 2016 Management Report• Avianca Holdings S.A. IX. Noise Impact Mitigation

The importance to Avianca Holdings and its stakeholders G4-DMA The highest growth figures among all modes people exposed to aeronautical noise fell by 35% between of transport are currently being reported in air transport, 1998 and 2004 in the whole world. and from this there emerge various environmental impacts It is worth mentioning that all aircraft belonging that we have to work on and reduce to a minimum if we are to companies that come under the Holding Company not to affect our stakeholders. umbrella (A318/A319/A320/A330/ATR72/Boeing 787) are One of these impacts is the noise that our aircraft STAGE 4 certified for noise level, which means that they make when taking off or landing, and this affects above meet International Civil Aviation Organization Chapter 4 all people who live near airports and under the respective conditions. approach and take off flight paths. With the acquisition of A320 aircraft, he following noise Avianca Holdings S.A. therefore adheres to air sector reductions are estimated. commitments and has been working for some time to • A320ceo: -8.9 EPNdB margin with respect to Chapter 4 reduce the sound effect of aircraft and thus contribute to • A320neo: -18.8 EPNdB margin for PW and -19.7 for CFM quality of life in the areas of influence of our operations. En Avianca Holdings S.A. contamos con la mejor tecnología According to Boeing and Airbus data, new aircraft are disponible para la operación aérea. La Compañía now 50% more silent than 10 years ago, on average, and cumple con los procedimientos de abatimiento de ruido, the “acoustic footprint” of each new generation of aircraft definidos por la autoridad aeronáutica, en cada uno de los is calculated to be at least 15% less than that of the aeropuertos en donde operamos. preceding generation. At Avianca Holdings S.A. we have the best technology available for air operations. The Company complies with the Obligatory reductions noise abatement procedures established by the aeronautics G4-EN30 In 2006, the United Nations intergovernmental authority at each of the airports where it operates. aviation body, the International Civil Aviation Organization A good example of these commitments and this (ICAO), introduced a new noise limitation standard known as compliance with regulations is thus that we have determined, Chapter 4, which sets out to guarantee that new aircraft are pursuant to current legislation, to begin reducing take at least 10 decibels (or one third) more silent than those built off power to ascent power at an altitude defined by the according to the specifications established in Chapter 3. aeronautical authority and we have also applied the good Consequently, this customization standard establishes a practice of ‘single engine in and out’, principally to save fuel, series of measurements for reducing the acoustic level of but it also reduces the sound impact on people, because one reaction motors. In fact, ICAO calculates that the number of motor is switched off.

Informe de gestión 2016 • Avianca Holdings S.A. 137 X. Waste Management

The importance to Avianca Holdings and its stakeholders G4-DMA We at Avianca Holdings S.A. are committed the best way to exploit waste and ever cleaner production not only to correctly treating and disposing of the ordinary methods that respect the environment. and dangerous waste we generate in our operation but also to promoting the efficient use of resources and ade- Notable facts, 2016 quate management thereof. We at Avianca Holdings S.A. thus appreciate that hu- Waste management initiatives man beings generate ever more tonnes of waste in their G4-EN2 The initiatives embarked on by the companies activities, thereby contributing to a deterioration in envi- that come under the Avianca Holdings umbrella to mitiga- ronmental conditions and in health, and we accordingly te the environmental impacts caused by their operations adhere to current legal regulations and promote initiatives focus on cleaner production, and concentrate principally that enable us to mitigate environmental impacts caused on the following. by our operation, and we are also constantly searching for

*Polylactic Acid. This is a polymer consisting of lactic acid molecules that is used to make biodegradable cups. It degrades easily in water and carbon oxide, approximately 12 weeks. ** The napkins were made from renewable natural resources derived from plants (recycled INITIATIVES fibers), which convert them into biodegradable material and thereby reduces the environmental impact associated with the life cycle and use of natural resources.

Materials consumed Waste

PLA* Biodegra- plastic cups dable nap- Recycled kins

PLA* plastic cups 80,000 326,448 napkins** were 588 kilos of conventional waste PLA plastic cups were used in Avianca VIP loun- were recycled for subsequent used in 2016 in onboard ges and onboard service use and to reduce the burden service and VIP lounges on sanitary fills

138 2016 Management Report• Avianca Holdings S.A. Our waste management The waste generated by our companies is typically conventional waste and dangerous waste, and there is therefore a Comprehensive Waste Management Plan the purpose of which is to prevent negative environmental impacts. G4-EN23 588 tonnes of conventional waste were recycled in 2016, 0.7% more than in 2015. This is related to the fact that more awareness strategies were disseminated to staff and the extended coverage of recycling strategies.

Conventional waste recycled (tonnes)

COA 2013 2014 2015 2016 % variation on 2015 COL 406 478 481.5 512.7 6.48 ECU 8.5 16 16 21.5 34.38 SAL 8.9 47.7 26.6 26.8 0.75 SJO 0.67 3.6 0 13.4 - GUA 8.8 13 50.5 6.1 -87.92 LIM 0 13.5 8.9 7 -21.35 TOTAL 432.87 571.8 583.5 588 + 0.7

It should be stressed that there was a significant varia- Tonnes of conventional waste recycled, tion on the 2015 figure reported for Guatemala because by type of material that year individual cleanliness and tidiness activities were performed, when recyclable items were available. Other NOTE: This Recycled waste distribution by material is shown below. Metals information includes 2 Colombia, El Salvador, 48 Ecuador, Peru, Costa Rica and Guatemala. Glass

3 9

8 4 2 6 Plastic 3 Paper and cardboard

2016 Management Report• Avianca Holdings S.A. 139 As far as dangerous waste is concerned, our companies Waste water gave training sessions and talks about the correct management of dangerous waste, at which practices G4-EN22 Contaminated water was generated in some were disseminated for preventing possible impacts on the of the activities performed by our companies, such as environment and human health. washing aircraft parts and components, and this was Similarly, in 2016 the companies that come under the treated physically, chemically and microbiologically before Holding Company’s umbrella generated a total of 401 safe final disposal by outside companies or suppliers who tonnes of dangerous waste, 56.27% up on the year before, were duly authorized by the environmental authorities in due to growth in the operation and the commissioning of each country. 487 m3 of contaminated water were treated the new Aircraft Maintenance Hangar (MRO) in Rionegro. in 201629 The final disposal of all waste generated was adequate.

Dangerous waste treated (tonnes) COA 2013 2014 2015 2016 % variation on 2015 COL 185 175.2 177.8 332 86.73 ECU 13.6 17.8 18.8 17.8 -5.32 SAL 20.4 10.45 14.2 14.6 2.82 SJO 2.8 23.6 19.5 7 -64.10 GUA 5.7 5.9 7.7 16.3 111.69 LIM 7.3 8.9 18.6 12.7 -31.72 TOTAL 232 241.85 256.6 401 +56.27

XI. Responsible Water Management Notable facts, 2016

The importance to Avianca Holdings and its Water is a natural resource that we should care for stakeholders and value, and we at Avianca Holdings S.A. accordingly G4-DMA Water is at the heart of sustainable development carry out strategies aimed at guaranteeing that it is used and is fundamental to socio-economic development, the efficiently in each of our operations. Consequently, water survival of healthy ecosystems and human progress in consumption in 2016 was 20.92% down on the figure general. Water is also vital when it comes to reducing the reported in 2015, principally due to saving strategies being worldwide illness and disease burden and for improving implemented at El Salvador station consisting of changing people’s health, wellbeing and productivity. 9.5-liter discharge valves in toilets and washbasins, which Water is consumed by the Company primarily in the now consume 5.6 liters in the case of toilets and 3.7 liters following activities: customer and employee bathroom in urinals, thereby making tem more efficient. discharges at air terminals, food preparation, and washing G4-EN8 A Information is given below about the aircraft and ground support equipment. volume of water captured by source type, which helps us Conserving this non-renewable resource and focusing understand water consumption in the Organization. on different efforts to achieve efficient use thereof is accordingly of vital importance for Avianca, as established in its environmental policy.

140 2016 Management Report• Avianca Holdings S.A. Consumption Country Consumption Place 2015 2016 Source of supply (m3/year) (m3/year) Colombia Bogotá - CAV 26,915 19,588 Water company Bogotá - TPA 111,392 104,324 Water company Medellín MRO 0 8,030 Rainwater Medellín - Tampa 4,144 3,559 Water company Costa Rica Airport 9,426 11,479 Water company Peru Airport 2,948 3,824 Water company Ecuador ATO - Guayaquil 90 92 Water company ATO - Quito 150 155 Water company El Salvador Airport 75,898 44,422 Underground well Santa Elena building 36,755 15,241 Water company Guatemala Airport 5,173 5,092 Underground well Total 272,891 215,806

Challenges in 2017 and the future

With a view to continuing our environmental • Challenges in internal processes: management work, companies that come under the o To ensure Health, Safety and Environmental Avianca Holdings S.A. umbrella defined a series of common management system (SSMA) participation in Company objectives for the period from 2016 to 2018, and these are projects from the planning stage. described below. o To establish strategies for mitigating and reporting • To harmonize and implement Health, Safety and greenhouse gas emissions by aircraft and ground support Environmental management systems (SSMA) at stations equipment. where we operate, through a single management model. o To ensure that in-flight waste management standards are complied with. • Financial challenges: o To implement eco-friendly practices for washing aircraft o To continue complying with environmental regulations and components thereof, and ground support equipment. and avoid paying fines and carrying out remedies on such o To continue to ensure the comprehensive management matters. of dangerous and non-conventional waste. o To cut costs associated with dealing with environmental o To implement good natural resources consumption emergencies and contingencies. practices in administrative areas. o To generate income by exploiting waste and reducing consumption of natural resources. • Challenges in learning and development: o To ensure information tracking and reliability for • Challenges in results: Environmental Management System indicators. o To reduce or mitigate to the greatest extent possible the o To improve skills and awareness among staff number of environmental impacts. for preventing and mitigating Health, Safety and o To increase the exploitation of conventional waste. Environmental System (SSMA) risks.

2016 Management Report• Avianca Holdings S.A. 141 Generating Economic Value

XII.Responsible supply

he importance to Avianca Holdings and its stakeholders

G4-DMA At Avianca Holdings S.A., we strive to generate business strategies that will not only strengthen our relationship with our suppliers but will also be to our mutual greater benefit and enable us to guarantee a supply chain that is transparent, competitive and stable. Strategic supply, for Avianca and its companies, consists of a procurement management methodology that enables us to identify and/or capitalize on the best supply opportunities, manage and reduce risks and impacts in order to ensure business continuity, and hence make decisions so that corporate objectives can be achieved. Consequently, and in a systematic, organized and collaborative manner, we identify competitive suppliers in the regions where we operate, draw up long-term agreements, and thus meet the customer needs that are present throughout the Holding Company’s procurement and supply process.

Notable facts, 2016 G4-13 Our fundamental challenge in 2016 was to redesign and standardize the Organization’s supply/ provisioning model and, at the same time, we established the Vice-Presidency, Administration and Provisioning, with a view to responding to the new challenges and opportunities that our new strategic direction represents. Nevertheless, we would also like to stress the actions detailed below, which strengthen our management in this area. • We reinforced the Supplier Development Management structure, in order to provide transverse assistance throughout the procurement process and to contribute to development in the regions where we have a presence. • We consolidated our role as active member of the Responsible Supply Network run by the Externado University of Colombia under an agreement with the United Nations’ Global Compact in Colombia, in an effort

142 2016 Management Report• Avianca Holdings S.A. to coordinate the development of initiatives with our IT Vice-Presidency and non-technical purchases by the suppliers that set out to boost their interest in engaging in CFO). socially responsible and sustainable activities. In 2016 we introduced a new procurement governance • The Vice-Presidency, Administration and Provisioning, and management system by forming the Vice-Presidency, brought the modifications to and updates on procedures Administration and Provisioning, whose fundamental and processes to a successful conclusion, including best purpose is to centralize and increase control over market practices, and also finalized the first part of its procurement in order to optimize Company expenditure. training of its staff at the provisioning school, the purpose To reinforce these new guidelines, our efforts during the of which is to develop and strengthen the skills and year were focused on the following. knowledge of the entire team. • Implementation and execution of the new organizational structure by including and adapting all existing New supply model procurement fronts in the Company into a single Vice- From late 2015 and throughout 2016 we made Presidency. important changes to the administration of and processes • Modifications to Procurement and purchase in our supply chain, in order to meet Company needs and procedures policy by unifying provisioning methodologies the requirements of our suppliers, and hence guarantee at organizational level and, transversally, working in procurement project effectiveness and transparency. conjunction with the Comprehensive System for Prevention Previously, the procurement process was divided up by and Control of the Asset Laundering and Financing of supply category, and each vice-presidency was therefore Terrorism Risk (SIPLAFT), the Code of Ethics that applies responsible for managing, evaluating and capitalizing to all companies that come under the Holding Company’s on the best supply options in its work area (aeronautical umbrella, and regulations contained in the Sarbanes Oxley technical parts used to come under the Maintenance Vice- Law, with a view to guaranteeing safer and more reliable Presidency, while technology purchases were made by the negotiations for the Company and its stakeholders.

2016 Management Report• Avianca Holdings S.A. 143 Internal customer (user areas)

BUSINESS GUIDANCE, EFFECTIVENESS

VP Administration & Provisioning

Technical and Fuel Non-Technical Strategic Technical Tactical Non-Technical Strategic Provisioning Provisioning Provisioning Tactical Provisioning SUPPLIERS

Supplier Development

EFFICIENCY, SYNERGY

The aim of the new supply model is to meet the evaluated on Risk Lists since it was formed. The frequency Company’s user area needs (internal customers), and with which active suppliers are reviewed in the system has the major procurement process are accordingly the also been increased, thus enabling us to trace the evolution responsibility of a Tactical Provisioning Group, which not only of the supplier but also of our relationship with will foster specific and transactional execution. At the him. In addition, we hold implementation and negotiation same time, a Supplier Development Group will provide progress meetings with suppliers, in order to generate transverse support that concentrates on managing financial analyses. supplier relations and strategically reinforcing them, by At the same time, we have focused on establishing means of the following. trust with current and potential suppliers by disseminating •Performance evaluations. important aspects of our Code of Ethics in the Provisioning • Assistance with and follow-u on Service Level Agreements chapter and making the Ethics Line available to them, (performance management). thereby fostering a freedom to express any situation where •Support for resolving complaints and claims. they consider that their rights have been breached and • Follow-up on the formalization of legal contracts. providing a prompt and satisfactory response to queries. In 2017 we want to expand the evaluation of selected Supplier development and evaluation suppliers for Risk Lists to IT technology and technical In order to reinforce transparency and suitability in in procurement managements, which are not in the the Company’s procurement processes and foster supplier Organization’s procurement group. stability, the new vice-presidency has standardized processes and covered a higher percentage of suppliers

144 2016 Management Report• Avianca Holdings S.A. Local supplies Human rights follow-up on our suppliers G4-EC9 We appreciate the influence our Organization G4-DMA, G4-HR11As part of our supplier evaluation has on development in and the economy of the Latin process, in 2016 we included variables aimed at identifying American region, and we therefore support companies in impacts in terms of human rights, and we selected seven the regions where we operate through our supply chain, of the Company’s Type A suppliers in Bogotá, where room and we aim to maintain a moderate balance between local for improvement was found in their operation. and international purchases. As a result of this evaluation, we concluded that Consequently, 55.27% of our purchases are local Avianca did not detect any significant negative human ones 31. However, year on year we can see an increase in rights impacts, either real or potential, in the supply chain. international procurement due to the Company acquiring Our principal challenge is to guarantee that our suppliers new aircraft which require maintenance and components and contractors are subject to the Avianca Holdings Code that are mostly not available from local suppliers. of Ethics and Conduct, especially with respect to human Avianca Holdings is thus conscious of the fact that rights risks and impacts. fleet diversification and the increase in the number of We will continue to enforce requirements and aircraft can lead to a reduction in the percentage of local obligations associated with protecting the rights of minors, companies, given that very few suppliers are able to supply preventing the sexual exploitation of minors by complying aeronautics materials locally. Our target, and challenge, with related legal provisions, and protecting children’s is to maintain a moderate balance between local and personal integrity and rights as established in various international suppliers. international instruments and applicable regulations.

Historic local purchase expenditure percentages

% 2016 7 5 2014 .2 9 . 2 6 5 1

%

5 6.63%

2015

31 Local purchases are ones made from suppliers located at hubs where the Avianca Holdings group operates (Colombia, EL Salvador, Peru).

2016 Management Report• Avianca Holdings S.A. 145 Challenges in 2017 and the future XIII. Generating Economic Value • To strengthen the new Supplier Evaluation methodology, which sets out to develop and follow up on G4-DMA The information given below details the suppliers defined by the Organization as strategic. economic performance of Avianca Holdings S.A., and • To include and/or reinforce initiatives aimed at includes information about Aerovías del Continente responsible and sustainable provisioning of the Holding Americano S.A. Avianca and its subsidiary companies. Company’s operation and fostering the application of Likewise, it also covers Grupo Taca Holdings Limited and these criteria in our supply chain. its subsidiary companies. All figures are stated in millions • To generate internal customer satisfaction of dollars. measurements under the new provisioning model. • To implement sustainability replica mechanisms in Direct economic value generated customers selected as strategic to the Organization. Operating income • To implement and disseminate the new Procurement G4-EC1 Avianca Holdings S.A. had an operating income Supply policy. of USD 4,138.3 million in 2016, 5.11% down on the figure for 2015. Notable features at the 2016 year end were the increases obtained in domestic passengers carried, and domestic mail and cargo. The former rose by 28.45%, USD 388 million up on the 2015 figure, and by 63.47% in comparison with 2014.

Operating income by type of service Operating income by geographical extent

Years ending December 31, 2015 and 2016 Years ending December Other (1) 31, 2015 and 2016

.97% 302 3,457.9 3,285.2

2

. 0

1

5

.

5

.

4

% 9

%

4

4

.

8

555.8 624.4 . 9

297.2 1

278.7 8 , 1 2015 2016

Passengers Cargo and mail Other International Domestic

(1):Other operating income includes income from the frequent flier program, ground operations, leasing, maintenance, interline and others.

146 2016 Management Report• Avianca Holdings S.A. Income from financial investments • Fuel Avianca Holdings S.A. income by way of interest Sums invested in the purchase of fuel fell by 22%, from USD decreased by 31.35% in 2016, from USD 19 million in 2015 1,006.7 million in 2015 to USD 785.2 million in 2016. This to USD 13 million in 2016. was due to falling prices per gallon, thereby counteracting Income from derivative instruments totaled USD 3.3 a 21.4 million rise in the total number of gallons used. million in 2015, 430.51% up on the previous period. Employees’ salaries and social benefits Distributed economic value The 2016 year-end figure for this concept, which The total economic value distributed in 2016 by Avianca includes direct and subcontracted staff, was USD 705.4 Holdings S.A. and all its subsidiary companies includes the million, and principally includes payments made by way of following concepts. salaries, medical insurance and transportation allowances. Suppliers and contractors Payments to shareholders The Organization’s total for suppliers and contractors in A total of USD 31,823 million was paid in dividends in 2016 was USD 3,913.78 million .32. 2016 to our shareholders. •Operating costs Depreciations and amortizations (reinvestment) Operating costs fell by USD 262.6 million in 2016, 6.34% A total of USD 269.5 million in depreciations and down on the previous year. The principal concepts amortizations in 2016. taken into account for this item are passenger service Payments to government components, maintenance facilities and services, All local, municipal and sales taxes, and ordinary income depreciations and amortizations, property rental, aircraft tax, are included in the payments made to government, and building rental, facilitation payments to ground, flight which totaled USD 88.1 million in 2016. and air traffic operators, marketing and sales, and general Economic value withheld and administrative. At the end of the January 1 to December 31, 2016 fiscal year, the total economic value withheld was USD 355.1 million.

32 This figure excludes from payments processed those relating to debt, salaries and benefits, customer service matters, commission on sales and payments between companies in the group (inter-company).

2016 Management Report• Avianca Holdings S.A. 147 Prospects for 2017 and the future

In 2017, Avianca Holdings S.A. will continue to implement the customer-centered business plan. The aim of this is to improve the customer experience and increase productivity. The Company is concentrating on reinforcing hubs and key markets, and developing a world- class platform that is consistent with improving customer satisfaction. In addition, and in the context of a more stable macroeconomic climate in the region, it will continue promoting operational excellence and sustainable growth in all business units. In line with the above, Avianca Holdings S.A. continues to be committed to strengthening its capital structure, improving free cash flow generation and expanding future profitability, as well as creating value for all its stakeholders. The Company accordingly hereby presents its prospects for 2017. •EBIT (Earnings Before Interest and Taxes) operating margin between 6.0% and 8.0%. • 2017 estimates for the air industry in Latin America indicate that capacity, measured in ASK (available seats per kilometer flown), will grow by around 4.8% 32. Avianca Holdings S.A. estimates for its affiliated airlines that capacity, measured in ASK; will grow between 6.5% and 8.5% in the same period. • In line with the behavior of the domestic and international markets where Avianca Holdings S.A. operates through its subsidiaries, it is estimated that there will be an increase of between 4.0% and 6.0% in the number of passengers carried. • Finally, the load factor is expected to be between 80% and 82%.

148 2016 Management Report• Avianca Holdings S.A. Audited Financial Statements

2016 report by the Fiscal Auditor G4-17 (Financial statements) G4-9 (Sales, costs and debt)

Attached files : • Consolidated Financial Statements for Avianca Holdings S.A. and subsidiaries (at December 31, 2016 and 2015 and for the years ending December 31, 2016 and 2015).

2016 Management Report• Avianca Holdings S.A. 149 Certification

In our capacity as Avianca Holdings S.A. Legal Representative and Accountant

We hereby certify

That the individual and consolidated financial statements at December 31, 2016 contain no defects, imprecisions or errors that might prevent the true equity situation of, or operations by, the Company from being known

That the consolidated Avianca Holdings S.A. financial statements at December 31, 2016 coincide with the balances indicated for that date in the accounting records (accounting books) and the said records were produced in accordance with International Financial Reporting Standards (IFRS).

This certificate is issued on the eighth (8th) day of the month of March in the year 2017.

Hernán Rincón Edwin Novoa Duarte Legal Representative Accountant

150 2016 Management Report• Avianca Holdings S.A. GRI-G4 Content Index, Core Option

Our 2016 Management Report has been produced in accordance with Version G4 of the Global Reporting Initiative (GRI) guidelines, using the essential conformity - “core” - option.

GRI Aspect Basic Content Code Page Omission External Verification General Basic Content

Strategy Include a statement by the main person G4-1 2 and Analysis responsible for decisions in the organization (the person who holds the post of executive director, president, or similar) about the importance of sustainability to the organization and its strategy for approaching it.

Describe the principal effects, risks and G4-2 64 opportunities

Name of the organization G4-3 12 Profile Most important brands, products and services G4-4 12 of the organization Place where the organization’s central G4-5 12 headquarters is based

State the number of countries in which the G4-6 19 organization operates, and name countries where the organization conducts operations that are significant or specifically relevant to issues relating to sustainability that are dealt with in the report.

Describe the nature of the property regime G4-7 12 and its legal form

Indicate what markets are served (with G4-8 19 geographical breakdown, by sector and type of client and recipient).

Determine the size of the organization, G4-9 100, indicating: 149 * number of employees; * number of operations * net sales (for private sector organizations) or net income (for public sector organizations); * capitalization, broken down in terms of debt and equity (for private sector organizations); and * quantity of products or services offered.

2016 Management Report• Avianca Holdings S.A. 151 GRI Aspect Basic Content Code Page Omission External Verification General Basic Content

Profile a. Number of employees with contract of G4-10 98 of the employment, and sex. organization b. Number of fixed employees by type of contract and sex. c. Size of staff by employees, external workers and sex. d. Size of staff by region and sex. e. State whether a substantial part of the organization’s work is done by workers on their own initiative and recognized legally, or by persons who are neither employees nor external workers, like employees and workers. f. Report every significant change in worker numbers (for example, seasonal hiring in the tourist season or in the agricultural sector).

Percentage of employees covered by collective G4-11 100 agreements

G4-12 32 Describe the organization’s supply chain.

Report every significant change there has been G4-13 V51, 142 during the period subject matter of analysis in the organization’s size, structure, shareholding or supply chain. For example: changes in the location of operations or in the operations themselves, such as the opening or closure or expansion of facilities; changes in the capital structure and other operations, maintenance and alteration of capital (for private sector organizations); changes in the location of suppliers, the supply chain structure or the relationship with suppliers in matters like selection or terminating a contract.

152 2016 Management Report• Avianca Holdings S.A. GRI Aspect Basic Content Code Page Omission External Verification General Basic Content

Profile Indicate how the organization approaches the G4-14 64, 129 of the principle of precaution , if applicable. organization Draw up a list of the letters, principles or G4-15 40 other external initiatives of an economic, environmental and social nature that the organization subscribes to or has adopted.

Draw up a list of the associations (for example, G4-16 40 industrial associations) and national or international promotion organizations that the organization belongs to, and where: * it holds a post in the governance body; * it participates in projects or sits on committees; * it contributes significant funds, in addition to paying compulsory membership fees; * it considers that membership is a strategic decision.

G4-17 149 Material a. Draw up a list of entities that feature on aspects and the organization’s consolidated financial coverage statements and in other equivalent documents. b. State whether any of the entities that feature on the organization’s consolidated financial statements and in other equivalent documents do not appear in the report.

a. Describe the process that has been followed G4-18 76 for determining the content of the report and the coverage of each aspect. b. Explain how the organization has applied the report-writing principles for determining the content of the report.

Draw up a list of material aspects that were G4-19 76 identified during the process of defining the content of the report.

2016 Management Report• Avianca Holdings S.A. 153 GRI Aspect Basic Content Code Page Omission External Verification General Basic Content

Material a. State the coverage of each material aspect G4-20 76 aspects and within the organization. Do this in the following coverage manner:

* State whether the aspect is a material one in the organization. * If the aspect is not material for all entities in the organization (as described in section G4- 17), choose one of the following approaches and provide: - a list of entities or groups of entities included in section G4-17 that do not consider the aspect in question to be material; or - a list of entities or groups of entities included in section G4-17 that do consider the aspect in question to be material .

a. State the limit of each material aspect G4-21 76 outside the organization. Do this in the following manner: * State whether the aspect is material outside the organization. * If the aspect is material outside the organization, state what entities, groups of entities or elements consider it to be. Also describe places where the aspect in question is material for the entities. * State any concrete limitation that affects the coverage of each aspect outside the organization.

Describe the consequences of restating of G4-22 76 information from previous reports, and the causes.

154 2016 Management Report• Avianca Holdings S.A. GRI Aspect Basic Content Code Page Omission External Verification General Basic Content

Material State every significant change in the scope G4-23 8, 76 aspects and and coverage of each aspect with respect to coverage previous reports.

G4-24 74 Stakeholders Draw up a list of stakeholders associated with participation the organization

State the basis on which the stakeholders G4-25 74 worked with are chosen.

Describe the organization’s approach to G4-26 74 stakeholders participation; for example, the frequency of cooperation with the different types and groups of interested parties that are worked with, or state if a particular group’s participation was specifically in the process of drawing up the report.

State what key problems and questions have G4-27 74 arisen because of stakeholders participation, and describe the evaluation carried out by the organization, among other aspects through this report. Specify what stakeholders proposed each of the key problems and subjects.

Report profile Period subject matter of the report (for G4-28 8 example, fiscal year or calendar year).

Date of last report (if applicable). G4-29 9

Report presentation cycle (annual, biannual, G4-30 8 etc.)

Provide a contact point for resolving queries G4-31 9 that might arise about the content of the report.

2016 Management Report• Avianca Holdings S.A. 155 GRI Aspect Basic Content Code Page Omission External Verification General Basic Content

Report profile a. State what “conformity” option with the G4-32 8 Guide the organization has chosen. b. Provide the GRI Index for the option chosen (see the following tables) c. Provide reference to the external Verification Report, if any. GRI recommends external verification, although it is not obligatory for the report to be in “conformity” with the Guide.

a. Describe the organization’s current practices and policy with respect to external G4-33 8 verification of the report. b. If not mentioned in the verification report attached to the sustainability report, state the scope and justification of the external verification. c. Describe the relationship between the organization and the suppliers of the verification. d. State whether the supreme governance body or top management have taken part in the request for external verification of the organization’s sustainability report.

Corporate Describe the organization’s governance G4-34 51 governance structure, not forgetting supreme governance body committees. State what committees are responsible for making decisions on economic, environmental and social questions.

Describe the process whereby the supreme G4-35 58 governance body delegates its authority to top management and certain employees for questions of an economic, environmental and social nature.

156 2016 Management Report• Avianca Holdings S.A. GRI Aspect Basic Content Code Page Omission External Verification General Basic Content

Corporate Describe the make-up of the supreme G4-38 56 governance governance body and its committees: * executive and non-executive; * independence; * seniority in governance body; * number of other significant posts and activities, and the nature of such activities; * sex; * members of social groups with insufficient representation; * powers relating to economic, environmental and asocial effects; * stakeholders representation.

State whether the person who chairs the G4-39 62 supreme governance body also holds and executive post. If so, describe his/her executive functions and the reasons for this provision.

Describe the processes for appointing and G4-40 60 selecting the supreme governance body and its committees, and the criteria on which the appointment and selection of the former are based, including: * whether diversity is taken into account, and how; * whether independence is taken into account, and how; * whether specialized knowledge of and experience in economic, environmental and social matters are taken into account, and how; * whether stakeholders(including shareholders) are taken into account, and how.

2016 Management Report• Avianca Holdings S.A. 157 GRI Aspect Basic Content Code Page Omission External Verification General Basic Content

Corporate Describe the processes whereby the G4-41 63 governance supreme governance body prevents and handles possible conflicts of interest. State whether interested parties are informed of conflicts of interest. State at least the following; * membership of different boards; * shareholdings of suppliers and other stakeholders; * whether there is a controlling shareholder; * information that is divulged about related parties.

Describe the functions of the supreme G4-42 36, 58, governance body and top management in 62 the development, approval and updating of the purpose, mission values or declarations, strategies, policies and objectives relating to the organization’s economic, environmental and social impacts.

a. Describe the function of the supreme G4-45 58 governance body in identifying and managing impacts, risks and opportunities of an economic, environmental and social nature. Also state what role the supreme governance body plays in applying due diligence processes. b. State whether stakeholders are consulted in the course of the work done by the supreme governance body in identifying and managing impacts, risks and opportunities of an economic, environmental and social nature.

158 2016 Management Report• Avianca Holdings S.A. GRI Aspect Basic Content Code Page Omission External Verification General Basic Content

Corporate Describe the process for transmitting G4-49 74, 52 governance important concerns to the supreme governance body.

Ethics and Describe the organization’s values, principles G4-56 37 integrity and standards, such as codes of conduct or ethical standards.

Describe internal and external mechanisms G4-58 64 for reporting unethical or illicit conduct and matters relating to the integrity of the organization, such as scaled notification to director level, mechanisms for reporting irregularities or help lines.

Specific Basic Content CATEGORY: ECONOMICS

Economic G4-DMA: (Management approach to material 146 performance aspect)

Direct economic value G4-EC1 146 generated and distributed

Acquisition G4-DMA: (Management approach to material 142 practices aspect)

Percentage of expenditure G4-EC9 145 in places with significant operations that corresponds to local suppliers. Including information about supply practices/policy and development of local suppliers.

2016 Management Report• Avianca Holdings S.A. 159 GRI Aspect Basic Content Code Page Omission External Verification Specific Basic Content CATEGORY: ENVIRONMENT

Energy G4-DMA: (Management approach to material 131 aspect)

Internal energy consumption G4-EN3 135

G4-DMA: (Management approach to material 140 aspect)

Water Total water catchment by source G4-EN8 140

CATEGORY: SOCIAL PERFORMANCE SUB-CATEGORY: DIGNIFIED WORK AND LABOR PRACTICES

Employment G4-DMA: (Management approach to material 98 aspect)

Total number and rate of personnel hired G4-LA1 100 and mean job rotation, broken down by age group, sex and region, including specific details of local employment and local employee training.

Social benefits for full-time employees that G4-LA2 100 are not offered to temporary or part-time ones, broken down by significant activity locations.

Health G4-DMA: (Management approach to material 106 and safety aspect) at work

Percentage of workers G4-LA5 116 represented on formal joint management and employee health and safety committees set up to help control and advise on health and safety at work programs.

160 2016 Management Report• Avianca Holdings S.A. GRI Aspect Basic Content Code Page Omission External Verification CATEGORY: SOCIAL PERFORMANCE SUB-CATEGORY: DIGNIFIED WORK AND LABOR PRACTICES

Health Type and rate of injuries, professional G4-LA6 115 and safety illnesses, days lost, absenteeism and at work number of mortal victims related to the work, by region and sex.

Workers who have a high rate or risk of G4-LA7 115 illness because of their profession.

Training G4-DMA: (Management approach to 103 and education material aspect)

Average hours training per year per G4-LA9 103 employee, broken down by sex and job category.

Percentage of employees who receive G4-LA11 104 regular professional development performance evaluations, broken down by sex and professional category.

G4-DMA: (Management approach to 98 material aspect)

Diversity Governance body make-up and breakdown G4-LA12 49 and equal by professional category and sex, age, opportunities belonging or not to minority group and other diversity indicators

SUB-CATEGORY: HUMAN RIGHTS

Investment G4-DMA: (Management approach to 145 material aspect)

Real and potential significant negative G4-HR11 145 impacts in terms of human rights in the supply chain, and measures adopted.

SUB-CATEGORY: SOCIETY

Local G4-DMA: (Management approach to 118 communities material aspect)

Percentage of operations where G4-SO1 118 development programs, impact evaluations and local community participation have been implemented.

2016 Management Report• Avianca Holdings S.A. 161 GRI Aspect Basic Content Code Page Omission External Verification SUB-CATEGORY: SOCIETY

Fight against G4-DMA: (Management approach to 64 corruption material aspect)

Communication and training policies and G4-SO4 69 procedures relating to the fight against corruption.

SUB-CATEGORY: RESPONSIBILITY WITH RESPECT TO PRODUCTS

Customer G4-DMA: (Management approach to 80 health and material aspect) safety

Percentage of significant product G4-PR1 80, categories and services where health and 85 safety impacts have been evaluated in order to promote improvements

Labeling of G4-DMA: (Management approach to 86 products and material aspect) services

Results of customer satisfaction surveys G4-PR5 93

162 2016 Management Report• Avianca Holdings S.A. Attachments

Informe de gestión 2016 • Avianca Holdings S.A. 163 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Consolidated Financial Statements As of December 31, 2016 and 2015 and for each of the years in the three–year period ended December 31, 2016, 2015 and 2014 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Index

Report of Independent Registered Public Accounting Firm...... 3 Consolidated Statement of Financial Position ...... 5 Consolidated Statement of Comprehensive Income ...... 7 Consolidated Statement of Changes in Equity...... 9 Consolidated Statement of Cash Flows ...... 10 Notes to the Consolidated Financial Statements...... 12

[Note: Add audit and internal control reports]

4 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Consolidated Statement of Financial Position (In USD thousands)

As of As of December 31, December 31, Notes 2016 2015

Assets Current assets: Cash and cash equivalents 7 $ 375,753 $ 479,381 Restricted cash 7 5,371 5,397 Accounts receivable, net of provision for doubtful accounts 8 313,868 279,620 Accounts receivable from related parties 9 19,283 23,073 Expendable spare parts and supplies, net of provision for obsolescence 10 82,362 68,768 Prepaid expenses 11 59,725 45,708 Assets held for sale — 3,323 Deposits and other assets 12 160,124 130,724 Total current assets 1,016,486 1,035,994 Non–current assets: Available–for–sale securities 6 76 793 Deposits and other assets 12 174,033 246,486 Accounts receivable, net of provision for doubtful accounts 8 92,048 59,713 Intangible assets 14 412,918 413,766 Deferred tax assets 30 5,845 5,847 Property and equipment, net 13 4,649,929 4,599,346 Total non–current assets 5,334,849 5,325,951 Total assets $ 6,351,335 $ 6,361,945

See accompanying notes to Consolidated Financial Statements

5 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Consolidated Statement of Financial Position (In USD thousands)

As of As of December 31, December 31, Notes 2016 2015

Liabilities and equity Current liabilities: Current portion of long–term debt 16 $ 406,739 $ 412,884 Accounts payable 17 493,106 480,592 Accounts payable to related parties 9 9,072 9,449 Accrued expenses 18 138,797 118,192 Provisions for legal claims 31 18,516 13,386 Provisions for return conditions 19 53,116 52,636 Employee benefits 20 39,581 32,876 Air traffic liability 21 521,190 433,575 Other liabilities 22 11,085 12,691 Total current liabilities 1,691,202 1,566,281 Non–current liabilities: Long–term debt 16 2,867,496 3,060,110 Accounts payable 17 2,734 3,599 Provisions for return conditions 19 120,822 109,231 Employee benefits 20 115,569 127,720 Deferred tax liabilities 30 20,352 13,475 Air traffic liability 21 98,088 93,519 Other liabilities 22 14,811 15,375 Total non–current liabilities 3,239,872 3,423,029 Total liabilities 4,931,074 4,989,310 Equity: 24 Common stock 82,600 82,600 Preferred stock 42,023 42,023 Additional paid–in capital on common stock 234,567 234,567 Additional paid–in capital on preferred stock 469,273 469,273 Retained earnings 544,681 507,132 Revaluation and other reserves 27,365 18,394 Total equity attributable to the Company 1,400,509 1,353,989 Non–controlling interest 19,752 18,646 Total equity 1,420,261 1,372,635 Total liabilities and equity $ 6,351,335 $ 6,361,945

See accompanying notes to Consolidated Financial Statements

6 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Consolidated Statement of Comprehensive Income (In USD thousands, except per share data)

For the year ended December 31, Notes 2016 2015 2014

Operating revenue: Passenger 25 $ 3,285,217 $ 3,458,017 $ 3,862,721 Cargo and other 25 853,121 903,324 840,850 Total operating revenue 4,138,338 4,361,341 4,703,571 Operating expenses: Flight operations 58,381 58,069 56,695 Aircraft fuel 785,273 1,006,792 1,345,755 Ground operations 426,203 412,382 397,625 Aircraft rentals 32 314,493 317,505 299,220 Passenger services 151,718 149,292 154,464 Maintenance and repairs 260,703 309,719 268,894 Air traffic 218,965 202,980 206,151 Sales and marketing 545,318 612,775 605,674 General, administrative and other 187,560 176,195 165,172 Salaries, wages and benefits 661,708 666,084 725,793 Depreciation and amortization 13,14 269,546 230,732 198,660 Total operating expenses 3,879,868 4,142,525 4,424,103 Operating profit 258,470 218,816 279,468

Interest expense (172,630) (169,407) (133,989) Interest income 13,054 19,016 17,099 Derivative instruments 3,321 626 5,924 Foreign exchange (23,939) (177,529) 10,272

Profit (loss) before income tax 78,276 (108,478) 178,774

Income tax expense – current 30 (27,448) (17,280) (33,781) Income tax expense – deferred 30 (6,642) (13,748) (16,499) Total income tax expense (34,090) (31,028) (50,280)

Net profit (loss) for the year $ 44,186 $ (139,506) $ 128,494

Basic and diluted earnings (loss) per 15 share Common stock $ 0.04 $ (0.14) $ 0.13 Preferred stock $ 0.04 $ (0.14) $ 0.13 See accompanying notes to Consolidated Financial Statements.

7 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Consolidated Statement of Comprehensive Income (In USD thousands, except per share data)

For the year ended December 31, Notes 2016 2015 2014

Net profit (loss) for the year $ 44,186 $ (139,506) $ 128,494 Other comprehensive income (loss): Items that will not be reclassified to profit or loss in future periods: Revaluation of administrative property 13 8,971 (6,156) (4,307) Actuarial gains 20 4,094 541 16,439 Income tax 30 4,289 3,410 (2,239) 17,354 (2,205) 9,893 Items that will be reclassified to profit or loss in future periods: Effective portion of changes in fair value of hedging instruments 24 21,712 77,308 (113,249) Net change in fair value of available–for– sale securities 24 (245) 3,098 (1,527) Income tax 30 (3,558) (13,358) 14,819 17,909 67,048 (99,957) Other comprehensive income (loss), net of income tax 35,263 64,843 (90,064) Total comprehensive income (loss) net of income tax $ 79,449 $ (74,663) $ 38,430

Profit (loss) attributable to: Equity holders of the parent $ 16,980 $ (155,388) $ 129,270 Non–controlling interest 27,206 15,882 (776) Net profit (loss) $ 44,186 $ (139,506) $ 128,494

Total comprehensive income (loss) attributable to: Equity holders of the parent $ 52,243 $ (90,545) $ 39,206 Non–controlling interest 27,206 15,882 (776) Total comprehensive income (loss) $ 79,449 $ (74,663) $ 38,430

See accompanying notes to Consolidated Financial Statements.

8 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Consolidated Statement of Changes in Equity (In USD thousands, except share and per share data)

Additional paid–in Retained Equity Common stock Preferred stock capital Revaluation earnings attributable to Non– Common Preferred and other and OCI equity holders controlling Total Notes Shares Amount Shares Amount stock stock reserves reserves of the parent interest equity Balance at January 1, 2014 665,800,003 $ 83,225 331,187,285 $ 41,398 $ 236,342 $ 467,498 $ 28,857 $ 351,102 $ 1,208,422 $ 6,324 $ 1,214,746 Net profit — — — — — — — 129,270 129,270 (776) 128,494 Other comprehensive income for the period 24 — — — — — — (4,307) (85,757) (90,064) — (90,064) Dividends paid 24 — — — — — — — (38,944) (38,944) — (38,944) Increase in non–controlling interest 24 — — — — — — — — — 2,515 2,515 Conversion of common stock to preferred stock 24 (5,000,000) (625) 5,000,000 625 (1,775) 1,775 — — — — — Balance at December 31, 2014 660,800,003 $ 82,600 336,187,285 $ 42,023 $ 234,567 $ 469,273 $ 24,550 $ 355,671 $ 1,208,684 $ 8,063 $ 1,216,747 Net loss — — — — — — — (155,388) (155,388) 15,882 (139,506) Other comprehensive income for the period 24 — — — — — — (6,156) 70,999 64,843 — 64,843 Dividends paid 24 — — — — — — — (67,088) (67,088) (3,750) (70,838) Sale of minority shareholding 24 — — — — — — — 302,938 302,938 (1,549) 301,389 Balance at December 31, 2015 660,800,003 $ 82,600 336,187,285 $ 42,023 $ 234,567 $ 469,273 $ 18,394 $ 507,132 $ 1,353,989 $ 18,646 $ 1,372,635 Net profit — — — — — — — 16,980 16,980 27,206 44,186 Other comprehensive income for the period 24 — — — — — — 8,971 26,292 35,263 — 35,263 Dividends paid 24 — — — — — — — (5,723) (5,723) (26,100) (31,823) Balance at December 31, 2016 660,800,003 $ 82,600 336,187,285 $ 42,023 $ 234,567 $ 469,273 $ 27,365 $ 544,681 $ 1,400,509 $ 19,752 $ 1,420,261

See accompanying notes to Consolidated Financial Statements.

9 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Consolidated Statement of Cash Flows (In USD thousands)

For the year ended December 31, 2016 2015 2014

Cash flows from operating activities: Net profit (loss) for the year $ 44,186 $ (139,506) $ 128,494 Adjustments for: Depreciation and amortization 269,546 230,732 198,660 Share–based payment loss (income) 1,111 (1,121) (2,540) Loss on disposal of assets 10,256 8,670 (6,528) Fair value adjustment of financial instruments (4,290) 5,327 (4,616) Interest income (13,054) (19,016) (17,099) Interest expense 172,630 169,407 133,989 Deferred tax 6,642 13,748 16,499 Current tax 27,448 17,280 33,781 Currency translation adjustment 23,939 177,529 (10,272) Changes in: Accounts receivable (62,550) (39,043) (151,391) Expendable spare parts and supplies (13,593) (3,154) (12,456) Prepaid expenses (14,017) 10,357 (9,321) Deposits and other assets 28,050 181 (67,849) Accounts payable and accrued expenses 40,217 (25,969) 73,755 Air traffic liability 89,187 (23,879) (17,554) Provision for return conditions 11,387 32,217 42,786 Employee benefits (8,929) (11,996) (27,878) Income tax paid (40,212) (38,762) (43,330) Net cash provided by operating activities 567,954 363,002 257,130 Cash flows from investing activities: Available–for–sale securities 170 7,043  Restricted cash 7,422 (10,815) 21,551 Interest received 8,606 9,009 13,384 Advance payments on aircraft purchase contracts (78,523) (220,920) (169,284) Acquisition of property and equipment (210,772) (156,655) (130,313)

10 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Consolidated Statement of Cash Flows (In USD thousands)

For the year ended December 31, 2016 2015 2014 Redemption (Investment in) of investment in certificates of bank deposits $ 32,709 $ (32,087) $ (9,248) Acquisition of intangible assets (21,660) (16,856) (29,682) Net cash flow on acquisition of subsidiary   (9,968) Proceeds from sale of property and equipment 143,362 90,625 65,985 Proceeds from sale of investments 296 165 686 Net cash used in investing activities (118,390) (330,491) (246,889) Cash flows from financing activities: Proceeds from loans and borrowings 35,034 451,973 231,510 Proceeds from issuance of bonds   250,000 Repayments of loans and borrowings (394,939) (515,927) (365,605) Dividends paid (31,823) (70,838) (38,944) Increase in non–controlling interest   2,000 Interest paid (158,741) (148,518) (131,781) Sale of minority shareholding  301,389  Net cash (used in) provided by financing activities (550,469) 18,079 (52,820) Net (decrease) increase in cash and cash equivalents (100,905) 50,590 (42,579) Net foreign exchange difference (2,723) (212,100) (52,107) Cash and cash equivalents at beginning of year 479,381 640,891 735,577 Cash and cash equivalents at end of year $ 375,753 $ 479,381 $ 640,891

See accompanying notes to Consolidated Financial Statements.

11 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(1) Reporting entity Avianca Holdings S.A. (the “Company” or “Avianca Holdings S.A.”), a Panamanian corporation whose registered address is at Calle Aquilino de la Guardia No. 8 IGRA Building, Panama City, Republic of Panama, was incorporated on October 5, 2009 under the name SK Holdings Limited and under the laws of the Commonwealth of the Bahamas. Subsequently, the Company changed its corporate name as follows on March 10, 2010 to AviancaTaca Limited, on January 28, 2011 to AviancaTaca Holding, S.A and on March 3, 2011 changed its registered offices to Panama. In 2011 AviancaTaca listed its shares in the Bolsa de Valores de Colombia (“BVC”) and was listed as PFAVTA: CB. On March 21, 2013 the Company changed its legal name from AviancaTaca Holding S.A. to Avianca Holdings S.A. and its listing name to PFAVH: CB. On November 6, 2013, the Company listed its shares on the New York Stock Exchange (NYSE) and is listed as AVH. The Company through its subsidiaries is a provider of domestic and international, passenger and cargo air transportation, both in the domestic markets of Colombia, Ecuador, Costa Rica, Nicaragua and Peru and international routes serving North, Central and South America, Europe, and the Caribbean. The Company has entered into a number of bilateral code share alliances with other airlines (whereby selected seats on one carrier’s flights can be marketed under the brand name and commercial code of the other), expanding travel choices to customers worldwide. Marketing alliances typically include: joint frequent flyer program participation; coordination of reservations, ticketing, passenger check-in and baggage handling and transfer of passenger and baggage at any point of connectivity, among others. The code share agreements include Air Canada, United Airlines, Aeromexico, All Nippon Airways, , Satena, OceanAir Linhas Aéreas, S.A., Iberia, Lufthansa, Eva Airways, , TAME, Silver Airways and Turkish Airlines. Avianca and Taca International (as well as Taca affiliates) and Aerogal are members of Star Alliance which give customers access to the routes, destinations and services of the Star Alliance network. Cargo operations are carried out by our subsidiaries and affiliates, including Tampa Cargo S.A.S. The Company also undertakes cargo operations through the use of hold space on passenger flights and dedicated freight aircraft. In certain of the airport hubs, the Company performs ground operations for third-party airlines. The Company operates a coalition loyalty program, including the frequent flyer program for the airline subsidiaries of Avianca Holdings S.A. named LifeMiles. Lifemiles is designed to retain customers and increase loyalty by offering incentives, among others, to passengers traveling on the participating airline partners for their continued preference. Under the LifeMiles program, customers earns miles by flying through its air partners, including Star Alliance and by using the services of non–air program partners such as credit cards, hotels, car rentals and other. The miles earned can be exchanged for flights other partners’ products or services. Customers may redeem their awards through airline members of Star Alliance, which give customers of the Company access to the routes, destinations and services of the Star Alliance network.

12 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

As of December 31, 2016 and 2015, Avianca Holdings S.A. had a total fleet consisting of: 2016 2015 Aircraft Owned/ Operating Total Owned/ Operating Total Financial Lease Financial Lease Lease Lease Airbus A-318 — 10 10 — 10 10 Airbus A-319 23 7 30 22 13 35 Airbus A-320 34 28 62 34 27 61 Airbus A-321 5 6 11 5 7 12 Airbus A300F-B4F 5 — 5 4 — 4 Airbus A-330 1 8 9 1 8 9 Airbus A330F 6 — 6 6 — 6 Boeing 787 6 4 10 5 2 7 Boeing 767F 2 — 2 2 — 2 Cessna Grand Caravan 13 — 13 11 — 11 Embraer E-190 10 2 12 10 2 12 Fokker 100 — — — 3 — 3 ATR 42 2 — 2 4 — 4 ATR 72 15 — 15 15 — 15 122 65 187 122 69 191

(2) Basis of preparation (a) Statement of compliance The Consolidated Financial Statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Consolidated Financial Statements of the Company were authorized for issue by the Board of Directors on February 21, 2017. (b) Basis of measurement The Consolidated Financial Statements have been prepared on the historical cost basis, except certain assets and liabilities, which are measured at fair value, as set out in the specific accounting policy for such assets and liabilities.

13 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(c) Functional and presentation currency These Consolidated Financial Statements are presented in US Dollars, which is the Company’s functional currency. All financial information presented has been rounded to the nearest thousands, except when otherwise indicated. (d) Use of estimates and judgments The preparation of the Consolidated Financial Statements in conformity with IFRS requires management to make judgments, 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 recognized in the period in which the estimates are revised and in any future periods affected. The following are critical judgments used in applying accounting policies that may have the most significant effect on the amounts recognized in the Consolidated Financial Statements: . The Company has entered into operating lease contracts with respect to 65 aircraft. The Company has determined, based on the terms and conditions of the arrangements, that the significant risks and rewards of ownership of all these leased aircraft have not been transferred from the lessor, so it accounts for these lease contracts as operating leases. . The Company recognizes revenue from tickets that are expected to expire unused based on historical data and experience. Defining expected breakage requires management to make informed estimates about, among other things, the extent to which historical experience is an indication of the future customer behavior. Annually, or more frequently as the experience data suggests, management reassesses the historical data and makes required adjustments. . The Company operates certain aircraft under a financing structure which involves the creation of structured entities that acquire aircraft with bank and third–party financing. This relates to 70 aircraft from the A320, A330, ATR and B787 families. The Company has determined, based on the terms and conditions of the arrangements, that the Company controls these special purpose entities (“SPE”) and therefore, SPEs are consolidated by the Company and these aircraft are shown in the Consolidated Statement of Financial Position as part of Property and Equipment with the corresponding debt shown as a liability.

14 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The following assumptions and estimation uncertainties may have the most significant effect on the amounts recognized in the Consolidated Financial Statements within the next financial year: . The Company believes that the tax positions taken are reasonable. However, tax authorities by audits proceedings may challenge the positions taken resulting in additional liabilities for taxes and interest that may become payable in future years. Tax positions involve careful judgment on the part of management and are reviewed and adjusted to account for changes in circumstances, such as lapse of applicable statutes of limitations, conclusions of tax audits, additional exposures derived from new legal issues or court decisions on a particular tax matter. The Company establishes provisions, based on their estimation on feasibility of a negative decision derived from an audit proceeding by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and different interpretations of tax regulations by the taxable entity and the responsible tax authority. Actual results could differ from estimates. . Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized and the tax rates used, based upon the likely timing and the level of future taxable profits together with future tax planning strategies, and the enacted tax rates in the jurisdictions in which the entity operates. . The Company measures administrative land and buildings primarily in , Medellín, San Jose, and San Salvador at revalued amounts with changes in fair value being recognized in other comprehensive income. The Company engaged independent valuation specialists to determine the fair value of these assets as of December 31, 2016 and 2015. The valuation techniques used by these specialists require estimates about market conditions at the time of the report. . The Company assesses whether there are any indicators of impairment for all non–financial assets at each reporting date. Flight equipment, goodwill and indefinite–lived intangible assets are tested for impairment annually and at other times when such indicators exist. Impairment analysis requires the Company to estimate the value in use of the cash generating units to which goodwill is assigned. . The cost of defined benefit pension plans and other post–employment medical benefits and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long–term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

15 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

In determining the appropriate discount rate for pension plans in Colombia, management refers to market yields on Colombian Government bonds, since it is management’s judgment that there is no deep local market for high quality corporate bonds. The mortality rate is based on publicly available mortality tables in Colombia. Future salary increases and pension increases are based on expected future inflation rates in Colombia. . The Company estimates the fair value of miles awarded under the LifeMiles program by applying statistical techniques. Inputs to the models include making assumptions about expected redemption rates, the mix of products that will be available for redemption in the future and customer preferences. Breakage represents the sale of miles that are expected to expire unused based on historical data and experience. Breakage is estimated by management based on the terms and conditions of membership and historical accumulation and redemption patterns. . Aircraft lease contracts establish certain conditions in which aircraft shall be returned to the lessor at the end of the contracts. To comply with return conditions, the Company incurs costs such as the payment to the lessor of a rate in accordance with the use of components through the term of the lease contract, payment of maintenance deposits to the lessor, or overhaul costs of components. In certain contracts, if the asset is returned in a better maintenance condition than the condition at which the asset was originally delivered, the Company is entitled to receive compensation from the lessor. The Company accrues a provision to comply with return conditions at the time the asset does not meet the return condition criteria based on the conditions of each lease contract. The recognition of return conditions require management to make estimates of the costs of return conditions and use inputs such as hours or cycles flown of major components, estimated hours or cycles at redelivery of major components, projected overhaul costs and overhaul dates of major components. At redelivery of aircraft, any difference between the provision recorded and actual costs is recognized in the Consolidated Statement of Comprehensive Income.

(3) Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these Consolidated Financial Statements, and have been applied consistently by all the Company’s entities.

16 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(a) Basis of consolidation Subsidiaries are entities controlled by Avianca Holdings S.A. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases. Control is established after assessing the Company’s ability to direct the relevant activities of the investee, its exposure and rights to variable returns, and its ability to use its power to affect the amount of the investee’s returns. The accounting policies of subsidiaries have been aligned when necessary with the policies adopted by the Company. The following are the significant subsidiaries included within these financial statements:

Ownership Country of Name of Subsidiary Interest% Incorporation 2016 2015 Aerolíneas Galápagos, S.A. Aerogal Ecuador 99.62% 99.62% Aerovías del Continente Americano S.A. Colombia 99.98% 99.98% Avianca, Inc. USA 100% 100% Avianca Leasing, LLC USA 0% 0% Grupo Taca Holdings Limited Bahamas 100% 100% Latin Airways Corp. Panama 100% 100% LifeMiles B.V. Curaçao 70% 70% Líneas Aéreas Costarricenses, S.A. Costa Rica 92.40% 92.40% Taca International Airlines, S.A. El Salvador 96.84% 96.84% Tampa Cargo Logistics, Inc. USA 99.98% 99.98% Tampa Cargo S.A.S. Colombia 99.98% 99.98% Technical and Training Services, S.A. de C.V. El Salvador 99% 99% Trans American Airlines S.A. Peru 100% 100% Vu–Marsat S.A. Costa Rica 100% 100%

On April 19, 2013, Avianca Leasing, LLC was formed as a limited liability Company in the State of Delaware, United States. On May 10, 2013, Avianca Holdings S.A. completed a $300,000 private offering of Senior Notes under Rule 144A and Regulation S under the U.S. Securities Act of 1933, as amended. Two subsidiaries of Avianca Holdings, Grupo Taca Holdings, Limited and Avianca Leasing, LLC, are jointly and severally liable under the Senior Notes as co–issuers. Avianca Leasing, LLC will not engage in any material business activity other than purchasing, leasing or otherwise acquiring and/or financing aircraft for use by Avianca, S.A. and its subsidiaries, the incurrence of obligations in connection therewith, including the notes, and activities incidental or ancillary thereto. Avianca S.A. is the sole member of Avianca Leasing, LLC. Therefore, the Company has consolidated the entity in accordance with IFRS 10.

17 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

On October 21, 2014, Avianca Holdings S.A. indirectly acquired 25% of the voting rights as well as 92.72% of the economic rights in the Mexican airfreight carrier Aero Transporte de Carga Unión, S.A. de C.V. (“Aerounion”). The Consolidated Financial Statements also include 54 special purpose entities that relate primarily to the Company’s aircraft leasing activities. These special purpose entities are created in order to facilitate financing of aircraft with each SPE holding a single aircraft or asset. In addition the Consolidated Financial Statements includes 100 entities that are mainly investment vehicles, personnel employers and service providers within the consolidated entities. The Company has consolidated these entities in accordance with IFRS 10. (b) Transactions eliminated on consolidation Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the Consolidated Financial Statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. (c) Foreign currency Foreign currency transactions These Consolidated Financial Statements are presented in US dollars, which is the Company’s functional currency. Transactions in foreign currencies are initially recorded in the functional currency at the respective spot rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the spot rate of exchange ruling at the reporting date. All differences are taken to profit or loss. Non–monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non–monetary items measured at a revalued amount in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Foreign operations Assets and liabilities of foreign operations included in the Consolidated Statement of Financial Position are translated using the closing exchange rate on the date of the Consolidated Statement of Financial Position. The revenues and expenses of each income statement account are translated at monthly average rates; and all the resultant exchange differences are shown as a separate component in other comprehensive income.

18 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(d) Business combinations Business combinations are accounted for using the acquisition method in accordance with IFRS 3 “Business Combinations”. The consideration for an acquisition is measured at acquisition date fair value of consideration transferred including the amount of any non–controlling interests in the acquiree. Acquisition costs are expensed as incurred and included in administrative expenses. When the Company acquires a business, it measures at fair value the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred to the seller, including the amount recognized for non–controlling interest over the fair value of identifiable assets acquired and liabilities assumed. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purposes of impairment testing, goodwill acquired is, from the acquisition date, allocated to each of the Company’s cash–generating units that are expected to benefit from the acquisition, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. (e) Revenue recognition In accordance with IAS 18, revenue is recognized to the extent that it is probable that economic benefits will flow to the Company and revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The following specific recognition criteria must also be met before revenue is recognized: (i) Passenger and cargo transportation The Company recognizes revenue from passenger and cargo transportation services as earned when the service is rendered. The Company is required to charge and collect certain taxes and fees on its passenger tickets. These taxes and fees include transportation taxes, airport passenger facility charges and arrival and departure taxes. These taxes and fees are legal assessments on the customer. As the Company has a legal obligation to act as a collection agent with respect to these taxes and fees, such amounts are not included within passenger revenue. The Company records a liability when the amounts are collected and derecognizes the liability when payments are made to the applicable government agency or operating carrier.

19 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

A significant portion of the ticket sales are processed through major credit card companies, resulting in accounts receivable which are generally short–term in duration and typically collected prior to the recognition of revenue. Credit risk associated with these receivables is minimal. Cargo is carried out in a dedicated freighter fleet and, to the extent of excess capacity, in the bellies of passenger aircraft. (ii) Aircraft operating leases Aircraft operating lease income is recognized as other revenue in the Consolidated Statement of Comprehensive Income when it is earned, according to the terms of each lease agreement. (iii) Frequent flyer The Company operates a frequent flyer loyalty program known as “LifeMiles” which is designed to retain and increase travelers’ loyalty by offering incentives to travelers for their continued patronage. Under the LifeMiles program, miles are earned by flying on the Company’s airlines or its alliance partners and by using the services of program partners for such things as credit card use, hotel stays, car rentals, and other activities. Miles are also directly sold through different distribution channels. Miles earned can be exchanged for flights or other products or services from alliance partners. The fair value of consideration in respect of initial sale is allocated between the miles and other components of the sale including breakage in accordance with IFRS Interpretations Committee 13 Customer loyalty programs. Revenue allocated to the reward credits is deferred within “Air traffic liability” (see Note 21) until redemption. Components other than the fair value of Gross Billings are immediately recognized within “Revenue”. These components correspond to an initial revenue recognition element, related to the marketing attributes of the miles sold. The amount of revenue deferred is measured by applying statistical techniques based on market approach using observable information in accordance with IFRS 13 “Fair Value Measurements”. Inputs to the models include assumptions based on management’s expected redemption rates and customer preferences. The amount of revenue recognized related to breakage is based on the number of miles redeemed in a period in relation to the total number expected to be redeemed. (f) Air traffic liability Passenger revenue is recognized when transportation is provided rather than when a ticket is sold. Revenue from the sale of passenger tickets that have not been used, or the amount of revenue attributable to the unused portion of a ticket sold, is deferred, and the respective amount is reflected as “Air traffic liability” in the Consolidated Statement of Financial Position. Air traffic liability also includes deferred revenue from loyalty program reward credits as described in note 3(e)(iii).

20 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Fares for unused tickets that are expected to expire are recognized as revenue based on historical data and experience. The Company performs periodic evaluations of this liability, and any resulting adjustments, which can be significant, are recorded in the Consolidated Statement of Comprehensive Income. These adjustments relate primarily to the differences arising from actual events and circumstances such as historical fare sale activity and customer travel patterns which may result in refunds, exchanges or forfeited tickets differing significantly from estimates. The Company evaluates its estimates and assumptions and adjusts air traffic liability and passenger revenues as necessary. (g) Income tax Income tax expense comprises current and deferred taxes and is accounted for in accordance with IAS 12 “Income Taxes”. (i) Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Company operates and generates taxable income. Current income tax relating to items recognized directly in equity or in other comprehensive income is recognized in the Consolidated Statement of Changes in Equity or Consolidated Statement of Comprehensive Income, respectively. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. (ii) Deferred income tax Deferred tax is recognized for temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognized to the extent that is probable that the temporary differences, the carry forward of unused tax credits and any unused tax losses can be utilized, except: . Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. . In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax laws enacted or substantively enacted at the reporting date.

21 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re– assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax relating to items recognized outside profit or loss is recognized in correlation to the underlying transaction either in OCI or directly in equity. 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 taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but the Company intends to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. (h) Property and equipment (i) Recognition and measurement Flight equipment, property and other equipment are measured at cost less accumulated depreciation and accumulated impairment losses in accordance with IAS 16 “Property, Plant and Equipment”. Property, operating equipment, and improvements that are being built or developed for future use by the Company are recorded at cost as under–construction assets. When under– construction assets are ready for use, the accumulated cost is reclassified to the respective property and equipment category. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Gain and losses on disposal of an item of flight equipment, property and equipment are determined by comparing the proceeds from disposal with the carrying amount. (ii) Subsequent costs The costs incurred for major maintenance of an aircraft’s fuselage and engines are capitalized and depreciated over the shorter period to the next scheduled maintenance or return of the asset. The depreciation rate is determined according to the asset’s expected useful life based on projected cycles and flight hours. Routine maintenance expenses of aircraft and engines are charged to income as incurred. (iii) Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

22 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Depreciation is recognized in the Consolidated Statement of Comprehensive Income on a straight–line basis over the estimated useful lives of flight equipment, property and other equipment, since this method most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Rotable spare parts for flight equipment are depreciated on the straight–line method, using rates that allocate the cost of these assets over the estimated useful life of the related aircraft. Land is not depreciated. Estimated useful lives are as follows:

Estimated useful life (years) Flight equipment: Short and medium–haul aircraft 2 – 25 Long–haul aircraft 25 – 30 Aircraft components and engines Useful life of fleet associated with component or engines Aircraft major repairs 4 – 12 Leasehold improvements Lesser of remaining lease term and estimated useful life of the leasehold improvement Property 20 – 50 Administrative buildings 20 – 50 Vehicles 2 – 10 Machinery and equipment 2 – 15 Residual values, amortization methods and useful lives of the assets are reviewed and adjusted, if appropriate, at each reporting date. The carrying value of flight equipment, property and other equipment is reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable and the carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The Company receives credits from manufacturers on acquisition of certain aircraft and engines that may be used for the payment of maintenance services, training, acquisition of spare parts and others. These credits are recorded as a reduction of the cost of acquisition of the related aircraft and engines and against other accounts receivable. These amounts are then charged to expense or recorded as an asset, when the credits are used to purchase additional goods or services. These credits are recorded within other liabilities in the Consolidated Statement of Financial Position when awarded by manufacturers.

23 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(iv) Revaluation and other reserves Administrative property in Bogota, El Salvador, and San Jose is recorded at fair value less accumulated depreciation on buildings and impairment losses recognized at the date of revaluation. Valuations are performed with sufficient frequency to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. A revaluation reserve is recorded in other comprehensive income and credited to the asset revaluation reserve in equity. However, to the extent that it reverses a revaluation deficit of the same asset previously recognized in profit or loss, the increase is recognized in profit and loss. A revaluation deficit is recognized in the income statement, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. (i) Leased assets Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases in accordance with IAS 17 “Leases”. 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. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in interest expense in the Consolidated Statement of Comprehensive Income. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognized as an operating expense in the Consolidated Statement of Comprehensive Income during the lease term. Gains or losses related to sale–leaseback transactions classified as an operating lease after the sale are accounted for as follows: (i) They are immediately recognized as other (expense) income when it is clear that the transaction is established at fair value; (ii) If the sale price is below fair value, any profit or loss is immediately recognized as other (expense) income, however, if the loss is compensated by future lease payments at below market price, it is deferred and amortized in proportion to the lease payments over the contractual lease term;

24 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(iii) In the event of the sale price is higher than the fair value of the asset, the value exceeding the fair value is deferred and amortized during the period when the asset is expected to be used. The amortization of the gain is recorded as a reduction in lease expenses. If the sale–leaseback transactions result in financial lease, any excess proceeds over the carrying amount shall be deferred and amortized over the lease term. During the years ended December 31, 2016, 2015 and 2014, the Company recognized net gains of $4,275, $2,894 and $602 related to sale–and–leaseback transactions, which are recognized in the Statement of Comprehensive Income. All sale-and-leaseback transactions resulted in operating leasebacks. (j) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets in accordance with IAS 23 “Borrowing Costs”. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. (k) Intangible assets Intangible assets acquired separately are initially measured at cost in accordance with IAS 38 “Intangible Assets”. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and the related expenditure is reflected in the Consolidated Statement of Comprehensive Income in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or in the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the Consolidated Statement of Comprehensive Income within depreciation and amortization. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash–generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

25 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Gains and losses arising from the de–recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Consolidated Statement of Comprehensive Income when the asset is derecognized. The Company’s intangible assets include the following: (i) Software Acquired computer software licenses are capitalized on the basis of cost incurred to acquire, implement and bring the software into use. Costs associated with maintaining computer software programs are expensed as incurred. In case of development or improvement to systems that will generate probable future economic benefits, the Company capitalizes software development costs, including directly attributable expenditures on materials, labor, and other direct costs. Acquired software cost is amortized on a straight-line basis over its useful life, with a maximum of five years. Licenses and software rights acquired by the Company have finite useful lives and are amortized on a straight–line basis over the term of the contract. Amortization expense is recognized in the Consolidated Statement of Comprehensive Income. (ii) Routes and trademarks Routes and trademarks are carried at cost, less any accumulated amortization and impairment. The useful life of intangible assets associated with routes and trademark rights are based on management’s assumptions of estimated future economic benefits. The intangible assets are amortized over their useful lives of between two and thirteen years. Certain routes and trademarks have indefinite useful lives and therefore are not amortized, but tested for impairment at least at the end of each reporting period. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. (iii) Contract–based intangible assets The useful life of intangible assets associated with contract rights and obligations is based on the term of the contract and are carried at cost, less accumulated amortization and related impairment.

26 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(l) Financial instruments – initial recognition and subsequent measurement (i) Financial assets Financial assets within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are classified into one of the following categories upon initial recognition: (a) financial assets at fair value through profit or loss, (b) loans and receivables, (c) held– to–maturity investments, (d) available–for–sale financial assets. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset. Subsequent measurement For purposes of subsequent measurement financial assets are classified in four categories: - Financial assets at fair value through profit or loss - Loans and receivables - Held–to–maturity investments - Available for sale financial assets Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Derivatives, including those designated as hedging instruments in hedge relationships are also classified as fair value through profit or loss except for the effective portion of cash flow hedges, which is recognized in OCI and later reclassified to profit or loss when the hedge item affects profit or loss. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which take place into account any dividend income, are recognized in the Consolidated Statement of Comprehensive Income as financial income or financial costs. The Company does not hold or issue derivative instruments for trading purposes, however, certain derivative contracts are not designated as hedges for accounting purposes. Such derivative instruments are designated as financial instruments at fair value through profit or loss.

27 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Loans and receivables Loans and receivables are non–derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition receivables are measured at amortized cost using the effective interest rate method, less a provision for impairment, if any. Loans and receivables comprise cash and cash equivalents, deposits and trade and other receivables. Held–to–maturity financial assets If the Company has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held–to–maturity. Held–to–maturity financial assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, held–to–maturity financial assets are measured at amortized cost using the effective interest method, less any impairment losses. Available–for–sale financial assets Available–for–sale financial assets are non–derivative financial assets that are designated as available–for–sale and that are not classified in any of the previous categories. The Company’s investments in equity securities and certain debt securities are classified as available–for–sale financial assets. Subsequent to initial recognition, such assets are measured at fair value and changes therein, other than impairment losses, are recognized in other comprehensive income and included within equity. When an investment is derecognized, the cumulative gain or loss in other comprehensive income is transferred to the Consolidated Statement of Comprehensive Income. (ii) Impairment of financial assets Financial assets carried at amortized cost For financial assets carried at amortized cost, the Company first assesses whether objective evidence of impairment exists either individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, the asset is grouped with other financial assets with similar credit risk characteristics and collectively assessed for impairment. Assets that are individually assessed for impairment are not included in a collective assessment of impairment.

28 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate (“EIR”). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the Consolidated Statement of Comprehensive Income. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for purpose of measuring the impairment loss. The interest income is recorded as part of financial income in the Consolidated Statement of Comprehensive Income. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed with the amount of the reversal recognized in the Consolidated Statement of Comprehensive Income. Available–for–sale financial assets Impairment losses on available–for–sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortization, and the current fair value, less any impairment loss recognized previously. Changes in cumulative impairment losses attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available–for–sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized, then the impairment loss is reversed, with the amount of the reversal recognized in the Consolidated Statement of Comprehensive Income. However, any subsequent recovery in the fair value of an impaired available–for–sale equity security is recognized in other comprehensive income. Derecognition A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: . The rights to receive cash flows from the asset have expired.

29 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

. The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass–through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass–through arrangement, and it has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of it, the asset is recognized to the extent of the Company’s continuing involvement in it. In that case, an associated liability is also recognized. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations which have been retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to be repay. (iii) Financial liabilities Financial liabilities within the scope of IAS 39 are measured at amortized cost using the effective interest method, except for liabilities classified as financial liabilities at fair value through profit or loss, loan commitments, and financial guarantee contracts. The Company determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value including directly attributable transaction costs. The Company’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowings, financial guarantee contracts, derivative financial instruments and finance lease obligations. Subsequent measurement Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the Consolidated Statement of Comprehensive Income.

30 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The Company has not designated any financial liabilities upon initial recognition as at fair value through profit or loss. Loans and borrowings carried at amortized cost After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the Consolidated Statement of Comprehensive Income when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in interest expense in the Consolidated Statement of Comprehensive Income. Derecognition A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the Consolidated Statement of Comprehensive Income. (i) Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. (ii) Fair value of financial instruments The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 29.

31 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in equity is transferred to the Consolidated Statement of Comprehensive Income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss. The Company uses forward currency contracts and cross currency swaps as hedges of its exposure to foreign currency risk in forecasted transactions and firm commitments, as well as forward commodity contracts for its exposure to volatility in the commodity prices. Refer to Note 27 for more details. Current versus non–current classification Derivative instruments that are not designated as effective hedging instruments are classified as current or non–current or separated into a current and non–current portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows). Where the Company will hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the reporting date, the derivative is classified as non–current (or separated into current and non–current portions) consistent with the classification of the underlying item. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. Derivative instruments that are designated as, and are effective hedging instruments, are classified consistently with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and a non–current portion only if a reliable allocation can be made. (n) Expendable spare parts and supplies Expendable spare parts relating to flight equipment are measured at the lower of average cost and net realizable value. Net realizable value is the estimated base stock cost reduced by the allowance for obsolescence.

33 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(o) Impairment of non–financial assets The Company assesses in accordance with IAS 36 “Impairment of Assets” 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 Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash–generating unit’s (“CGU”) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where 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. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, or other available fair value indicators. Impairment losses of continuing operations, including impairment on inventories, are recognized in the Consolidated Statement of Comprehensive Income in those expense categories consistent with the nature of the impaired asset, except for a property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognized in other comprehensive income up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s or cash–generating unit’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the income statement unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. The following criteria are also applied in assessing impairment of specific assets: Goodwill is tested for impairment annually as of the year end and when circumstances indicate that the carrying value of the cash generating unit to which it pertains may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each cash– generating unit (or group of cash–generating units) to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than their carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

34 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Management has considered the impact of greater than forecasted variations in relevant assumptions in assessing the CGU’s recoverable amount. As a result of the analysis performed a reasonably possible change in key assumptions would not cause the CGU’s carrying amount to exceed its recoverable amount. (p) Cash and cash equivalents Cash and cash equivalents in the Consolidated Statement of Financial Position comprise cash at banks and on hand and short–term deposits with original maturity of three months or less, which are subject to an insignificant risk of change in value. For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and short–term deposits as defined above, net of outstanding bank overdrafts, if any. (q) Maintenance deposits Maintenance deposits correspond to deposits paid to lessors based on cycles, flight hours, or fixed monthly amounts, depending on the specific nature of each provision. Rates used for the calculation and monthly amounts are specified in each lease agreement. The maintenance deposits paid to aircraft lessors are recorded within “Deposits and other assets” when they are susceptible for recovery, to the extent that such amounts are expected to be used to fund future maintenance activities. Deposits that are not probable of being used to fund future maintenance activities are expensed as incurred. The maintenance deposits refer to payments made by the Company to leasing companies to be used in future aircraft and engine maintenance work. Management performs regular reviews of the recovery of maintenance deposits and believes that the values reflected in the Consolidated Statement of Financial Position are recoverable. These deposits are used to pay for maintenance performed, and might be reimbursed to the Company after the execution of a quialifying maintenance service or when the leases are completed, according to the conditions agreed in each contract. Certain lease agreements establish that the existing deposits, in excess of maintenance costs are not refundable. Such excess occurs when the amounts used in future maintenance services are lower than the amounts deposited. Any excess amounts expected to be retained by the lessor upon the lease contract termination date, which are not considered material, are recognized as additional aircraft lease expense. Payments related to maintenance that the Company does not expect to perform are recognized when paid as additional rental expense. Some of the aircraft lease agreements do not require maintenance deposits.

35 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(r) Security deposits for aircraft and engines The Company must pay security deposits for certain aircraft and engine lease agreements. Reimbursable aircraft deposits are stated at cost. Deposits that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Such assets are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate. Deposits for guarantee and collateral for lease agreements Deposits for guarantee and collateral are represented by amounts deposited with lessors, as required at the inception of the lease agreements. The deposits are typically denominated in U.S. Dollars, do not bear interest and are reimbursable to the Company upon termination of the agreements. (s) Provisions A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is more likely than not that an outflow of economic benefits will be required to settle the obligation in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”. Provisions are set up for all legal claims related to lawsuits for which it is probable that an outflow of funds will be required to settle the legal claims obligation and a reasonable estimate can be made. The assessment of probability of loss includes assessing the available evidence, the hierarchy of laws, available case law, the most recent court decision and their relevance in the legal system, as well as the assessment of legal counsel. If the effect of the time value of money is material, provisions are discounted using a current pre– tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a financial cost. For certain operating leases, the Company is contractually obligated to return aircraft in a defined condition. The Company recognizes for restitution costs of the aircraft held under operating leases and accumulates them monthly during the term of the lease contract. Restitution costs are based on the net present value of the estimated average costs of returning the aircraft and are recognized in the Consolidated Statement of Comprehensive Income in “Maintenance and repairs.”

36 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(t) Employee benefits The Company sponsors defined benefit pension plans, which require contributions to be made to separately administered funds. The Company has also agreed to provide certain additional post– employment benefits to senior employees in Colombia. These benefits are unfunded. The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit cost method. Actuarial gains and losses for defined benefit plans are recognized in full in the period in which they occur in other comprehensive income. The defined benefit asset or liability comprises the present value of the defined benefit obligation (using a discount rate based on Colombian Government bonds), and less the fair value of plan assets out of which the obligations are to be settled. Plan assets are held by the Social Security Institute and private pension funds are not available to the creditors of the Company, nor can they be paid directly to the Company. Fair value is based on market price information and in the case of quoted securities on the published bid price. The value of any defined benefit asset recognized is restricted and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. Under IAS 19 (issued in June 2011 and amended in November 2013), the Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset) at the beginning of the annual period. It takes into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. The net interest on the net defined benefit liability (asset) comprises: - Interest income on plan assets. - Interest cost on the defined benefit obligation; and - Interest on the effect of the asset ceiling Additionally the Company offers the following employee benefits: (i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognized as an expense in the Consolidated Statement of Comprehensive Income when they are due. (ii) Termination benefits Termination benefits are recognized as an expense at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognizes any related restructuring costs.

37 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(u) Share based payments Since March 2012, the Company has operated a share based payments plan (the “Share Based Plan”) whereby eligible participants receive cash payments if certain market and non–market vesting conditions are met. The Company accounts for the Share Based Plan as a cash–settled share based payment in accordance with the provisions of IFRS 2 “Share–based payments”, whereby the Company accrues a liability at the end of each reporting period based on the estimated fair value of the awards expected to be redeemed, as determined using the Turnbull– Wakeman pricing model. (v) Prepaid expenses (i) Prepaid commissions Commissions paid for tickets sold are recorded as prepaid expenses and expensed when the tickets are used. (ii) Prepaid rent Prepaid rent for aircraft corresponds to prepaid contractual amounts that will be applied to future lease payments over a term of less than one year. (w) Interest income and interest expense Interest income comprises interest income on funds invested (including available–for–sale financial assets), changes in the fair value of financial assets at fair value through the Consolidated Statement of Comprehensive Income and gains on interest rate hedging instruments that are recognized in the Consolidated Statement of Comprehensive Income. Interest income is recognized as accrued in the Consolidated Statement of Comprehensive Income, using the effective interest rate method. Interest expense comprises interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through the Consolidated Statement of Comprehensive Income, and losses on interest rate hedging instruments that are recognized in the Consolidated Statement of Comprehensive Income. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in the Consolidated Statement of Comprehensive Income using the effective interest method.

(4) New and amended standards and interpretations

4.1 Amendments to IFRSs that are mandatorily effective for the current year We applied, for the first time certain standards and amendments, which are effective for annual periods beginning on or after January 1, 2016. The nature and the impact of each new standard or amendment is described below:

38 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Annual Improvements 2012-2014 Cycle These improvements are effective for annual periods beginning on or after January 1, 2016. They include: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Assets (or disposal groups) are generally disposed of either through sale or distribution to owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment must be applied prospectively. IFRS 7 Financial Instruments: Disclosures (i) Servicing contracts The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures would not need to be provided for any period beginning before the annual period in which the entity first applies the amendments. (ii) Applicability of the amendments to IFRS 7 to condensed interim financial statements The amendment clarifies that the offsetting disclosure requirements do not apply to Interim Condensed Consolidated Financial Statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment must be applied retrospectively. IAS 19 Employee Benefits The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment must be applied prospectively.

39 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Amendments to IAS 1 Disclosure Initiative The amendments to IAS 1 clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify: . The materiality requirements in IAS 1 . That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated . That entities have flexibility as to the order in which they present the notes to financial statements . That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments do not have any impact on the Group.

4.2 Standards issued but not yet effective The group has not applied the following new and revised IFRSs that have been issued but are not yet effective: IFRS 9 Financial Instruments (2) IFRS 15 Revenue from contracts with Customers (and the related clarifications) (2) IFRS 16 Leases (3) Amendments to IFRS 2- Classification and Measurement of share based payment transactions (2) Amendments to IFRS 10 and IAS 28 Sale or contribution of Assets between an Investor and its associate or joint venture (4) Amendment to IAS 7 Disclosure Initiative (1) Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses (1) (1) Effective for annual periods beginning on or after 1 January 2017, with earlier application permitted. (2) Effective for annual periods beginning on or after 1 January 2018, with earlier application permitted.

40 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(3) Effective for annual periods beginning on or after 1 January 2019, with earlier application permitted. (4) Effective for annual periods beginning on or after a date to be determined

IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for the financial instruments project: classification and measurement; impairment; and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required, but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group plans to adopt the new standard on the required effective date. The Group expects no significant impact on its balance sheet and equity, nevertheless the Company is analyzing the impact of this standard. IFRS 15 Revenue from contracts with customers This standard outlines the principles to be applied to measure and recognize revenue. The core principle is that the Company will recognize revenue for the value entitled to be recovered from its customers. The standard describes five steps for its implementation, such as the identification of the contract, the performance obligation in the contract, the transaction price, price allocation to performance obligations, and the recognition of revenue when the entity satisfies a performance obligation. Effective for annual periods beginning on or after January 1, 2018. The Company is analyzing the impact of this standard and plans to adopt on the required effective date. IFRS 16 Leases This standard requires that lessees recognize all leases in a similar way to finance leases under IAS 17 Leases. The standard includes two exceptions to this recognition, leases of assets (1) low value (e.g. personal computers) and (2) short-term contracts (less than 12 months). The lessor recognizes from the beginning of the lease, the asset that represents the right to use and the payments liability to be made. Meanwhile, the interest expense is recorded separately to depreciation. Recognition requirements for the lessor have no relevant changes compared to IAS 17.

41 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Some key metrics could be affected: EBIT, debt covenants, financial and debt indicators, as well as the presentation of cash flows, which would be presented as financing activities and not as operating activities. Effective date for annual periods beginning on or after January 1, 2019 onwards, early application is permitted, but not before applying IFRS 15 Revenue from contracts with customers. The Company is analyzing the impact of this standard and plans to adopt it on the required effective date. IFRS 2 Classification and Measurement of Share-based Payment Transactions — Amendments to IFRS 2 The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. The Group is assessing the potential effect of the amendments on its consolidated financial statements. IAS 7 Disclosure Initiative – Amendments to IAS 7 The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of the amendments will result in additional disclosures provided by the Group. IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12 The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

42 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in the opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. These amendments are effective for annual periods beginning on or after 1 January 2017 with early application permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. These amendments are not expected to have any impact on the Group.

(5) Segment information The Company reports information by segments as established in IFRS 8 “Operating segments”. For management purposes, the Company has two reportable segments, as follows: Air transportation: Corresponds to passenger and cargo operating revenues on scheduled flights and freight transport, respectively, including flights operated by other airlines under code-sharing agreements. Loyalty: Corresponds to the coalition loyalty program, the frequent flyer program for the airline subsidiaries of Avianca Holdings S.A. No operating segments have been aggregated to form the above reportable operating segments. Starting July 31, 2015, the Board of Directors has monitored the operating results of the Company’s business units separately for the purpose of making decisions about resource allocation and performance assessment.

43 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The Company’s revenues by business segment for the years ended December 31, 2016 are as follows:

For the year ended December 31, 2016 Air transportation Loyalty Eliminations Consolidated Revenue (1) External customers $ 3,898,271 $ 240,067 $  $ 4,138,338 Inter-segment 89,071 3,834 (92,905)  Total revenue 3,987,342 243,901 (92,905) 4,138,338

Cost of loyalty rewards 53,901 120,589 (78,785) 95,705 Operating expenses 3,509,122 19,617 (14,122) 3,514,617 Depreciation and amortization 269,534 12,789 (12,777) 269,546 Interest expense 172,381 249  172,630 Interest income (13,960) 906  (13,054) Derivative instruments (3,321)   (3,321) Foreign exchange 23,952 (13)  23,939 Income tax expense 32,384 1,706  34,090 Net (loss) profit for the period $ (56,651) $ 88,058 $ 12,779 $ 44,186

Total Assets $ 6,328,740 $ 227,382 $ (204,787) $ 6,351,335 Total Liabilities $ 4,842,190 $ 203,542 $ (114,658) $ 4,931,074

44 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The Company’s revenues by business segment for the years ended December 31, 2015 are as follows:

For the year ended December 31, 2015 Air transportation Loyalty Eliminations Consolidated Revenue (1) External customers $ 4,203,159 $ 158,182 $  $ 4,361,341 Inter-segment 161,006 41,894 (202,900)  Total revenue 4,364,165 200,076 (202,900) 4,361,341

Cost of loyalty rewards 121,166 102,632 (114,570) 109,228 Operating expenses 3,795,550 14,401 (7,386) 3,802,565 Depreciation and, amortization 230,732 8,077 (8,077) 230,732 Interest expense 171,132 50 (1,775) 169,407 Interest income (18,918) (1,873) 1,775 (19,016) Derivative instruments (626)   (626) Foreign exchange 177,518 11  177,529 Income tax expense 30,007 1,021  31,028 Net (loss) profit for the period $ (142,396) $ 75,757 $ (72,867) $ (139,506)

Total Assets $ 6,357,961 $ 203,280 $ (199,296) $ 6,361,945 Total Liabilities $ 4,904,681 $ 181,017 $ (96,388) $ 4,989,310 (1) Loyalty revenue for miles redeemed is allocated to passenger revenue and, other loyalty revenue is recorded in other revenue. The results, assets and liabilities allocated to the loyalty segment reportable correspond to those attributable directly to the subsidiary LifeMiles B.V., and exclude assets, liabilities, income and expenses of the loyalty program recognized by the Company’s Subsidiaries. Inter-segment revenues are eliminated upon consolidation and reflected in the “Eliminations” column.

45 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The Company’s revenues by geographic area for the years ended December 31, 2016, 2015 and 2014 are as follows: For the year ended December 31, 2016 2015 2014 North America $ 539,365 $ 653,452 $ 673,824 Central America and the Caribbean 442,841 592,947 528,683 Colombia 1,831,218 1,840,597 2,129,000 South America (ex–Colombia) 840,934 918,956 1,042,368 Other 483,980 355,389 329,696 Total operating revenue $ 4,138,338 $ 4,361,341 $ 4,703,571 The Company allocates revenues by geographic area based on the point of origin of the flight. Non–current assets are composed primarily of aircraft and aeronautical equipment, which are used throughout different countries and are therefore not assignable to any particular geographic area.

(6) Financial risk management The Company has exposure to different risks from its use of financial instruments, namely credit risk, liquidity risk, and market risk. This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these Consolidated Financial Statements. (a) Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board has established mechanisms for developing and monitoring the Company’s risk management policies. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. (b) Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment in securities. The Company is also exposed to credit risk from its financing activities, including deposits with banks and financial institutions, and foreign exchange transactions.

46 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with counterparties with which the Company has signed “International Swaps and Derivatives Association Master Agreements”. Given their high credit ratings, management does not expect any counterparty to fail to meet its contractual obligations. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the end of the reporting period is as follows: December 31, December 31, Notes 2016 2015 Available–for–sale securities 6g $ 76 $ 793 Accounts receivable, net of provision for doubtful accounts 8 405,916 339,333 Cash and cash equivalents 7 375,753 479,381 Current restricted cash 7 5,371 5,397 Non–current restricted cash 12  6,545 Fair value of derivative instruments–assets 12 26,337 972 Total $ 813,453 $ 832,421 (c) Receivables, net The Company’s exposure to credit risk is influenced by the individual characteristics of each customer. The demographics of the Company’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. Additionally, the Company is not exposed to significant concentrations of credit risk since most accounts receivable arise from sales of airline tickets to individuals through travel agencies in various countries, including virtual agencies and other airlines. These receivables are short term in nature and are generally settled shortly after the sales are made through major credit card companies. Cargo–related receivables present a higher credit risk than passenger sales given the nature of processing payment for these sales. The Company is continuing its implementation of measures to reduce this credit risk for example by reducing the payment terms and affiliating cargo agencies to the IATA Cargo Account Settlement Systems (“CASS”). CASS is designed to simplify the billing and settling of accounts between airlines and freight forwarders. It operates through an advanced global web–enabled e–billing solution. There are no significant concentrations of credit risk at the Consolidated Statement of Financial Position date. The maximum exposure to credit risk is represented by the carrying amount of each financial asset.

47 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(d) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity risk is to ensure, as far as possible, 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 Company’s reputation. The following are the contractual maturities of non–derivative financial liabilities, including estimated interest payments. Amounts under the “Years” columns represent the contractual undiscounted cash flows of each liability.

As of December 31, 2016

Years Carrying Contractual Five and amount cash flows One Two Three Four thereafter

Short–term borrowings $ 62,302 $ 63,244 $ 63,244 $ — $ — $ — $ — Long–term Debt 2,574,306 2,965,631 402,083 429,941 394,075 370,139 1,369,393 Bonds 637,627 818,950 86,188 81,579 78,132 573,051 — Total debt 3,274,235 3,847,825 551,515 511,520 472,207 943,190 1,369,393 Accounts payable 495,840 495,840 493,106 2,734 — — — Contractual maturities $ 3,770,075 $ 4,343,665 $ 1,044,621 $ 514,254 $ 472,207 $ 943,190 $ 1,369,393

48 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

As of December 31, 2015

Years Carrying Contractual Five and amount cash flows One Two Three Four thereafter

Short–term borrowings $ 89,368 $ 90,721 $ 90,721 $  $  $  $  Long–term Debt 2,725,390 3,158,362 387,046 386,407 406,795 374,325 1,603,789 Bonds 658,236 896,607 83,895 83,203 79,971 76,479 573,059 Total debt 3,472,994 4,145,690 561,662 469,610 486,766 450,804 2,176,848 Accounts payable 484,191 484,191 480,592 3,599    Contractual maturities $3,957,185 $ 4,629,881 $ 1,042,254 $ 473,209 $ 486,766 $ 450,804 $ 2,176,848

Sensitivity analysis As of December 31, 2016 and 2015 an average increase of 1% in interest rates on long–term debt would be expected to decrease the Company’s income by $6,901 and $8,833 respectively. Interest rates for interest–bearing financial obligations are as follows:

December 31, 2016 Weighted average interest rate Total Short–term borrowings 4.20% $ 62,302 Long–term debt and 3.41% 2,574,306 financial leases Bonds – Colombia 12.96% 88,770 Bonds – Luxembourg 7.95% 548,857 Total $ 3,274,235

49 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

December 31, 2015 Weighted average interest rate Total Short–term borrowings 3.70% $ 89,368 Long–term debt and 3.23% 2,725,390 financial leases Bonds – Colombia 12.30% 109,760 Bonds – Luxembourg 7.95% 548,476 Total $ 3,472,994

(e) Market risk Market risk is the risk that changes in market prices, such as foreign currency rates, interest rates and equity prices will affect the Company’s income or value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimizing the return. The Company enters into derivative contracts, and also incurs financial liabilities, in order to manage market risk. The market risk associated with commodity–price and interest–rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. (f) Commodity risk The Company maintains a commodity–price–risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity– price volatility. The operations of the Company require a significant volume of jet fuel purchases. Price fluctuations of oil, which are directly related with price fluctuations of jet fuel, cause market values of jet fuel to differ from its cost and cause the actual purchase price of jet fuel to differ from the anticipated price. All such transactions are carried out within the guidelines set by the Risk Management Committee. The Company enters into derivative financial instruments using heating oil and jet fuel to reduce the exposure to jet fuel price risks. Such financial instruments are deemed to be highly effective hedge because changes in their fair value are closely correlated with variations in jet fuel prices. The Company determines fair value of the contracts based on the notional future curves as observed in the market; gain or loss of hedge instruments are recognized directly in net equity, through other comprehensive income (OCI), based on Hedge Accounting procedures.

50 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Sensitivity analysis A change in 1% in jet fuel prices would have increased/decreased profit or loss for the year by $7,851 (2015: $10,068). This calculation assumes that the change occurred at the reporting date and had been applied to risk exposures existing at that date. This analysis assumes that all other variables remain constant and considers the effect of changes in jet fuel price and underlying hedging contracts. The analysis is performed on the same basis for 2015. (g) Foreign currency risk The gain or loss in foreign currency is derived primarily from the appreciation or depreciation of the Colombian Peso against the US Dollar, which is the Company’s functional currency, and the changes in the foreign exchange mechanisms enacted by the Venezuelan government. For the years ended December 31, 2016 and 2015, the Company recognized a net loss from currency exchanges of $(23,938) and $(177,529), respectively. The Company has liabilities denominated in Colombian Pesos, such as its pension plans and bonds issuance. For the year ended December 31, 2016, the Company recognized a net loss of $4,780, primarily as a result of the appreciation of the Colombian Peso against the US Dollar of 4.7% when compared to the exchange rate as of December 31, 2015. The Company has liabilities denominated in Colombian Pesos, such as its pension plans and bonds issuance. For the year ended December 31, 2015, the Company recognized a net gain related to currency exchanges of its liabilities of $45,134, primarily as a result of the depreciation of the Colombian Peso against the US Dollar of 31.6% when compared to the exchange rate as of December 31, 2014. As of December 31, 2016 given the lack of repatriations at the official exchange rates, the Company valued its cash balances held in Venezuela at the DICOM exchange rate of 673.8 VEF per 1.00 USD, which is the exchange rate available for the Company at the reporting date. Accordingly, as of December 31, 2016 the carrying amount of cash balances held in Venezuela of $1,463 have been classified as follows: $1,260 as cash and cash equivalents, which is expected to be use over the next three months as part of the normal operations in Venezuela and $203 as short- term restricted cash, which is expected to be used in the following 9 months. As of December 31, 2015 given the lack of repatriations at the official exchange rates, the Company valued its cash balances held in Venezuela at the SIMADI exchange rate of 198.7 VEF per 1.00 USD, which is the exchange rate available for the Company at the reporting date, resulting in a total loss of $236,732. Accordingly, as of December 31, 2015 the carrying amount of cash balances held in Venezuela of $7,660 have been classified as follows: $417 as cash and cash equivalents, which is expected to be used over the next three months as part of the normal operations in Venezuela; $698 as short-term restricted cash, which is expected to be used in the following 9 months; and, $6,545 as long-term restricted cash, which the Company expects to use after the next 12 months.

51 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The Company has available-for-sale instruments in Venezuela denominated in US Dollars that are expected to be paid in Bolivares at the official exchange rate of 6.3 VEF per 1.00 USD. Once the bonds are paid, the Company is expected to request conversion of these funds at the current official rate. As of December 31, 2016, a net loss of $1,325 has been recorded related with the exchange rate changes. In addition, as of December 31, 2016 a net fair value gain of $608. As of December 31, 2016, the balance of the remaining available-for-sale securities amounts to $76, including $43 of accrued interest, recorded within non–current assets. As of December 31, 2015, a net gain of $2,634 has been recorded related with the exchange rate changes and the maturity of available-for-sale instruments. In addition, as of December 31, 2015, a net fair value gain of $3,098. As of December 31, 2015, the balance of the remaining available-for-sale securities amounts to $793, including $43 of accrued interest, recorded within non–current assets. During the years ended December 31, 2016 and 2015, the Company recorded total losses due to exchange rate changes in Venezuela of $5,321 and $233,987 respectively.

52 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The summary quantitative data about the Company’s exposure to currency risk as reported to the management of the Company based on its risk management policy was as follows:

December 31, 2016 Colombian Venezuelan Argentinean Brazilian USD Other Pesos Bolivares Pesos Reals Total Cash and cash equivalents $ 313,380 $ 18,220 $ 1,463 $ 9,813 $ 7,364 $ 25,513 $ 375,753 Available-for-sale securities — — 76 — — — 76 Accounts receivable, net of provision for doubtful accounts 123,562 79,951 515 10,162 35,093 156,633 405,916 Secured debt and bonds (2,437,710) (88,769) — — — (126,564) (2,653,043) Unsecured debt (616,571) (4,621) — — — — (621,192) Accounts payable (248,712) (164,497) (1,756) (10,897) (14,337) (55,641) (495,840) Net financial position exposure $ (2,866,051) $ (159,716) $ 298 $ 9,078 $ 28,120 $ (59) $ (2,988,330) Sensitivity analysis Change of 1% in exchange rate Effect on profit of the year $ (1,597) $ 3 $ 91 $ 281

December 31, 2015 Colombian Venezuelan Argentinean Brazilian USD Other Pesos Bolivares Pesos Reals Total Cash and cash equivalents $ 385,843 $ 28,155 $ 7,660 $ 16,023 $ 10,788 $ 30,912 $ 479,381 Available-for-sale securities — — 793 — — — 793 Accounts receivable, net of provision for doubtful accounts 174,109 99,138 3,810 4,307 8,193 49,776 339,333 Secured debt and bonds (2,464,261) (109,764) — — — (18,925) (2,592,950) Unsecured debt (876,828) (3,216) — — — — (880,044) Accounts payable (230,772) (174,418) (3,421) (4,166) (9,201) (62,213) (484,191) Net financial position exposure $ (3,011,909) $ (160,105) $ 8,842 $ 16,164 $ 9,780 $ (450) $ (3,137,678)

Sensitivity analysis Change of 1% in exchange rate Effect on profit of the year $ (1,601) $ 88 $ 162 $ 98

53 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The Company manages its exposure to foreign currency risk through hedging selected balances using forward exchange contracts and cross currency swaps. Sensitivity analysis The calculation assumes that the change occurred at the reporting date and had been applied to risk exposures existing at that date. This analysis assumes that all other variables remain constant and considers the effect of changes in the exchange rate, which is the rate that could materially affect the Company’s Consolidated Statement of Comprehensive Income. (h) Interest rate risk The Company incurs interest rate risk mainly on financial obligations with banks and aircraft lessors. Interest rate risk is managed through a mix of fixed and floating rates on loans and lease agreements, combined with interest rate swaps. The Company assesses interest rate risk by monitoring and identifying changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate risk attributable to both the Company’s outstanding or forecasted debt obligations. At the reporting date the interest rate profile of the Company’s interest–bearing financial instruments is:

December 31, December 31, Carrying amount – asset/(liability) 2016 2015

Fixed rate instruments Financial assets $ 261,603 $ 54,180 Financial liabilities (2,920,301) (2,953,306) Interest rate swaps 269 (3,679) Total $ (2,658,429) $ (2,902,805) Floating rate instruments Financial assets $ 46,433 $ 546,329 Financial liabilities (353,934) (519,688) Total $ (307,501) $ 26,641

The interest rate risk is originated mainly from long term aircraft lease payments. These long term loan payments at floating interest rates expose the Company to cash flow risk. Interest rate risk is managed through a mix of fixed and floating rates on loans and lease agreements, combined with interest rate swaps and options.

54 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

At December 31, 2016, the interest rates vary from 0.44% to 12.96% (December 31, 2015: 0.07% to 12.39% ) and the main floating rate instruments are linked to LIBOR plus a spread according to the terms of each contract. (i) Capital management The Company’s capital management policy is to maintain a sound capital base in order to safeguard the Company’s ability to continue as a going concern, and in doing so, face its current and long–term obligations, provide returns for its shareholders, and maintain an optimal capital structure to reduce the cost of capital. The Company monitors capital on the basis of the debt–to– capital ratio. Debt is calculated as net debt, which consists of total borrowings (including current and non–current borrowings as shown in the Consolidated Statement of Financial Position) less cash, cash equivalents and restricted cash. Total capital is calculated as the sum of total equity attributable to the Company as shown in the Consolidated Statement of Financial Position plus total net debt. Following is a summary of the debt–to–capital ratio of the Company:

December 31, December 31, 2016 2015 Debt $ 3,274,235 $ 3,472,994 Less: cash and cash equivalents and restricted cash (381,124) (484,778) Total net debt 2,893,111 2,988,216 Total equity attributable to the Company 1,400,509 1,353,989 Total Capital $ 4,293,620 $ 4,342,205

Net debt–to–capital ratio 67% 69%

There were no changes in the Company’s approach to capital management during the year.

(7) Cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash as of December 31, 2016 and 2015 are as follows:

December 31, December 31, 2016 2015 Cash on hand and bank deposits $ 365,610 $ 437,951 Demand and term deposits 10,143 41,430 Cash and cash equivalents 375,753 479,381 Restricted cash 5,371 5,397 Cash and cash equivalents and restricted cash $ 381,124 $ 484,778

55 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

As of December 31, 2016 and 2015 cash equivalents amounted to $10,143 and $41,430, respectively. The use of the term deposits depends on the cash requirements of the Company. As of December 31, 2016, term deposits bear annual interest rates ranging between 6.66% and 11.97% for balances in Colombian pesos and between 0.20% and 6.50% for balances in US dollars. As of December 31, 2015, term deposits bear annual interest rates, between 4.08% and 6.01% for balances in Colombian pesos and between 1.22% and 2.00% for balances in US dollars. As of December 31, 2016, the carrying amount of cash balances held in Venezuela of $1,260 and $203 have been classified as cash and cash equivalents and restricted cash, respectively. As of December 31, 2015, cash balances held in Venezuela in the amount of $417 and $698 are classified within cash and cash equivalents, and restricted cash, respectively. (see note 6g).

(8) Accounts receivables, net of provision for doubtful accounts Receivables as of December 31, 2016 and 2015 are as follows:

December 31, December 31, 2016 2015 Trade $ 206,229 $ 187,836 Indirect tax credits (1) 184,114 136,775 Manufacturer credits 13,216 10,393 Employee advances (2) 5,138 4,797 Other 10,475 12,846 $ 419,172 $ 352,647 Less provision for doubtful accounts (13,256) (13,314) Total $ 405,916 $ 339,333

Net current 313,868 279,620 Net non–current 92,048 59,713 Total $ 405,916 $ 339,333

(1) Corresponds mainly to: tax credit of income tax, VAT, withholding tax credits and advances of ICA, advances and prepayments income of CREE and advance payments of departure rates.

(2) Employee advances mainly relate to per diem allowances provided to crew prior to traveling.

56 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Changes during the year in the allowance for doubtful accounts are as follows:

December 31, December 31, 2016 2015 Balance at beginning of year $ 13,314 $ 13,322 Bad debt expense 2,966 7,281 Write–off against the allowance (3,024) (7,289) Balance at end of year $ 13,256 $ 13,314 The aging of accounts receivables at the end of the reporting period that were not impaired is as follows:

December 31, December 31, 2016 2015 Neither past due nor impaired $ 184,007 $ 300,858 Past due 1–30 days 27,265 28,962 Past due 31–90 days 30,066 5,658 Past due 91 days 177,834 17,169 Total $ 419,172 $ 352,647 Provision for doubtful accounts (13,256) (13,314) Net accounts receivable $ 405,916 $ 339,333

57 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(9) Balances and transactions with related parties The following is a summary of related party transactions for the years ended December 31, 2016, 2015 and 2014:

December 31, 2016 December 31, 2015 December 31, 2014 Company Country Receivables Payables Revenues Expenses Receivables Payables Revenues Expenses Revenues Expenses SP SYN Participações S.A. Brazil $ 12,993 $ — $ 796 $ — $ 13,000 $ — $ 1,205 $ — $ 1,226 $ — OceanAir Linhas Aéreas, S.A. Brazil 3,395 2,623 22,164 19,656 8,290 4,197 26,183 9,546 25,027 2,843 Aerovias Beta Corp. Panama 977 — — — 977 — — — Aeromantenimiento, S.A. El Salvador 56 2,561 13 9,196 88 2,397 6 12,017 6 9,533 Transportadora del Meta S.A.S. Colombia 17 1,039 2 5,040 67 810 1 11,398 — 8,841 Empresariales S.A.S. Colombia 9 1,104 4 10,036 10 68 6 10,414 6 11,589 Corp Hotelera Internac., S.A. Hotelera Los Pozos, El S.A. Salvador — 93 — 505 — 104 — 236 — 502 Other 1,836 1,652 917 2,979 641 1,873 6,208 3,052 128 1,608 Subtotal $ 19,283 $ 9,072 $ 23,896 $ 47,412 $ 23,073 $ 9,449 $ 33,609 $ 46,663 $ 26,393 $ 34,916

Receivables Payables Receivables Payables Short–term $ 19,283 $ 9,072 $ 23,073 $ 9,449 Long–term — — — — Total balances with related parties $ 19,283 $ 9,072 $ 23,073 $ 9,449

58 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The receivables balance with SP SYN Participações S.A. as of December 31, 2016 amounted to $12,993, consisting of $12,854 of principal and $139 of accrued interests. The debt bears an interest equal to 90 days LIBOR plus 550 basis points. The deadline for payment of the obligation, principal and accrued interest is on October 31, 2017. Receivable balances as of December 31, 2016 from OceanAir Linhas Aéreas, S.A., include an amount of $546 past due which relates to payments from aircraft leases and other services. The Company has not recognized any expense or provision for doubtful accounts since it is expected that the balances will be recovered completely. All related parties are companies controlled by the same ultimate shareholder that controls Avianca Holdings S.A. The following is a description of the nature of services provided by and to related parties. These transactions include: Related party Nature of Services SP SYN Participações S.A. Avianca, S.A. (“Avianca”) and SP SYN Participações S.A. (“SP SYN”) signed a novation of the receivables from OceanAir Linhas Aéreas, S.A. (“OceanAir”) whereby SP SYN would be the new debtor. OceanAir Linhas Aéreas, S.A. The Company provides to and receives from OceanAir logistic services, marketing and advertising, maintenance services, and training services. The Company has entered into a licensing agreement with OceanAir for the use of the Avianca trademark in Brazil. Additionally, the Company leases aircraft to OceanAir (see Note 32). On November 4, 2014, Tampa Cargo S.A.S., entered into a Block Space Agreement with OceanAir Linhas Aéreas, S.A., acquiring priority rights and a minimum guaranteed cargo capacity on certain flights of the carrier.

59 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Related party Nature of Services

Aerovias Beta Corp. The accounts receivables balance relates to amount owed to Latin Airways Corp. arising from the Aerovias Beta Corp. spinoff, which gave rise to Latin Airways Corp. Aeromantenimiento, S.A. Aircraft maintenance company which provides aircraft overhaul services to the Company. Transportadora del Meta S.A.S. Provides road transportation services for cargo / courier deliveries to Avianca, S.A. Empresariales S.A.S. Transportation services for Avianca, S.A.’s employees. Corporación Hotelera Internacional Accommodation services for crew and employees of S.A. Hotelera Los Pozos, S.A. the Company. Key management personnel compensation expense Key management personnel compensation expense recognized within “Salaries, wages, and benefits” in the Consolidated Statement of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014 amounted to $26,132, $28,506 and $31,365, respectively.

(10) Expendable spare parts and supplies, net of provision for obsolescence Expendable spare parts and supplies as of December 31, 2016 and 2015 are as follows: December 31, December 31, 2016 2015 Expendable spare parts $ 74,869 $ 59,153 Supplies 7,493 9,615 Total $ 82,362 $ 68,768 For the years ended December 31, 2016, 2015 and 2014 expendable spare parts and supplies in the amount of $59,579, $62,023 and $69,004, respectively, were recognized as maintenance expense.

60 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(11) Prepaid expenses These primarily relate to advance commission payments to travel agencies for future services, prepayments for aircraft rentals and prepaid insurance. As of December 31, 2016 and 2015 prepaid balances are as follows: December 31, December 31, 2016 2015 Prepaid commissions $ 16,351 $ 14,175 Advance payments on operating aircraft leases 10,313 12,776 Premiums for insurance policies 11,149 1,414 Other (1) 21,912 17,343 Total $ 59,725 $ 45,708 (1) Corresponds mainly to prepaid compensation. (12) Deposits and other assets Deposits and other assets as of December 31, 2016 and 2015 are as follows: December 31, December 31, Notes 2016 2015 Short term: Deposits with lessors (1) $ 121,173 $ 47,204 Short term investments (2) 16,598 68,927 Guarantee deposits (3) 1,931 12,346 Others (5) 1,547 1,275 Sub–Total 141,249 129,752 Fair value of derivative instruments 26,27 18,875 972 Total $ 160,124 $ 130,724 Long term: Deposits with lessors (1) $ 84,067 $ 171,065 Long term investments – restricted 36,355 16,734 Guarantee deposits (3) 6,824 6,518 Restricted cash (4) — 6,545 Others (5) 39,325 45,624 Sub–Total 166,571 246,486 Fair value of derivative instruments 26,27 7,462 — Total $ 174,033 $ 246,486

61 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(1) Corresponds mainly to maintenance deposits in connection with leased aircraft. These deposits are applied to future maintenance event costs, and are calculated on the basis of a performance measure, such as flight hours or cycles. They are specifically intended to guarantee maintenance events on leased aircraft. Maintenance deposits paid do not transfer the obligation to maintain aircraft or the costs associated with maintenance activities. Maintenance deposits are reimbursable to the Company upon completion of the maintenance event in an amount equal to the lesser of (a) the amount of the maintenance deposits held by the lessor associated with the specific maintenance event or (b) the qualifying costs related to the specific maintenance event. During the 12 months ended December 31, 2016 the Company has paid lessors $17,695 (December 31, 2015: $5,902) in maintenance deposits, net of reimbursements. (2) Short term classification corresponds to funds invested that will expire within one year. All treasury cash surpluses are invested as defined and outlined in the Company´s Investment Policy. Otherwise, it will be classified as long-term. (3) Corresponds mainly to amounts paid to suppliers in connections with leasehold of airport facilities, among other service agreements. (4) Restricted cash corresponds to cash held in Venezuela, which is subject to future changes due to the economic instability in Venezuela, with the possibility of new limitations in the repatriation of funds by CADIVI or even sanctions by the Venezuelan government to restrict the cash repatriation (see Note 6(g)). (5) Others includes compensations for return conditions and other deferred charges.

62 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(13) Property and equipment, net Flight equipment, property and other equipment as of December 31, 2016 and 2015 is as follows: Aircraft Flight Capitalized Rotable spare predelivery Administrative equipment maintenance parts payments property Other Total Gross: December 31, 2014 $ 3,850,651 $ 278,177 $ 177,677 $ 264,471 $ 87,436 $ 248,462 $ 4,906,874 Additions 360,204 128,174 11,644 220,920 — 69,330 790,272 Revaluation — — — — (6,156) — (6,156) Disposals/Transfers 127,968 (20,308) (26,908) (205,709) (540) (17,594) (143,091) December 31, 2015 $ 4,338,823 $ 386,043 $ 162,413 $ 279,682 $ 80,740 $ 300,198 $ 5,547,899 Additions $ 187,311 $ 122,583 $ 12,411 $ 78,523 $ 950 $ 47,152 $ 448,930 Revaluation — — — — 8,971 — 8,971 Disposals/Transfers (75,562) (125,192) 28,721 (143,108) 68,116 (72,478) (319,503) December 31, 2016 $ 4,450,572 $ 383,434 $ 203,545 $ 215,097 $ 158,777 $ 274,872 $ 5,686,297 Accumulated depreciation: December 31, 2014 $ 477,249 $ 190,271 $ 23,382 $ — $ 8,994 $ 78,927 $ 778,823 Additions 119,924 58,900 7,093 — 1,675 23,980 211,572 Disposals/Transfers (18,911) (8,406) (4,789) — — (9,736) (41,842) December 31, 2015 $ 578,262 $ 240,765 $ 25,686 $ — $ 10,669 $ 93,171 $ 948,553 Additions 142,059 67,636 9,631 — 1,938 25,995 247,259 Disposals/Transfers (66,906) (117,805) 27,172 — (3,201) 1,296 (159,444) December 31, 2016 $ 653,415 $ 190,596 $ 62,489 $ — $ 9,406 $ 120,462 $ 1,036,368 Net balances: December 31, 2014 $ 3,373,402 $ 87,906 $ 154,295 $ 264,471 $ 78,442 $ 169,535 $ 4,128,051 December 31, 2015 $ 3,760,561 $ 145,278 $ 136,727 $ 279,682 $ 70,071 $ 207,027 $ 4,599,346 December 31, 2016 $ 3,797,157 $ 192,838 $ 141,056 $ 215,097 $ 149,371 $ 154,410 $ 4,649,929

63 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

During the twelve months ended December 31, 2016, the Company acquired three A319, two Cessna, one B787 and one A300. Additionally, the Company paid prepaid payments ("PDPs") and purchased rotable spare parts. During the twelve months ended December 31, 2016, the Company sold two A319, two ATR-42 and three Fokker 100. As of December 31, 2016 and 2015, the net carrying amount of leased property and equipment under financial leases was $3,113,189 and $3,481,131 respectively, which have been pledged to secure long–term debt. As of December 31, 2016 and 2015, the Company capitalized borrowing costs amounting to $20,840 at an average interest rate of 8.81% and $19,549 at an average interest rate of 7.36%, respectively. As of December 31, 2016, the Avianca Airport Hangar MRO José María Córdova Project had been finished with a total cost of $42,081, consisting of hangars and aircraft component repair facilities as well as premises for aircraft taxi, parts and replacements warehouses, and training classrooms built in adjacent areas to the José María Córdova International Airport. The building started its operation on August 31, 2016. As of December 31, 2016, the Center of Operational Excellence Building (CEO) was built on a land of approximately 42,960.90 m2, which belongs to Stage 1 of Buro 25, which is located in the town of Fontibón, in the direction Diag. 25g N. 95th - 85 near El Dorado International Airport. The closing cost as of December 31, 2016 was $39,339. This new facility serves as an educational training center for pilots, flight attendants and technicians, as well as for the rest of employees from different administrative areas. The project, currently in operation, has an approximate area of 23,700 square meters, including 425 parking lots delivered in 2016 and 15 parking spaces that will be delivered on June 1, 2017, 60 classrooms, and six simulator positions. As of December 31, 2016 a total amount of $9,614 has been recognized as property and equipment in the course of construction, which corresponds to the purchase of a flight simulator to be used in the new Center of Operational Excellence Building (CEO) built in Bogotá. The project has an estimated cost of $9,643 including installation, duties and taxes. The installation date is estimated to be at the first half of 2017. Administrative property The Company uses the revaluation model to measure its land and buildings which are composed of administrative properties. Management determined that this constitutes one class of asset under IAS 16, based on the nature, characteristics and risks of the property. The fair values of the properties were determined by using market comparable methods. This means that valuations performed by the appraisals are based on active market prices, adjusted for difference in the nature, location or condition of the specific property. The Company engaged accredited independent appraisals, to determine the fair value of its land and buildings. Land and buildings were revaluated at December 31, 2016 and 2015.

64 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

If land and buildings were measured using the cost model, the carrying amounts would be as follows: December 31, December 31, 2016 2015 Cost $ 107,854 $ 68,515 Accumulated depreciation (6,150) (4,727) Net carrying amount $ 101,704 $ 63,788

(14) Intangible assets Intangible assets as of December 31, 2016 and 2015 are follows: December 31, December 31, 2016 2015 Routes $ 38,707 $ 40,911 Trademarks 3,938 3,938 Software and webpages 61,804 59,480 Other intangible rights 435 1,403 Subtotal 104,884 105,732 Goodwill 308,034 308,034 Total Intangible Assets $ 412,918 $ 413,766 In 2014 after the acquisition of the voting and economic rights in Aerounion, and due to the consolidation of the cargo operations, the Company re-evaluated its CGU structure. As a result the Tampa and Aerounion CGUs that were previously evaluated separately were merged into a single CGU. Goodwill acquired through business combinations and intangibles with indefinite lives has been allocated to three Cash Generating Units (“CGU”): - Aerolíneas Galápagos Aerogal, S.A. (“Aerogal”) - Grupo Taca Holdings Limited - Tampa Cargo S.A.S. The carrying amount of goodwill and intangibles allocated to each of the CGUs: Aerogal Grupo Taca Tampa Cargo Holdings Limited S.A.S. 2016 2015 2016 2015 2016 2015 Goodwill $ 32,979 $ 32,979 $234,779 $234,779 $ 40,276 $ 40,276 Routes 15,244 17,448 — — 23,463 23,463 Trademarks — — — — 3,938 3,938

65 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The Company performed its annual impairment test in December 2016 and 2015. The Company considers the relationship between the value in use of the CGU and its book value, among other factors, when reviewing for indicators of impairment on the goodwill or any of its intangible assets. As of December 31, 2016 and 2015, the Company did not identify potential impairment of goodwill or intangible assets. Aerogal CGU The recoverable amount of Aerogal CGU, $257,623 as of December 31, 2016, has been determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a five–year period. The projected cash flows have been updated to reflect the estimated demand for services and costs to operate. The pre–tax discount rate applied to cash flow projections is 10.89% and cash flows beyond the five–year period are extrapolated using a 1.80% growth rate that is the same as the long–term average growth rate for Ecuador, where the Company has its base of operation. It was concluded that no impairment charge is necessary as the value in use exceeds book value. Grupo Taca Holdings Limited CGU The recoverable amount of Grupo Taca Holdings Limited CGU, $2,938,920 as of December 31, 2016, has been determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a five–year period. The projected cash flows have been updated to reflect the estimated demand for services and costs to operate. The pre–tax discount rate applied to cash flow projections is 9.95% and cash flows beyond the five– year period are extrapolated using a 2.60% growth rate that is the same as the long–term average growth rate for Latin America. It was concluded that no impairment charge is necessary as the value in use exceeds book value. Tampa Cargo S.A.S. CGU The recoverable amount of Tampa Cargo S.A.S. CGU, $1,680,666 as of December 31, 2016, has been determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a five–year period. The projected cash flows have been updated to reflect the estimated demand for services and costs to operate. The pre–tax discount rate applied to cash flow projections is 9.96% and cash flows beyond the five–year period are extrapolated using a 3.50% growth rate that is the same as the long–term average growth rate for Latin America. It was concluded that no impairment charge is necessary as the value in use exceeds book value.

66 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Assumptions The calculation of value in use for the CGUs is most sensitive to the following assumptions: - Jet fuel price per gallon - Discount rates - Revenue growth - CAPEX expenditure - Growth rates used to extrapolate cash flows beyond the forecast period - Working capital Jet fuel price per gallon – Estimates are obtained from published data relating to the specific commodity. Forecast figures are used if data is publicly available, otherwise past actual price movements are used as an indicator of future price movements. Discount rates – Discount rates represent the current market assessment of the risks of the holding Company of each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Company and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The beta factors are evaluated annually based on publicly available market data. Revenue growth – Management evaluates its estimates on passenger growth or cargo growth. Management expects the Company to have a stable growth over the forecast period. CAPEX expenditure – Management estimates investment in CAPEX including aircraft, maintenance, and sale of assets, among others to estimate debt free cash flows. Growth rate estimates – Rates are based on published forecasts for the regions or countries where the CGUs operate. Working capital – Management evaluates the working capital needs of each CGU in accordance with its needs for investments to continue operations.

67 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The following is a rollforward of intangibles assets from December 31, 2016 and 2015: Trade– Software & Goodwill Routes marks Webpages Others Total Cost: Balance at December 31, 2014 $ 311,181 $ 52,481 $ 3,938 $ 82,605 $ 4,598 $ 454,803 Other Acquisitions/ Internally developed    16,429 427 16,856 Balance at December 31, 2015 311,181 52,481 3,938 99,034 5,025 471,659 Other Acquisitions/ Internally developed    21,660  21,660 Disposals     (221) (221) Balance at December 31, 2016 $ 311,181 $ 52,481 $ 3,938 $ 120,694 $ 4,804 $ 493,098 Accumulated Amortization and Impairment Losses: Balance at December 31, 2014 $ (3,147) $ (9,366) $  $ (23,949) $ (2,271) $ (38,733) Amortization for the year  (2,204)  (15,605) (1,351) (19,160) Balance at December 31, 2015 (3,147) (11,570)  (39,554) (3,622) (57,893) Amortization for the year  (2,204)  (19,336) (747) (22,287) Balance at December 31, 2016 $ (3,147) $ (13,774) $  $ (58,890) $ (4,369) $ (80,180)

Carrying Amounts: At December 31, 2014 $ 308,034 $ 43,115 $ 3,938 $ 58,656 $ 2,327 $ 416,070 At December 31, 2015 $ 308,034 $ 40,911 $ 3,938 $ 59,480 $ 1,403 $ 413,766 At December 31, 2016 $ 308,034 $ 38,707 $ 3,938 $ 61,804 $ 435 $ 412,918

68 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(15) Earnings per Share The calculation of basic (loss) earnings per share at December 31, 2016, 2015 and 2014 is as follows: December 31, December 31, December 31, 2016 2015 2014 Net profit (loss) attributable to Avianca Holdings S.A. $ 44,186 $ (139,506) $ 128,494

Weighted average number of shares

(in thousands of shares) Common stock 660,800 660,800 665,383 Preferred stock 336,187 336,187 331,604

Earnings per share

Common stock $ 0.04 $ (0.14) $ 0.13 Preferred stock $ 0.04 $ (0.14) $ 0.13 There are no dilutive shares as the Company has no convertible preferred shares, convertible debentures.

(16) Long–term debt Loans and borrowings, measured at amortized cost, as of December 31, 2016 and 2015 are summarized as follows: December 31, December 31, Notes 2016 2015 Current: Short–term borrowings and current portion of long–term debt $ 377,149 $ 387,828 Bonds 29,590 25,056 29 $ 406,739 $ 412,884 Non–current: Long–term debt $ 2,259,459 $ 2,426,930 Bonds 608,037 633,180 29 $ 2,867,496 $ 3,060,110

69 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Terms and conditions of the Company’s outstanding obligations for years ended December 31, 2016 and 2015 are as follows:

December 31, 2016 Weighted Due average Carrying through interest rate Face Value Amount

Short–term borrowings 2017 4.20% $ 64,060 $ 62,302 Long–term debt 2028 3.41% 3,938,372 2,574,306 Bonds–Colombia 2019 12.96% 88,769 88,770 Bonds– Luxembourg 2020 7.95% 550,000 548,857

Total $ 4,641,201 $ 3,274,235

December 31, 2015 Weighted Due average Carrying through interest rate Face Value Amount

Short–term borrowings 2016 3.70% $ 89,812 $ 89,368 Long–term debt 2027 3.23% 3,937,097 2,725,390 Bonds–Colombia 2019 12.30% 134,943 109,760 Bonds– Luxembourg 2020 7.95% 550,000 548,476 Total $ 4,711,852 $ 3,472,994 The majority of interests bearing liabilities are denominated in US dollars except for bonds and certain financing liabilities for working capital which are denominated in Colombian Pesos, and some aircraft debts are denominated in Euros. The outstanding long term debt balance of the Company as of December 31, 2016 and 2015 were $2,218,509 and $2,332,326, respectively. These outstanding balances of long-term debt include borrowings from various financial institutions to finance aircraft acquisitions. Most of these are loans guaranteed by Export Credit Agencies. Additionally, the Company had an outstanding balance of short-term borrowings and long-term debt with various financial institutions for working capital purposes amounting to $418,100 and $482,432, respectively.

70 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

During 2016, the Company obtained $154,049 through a private placement vehicle issuing guaranteed notes and loans in order to finance the purchase of one B787 and two A319 aircraft, financed two CESSNA aircraft totalling $3,649 and issued in Euro a USD equivalent of $57,308 to refinance five ATR-72 aircraft trought an ECA guaranteed bond take out loan. The Company also obtained $19,527 for general working capital purposes.

During 2015, the Company obtained loans amounting to $412,679 in order to finance the purchase of two A321, three A320, one A319, two B787, two CESSNA and two ATR 72 aircraft. This includes $379,160 under a private placement vehicle distributed amongst the issuance of guaranteed notes and loans. The Company also obtained $304,112 for general working capital purposes.

On May 10, 2013, the Company issued $300,000 of Senior Notes in an offering exempt from registration under Rule 144A and Regulation S under theU.S. Securities Act of 1933, as amended. The senior Notes are due in 2020 and bear interest at the rate of 8.375% per year, payable semi-annually in arrears on May 10 and November 10, beginning on November 10, 2013

On Apr 8, 2014, the Company completed a second issuance of $250,000 of Senior Notes in an offering exempt from registration under Rule 144A and Regulation S under the U.S. Securities Act of 1933, as amended. The Senior Notes are due in 2020 and bear interest at the rate of 8.375% per year, payable semi–annually in arrears on May 10 and November 10, beginning on May 10, 2014. The placement price for the second issuance was 104.50%.

As of December 31, 2016 and 2015 the subsidiaries Grupo Taca Holdings Limited, and Avianca Leasing, LLC are jointly and severally liable under the Notes as co–issuers on $550,000 in aggregate principal amount. The Notes are fully and unconditionally guaranteed by three of our subsidiaries: Taca International Airlines S.A., Líneas Aéreas Costarricenses, S.A., and Trans american Airlines S.A. Avianca Leasing LLC’s obligations as a co–issuer of the Notes will be unconditionally guaranteed by our subsidiary Aerovías del Continente Americano S.A.–Avianca, in an amount equal to $366,667. The Notes and guarantees are senior unsecured obligations of the co–issuers and the guarantors, respectively, and rank equally in right of payments with all of their other respective present and future unsecured obligations that are not expressly subordinated in right of payment to the Senior Notes or the guarantees.

71 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The Company, Avianca Leasing, LLC and Grupo Taca Holdings, Limited as co–issuers, listed the Senior Notes on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF market of the Luxembourg Stock Exchange. As of December 31, 2016 and 2015, the Senior Notes outstanding and the corresponding balances are as follows:

Balance as of Original Total placed in December 31, Issuing entities currency original currency 2016 2015 Avianca Holdings S.A., Avianca Leasing, LLC and Grupo Taca Holdings Limited USD 550,000 $ 548,857 $ 548,476 $ 548,857 $ 548,476

Issuers: Avianca Holdings S.A., Avianca Leasing, LLC, and Grupo Taca Holdings Limited Guarantors: Líneas Aéreas Costarricenses, S.A., Trans American Airlines S.A., and Taca International Airlines, S.A. fully and unconditionally guarantee the total Notes. Aerovías del Continente Americano – Avianca, S.A. unconditionally guarantee the obligations of Avianca Leasing, LLC under the Senior Notes in an amount equal to $375 million. Notes offered: $550,000 aggregate principal amount of 8.375% Senior Notes due 2020. Initial Issue Price: 98.706% Initial Issue Date: May 10, 2013 Issue Amount: $300 million Interest: The Senior Notes will bear interest at a fixed rate of 8.375% per year. The first issuance is payable semiannually in arrears on May 10 and November 10 of each year, commencing on November 10, 2013. Interest will accrue from May 10, 2013. The second issuance is payable semiannually in arrears on May 10 and November 10 of each year, commencing on May 10, 2014. Second Issue Price: 104.50% Second Issue Date: April 8, 2014 Maturity Date: The Senior Notes will mature on May 10, 2020.

72 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

As of December 31, 2016 and 2015, bonds issued and the corresponding balances are as follows:

Total Balance as of placed in December 31, original 2016 2015 Issuing currency Original In US Original In US entity Issue (1) currency (1) Dollars currency (1) Dollars Avianca Series A 75,000  $   $ 

Avianca Series B 158,630   79,315 25,184 Avianca Series C 266,370 266,370 88,770 266,370 84,576

Total $ 88,770 $ 109,760 (1) Presentation of original currency in millions of Colombian pesos On August 25, 2009 a bond issue was completed on the Colombian stock exchange, which is collateralized by Credibanco and Visa credit cards ticket sales in Colombia. The specific conditions of the 2009 bond issue in Colombia are as follows: Representative of bondholders: Helm Trust, S.A. Amount of issue: $500,000 million Colombian Pesos Managing agent: Fiduciaria Bogota, S.A. Series: Series A: Authorized issue $100,000 million Colombian Pesos Series B: Authorized issue $200,000 million Colombian Pesos Series C: Authorized issue $300,000 million Colombian Pesos Coupon: Series A: Indexed to Colombian consumer price index Series B: Indexed to Colombian consumer price index Series C: Indexed to Colombian consumer price index Interest is payable at quarter–end Term: Series A: 5 years Series B: 7 years Series C: 10 years Repayment of capital: Series A: At the end of 5 years Series B: 50% after 6 years and 50% after 7 years Series C: 33% after 8 years, 33% after 9 years and 34% after 10 years

73 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

As of December 31, 2016 and 2015, the Company had unsecured revolving lines of credit with different financial institutions in the aggregate amounts of $84,422, and $146,817, respectively. As of December 31, 2015 and 2014, there were $22,840, and $65,967 unused credit line balances, respectively, under these facilities. These revolving lines of credit are preapproved by the financial institutions and the Company may withdraw funds if it has working capital requirements. Future payments on long–term debt for the years ended December 31, 2016 and 2015 are as follows:

Years Five and One Two Three Four thereafter Total December 31, 2016 $ 314,848 $ 354,709 $ 331,633 $ 319,895 $1,253,22 1 $ 2,574,306 December 31, 2015 $ 298,460 $ 307,629 $ 339,272 $ 318,511 $1,461,518 $ 2,725,390 Future payments on bonds for the years ended December 31, 2016 and 2015 are as follows:

Years Five and One Two Three Four thereafter Total December 31, 2016 $ 29,590 $ 28,815 $ 29,202 $ 550,020 $  $ 637,627 December 31, 2015 $ 25,056 $ 27,544 $ 27,804 $ 27,804 $ 550,028 $ 658,236

During 2016 and 2015, the Company did not comply with certain debt covenants. However these breaches did not accelerate the due date for the repayment of the debt. As of December 31, 2016, the Company obtained waivers adjusting its EBITDAR Coverage Ratio threshold to levels at which the covenants are met. The most significant commitments related to financial ratios assumed by the Company and its subsidiaries are as follows: Avianca Holdings S.A. and Subsidiaries The consolidated financial statements of Avianca Holdings and Subsidiaries must comply with the following financial covenants: (1) EBITDAR Coverage Ratio: Should be not less than 1.50 to 1.00 and 0.70 to 1.00 for other obligations at the end of December 31, 2016. (2) Capitalization Ratio: Should not be greater than 0.86 to 1.00 at the end of each reporting period. (3) Cash reserves held or controlled or otherwise available to the guarantor or its subsidiaries should be at least $350 million at all times and $50 million for other obligations at all times.

74 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Relevant Testing Date means the date on which the Avianca Holdings S.A. and Subsidiaries audited financial statements prepared in accordance with IFRS are delivered to the Security Trustee, no later than 180 days of the end of the financial period. As of December 31, 2016 the Company complied with the financial covenants applicable at each annual reporting date for Avianca Holdings S.A. and Subsidiaries.

(17) Accounts payable

Accounts payable as of December 31, 2016 and 2015 are as follows:

December 31, December 31, 2016 2015 Trade accounts payable $ 319,858 $ 340,043 Non–income taxes collected in advance 104,165 68,651 Payroll taxes (1) 53,210 53,746 Other payables 15,873 18,152 Current $ 493,106 $ 480,592

Trade accounts payable $ 8 $ — Payroll taxes (1) 2,726 3,599 Non–current $ 2,734 $ 3,599 (1) Represent payroll taxes and contributions based on salaries and compensation paid to employees of the Company in the various jurisdictions in which it operates.

(18) Accrued expenses Accrued expenses as of December 31, 2016 and 2015 are as follows:

December 31, December 31, 2016 2015 Operating expenses $ 84,981 $ 75,950 Vacation and other employee accruals 20,625 22,364 Other accrued expenses (1) 33,191 19,878 Total $ 138,797 $ 118,192

(1) Other accrued expenses include deferred leasing income, interest payable, provision severance payment and deferred interest income.

75 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(19) Provisions for return conditions For certain operating leases, the Company is contractually obligated to return the aircraft in a predefined condition. The Company accrues for restitution costs related to aircraft held under operating leases at the time the asset does not meet the return conditions criteria and throughout the remaining duration of the lease. Provisions for return conditions as of December 31, 2016 and 2015 are as follows:

December 31, December 31, 2016 2015 Current $ 53,116 $ 52,636 Non – current 120,822 109,231 Total $ 173,938 $ 161,867

Changes in provisions for return conditions as of December 31, 2016 and 2015 are as follows:

December 31, December 31, 2016 2015 Balances at beginning of year $ 161,867 $ 131,884 Provisions made 28,354 73,203 Provisions used (16,283) (43,220) Balances at end of year $ 173,938 $ 161,867

(20) Employee benefits The Company has a defined benefit plan which requires contributions to be made to separately administered funds. The Company has also agreed to provide post–employment benefits to its retirees that consist primarily of medical benefit plans as well as certain other benefits, including scholarships, tickets, seniority and retirement. These other benefits are unfunded. Accounting for pensions and other post–employment benefits involves estimating the benefit cost to be provided well into the future and attributing that cost over the time period in which each employee works for the Company. This requires the use of extensive estimates and assumptions about inflation, investment returns, mortality rates, turnover rates, medical cost trends and discount rates, among other information. The Company has two distinct pension plans, one for pilots and the other for ground personnel. Both plans have been closed to new participants, and therefore there are a fixed number of beneficiaries covered under these plans as of December 31, 2016 and 2015.

76 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

December 31, December 31, 2016 2015 Fair value of plan assets $ (165,740) $ (140,517) Present value of the obligation 320,890 301,113 Total employee benefit liability $ 155,150 $ 160,596

The following table summarizes the components of net benefit expense recognized in the Consolidated Statement of Comprehensive Income and the funded status and amounts recognized in the Consolidated Statement of Financial Position for the respective plans: Net benefit expense – year ended December 31, 2016 Defined benefit (recognized in Salaries, wages and benefits) plan Other benefits Current service cost $ 566 $ 2,241 Interest cost on net benefit obligation 17,484 5,275 Total employee benefit liability $ 18,050 $ 7,516

Net benefit expense – year ended December 31, 2015 Defined benefit (recognized in Salaries, wages and benefits) plan Other benefits Current service cost $ 1,564 $ 1,947 Interest cost on net benefit obligation 17,788 4,478 Total employee benefit liability $ 19,352 $ 6,425

77 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Changes in the present value of defined benefit obligation as of December 31, 2016 are as follows: Defined benefit Obligation Other benefits Total

Benefit obligation as of December 31, 2015 $ 232,749 $ 68,364 $ 301,113 Period cost 18,050 7,516 25,566 Benefits paid by employer (16,884) (2,546) (19,430) Actuarial (gains) losses recognized in other comprehensive income 17,918 (20,301) (2,383) Exchange differences 12,360 1,929 14,289 Others 1,735  1,735 Benefit obligation as of December 31, 2016 265,928 54,962 320,890 Fair value of plan assets (165,740)  (165,740) Total employee benefit liability $ 100,188 $ 54,962 $ 155,150

Current $ 35,272 $ 4,309 $ 39,581 Non–current 64,916 50,653 115,569 Total $ 100,188 $ 54,962 $ 155,150

Changes in the fair value of plan assets are as follows: Defined benefit plan

Fair value of assets at December 31, 2015 $ 140,517 Interest income on plan assets 11,268 Return on plan assets greater/(less) than discount 2,657 Employer contributions 21,597 Benefits paid (16,069) Investment expenses paid (946) Exchange differences 6,716 Fair value of plan assets at December 31, 2016 $ 165,740

78 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Changes in the present value of defined benefit obligation as of December 31, 2015 are as follows: Defined benefit Obligation Other benefits Total

Benefit obligation as of December 31, 2014 $ 320,450 $ 77,823 $ 398,273 Period cost 19,352 6,425 25,777 Benefits paid by employer (18,290) (3,737) (22,027) Actuarial (gains) losses recognized in other comprehensive income (9,830) 4,811 (5,019) Exchange differences (78,036) (16,958) (94,994) Others (897) — (897) Benefit obligation as of December 31, 2015 232,749 68,364 301,113 Fair value of plan assets (140,517) — (140,517) Total employee benefit liability $ 92,232 $ 68,364 $ 160,596

Current $ 28,407 $ 4,469 $ 32,876 Non–current 63,825 63,895 127,720 Total $ 92,232 $ 68,364 $ 160,596

Changes in the fair value of plan assets are as follows: Defined benefit plan

Fair value of assets at December 31, 2014 $ 175,620 Interest income on plan assets 10,962 Employer contributions 19,919 Benefits paid (16,032) Return on plan assets adjustment (4,478) Exchange differences (45,474) Fair value of plan assets at December 31, 2015 $ 140,517

79 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

For the year ended December 31, 2016, 2015 and 2014, actuarial gains of $4,094, $541 and $16,439, respectively were recognized in other comprehensive income.

December 31, December 31, December 31, 2016 2015 2014 Actuarial gains recognized in other comprehensive income $ 2,383 $ 5,019 $ 5,755 Return on plan assets adjustment 1,711 (4,478) 10,684 Amount recognized in other comprehensive income $ 4,094 $ 541 $ 16,439

The Company expects to contribute $39,581 to its defined benefit plan and other benefits in 2017. Plan assets correspond to net funds transferred to Caxdac, which is responsible for the administration of the pilots’ pension plan. The assets held by Caxdac are segregated into separate accounts corresponding to each contributing Company. Additionally the plan assets included a portion relating to pension plan of ground personnel. The principal assumptions (inflation–adjusted) that are used in determining pension and post– employment medical benefit obligations for the Company’s plans are shown below:

December 31, December 31, 2016 2015 Discount rate on all plans 7.50% 7.50% Price inflation 3.00% 3.00% Future salary increase Pilots 4.00% 3.75% Cabin crew 4.00% 3.50% Other employees 4.00% 4.00% Future pension increase 3.00% 3.00% Healthcare cost increase 4.50% 4.00% Ticket cost increase 3.00% 3.00% Education cost increase 3.00% 3.00%

80 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The major categories of plan assets as a percentage of the fair value of the total plan assets are as follows: December 31, December 31, 2016 2015 Equity securities 24.82% 45.00% Debt securities 15.95% 51.00% Domestic Corporate bonds 28.31% 00.00% Foreign goverment/corporate bonds 18.54% 00.00% Other 12.37% 4.00%

Equity securities comprise investments in Colombian entities with a credit rating between AAA and BBB. The debt securities include investments in bonds of the Colombian government, in banks and in Colombian public and private entities. Domestic corporate bonds include bonds issued by private companies and Foreign Government Corporate Bonds include Yankes bonds and bonds issued by financial and private entities abroad. Pension plans for ground personnel In 2008, the Company entered into a commutation agreement with Compañía Aseguradora de Vida Colseguros S.A. (Insurance Company) in connection with the pension liability of two of the Company’s pension plans. As of December 31, 2016 and 2015, there are 16 and 9 beneficiaries, respectively, which have not been commuted. Consequently, the Company estimates through an actuarial calculation the pension liability of these beneficiaries. Pension plans for flight personnel Due to local regulations for two of the Company’s pension plans, the Company has to make contributions to a fund which is externally administrated. The amount of the annual contribution is based on the following: – Basic contribution for the year: equal to the expected annual pension payments. – Additional contribution for the year (if necessary): equal to the necessary amount to match the actuarial liability under local accounting rules and the plan assets as of year 2023 (determined with an actuarial calculation).

81 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Sensitivity Analysis The calculation of the defined benefit obligation is sensitive to the aforementioned assumptions. The following table summarizes how the impact on the defined benefit obligation at the end of the reporting period would have increased (decreased) as a result of a change in the respective assumptions: 0.5% increase 0.5% decrease Discount rate (15,241) 16,630 Pension increase 23,194 (11,567) Mortality table 3,759 —

(21) Air traffic liability

Air traffic liability as of December 31, 2016 and 2015 is as follows:

December 31, December 31, 2016 2015 Advance ticket sales $ 447,430 $ 363,026 Miles deferred revenue 73,760 70,549 Current $ 521,190 $ 433,575 Miles deferred revenue $ 98,088 $ 93,519 Non–current $ 98,088 $ 93,519

(22) Other liabilities Other liabilities as of December 31, 2016 and 2015 are as follows: December 31, December 31, Notes 2016 2015 Derivative instruments 26, 27 $ 528 $ 3,769 Deferred income (1) 24,606 22,030 Other 762 2,267 Total $ 25,896 $ 28,066

Current $ 11,085 $ 12,691 Non–current 14,811 15,375 Total $ 25,896 $ 28,066 (1) Deferred income include prepayment for services and supplemental payment.

82 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(23) Share based payments The Company authorized the implementation of an incentive plan (the “Share Based Plan”) on January 27, 2012 whereby eligible recipients, including directors, officers, certain employees, receive a special cash payout if certain redemption conditions are met. The Share Based Plan participants have the option to redeem the vested portion of their respective rights for cash, with the payment being equal to the difference between the trading share price of the preferred shares of Avianca Holdings S.A., as reported by the Colombian Stock Exchange during the 30 calendar days immediately preceding redemption, and COP$5,000. 18,026,158 awards were issued on March 15, 2012, and will vest in equal tranches over a 4 year period, with the first tranche vesting on March 15, 2013, and subsequent tranches vesting on each subsequent anniversary date. Upon vesting, each tranche must be redeemed within 5 years and no later than March 2021. On November 5, 2013, the Company listed its American Depositary Shares (“ADS”) in the New York Stock Exchange. As a consequence, the terms of the Share Based Plan were modified as follows: Starting on the effective date of the sale of ADSs in the market, the value of each award, as long as the result is positive, will result from: i) calculating the difference between the average quote of the ADSs representative of preferred shares of Avianca Holdings S.A., as reported by the New York Stock Exchange during the 30 calendar days immediately prior to each vesting date of the Share Based Plan and the price of $15, and ii) dividing the latter calculation by eight, considering that each ADS represents eight preferred shares and applying the resulting amount by the exchange rate of COP$1,901.22 per $1, (the exchange rate as of November 5, 2013 or the effective date of listing of the ADSs in the New York Stock Exchange). However, this modification does not affect Tranche 1. Additionally, the Company issued 2,000,000 new awards (“New Awards”) for the Board of Directors and C Levels on November 6, 2013. These New Awards vest in four equal tranches and expire five year after the vesting date. The value of each New Award is determined in the same way as the modified terms of the Share Based Plan. On March 11, 2014, the Company revised the New Awards and reduced them to 1,840,000 units. As of December 31, 2016, active beneficiaries have been awarded with 14,459,792 units out of 18,026,158 initially approved and issued, and have redeemed 480,025 units, corresponding to the vesting periods March 15, 2012–2013 and March 15, 2013–2014. Total awards to be redeemed as of December 31, 2016 are equal to 13,979,767.

83 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

A summary of the terms of the awards excluding the 1,840,000 New Awards is as follows: Percentage Vesting dates vesting Redemption period March 15, 2013 25% From March 16, 2013 through March 15, 2018 March 15, 2014 25% From March 16, 2014 through March 15, 2019 March 15, 2015 25% From March 16, 2015 through March 15, 2020 March 15, 2016 25% From March 16, 2016 through March 15, 2021

A summary of the terms of the 1,840,000 New Awards is as follows:

Percentage Vesting dates vesting Redemption period November 6, 2014 25% From November 7, 2014 through November 6, 2019 November 6, 2015 25% From November 7, 2015 through November 6, 2020 November 6, 2016 25% From November 7, 2016 through November 6, 2021 November 6, 2017 25% From November 7, 2017 through November 6, 2022

Participants who are terminated, or resigned, cease to be part of the Share Based Plan. The awards were only issued to board members and key management. The Company has determined the fair value of the outstanding awards as of December 31, 2016 and 2015 using the Turnbull–Wakeman model, which is a variation of the Black–Scholes model and was deemed to be an appropriate valuation model given the requirement that the share price be above a certain threshold for 30 days prior to redemption. For the valuation as of December 31, 2016, the Turnbull–Wakeman model uses several inputs including: - Expected term of 0.60 to 3.35 years - Time in averaging period of 0.08 years - Stock price of COP$3,600 in the Colombian Stock Exchange and $9.64 in the New York Stock Exchange - Strike price of COP$5,000 for tranche 1 and $15 for tranches 2, 3, 4, and for the New Awards in all tranches - Risk free rate of 0.96% to 5.61% - Dividend yield of 1.39% - Volatility of 44.20% to 56.57%

84 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

For the valuation as of December 31, 2015, the Turnbull–Wakeman model uses several inputs including: - Expected term of 1.10 to 4.35 years - Time in averaging period of 0.08 years - Stock price of COP$1,695 in the Colombian Stock Exchange and $4.27 in the New York Stock Exchange - Strike price of COP$5,000 for tranche 1 and $15 for tranches 2, 3, 4, and for the New Awards in all tranches - Risk free rate of 1.01% to 6.49% - Dividend yield of 2.95% - Volatility of 31.65% to 38.13% Since Avianca Holdings S.A. has a public traded history of approximately four and a half years for the preferred shares, which is shorter than all the expected terms except for Tranche 1–3 of the original Share Based Plan and Tranche 1 and 2 of the New Awards, the Company used data for guideline public companies similar to Avianca Holdings S.A. to estimate its equity volatility. Based on the aforementioned assumptions, the Company determined that the loss (income) of the Share Based Plan Awards for the period ended December 31, 2016 and 2015 was $1,111 and $(1,121), respectively which has been recognized within operating profit. As of December 31, 2016 and 2015, $1,115 and $10, respectively, is reflected as a current liability on the Consolidated Statement of Financial Position.

(24) Equity Common and preferred stock On November 5, 2013, the Company issued 12,500,000 American Depository Shares, or ADSs, each representing 8 preferred shares. Net proceeds from this offering amounted to approximately $183,553 million (net of issuance costs amounting to $3,956). Preferred stock has no voting rights and cannot be converted to common stock. Holders of the preferred shares and ADSs are entitled to receive a minimum dividend to be paid preferentially over holders of common shares, so long as dividends have been declared by our shareholders at their annual meeting. If no dividends are declared, none of the Company’s shareholders will be entitled to any dividends. If dividends are declared and the Company’s annual distributable profits are sufficient to pay a dividend per share of at least COP 50 per share to all the Company’s holders of preferred and common shares, such profits will be paid equally with respect to the Company’s preferred and common shares. However, if the Company’s annual distributable profits are insufficient to pay a dividend of at least COP 50 per share to all our holders of preferred and common shares, a minimum preferred dividend of COP 50 per share will be distributed pro rata to the holders of the Company’s preferred shares, and any excess above such minimum preferred dividend will be distributed solely to holders of our common shares.

85 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

In connection with that offering, the common shareholders (“selling shareholders”) converted 75,599,997 common shares to preferred shares, representing 14,734,910 ADSs. As a consequence, the number of common shares was reduced to 665,800,003; the number of preferred shares increased in 75,599,997 to 331,187,285 preferred shares. The Company did not receive any of the net proceeds from the sale of ADS by the selling shareholders. As of December 31, 2013, the Company purchased 197,141 of its outstanding preferred shares, for this reason, outstanding preferred stock was decreased by $25 and additional paid–in capital on preferred stock was decreased by $452. On November 28, 2014, the common shareholders (“selling shareholders”) converted 5,000,000 common shares to preferred shares. As a consequence, the number of common shares was reduced to 660,800,003 and the number of preferred shares increased in 5,000,000 to 336,187,285 preferred shares. The following is a summary of authorized, issued and paid shares: December 31, 2016 December 31, 2015 Authorized shares 4,000,000,000 4,000,000,000 Issued and paid common stock 660,800,003 660,800,003 Issued and paid preferred stock 336,187,285 336,187,285

Sale of minority shareholding In August 2015 Avianca Holdings S.A. and Advent International (“Advent”), one of the largest and most experienced global private equity investors, signed a definitive agreement pursuant to which Advent acquired 3,000 common shares of LifeMiles B.V., representing a 30% minority shareholding interest in LifeMiles B.V. In connection with this transaction the Company recognized a total amount of $301,389 recorded directly to equity, net of related transaction costs.

86 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Other Comprehensive Income (“OCI”) Reserves The movement of the other comprehensive income as of December 31, 2016 and 2015 is as follows: Income tax reserves relating to (4) Reserves relating Reserve Revaluation of Hedging Fair value to actuarial gains relating to administrative reserves reserves and losses Hedging Fair value actuarial gains property Total OCI (1) (2) (3) reserves reserves and losses (5) Reserves As of December 31, 2014 $ (98,898) $ (3,098) $ (36,388) $ 12,678 $ 683 $ 7,444 $ 24,550 $ (93,029)

Other comprehensive income (loss) in the period 77,308 3,098 541 (12,678) (680) 3,410 (6,156) 64,843 As of December 31, 2015 $ (21,590) $ — $ (35,847) $ — $ 3 $ 10,854 $ 18,394 $ (28,186) Other comprehensive income 21,712 (245) 4,094 (3,558) — 4,289 8,971 35,263 (loss) in the period As of December 31, 2016 $ 122 $ (245) $ (31,753) $ (3,558) $ 3 $ 15,143 $ 27,365 $ 7,077

(1) Hedging Reserves The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition of the hedged cash flows (See Note 26). (2) Fair value reserves The fair value reserve comprises the cumulative net change in the fair value of available–for–sale financial assets until the assets are derecognized or impaired. (3) Reserve relating to actuarial gains and losses It comprises actuarial gains or losses on defined benefit plans and post–retirement medical benefits recognized in other comprehensive income.

87 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(4) Income tax on other comprehensive income Whenever an item of other comprehensive income gives rise to a temporary difference, a deferred income tax asset or liability is recognized directly in other comprehensive income (5) Revaluation of administrative property Revaluation of administrative property is related to the revaluation of administrative buildings and property in Colombia, Costa Rica, and El Salvador. The revaluation reserve is adjusted for increases or decreases in fair values of such property. The following provides an analysis of items presented net in the statement of profit or loss and other comprehensive income which have been subject to reclassification, without considering items remaining in OCI which are never reclassified to profit of loss: 2016 2015 2014 Cash flow hedges: Reclassification during the year to profit or loss $ 34,882 $ 144,372 $ 8,864 Effective valuation of cash flow hedged (13,170) (67,064) (122,113) $ 21,712 $ 77,308 $ (113,249) Fair value reserves: Valuations of available–for–sale investments $ (245) 3,098 (1,527) $ (245) $ 3,098 $ (1,527) Income tax on other comprehensive income: Reclassification during the year to profit or loss $ (12,801) $ (13,358) $ 15,068 Temporary differences within OCI 9,243 — (249) $ (3,558) $ (13,358) $ 14,819 Dividends The following dividends were paid by the Company during the years ended December 31, 2016 y 2015: December December 31, 2016 31, 2015 Dividend - Ordinary shared $ — $ 44,215 Dividend - Preferred shared 5,723 22,873 Total $ 5,723 $ 67,088

88 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

In March 2016, preferred dividends of $5,723 (COP$50 per share) were declared, and will be paid in four equal installments of COP$12.50 per preferred share. The four installments were paid on April 1, 2016, July 1, 2016, October 7, 2016 and December 16, 2016, based on retained earnings as of December 31, 2015. Dividends of $67,088 (approximately $6.7 cent per share) were declared in September 2015, and paid on October 2015. Dividends of 75/0.04 COP$/$ per share were declared in March 2014 and paid in April 2014 based on profits for the year 2013. Dividends related to minority interest of Lifemiles BV of $26,100 were declared and paid during 2016. These dividends are distributed as follows: $6,600 based on profits of the year 2015 and $19,500 from anticipated dividends relating to the current period. Additionally, on December 16, 2015 the Company paid dividends corresponding to the minority shareholding of LifeMiles B.V. in the amount of $3,750.

(25) Operating revenue The Company had no major customers which represented more than 10% of revenues in 2016 and 2015. The Company tracks its segmented gross revenue information by type of service rendered and by region, as follows: By type of service rendered Year ended Year ended Year on December 31, December 31, Year Percentage Percentage 2016 2015 Variation Domestic Passenger $ 1,752,001 42% $ 1,363,285 31% $ 388,716 Cargo and mail 264,432 6% 234,362 5% 30,070 2,016,433 48% 1,597,647 36% 418,786 International Passenger 1,533,216 37% 2,094,732 48% (561,516) Cargo and mail 291,442 7% 390,163 9% (98,721) 1,824,658 44% 2,484,895 57% (660,237) Other (1) 297,247 8% 278,799 7% 18,448 Total operating revenues $ 4,138,338 100% $ 4,361,341 100% $ (223,003)

89 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Year ended Year ended Year on December 31, Percentage December 31, Percentage Year 2015 2014 Variation Domestic Passenger $ 1,363,285 31% $ 1,071,254 23% $ 292,031 Cargo and mail 234,362 5% 240,134 5% (5,772) 1,597,647 36% 1,311,388 28% 286,259 International Passenger 2,094,732 48% 2,791,467 59% (696,735) Cargo and mail 390,163 9% 324,728 7% 65,435 2,484,895 57% 3,116,195 66% (631,300) Other (1) 278,799 7% 275,988 6% 2,811 Total operating revenues $ 4,361,341 100% $ 4,703,571 100% $ (342,230)

(1) Other operating revenue Other operating revenue for the years ended December 31, 2016, 2015 and 2014 is as follows: December 31, December 31, December 31, 2016 2015 2014 Frequent flyer program $ 154,245 $ 139,524 $ 141,402 Ground operations (a) 21,053 19,545 20,756 Leases 28,295 30,144 30,744 Maintenance 7,696 8,963 16,624 Interline 3,859 1,831 1,565 Other 82,099 78,792 64,897 $ 297,247 $ 278,799 $ 275,988 (a) Company provides services to other airlines at main hub airports.

90 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(26) Derivatives recognized as hedging instruments Financial instruments recognized as hedging instruments at fair value though other comprehensive income as of December 31, 2016 and 2015 are the following: December 31, December 31, Notes 2016 2015 Cash flow hedges – Assets Fuel price hedges $ 25,540 $ 882 Interest rate 797  Total 12 $ 26,337 $ 882 Cash flow hedges – Liabilities Interest Rate 22 $ 20 $ 1,635 Total $ 20 $ 1,635 Financial assets and liabilities at fair value through other comprehensive income reflect the change in fair value of fuel price derivative contracts designated as cash flow hedges. Hedged items are designated future purchases deemed as highly probable forecast transactions. Cash flow hedges liabilities are recognized within Other Liabilities in the Consolidated Statement of Financial Position. The Company purchases jet fuel on an ongoing basis as its operating activities require a continuous supply of this commodity. The increased volatility in jet fuel prices has led the Company to the decision to enter into commodity contracts. These contracts are expected to reduce the volatility attributable to fluctuations in jet fuel prices for highly probable forecast jet fuel purchases, in accordance with the risk management strategy outlined by the Board of Directors. The contracts are intended to hedge the volatility of the jet fuel prices for a period between three and twelve months based on existing purchase agreements. The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur, and the fair values of the related hedging instruments.

Fair Value 1–12 months Fuel price Assets $ 25,540 $ 25,540 Interest rate Assets $ 797 $ 797 Liabilities $ 20 $ 20

91 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The terms of the cash flos hedging contracts have been negotiated for the expected highly probable forecast transactions to which hedge accounting has been applied. As of December 31, 2016 and 2015, a net gain relating to the hedging instruments of $21,712 and $77,308, respectively is included in other comprehensive income (see Note 24).

(27) Derivative financial instruments Derivative financial instruments at fair value through profit or loss as of December 31, 2016 and 2015 are the following: December 31, December 31, Notes 2016 2015

Derivatives not designated as hedges – Assets Derivative contracts of interest rate 12 $  $ 90 Total $  $ 90

Derivatives not designated as hedges – Liabilities Derivative contracts of interest rate 22 $ 508 $ 2,134 Total $ 508 $ 2,134 Financial instruments through profit or loss are derivative contracts not designated as hedges for accounting purposes that are intended to reduce the levels of risk of foreign currency and interest rates. Liabilities on derivatives not designated as hedges are recognized within Other Liabilities in the Consolidated Statement of Financial Position. Foreign currency risk Certain foreign currency forward contracts are measured at fair value through profit or loss and are not designated as hedging instruments for accounting purposes. The foreign currency forward contract balances vary with the level of expected foreign currency sales and purchases and changes in foreign currency forward rates. Interest rate risk The Company incurs interest rate risk primarily on financial obligations to banks and aircraft lessors. Certain financial derivative instruments are recognized at fair value through profit or loss and are not designated as hedging instruments for accounting purposes. The interest rate contracts vary according to the level of expected interest payable and changes in interest rates of financial obligations. Interest rate risk is managed through a mix of fixed and floating rates on loans and lease agreements, combined with interest rate swaps and options. Under these agreements, the Company pays a fixed rate and receives a variable rate.

92 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(28) Offsetting of Financial Instruments The Company has derivative instruments that could meet the offsetting criteria in paragraph 42 of IAS 32 given that the Company has signed with its counterparties enforceable master netting arrangements. Consequently, when derivatives signed with the same counterparty and for the same type of notional result in gross assets and liabilities, the positions are set off resulting in the presentation of a net derivative. As of December 31, 2016 and 2015, the Company has not set off derivative instruments because it has not had gross assets and liabilities with the same counterparty for the same type of notional.

(29) Fair value measurements The fair values of financial assets and liabilities, together with the carrying amounts shown in the Consolidated Statement of Financial Position as of December 31, 2016 are as follows:

December 31, 2016 Carrying Notes amount Fair value Financial assets Available–for–sale securities 6 $ 76 $ 76 Derivative instruments 26, 27 26,337 26,337 $ 26,413 $ 26,413 Financial liabilities Short term borrowings and long–term debt 16 $ 3,274,235 $ 3,241,240 Derivative instruments 22 528 528 $ 3,274,763 $ 3,241,768 The fair values of financial assets and liabilities, together with the carrying amounts shown in the Consolidated Statement of Financial Position as of December 31, 2015 are as follows:

December 31, 2015 Carrying Notes amount Fair value Financial assets Available–for–sale securities 6 $ 793 $ 793 Derivative instruments 26, 27 972 972 $ 1,765 $ 1,765 Financial liabilities Short term borrowings and long–term debt 16 $ 3,472,994 $ 3,296,534 Derivative instruments 22 3,769 3,769 $ 3,476,763 $ 3,300,303

93 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The fair value of the financial assets and liabilities corresponds the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Management assessed that cash and cash equivalents, account receivable, account payable and other current liabilities approximate their carrying amount largely due to the short–term maturities of these instruments. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. (a) The fair value of available–for–sale financial assets is determined by reference to the present value of future principal and interest cash flows, discounted at a market based interest rate at the reporting date. (b) The Company enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate contracts, foreign currency forward contracts and commodity contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign currency spot and forward rates, interest rate curves and forward rate curves of the underlying commodity. (c) The fair value of short–term borrowings and long–term debt, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at a market based interest rate at the reporting date. For finance leases, the market rate is determined by reference to similar lease agreements.

94 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(d) The Company uses the revaluation model to measure its land and buildings which are composed of administrative properties. Management determined that this constitutes one class of asset under IAS 16, based on the nature, characteristics and risks of the property. The fair values of the properties were determined by using market comparable methods. This means that valuations performed by the appraisals are based on active market prices, adjusted for difference in the nature, location or condition of the specific property. The Company engaged accredited independent appraisals, to determine the fair value of its land and buildings. (e) The Frequent flyer liability is included in the Consolidated Statement of Financial Position within Air traffic liability. The Company estimates the fair value of miles awarded under the LifeMiles program by applying statistical techniques. Inputs to the models include making assumptions about expected redemption rates, the mix of products that will be available for redemption in the future and customer preferences. Fair values hierarchy The table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or Level 3 inputs are unobservable inputs for the asset or liability. For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re–assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

95 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities as of December 31, 2016: Quantitative disclosures of fair value measurement hierarchy for assets: Fair value measurement using Quoted prices in Significant Significant active observable unobservable markets inputs inputs Assets measured at fair value (Level 1) (Level 2) (Level 3) Total Derivative financial assets (Note 26 and 27) Aircraft fuel hedges — 25,540 — 25,540 Interest rate derivatives — 797 — 797 Available–for–sale securities (Note 6) — 76 — 76 Revalued administrative property (Note 13) — 149,371 — 149,371

Quantitative disclosures of fair value measurement hierarchy for liabilities: Fair value measurement using Quoted prices Significant Significant in active observable unobservable Liabilities measured at fair markets inputs inputs value (Level 1) (Level 2) (Level 3) Total Derivative financial liabilities (Note 26 and 27) Foreing currency derivatives — 528 — 528 Frequent flyer liability (Note 21) — 171,848 — 171,848 Liabilities for which fair values are disclosed Short–term borrowings and long–term debt (Note 16) — 3,241,240 — 3,241,240

96 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities as of December 31, 2015: Quantitative disclosures of fair value measurement hierarchy for assets: Fair value measurement using Quoted prices in Significant Significant active observable unobservable markets inputs inputs Assets measured at fair value (Level 1) (Level 2) (Level 3) Total Derivative financial assets (Note 26 and 27) Aircraft fuel hedges — 882 — 882 Interest rate derivatives — 90 — 90 Available–for–sale securities (Note 6) — 793 — 793 Assets held for sale — 3,323 — 3,323 Revalued administrative property (Note 13) — 70,071 — 70,071

Quantitative disclosures of fair value measurement hierarchy for liabilities: Fair value measurement using Quoted prices Significant Significant in active observable unobservable Liabilities measured at fair markets inputs inputs value (Level 1) (Level 2) (Level 3) Total Derivative financial liabilities (Note 26 and 27) Interest rate derivatives — 3,769 — 3,769 Frequent flyer liability (Note 21) — 164,068 — 164,068 Liabilities for which fair values are disclosed Short–term borrowings and long–term debt (Note 16) — 3,296,534 — 3,296,534

97 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(30) Income tax expense The major components of income tax expense for the years ended December 31, 2016, 2015 and 2014 are: Consolidated statement of comprehensive income December 31, December 31, December 31, 2016 2015 2014 Current income tax: Current income tax charge $ 28,114 $ 19,491 $ 33,781 Adjustment in respect of current income tax of previous year (666) (2,211) — Deferred tax expense: Relating to origination and reversal of temporary differences 6,642 13,748 16,499 Income tax expense reported in the income statement $ 34,090 $ 31,028 $ 50,280

Consolidated statement of other comprehensive income Hedging reserves (3,558) (12,678) 14,433 Fair value reserves — (680) 386 Reserves relating to actuarial gains and losses 4,289 3,410 (2,239) Income tax charged directly to other comprehensive income $ 731 $ (9,948) $ 12,580

98 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

A reconciliation between tax expense and the product of accounting profit multiplied by domestic tax rate for the years ended December 31, 2016, 2015 and 2014 is as follows:

December 31, December 31, December 31, 2016 2015 2014 Accounting profit (loss) after income tax $ 44,186 $ (139,506) $ 128,494 Total income tax expense 34,090 31,028 50,280 Profit (loss) before income tax $ 78,276 $ (108,478) $ 178,774

Income tax at Colombian statutory rate 40.00% 31,311 39.0% (42,306) 34.0% 60,783 Tax credit (1) (5.74%) (4,493) 2.6% (2,816) (9.5%) (17,049) Productive fixed assets special deduction (22.10%) (17,299) 47.0% (51,003) (0.6%) (1,142) Permanent differences (2) (346.48%) (271,209) 47.7% (51,769) (1.8%) (3,241) Non–deductible taxes 15.01% 11,749 (2.7%) 2,893 1.0% 1,785 Effect of tax exemptions and tax rates in foreign jurisdictions 71.56% 56,014 (24.9%) 27,030 3.8% 6,852 Non recognized deferred tax assets 248.77% 194,732 (94.5%) 102,553 0.00% — Exchange rate differences 107.20% 83,916 37.3% (40,483) (3.3%) (5,924) Prior year expenses (13.10%) (10,254) (0.8%) 878 0.6% 1,135 Changes in tax rates (51.58%) (40,377) (79.3%) 86,051 3.9% 7,081 43.55% $ 34,090 28.6% $ 31,028 28.1% $ 50,280 (1) Airline companies in Colombia are entitled to a tax credit or discount for income tax purposes based on the proportion between the international flights income and total income of the Company during the year. The legislative purpose of this tax provision is to limit the Company’s exposure to double taxation on their worldwide income in Colombia, therefore limiting the tax expense to local Colombian source income. The tax reform contained in the Law 1819 of 2016 eliminates the tax credit for air or marine international transportation above noted, such tax credit will only be applicable until tax year 2016.

99 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

(2) This item includes various permanent differences for Corporate Income Tax purposes in Colombia. These permanent differences include non taxable gains and losses on the sale of property, plant and equipment, non taxable revenues and other items. Below we show an analysis of the Company’s deferred tax assets and liabilities:

Consolidated Statement of Financial Position Variation December 31, December 31, December 31, December 31, December 31, 2016 2015 2014 2016 2015 Assets (liabilities) Accounts payable $ 446 $ 4,470 $ 15,970 $ (4,024) $ (11,500) Inflation adjustments — (23) 759 23 (782) Deposits and other assets (12,183) (157) (3,551) (12,026) 3,394 Aircraft maintenance (3,448) 787 (5,410) (4,235) 6,197 Pension liabilities 25,842 (19,541) (20,514) 45,383 973 Provisions 66,947 48,561 46,834 18,386 1,727 Loss carry forwards 16,641 31,035 736 (14,394) 30,299 Non-monetary items (92,832) (57,913) — (34,919) (57,913) Intangible assets (12,031) (12,582) (12,582) 551 — Other (3,889) (2,265) (2,338) (1,624) 73 Net deferred tax assets / (liabilities) $ (14,507) $ (7,628) $ 19,904 $ (6,879) $ (27,532)

Reflected in the statement of financial position as follows:

Deferred tax assets $ 5,845 $ 5,847 $ 35,664 Deferred tax liabilities (20,352) (13,475) (15,760) Deferred tax assets (liabilities) net $ (14,507) $ (7,628) $ 19,904

100 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

Reconciliation of deferred tax assets net December 31, December 31, 2016 2015 Opening balance as of January 1, $ (7,628) $ 19,904 Tax income during the period recognized in profit or loss (6,642) (13,748) Tax income during the period recognized in other 731 comprehensive income (9,948) Exchange differences (968) (3,836) Closing balance as of December 31 $ (14,507) $ (7,628)

Income Tax Tax Credits As of December 31 2016, the Company’s subsidiaries have tax loss carryforwards of approximately US$698 million and excess of presumptive income tax of approximately US$12 million, which are available to offset in future taxable income in the relevant jurisdictions, if any, where appropriate. The Company has deferred tax asset corresponding to the aforementioned tax losses for US$208. However, according to the Company’s financial projections no tax income will be generated for the next 5 years to allow the compensation of the deferred tax assets. Therefore, said deferred tax assets has only been recognized by an amount up to the concurrence of deferred tax liabilities, according to IAS12 paragraph 35. Subsidiaries Investments Because Avianca S.A. and Tampa Cargo S.A. are the dominant companies in their subsidiaries and are able to control the future moment in which the temporary difference related to their investments in such subsidiaries can be reversed. Consequently, due to this temporary difference, which amount to US$167 million, will not be reversed in a foreseeable future, the Companies have decided not to recognize deferred tax related with such investments according to the exception to IAS12 paragraphs 39 and 44. Tax Reform – Law 1819, 2016 Modifies the Tax Law to reconcile the income, tax treatments, tax costs and deductions with the application of Regulatory Frameworks. Eliminates the Income Tax for Equity (CREE), and stablishes a general tax rate for income and complementary tax of 34% for tax year 2017 and 33% for 2018 and beyond. Stablishes an income and complementary tax surcharge for tax bases over US$275,000 approximately, of 6% for 2017 and 4% for 2018. The tax losses incurred before 2017 on income and complementary tax and/or income tax on equity, will be limited to the result of applying the formula mentioned in Article 290, subsection 5 of the Tax Law.

101 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The applicable rate to determine the presumptive income, according to the net equity of the Company as of December 31 of the previous year.

(31) Provisions for legal claims As of December 31, 2016 and 2015, the Company is involved in various claims and legal actions arising in the ordinary course of business. Out of the total claims and legal actions Management has estimated a probable loss of $18,516 and $13,386, respectively. These claims have been accrued for in the Consolidated Statement of Financial Position within “Provisions for legal claims”. Certain proceedings are considered possible obligations. Based on the plaintiffs’ claims, as of December 31, 2016 and 2015, these contingencies amount to a total of $95,363 and $73,504, respectively. Certain losses which may result from those proceedings will be covered either by insurance companies or with funds provided by third parties. The proceedings that will not be settled using the aforementioned forms of payment are estimated at $63,972 as of December 31, 2016 and $43,514 as of December 31, 2015. In accordance with IAS 37, proceedings that the Company considers to represent a remote risk are not accrued in the Consolidated Financial Statements.

(32) Future aircraft leases payments The Company has 65 aircraft under operating leases with an average remaining lease term of 41 months. Operating leases may be renewed in accordance with management’s business plan. Future operating lease commitments are as follows: Aircraft

Less than one year $ 250,060 Between one and five years 616,200 More than five years 123,112 $ 989,372

The Company has seven spare engines under operating leases for its E190 and A320 family aircraft. Future operating lease commitments are as follows:

Engines

Less than one year $ 3,967 Between one and five years 9,186 $ 13,153

102 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

As of December 31, 2016, the Company had two Airbus A319, one Airbus A330F, under operating lease to OceanAir Linhas Aéreas, S.A. and two E-190 to Aerolitoral, S.A. de C.V. Future minimum income from these lease agreements is as follows: Aircraft

Less than one year $ 22,885 Between one and five years 79,401 More than five years 47,382 $ 149,668 The amount of recognized payments has expenses during the period is as follows:

December December December 2016 2015 2014 Leases minimun payments $ 314,493 $ 317,505 $ 299,220

(33) Acquisition of aircraft In accordance with the agreements in effect, future commitments related to the acquisition of aircraft and engines are as follows: Airbus – The Company has 137 firm orders for the acquisition of A320 family aircraft with deliveries scheduled between 2017 and 2025. Under the terms of these agreements to acquire Airbus aircraft, the Company must make pre-delivery payments to Airbus on predetermined dates. Boeing – The Company has 5 firm orders for the acquisition of B787-8 aircraft with deliveries scheduled between 2017 and 2019 as well as 10 purchase options. German Aviation Capital GMBH – The Company has 1 firm order for the adquisition of one A300F aircraft with delivery scheduled in 2017. ATR – The Company has up to 15 purchase options. Other – The Company has 7 firm orders for the acquisition of spare engines with deliveries between 2017 and 2020. On November 2016, the Company also signed two Aircraft Sale and PurchaseAgreement between German Aviation Capital GMBH and Avianca. Each agreement for 1 A300B4- 605L aircraft with delivery dates December 2016. In December 2016, one aircraft was delivered and the second one is planned for January 2017.

103 AVIANCA HOLDINGS S.A. AND SUBSIDIARIES (Republic of Panama)

Notes to Consolidated Financial Statements (In USD thousands)

The value of the final purchase orders is based on the aircraft price list (excluding discounts and contractual credits granted by the manufacturers) and including estimated incremental costs. As of December 31, 2016, commitments acquired with manufacturers for the purchase of aircraft and advance payments are summarized below. Advance payments are subsequently applied to aircraft acquisition commitments. In line with Avianca Holdings S.A.’s initiatives directed towards enhancing profitability, achieving a leaner capital structure as well as reducing the current levels of debt; On April 2016, the Company negotiated a significant reduction, of its scheduled aircraft deliveries in 2016, 2017, 2018 and 2019 and changes some aircraft type both, upgrades and downgrades with Airbus SAS with deliveries scheduled between 2016 and 2025,which modifies the advanced payments and airctraft acquisition as follows:

Year one Year two Year three Year four Thereafter Total

Advance payments $ 107,309 $ 104,665 $ 222,320 $ 224,093 $ 796,886 $ 1,455,273 Aircraft acquisition commitments $ 818,527 $ 512,940 $ 1,106,553 $ 2,123,268 $ 11,385,292 $15,946,580

(34) Subsequent events On January 31, 2017, the Company announced the following three material events to the market: (1) AVH will enter into a strategic commercial alliance with United Airlines, which terms and conditions are yet to be negotiated. The Board of Directors authorized to conduct all the analysis and to take all necessary steps in connection with such potential strategic- commercial alliance. (2) Synergy informed the intention to make a capital contribution to AVH of up to US$200.000. In this process all shareholders, including preferred shareholders, would have the opportunity to participate in such capitalization on a pro-rata basis. This proposed capitalization would be subject to all necessary corporate, regulatory and other approvals. (3) Synergy also informed of its intention to seek all necessary approvals for the eventual combination the Company with (OceanAir), a Brazilian airline controlled by Synergy, on fair and reasonable terms for both companies.

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