424B7
As filed pursuant to Rule 424(b)(7)
Registration
Number 333-150882
PROSPECTUS
3,977,300 Shares
Copa Holdings,
S.A.
CLASS A COMMON
STOCK
The selling shareholder identified in this prospectus is
offering 3,977,300 shares of Class A common stock, or
Class A Shares, to be sold in this offering.
The Class A Shares are listed on the New York Stock
Exchange, under the symbol CPA. On May 15,
2008, the reported last sale price of the Class A Shares
was $35.83 per share.
Investing in the companys Class A Shares
involves risks. See Risk Factors beginning on
page 15.
PRICE
$35.75 A SHARE
|
|
|
|
|
|
|
|
|
|
|
Underwriters
|
|
Proceeds to
|
|
|
Price to
|
|
Discounts and
|
|
Selling
|
|
|
Public
|
|
Commissions
|
|
Shareholder
|
|
Per Share
|
|
$35.75
|
|
$1.52
|
|
$34.23
|
Total
|
|
$142,188,475
|
|
$6,043,110
|
|
$136,145,365
|
Copa Holdings, S.A. will not receive any proceeds from the
sale by the selling shareholder of Class A Shares in this
offering.
The selling shareholder has granted the underwriters the
right to purchase up to an additional 397,700 Class A
Shares to cover over-allotments.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved these securities or
passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to
deliver the Class A Shares to purchasers on May 21,
2008.
MORGAN STANLEY
UBS INVESTMENT
BANK
May 15, 2008
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
15
|
|
|
|
|
34
|
|
|
|
|
35
|
|
|
|
|
35
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
48
|
|
|
|
|
51
|
|
|
|
|
55
|
|
|
|
|
55
|
|
|
|
|
55
|
|
|
|
|
56
|
|
|
|
|
57
|
|
You should rely only on the information contained in this
prospectus. Neither we nor the selling shareholder have, and the
underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. Neither we nor the selling shareholder are, and the
underwriters are not, making an offer to sell these securities
in any jurisdiction where the offer or sale is not permitted.
This document may only be used where it is legal to sell these
securities. You should assume that the information appearing in
this prospectus is accurate only as of the date on the front
cover of this prospectus, regardless of when this prospectus is
delivered or when any sale of the Class A Shares occurs.
Our business, financial condition, results of operations and
prospects may have changed since that date.
In this prospectus, we use the terms Copa Holdings
or the Company to refer to Copa Holdings, S.A.,
Copa or Copa Airlines to refer to
Compañía Panameña de Aviación, S.A., a
subsidiary of Copa Holdings, S.A., and
AeroRepública to refer to AeroRepública,
S.A., a subsidiary of Copa Holdings, S.A. The terms
we, us and our refer to Copa
Holdings, S.A. together with its subsidiaries, except where the
context requires otherwise. References to Class A
Shares refer to Class A Shares of Copa Holdings, S.A.
Unless otherwise indicated, all information contained in this
prospectus assumes no exercise of the underwriters option
to purchase up to 397,700 additional shares of Class A
common stock to cover over-allotments.
Certain figures included in this prospectus have been subject to
rounding adjustments. Accordingly, figures shown as totals in
certain tables may not be an arithmetic aggregation of the
figures that precede them.
MARKET
DATA
This prospectus contains certain statistical data regarding our
airline routes and our competitive position and market share in,
and the market size of, the Latin American airline industry.
This information has been derived from a variety of sources,
including the International Air Transport Association, the
U.S. Federal Aviation Administration, the International
Monetary Fund and other third-party sources, governmental
agencies or industry or general publications. Information for
which no source is cited has been prepared by us on the basis of
our knowledge of Latin American airline markets and other
information available to us. The methodology and terminology
used by different sources are not always consistent, and data
from different sources are not readily comparable. In addition,
sources other than us use methodologies that are not identical
to ours and may produce results that differ from our own
estimates. Although we have not independently verified the
information concerning our competitive position, market share,
market size, market growth or other similar data provided by
third-party sources or by industry or general publications, we
believe these sources and publications are generally accurate
and reliable.
SUMMARY
This summary highlights selected information about us and the
Class A Shares being offered by the selling shareholder. It
may not contain all of the information that may be important to
you. Before investing in the Class A Shares, you should
read this entire prospectus carefully for a more complete
understanding of our business and this offering, including the
section entitled Risk Factors and the documents
incorporated by reference herein, including our annual report on
Form 20-F
for the year ended December 31, 2007, copies of which may
be obtained as indicated under Where You Can Find More
Information.
Overview
We are a leading Latin American provider of airline passenger
and cargo service through our two principal operating
subsidiaries, Copa and AeroRepública. Copa operates from
its strategically located position in the Republic of Panama,
and AeroRepública provides service primarily within
Colombia complemented by international flights from various
cities in Colombia to Panamas Tocumen International
Airport. We currently operate a fleet of 50 aircraft: 26 Boeing
737-Next Generation aircraft, 18 Embraer 190 aircraft and six
MD-80 aircraft. We currently have firm orders, including
purchase and lease commitments, for ten Boeing 737-Next
Generation and eight Embraer 190s, and purchase rights and
options for up to eight additional Boeing 737-Next Generation
and 22 additional Embraer 190s.
Copa was established in 1947 and currently offers approximately
125 daily scheduled flights among 40 destinations in 21
countries in North, Central and South America and the Caribbean
from its Panama City hub. Copa provides passengers with access
to flights to more than 120 other destinations through codeshare
arrangements with Continental Airlines, Inc., or Continental,
pursuant to which each airline places its name and flight
designation code on the others flights. Through its Panama
City hub, Copa is able to consolidate passenger traffic from
multiple points to serve each destination effectively.
Copa operates a modern fleet of 26 Boeing 737-Next Generation
aircraft and 11 Embraer 190 aircraft with an average age of
approximately 3.7 years as of December 31, 2007. To
meet its growing capacity requirements, Copa has firm orders,
including purchase and lease commitments, to accept delivery of
14 additional aircraft through 2012 and has purchase rights and
options that, if exercised, would allow it to accept delivery of
up to 22 additional aircraft through 2013. Copas firm
orders, including purchase and lease commitments, are for ten
additional Boeing 737-Next Generation aircraft and four
additional Embraer 190s, and its purchase rights and options are
for up to eight Boeing 737-Next Generation aircraft and up to 14
Embraer 190s.
Copa started its strategic alliance with Continental in 1998.
Since then, it has conducted joint marketing and code-sharing
arrangements, and participated in the award-winning OnePass
frequent flyer loyalty program globally and on a co-branded
basis in Latin America. We believe that Copas co-branding
and joint marketing activities with Continental have enhanced
its brand in Latin America, and that the relationship with
Continental has afforded it cost-related benefits, such as
improving purchasing power in negotiations with aircraft vendors
and insurers. Copas alliance and related services
agreements with Continental are in effect until at least 2015
subject to certain early termination rights.
In 2007, Copa joined the SkyTeam global alliance as an Associate
Member, in part due to the support and sponsorship of
Continental. The SkyTeam global alliance network includes
carriers such as Delta Air Lines, Northwest, Aeromexico, Air
France, Alitalia, KLM, Korean Air, AeroFlot, CSA Czech and China
Southern. As an Associate Member of SkyTeam, passengers flying
Copa receive the same alliance benefits on Copa flights as they
receive on the flights of any other member of this alliance.
During the second quarter of 2005, we purchased
AeroRepública, a Colombian air carrier that was the
second-largest domestic carrier in Colombia in terms of number
of passengers carried in 2005, providing predominantly
point-to-point
service among 12 cities in Colombia and to Copas
Panama City hub. AeroRepública currently operates a fleet
of seven Embraer 190 and six MD-80s. As part of its fleet
modernization and expansion plan, AeroRepública has firm
orders, including purchase and lease commitments, to accept
delivery of four Embraer 190 aircraft through the end of 2009
and options to purchase up to eight additional Embraer 190
aircraft through 2011.
1
Since January 2001, we have grown significantly and have
established a track record of consistent profitability,
recording seven consecutive years of increasing earnings. Our
total operating revenues have increased from $290.4 million
in 2001 to $1.0 billion in 2007, while our net income has
increased from $14.8 million to $161.8 million over
the same period. Our operating margins also improved from 8.6%
in 2001 to 19.2% in 2007.
Our
Strengths
We believe our primary business strengths that have allowed us
to compete successfully in the airline industry include the
following:
|
|
|
|
|
Our Hub of the Americas Airport is Strategically
Located. We believe that Copas base of
operations at the geographically central location of Tocumen
International Airport in Panama City, Panama provides convenient
connections to our principal markets in North, Central and South
America and the Caribbean, enabling us to consolidate traffic to
serve several destinations that do not generate enough demand to
justify
point-to-point
service. Flights from Panama operate with few service
disruptions due to weather, contributing to high completion
factors and on-time performance. Tocumen International
Airports sea-level altitude allows our aircraft to operate
without performance restrictions that they would be subject to
at higher-altitude airports. We believe that Copas hub in
Panama allows us to benefit from Panama Citys status as a
center for financial services, shipping and commerce and from
Panamas stable, dollar-based economy, free-trade zone and
growing tourism industry.
|
|
|
|
We Focus on Keeping Our Operating Costs
Low. In recent years, our low operating costs and
efficiency have contributed significantly to our profitability.
Our operating cost per available seat mile, excluding costs for
fuel and fleet impairment charges, was 7.17 cents in 2003, 7.01
cents in 2004, 6.53 cents in 2005, 6.81 cents in 2006 and 7.13
cents in 2007. We believe that our cost per available seat mile
reflects our modern fleet, efficient operations and the
competitive cost of labor in Panama.
|
|
|
|
Copa Operates a Modern Fleet. Copas
fleet consists of modern Boeing 737-Next Generation and Embraer
190 aircraft equipped with winglets and other modern cost-saving
and safety features. Over the next years, Copa intends to
enhance its modern fleet through the addition of at least ten
additional Boeing 737-Next Generation aircraft and four new
Embraer 190s. We believe that Copas modern fleet
contributes to its on-time performance and high completion
factor (percentage of scheduled flights not cancelled). We
expect our Boeing
737-700s,
737-800s and
Embraer 190s to continue offering substantial operational cost
advantages in terms of fuel efficiency and maintenance costs.
AeroRepública is currently implementing a fleet
modernization and expansion plan. Since December 2006,
AeroRepública has taken delivery of eight Embraer 190
aircraft and had firm commitments on four additional Embraer
190s and options for an additional eight Embraer 190 aircraft.
|
|
|
|
We Believe Copa Has a Strong Brand and a Reputation for
Quality Service. We believe that the Copa brand
is associated with value to passengers, providing world-class
service and competitive pricing. For the year ended
December 31, 2007, Copa Airlines statistic for
on-time performance was 86.9%, completion factor was 99.7% and
baggage handling was 2.1 mishandled bags per 1000 passengers.
Our goal is to apply our expertise in these areas to improve
AeroRepúblicas service statistics to comparable
levels. Our focus on customer service has helped to build
passenger loyalty. We believe that our brand has also been
enhanced through our relationship with Continental, including
our joint marketing of the OnePass loyalty program in Latin
America, the similarity of our aircraft livery and aircraft
interiors and our participation in Continentals
Presidents Club lounge program.
|
|
|
|
Our Management Fosters a Culture of Teamwork and Continuous
Improvement. Our management team has been
successful at creating a culture based on teamwork and focused
on continuous improvement. Each of our employees at Copa has
individual objectives based on corporate goals that serve as a
basis for measuring performance. When corporate operational and
financial targets are met, employees at Copa are eligible to
receive bonuses according to our profit sharing program. We also
recognize outstanding performance of individual employees
through company-wide recognition, one-time awards, special
events and, in the case of our senior management, grants of
restricted stock and stock options. Copas goal-oriented
culture and incentive programs have contributed to a motivated
work force that is focused on satisfying
|
2
|
|
|
|
|
customers, achieving efficiencies and growing profitability. We
seek to create a similar culture at AeroRepública.
|
Our
Strategy
Our goal is to continue to grow profitably and enhance our
position as a leader in Latin American aviation by providing a
combination of superior customer service, convenient schedules
and competitive fares, while maintaining competitive costs. The
key elements of our business strategy include the following:
|
|
|
|
|
Expand Our Network by Increasing Frequencies and Adding New
Destinations. We believe that demand for air
travel in Latin America is likely to expand in the next decade,
and we intend to use our increasing fleet capacity to meet this
growing demand. We intend to focus on expanding our operations
by increasing flight frequencies on our most profitable routes
and initiating service to new destinations. Copas Panama
City hub allows us to consolidate traffic and provide service to
certain underserved markets, particularly in Central America and
the Caribbean, and we intend to focus on providing new service
to regional destinations that we believe best enhance the
overall connectivity and profitability of our network. With the
addition of Embraer 190 aircraft and growth in overall capacity,
we expect to have more flexibility in scheduling our flights for
our customers convenience.
|
|
|
|
Continue to Focus on Keeping Our Costs Low. We
seek to reduce our cost per available seat mile without
sacrificing services valued by our customers as we execute our
growth plans. Our goal is to maintain a modern fleet and to make
effective use of our resources through efficient aircraft
utilization and employee productivity. We intend to reduce our
distribution costs by increasing direct sales, including
internet and call center sales, as well as improving efficiency
through technology and automated processes.
|
|
|
|
Emphasize Superior Service and Value to Our
Customers. We intend to continue to focus on
satisfying our customers and earning their loyalty by providing
a combination of superior service and competitive fares. We
believe that continuing our operational success in keeping
flights on time, reducing mishandled luggage and offering
convenient schedules to attractive destinations will be
essential to achieving this goal. We intend to continue to
incentivize our employees to improve or maintain operating and
service metrics relating to our customers satisfaction by
continuing our profit sharing plan and employee recognition
programs and to reward customer loyalty with the popular OnePass
frequent flyer program, upgrades and access to Presidents
Club lounges.
|
|
|
|
Capitalize on Opportunities at
AeroRepública. We are seeking to enhance
AeroRepúblicas profitability through a variety of
initiatives, including modernizing its fleet, integrating its
route network with Copas and improving overall efficiency.
We also seek to increase customer loyalty by making further
operational improvements at AeroRepública, such as
implementing the OnePass frequent flyer program and improving
on-time performance.
|
3
Our
Organizational Structure
The following is an organizational chart showing Copa Holdings
and its principal subsidiaries:
|
|
|
*
|
|
Includes ownership by us held
through wholly-owned holding companies organized in the British
Virgin Islands.
|
Copa is our principal airline operating subsidiary that operates
out of our hub in Panama and provides passenger service in
North, South and Central America and the Caribbean.
AeroRepública S.A. is our operating subsidiary that is
primarily engaged in domestic air travel within Colombia. Oval
Financial Leasing, Ltd. controls the special purpose vehicles
that have a beneficial interest in the majority of our aircraft.
Copa Holdings was formed on May 6, 1998 as a corporation
(sociedad anónima) duly incorporated under the laws
of Panama with an indefinite duration. Copa Holdings was
organized to be a holding company for Copa and related companies
in connection with the acquisition by Continental of its 49%
interest in us at that time.
Our principal executive offices are located at Boulevard Costa
del Este, Avenida Principal y Avenida de la Rotonda,
Urbanización Costa del Este, Complejo Business Park, Torre
Norte, Parque Lefevre, Panama City, Panama, and our telephone
number is +507
304-2677.
The website of Copa is www.copaair.com. AeroRepública
maintains a website at www.aerorepublica.com.co. Information
contained on, or accessible through, these websites is not
incorporated by reference herein and shall not be considered
part of this prospectus.
Selling
Shareholder
Our equity structure provides for two classes of stock with
different voting rights. Class A Shares initially have no
voting rights except in certain circumstances and Class B
shares are entitled to one vote per share on all matters.
Continental currently holds approximately 14.1% of our
Class A Shares, representing approximately 10% of our total
capital stock. After the completion of this offering,
Continental is expected to hold approximately 1.3% of our
Class A Shares, representing approximately 1.0% of our
total capital stock, assuming the underwriters
over-allotment option is not exercised. Corporación de
Inversiones Aéreas, S.A., or CIASA, holds all of our
Class B shares, representing approximately 29.2% of our
total capital stock and all of the voting rights associated with
our capital stock. CIASA is therefore entitled to elect a
majority of our directors and to determine the outcome of the
voting on substantially all actions that require shareholder
approval. See Description of Capital Stock.
4
RECENT
DEVELOPMENTS
Supplemental
Agreement with Continental
CIASA, controlling shareholder of Copa Holdings, and Copa
Holdings entered into a supplemental agreement with Continental,
dated May 13, 2008 (the Supplemental Agreement)
to waive the
lock-up
under the existing shareholders agreement dated June 29,
2006 (the Shareholders Agreement), which currently
restricts Continentals sale of Copa Holdings common
stock through June 29, 2008. Pursuant to the Supplemental
Agreement, CIASA waived the restrictions on Continental during
the remainder of the
lock-up
period and provided Continental with registration rights in
order to permit an underwritten registered offering of
Continentals shares, with any shares not sold in the
offering allowed to be sold pursuant to Rule 144 under the
Securities Act of 1933, as amended, or the Securities Act. The
Supplemental Agreement also amends the existing shareholders
agreement with Continental to terminate the Shareholders
Agreement upon a sale by Continental of Continentals
shares and, in the event of such termination, to provide
Continental with the right to nominate a member of its senior
management to the Companys board of directors during the
term of the alliance agreement between Continental and the
Company.
Results
for the Three Months Ended March 31, 2008
We announced our unaudited results of operations for the three
months ended March 31, 2008 on May 8, 2008. These
results of operations are based upon our consolidated unaudited
financial information prepared in accordance with U.S. GAAP
for the three months ended March 31, 2008 and 2007, which
has not been subject to a special or limited review by our
auditors. The highlights of these results of operations are as
follows.
Consolidated revenue increased 21.9% to US$295.9 million in
the first quarter of 2008, compared to US$242.8 million in
the first quarter of 2007. Copas operating revenue
increased 20.5% or US$40.2 million in the first quarter of
2008, compared to US$196.6 million in the first quarter of
2007. This increase was primarily due to a 20.2% or
US$37.5 million increase in passenger revenue.
AeroRepúblicas operating revenue increased 31.7% or
US$14.9 million in the first quarter of 2008, compared to
US$47 million in the first quarter of 2007. During the
first quarter of 2008, AeroRepúblicas capacity
available seat miles decreased 9.7% mainly as a result of the
transition from an MD-80 fleet to an Embraer-190 fleet, as the
Embraer-190s have fewer seats, while traffic revenue passenger
miles increased 3.9%, resulting in a load factor of 62.6% or
8.2 percentage points above first quarter of 2007.
Consolidated operating income for the first quarter of 2008
decreased 14.9% to US$51.7 million, compared to operating
income of US$60.8 million for the first quarter of 2007.
This decrease partially resulted from AeroRepúblicas
operating loss of US$0.7 million in the first quarter of
2008, compared to an operating income of US$3.9 million in
the first quarter of 2007, as a result of higher fuel prices and
more scheduled maintenance events. Consolidated operating
expenses rose 34.2% to US$244.2 million in the first
quarter of 2008, compared to US$182.0 million in the first
quarter of 2007, mainly due to increases in the cost of aircraft
fuel, which totaled US$84.3 million in the first quarter of
2008. This figure represents a US$28.4 million or 50.9%
increase over aircraft fuel cost of US$55.9 million in the
first quarter of 2007. This increase was primarily a result of a
11.7% increase in gallons consumed resulting from increased
capacity and a 35.1% increase in the average price per gallon of
jet fuel. Copas operating expenses increased 32.1% to
US$184.5 million in the first quarter of 2008, compared to
US$139.7 million in the first quarter of 2007. Copas
operating expenses per available seat mile increased 13.0% to
10.8 cents in the first quarter of 2008 from 9.5 cents in the
first quarter of 2007. AeroRepúblicas operating
expenses increased 45.1% to US$62.6 million in the first
quarter of 2008, compared to US$43.1 million in the first
quarter of 2007. AeroRepúblicas operating expenses
per available seat mile (CASM) increased 60.7% to 17.3 cents in
the first quarter of 2008 from 10.8 cents in the first quarter
of 2007. Consolidated operating margin decreased from 25.0% to
17.5%, mainly as a result of increased fuel prices.
Copa Holdings reported net income of US$39.5 million, in
the first quarter of 2008, compared to US$48.6 million in
the first quarter of 2007.
5
The following table sets forth selected consolidated unaudited
financial information under U.S. GAAP for the three months
ended March 31, 2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(in thousands of dollars, except
share and per share data, capital stock and operating
data)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
Passenger revenue
|
|
$
|
230,271
|
|
|
$
|
280,224
|
|
Cargo, mail and other
|
|
|
12,479
|
|
|
|
15,662
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
242,750
|
|
|
|
295,886
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Aircraft fuel
|
|
|
55,912
|
|
|
|
84,344
|
|
Salaries and benefits
|
|
|
26,749
|
|
|
|
34,147
|
|
Passenger servicing
|
|
|
17,932
|
|
|
|
23,235
|
|
Commissions
|
|
|
14,813
|
|
|
|
16,961
|
|
Reservations and sales
|
|
|
10,997
|
|
|
|
13,256
|
|
Maintenance, material and repairs
|
|
|
11,134
|
|
|
|
17,323
|
|
Depreciation
|
|
|
7,994
|
|
|
|
10,000
|
|
Flight operations
|
|
|
9,410
|
|
|
|
12,979
|
|
Aircraft rentals
|
|
|
9,163
|
|
|
|
10,673
|
|
Landing fees and other rentals
|
|
|
6,256
|
|
|
|
8,008
|
|
Other
|
|
|
11,590
|
|
|
|
13,246
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
181,950
|
|
|
|
244,172
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
60,800
|
|
|
|
51,714
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(9,848
|
)
|
|
|
(10,980
|
)
|
Interest capitalized
|
|
|
531
|
|
|
|
521
|
|
Interest income
|
|
|
2,542
|
|
|
|
2,768
|
|
Other,
net(1)
|
|
|
(1,097
|
)
|
|
|
(420
|
)
|
|
|
|
|
|
|
|
|
|
Total non-operating income (expense)
|
|
|
(7,872
|
)
|
|
|
(8,111
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
52,928
|
|
|
|
43,603
|
|
Provision for income taxes
|
|
|
4,361
|
|
|
|
4,104
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
48,567
|
|
|
$
|
39,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
Balance Sheet Data:
|
|
|
|
|
Total cash, cash equivalents and short-term investments
|
|
$
|
305,093
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
84,194
|
|
Total current assets
|
|
|
450,185
|
|
Purchase deposits for flight equipment
|
|
|
74,046
|
|
Total property and equipment
|
|
|
1,175,249
|
|
Total assets
|
|
|
1,740,761
|
|
Long-term debt
|
|
|
739,886
|
|
Total Shareholders Equity
|
|
|
576,989
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(in thousands of dollars, except
share and per share data, capital stock and operating
data)
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
Revenue passengers
carried(2)
|
|
$
|
1,121
|
|
|
$
|
1,217
|
|
Revenue passengers
miles(3)
|
|
|
1,427
|
|
|
|
1,619
|
|
Available seat
miles(4)
|
|
|
1,868
|
|
|
|
2,077
|
|
Load
factor(5)
|
|
|
76.4
|
%
|
|
|
78.0
|
%
|
Break-even load
factor(6)
|
|
|
54.3
|
%
|
|
|
64.3
|
%
|
Yield
(cents)(7)
|
|
|
16.1
|
|
|
|
17.3
|
|
Revenue per available seat mile
(cents)(8)
|
|
|
13.0
|
|
|
|
14.2
|
|
Cost per available seat mile
(cents)(9)
|
|
|
9.7
|
|
|
|
11.8
|
|
|
|
|
(1)
|
|
Consists primarily of changes in
the fair value of fuel derivative contracts, foreign exchange
gains/losses and gains on sale of Boeing
737-200
aircraft. See Item 5. Operating and Financial Review
and Prospects and the notes to our audited consolidated
financial statements, each of which is included in our annual
report on
Form 20-F
for the year ended December 31, 2007 that is incorporated
by reference herein.
|
|
(2)
|
|
Total number of paying passengers
(including all passengers redeeming OnePass frequent flyer miles
and other travel awards) flown on all flight segments, expressed
in thousands.
|
|
(3)
|
|
Number of miles flown by scheduled
revenue passengers, expressed in millions.
|
|
(4)
|
|
Aircraft seating capacity
multiplied by the number of miles the seats are flown, expressed
in millions.
|
|
(5)
|
|
Percentage of aircraft seating
capacity that is actually utilized. Load factors are calculated
by dividing revenue passenger miles by available seat miles.
|
|
(6)
|
|
Load factor that would have
resulted in total revenues being equal to total expenses.
|
|
(7)
|
|
Average amount (in cents) one
passenger pays to fly one mile.
|
|
(8)
|
|
Total operating revenues for
passenger aircraft related costs (in cents) divided by the
number of available seat miles.
|
|
(9)
|
|
Total operating expenses for
passenger aircraft related costs (in cents) divided by the
number of available seat miles.
|
7
THE
OFFERING
|
|
|
Issuer |
|
Copa Holdings, S.A. |
|
Selling shareholder |
|
Continental Airlines, Inc. |
|
Shares offered |
|
3,977,300 Class A Shares, without par value. |
|
Over-allotment option |
|
The selling shareholder has granted the underwriters the right
for a period of 30 days to purchase up to an additional
397,700 Class A Shares solely to cover over-allotments, if
any. |
|
Offering price |
|
$35.75 per Class A share. |
|
Shares outstanding after the offering |
|
Immediately following the offering (assuming the
underwriters over-allotment option is not exercised), the
number of shares of our capital stock will be as shown below: |
|
|
|
|
|
Class A:
|
|
|
|
|
Public, including management
|
|
|
30,018,740 shares
|
|
Continental
|
|
|
397,700 shares
|
|
Total Class A Shares
|
|
|
30,416,440 shares
|
|
Class B:
|
|
|
|
|
CIASA
|
|
|
12,778,125 shares
|
|
Total outstanding shares
|
|
|
43,194,565 shares
|
|
|
|
|
Voting rights |
|
The holders of the Class A Shares have no voting rights
except with respect to certain corporate transformations,
mergers, consolidations or spin-offs, changes of our corporate
purpose, voluntary delistings of the Class A Shares from
the NYSE, approval of nominations of the independent directors
or amendments to the foregoing provisions that adversely affect
the rights and privileges of any Class A Shares. Under
certain circumstances which we believe are not likely in the
foreseeable future, each Class A share will entitle its
record holder to one vote on all matters on which our
shareholders are entitled to vote. |
|
|
|
Each Class B share is entitled to one vote on all matters
for which shareholders are entitled to vote. |
|
|
|
See Description of Capital Stock. |
|
Controlling shareholder |
|
Following this offering, CIASA will continue to beneficially own
100% of our Class B shares which will represent all of the
voting power of our capital stock. CIASA will therefore be
entitled to elect a majority of our directors and to determine
the outcome of the voting on substantially all actions that
require shareholder approval. |
|
Ownership restrictions |
|
Our independent directors have the power under certain
circumstances to control or restrict the level of non-Panamanian
ownership of our Class B shares and the exercise of voting
rights attaching to Class A Shares held by non-Panamanian
nationals in order to allow us to comply with Panamanian airline
ownership and control requirements. See Description of
Capital Stock. |
|
Tag-along rights |
|
Our board of directors may refuse to register any transfer of
shares in which CIASA proposes to sell Class B shares at a
price per share that is greater than the average public trading
price per share of the Class A Shares for the preceding
30 days to an unrelated third party that would, after
giving effect to such sale, have the right to elect a majority
of the |
8
|
|
|
|
|
board of directors and direct our management and policies,
unless the proposed purchaser agrees to make, as promptly as
possible, a public offer for the purchase of all outstanding
Class A Shares and Class B shares at a price per share
equal to the price per share paid for the CIASA shares being
sold. However, a proposed purchaser could acquire control of
Copa Holdings in a transaction that would not give holders of
Class A Shares the right to participate, including a sale
by a party that had previously acquired control from CIASA, the
sale of interests by another party in conjunction with a sale by
CIASA, the sale by CIASA of control to more than one party, or
the sale of controlling interests in CIASA itself. See
Description of Capital Stock Tag-Along
Rights. |
|
Use of proceeds |
|
We will not receive any proceeds from the sale of our
Class A Shares by the selling shareholder. |
|
Dividends |
|
Holders of the Class A and Class B shares will be
entitled to receive dividends to the extent they are declared by
our board of directors in its absolute discretion. Our Articles
of Incorporation provide that all dividends declared by our
board of directors will be paid equally with respect to all of
the Class A and Class B shares. Our board of directors
has adopted a dividend policy that contemplates the annual
payment of equal dividends to our Class A and Class B
shareholders in an aggregate amount approximately equal to 10%
of our consolidated net income for each year. This dividend
policy can be amended or discontinued by our board of directors
at any time for any reason. See Dividends and Dividend
Policy and Description of Capital Stock. |
|
Lock-up
agreements |
|
We, our directors and executive officers and CIASA have agreed,
subject to certain exceptions, not to issue or transfer without
the consent of the underwriters, until 90 days after the
date of this prospectus, any shares of our capital stock, any
options or warrants to purchase shares of our capital stock or
any securities convertible into or exchangeable for shares of
our capital stock. See Underwriters. |
|
Listing |
|
The Class A Shares trade on the NYSE. |
|
NYSE symbol for the Class A Shares |
|
CPA |
|
Risk factors |
|
See Risk Factors beginning on page 15 and the
other information included in this prospectus and in our public
filings with the SEC for a discussion of certain important risks
you should carefully consider before deciding to invest in the
Class A Shares. |
|
Expected offering timetable (subject to change): |
|
|
|
Commencement of marketing of the offering |
|
May 13, 2008 |
|
Announcement of offer price and allocation of Class A Shares |
|
May 15, 2008 |
|
Settlement and delivery of Class A Shares |
|
May 21, 2008 |
9
SUMMARY
CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
The following table presents summary consolidated financial and
operating data for each of the periods indicated. Our
consolidated financial statements are prepared in accordance
with U.S. GAAP and are stated in U.S. dollars. You
should read this information in conjunction with our
consolidated financial statements and the information under
Item 5. Operating and Financial Review and
Prospects, each of which is included in our annual report
on
Form 20-F
for the year ended December 31, 2007, which is incorporated
by reference herein.
The summary consolidated financial information as of
December 31, 2006 and 2007 and for the years ended
December 31, 2005, 2006 and 2007 has been derived from our
audited consolidated financial statements included in our annual
report on
Form 20-F
for the year ended December 31, 2007, which is incorporated
by reference herein. The consolidated financial information as
of December 31, 2003, 2004 and 2005, and for the years
ended December 31, 2003 and 2004 has been derived from our
audited consolidated financial statements that were prepared
under U.S. GAAP.
We acquired 99.9% of the stock of AeroRepública, a
Colombian air carrier, and began consolidating its results on
April 22, 2005. As a result of this acquisition, our
financial information prior to and after the acquisition is not
comparable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005(22)
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars, except
share and per share data, capital stock and operating
data)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger revenue
|
|
$
|
311,683
|
|
|
$
|
364,611
|
|
|
$
|
563,520
|
|
|
$
|
798,901
|
|
|
$
|
967,066
|
|
Cargo, mail and other
|
|
|
30,106
|
|
|
|
35,226
|
|
|
|
45,094
|
|
|
|
52,259
|
|
|
|
60,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
341,789
|
|
|
|
399,837
|
|
|
|
608,614
|
|
|
|
851,160
|
|
|
|
1,027,264
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel
|
|
|
48,512
|
|
|
|
62,549
|
|
|
|
149,303
|
|
|
|
217,730
|
|
|
|
265,387
|
|
Salaries and benefits
|
|
|
45,254
|
|
|
|
51,701
|
|
|
|
69,730
|
|
|
|
91,382
|
|
|
|
116,691
|
|
Passenger servicing
|
|
|
36,879
|
|
|
|
39,222
|
|
|
|
50,622
|
|
|
|
64,380
|
|
|
|
82,948
|
|
Commissions
|
|
|
27,681
|
|
|
|
29,073
|
|
|
|
45,087
|
|
|
|
57,808
|
|
|
|
65,930
|
|
Reservations and sales
|
|
|
18,011
|
|
|
|
22,118
|
|
|
|
29,213
|
|
|
|
38,212
|
|
|
|
48,229
|
|
Maintenance, materials and repairs
|
|
|
20,354
|
|
|
|
19,742
|
|
|
|
32,505
|
|
|
|
50,057
|
|
|
|
51,249
|
|
Depreciation
|
|
|
14,040
|
|
|
|
19,279
|
|
|
|
19,857
|
|
|
|
24,874
|
|
|
|
35,328
|
|
Flight operations
|
|
|
15,976
|
|
|
|
17,904
|
|
|
|
24,943
|
|
|
|
33,740
|
|
|
|
43,958
|
|
Aircraft rentals
|
|
|
16,686
|
|
|
|
14,445
|
|
|
|
27,631
|
|
|
|
38,169
|
|
|
|
38,636
|
|
Landing fees and other rentals
|
|
|
10,551
|
|
|
|
12,155
|
|
|
|
17,909
|
|
|
|
23,929
|
|
|
|
27,017
|
|
Other
|
|
|
25,977
|
|
|
|
29,306
|
|
|
|
32,622
|
|
|
|
44,758
|
|
|
|
55,093
|
|
Fleet impairment
charge(1)
|
|
|
3,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special fleet
charges(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,309
|
|
Gain from involuntary
conversion(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
283,493
|
|
|
|
317,494
|
|
|
|
499,422
|
|
|
|
685,039
|
|
|
|
829,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
58,296
|
|
|
|
82,343
|
|
|
|
109,192
|
|
|
|
166,121
|
|
|
|
197,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005(22)
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars, except
share and per share data, capital stock and operating data)
|
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(11,613
|
)
|
|
|
(16,488
|
)
|
|
|
(21,629
|
)
|
|
|
(29,150
|
)
|
|
|
(44,332
|
)
|
Interest capitalized
|
|
|
2,009
|
|
|
|
963
|
|
|
|
1,089
|
|
|
|
1,712
|
|
|
|
2,570
|
|
Interest income
|
|
|
887
|
|
|
|
1,423
|
|
|
|
3,544
|
|
|
|
7,257
|
|
|
|
12,193
|
|
Other,
net(4)
|
|
|
2,554
|
|
|
|
6,063
|
|
|
|
395
|
|
|
|
185
|
|
|
|
10,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating expenses, net
|
|
|
(6,163
|
)
|
|
|
(8,039
|
)
|
|
|
(16,601
|
)
|
|
|
(19,996
|
)
|
|
|
(18,582
|
)
|
Income before income taxes
|
|
|
52,133
|
|
|
|
74,304
|
|
|
|
92,591
|
|
|
|
146,125
|
|
|
|
178,926
|
|
Provision for income taxes
|
|
|
(3,644
|
)
|
|
|
(5,732
|
)
|
|
|
(9,592
|
)
|
|
|
(12,286
|
)
|
|
|
(17,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
48,489
|
|
|
|
68,572
|
|
|
|
82,999
|
|
|
|
133,839
|
|
|
|
161,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and short-term investments
|
|
$
|
61,432
|
|
|
$
|
110,943
|
|
|
$
|
114,490
|
|
|
$
|
197,380
|
|
|
$
|
308,358
|
|
Accounts receivable, net
|
|
|
31,019
|
|
|
|
27,706
|
|
|
|
46,533
|
|
|
|
62,137
|
|
|
|
74,169
|
|
Total current assets
|
|
|
103,523
|
|
|
|
152,087
|
|
|
|
184,351
|
|
|
|
290,651
|
|
|
|
435,736
|
|
Purchase deposits for flight equipment
|
|
|
45,869
|
|
|
|
7,190
|
|
|
|
52,753
|
|
|
|
65,150
|
|
|
|
64,079
|
|
Total property and equipment
|
|
|
480,488
|
|
|
|
541,211
|
|
|
|
637,543
|
|
|
|
862,283
|
|
|
|
1,166,262
|
|
Total assets
|
|
|
591,915
|
|
|
|
702,050
|
|
|
|
916,912
|
|
|
|
1,255,015
|
|
|
|
1,707,251
|
|
Long-term debt
|
|
|
311,991
|
|
|
|
380,827
|
|
|
|
402,954
|
|
|
|
529,802
|
|
|
|
732,209
|
|
Total shareholders equity
|
|
|
115,583
|
|
|
|
174,155
|
|
|
|
245,867
|
|
|
|
371,669
|
|
|
|
531,637
|
|
Capital stock
|
|
|
29,223
|
|
|
|
29,223
|
|
|
|
29,223
|
|
|
|
32,563
|
|
|
|
37,372
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
73,479
|
|
|
$
|
98,051
|
|
|
$
|
115,368
|
|
|
$
|
193,468
|
|
|
$
|
221,941
|
|
Net cash used in investing activities
|
|
|
(151,802
|
)
|
|
|
(85,738
|
)
|
|
|
(159,886
|
)
|
|
|
(258,980
|
)
|
|
|
(334,758
|
)
|
Net cash provided by financing activities
|
|
|
105,298
|
|
|
|
29,755
|
|
|
|
38,929
|
|
|
|
141,498
|
|
|
|
228,295
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(5)
|
|
|
74,890
|
|
|
|
107,685
|
|
|
|
129,444
|
|
|
|
191,180
|
|
|
|
243,823
|
|
Aircraft rentals
|
|
|
16,686
|
|
|
|
14,445
|
|
|
|
27,631
|
|
|
|
38,169
|
|
|
|
38,636
|
|
Operating
margin(6)
|
|
|
17.1
|
%
|
|
|
20.6
|
%
|
|
|
17.9
|
%
|
|
|
19.5
|
%
|
|
|
19.2
|
%
|
Weighted average shares used in computing net income per share
(basic)(7)
|
|
|
42,812,500
|
|
|
|
42,812,500
|
|
|
|
42,812,500
|
|
|
|
42,812,500
|
|
|
|
42,907,967
|
|
Weighted average shares used in computing net income per share
(diluted)(7)
|
|
|
42,812,500
|
|
|
|
42,812,500
|
|
|
|
42,812,500
|
|
|
|
43,234,553
|
|
|
|
43,463,759
|
|
Net income (loss) per share
(basic)(7)
|
|
$
|
1.13
|
|
|
$
|
1.60
|
|
|
$
|
1.94
|
|
|
$
|
3.13
|
|
|
$
|
3.77
|
|
Net income (loss) per share
(diluted)(7)
|
|
$
|
1.13
|
|
|
$
|
1.60
|
|
|
$
|
1.94
|
|
|
$
|
3.10
|
|
|
$
|
3.72
|
|
Dividends declared per share
|
|
$
|
|
|
|
$
|
0.23
|
|
|
$
|
0.24
|
|
|
$
|
0.19
|
|
|
$
|
0.31
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005(22)
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars, except
share and per share data, capital stock and operating data)
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers
carried(8)
|
|
|
2,028
|
|
|
|
2,333
|
|
|
|
4,361
|
|
|
|
5,741
|
|
|
|
6,015
|
|
Revenue passengers
miles(9)
|
|
|
2,193
|
|
|
|
2,548
|
|
|
|
3,824
|
|
|
|
5,017
|
|
|
|
5,861
|
|
Available seat
miles(10)
|
|
|
3,226
|
|
|
|
3,639
|
|
|
|
5,359
|
|
|
|
6,866
|
|
|
|
7,918
|
|
Load
factor(11)
|
|
|
68.0
|
%
|
|
|
70.0
|
%
|
|
|
71.4
|
%
|
|
|
73.1
|
%
|
|
|
74.0
|
%
|
Break-even load
factor(12)
|
|
|
52.8
|
%
|
|
|
52.6
|
%
|
|
|
57.9
|
%
|
|
|
58.0
|
%
|
|
|
58.6
|
%
|
Total block
hours(13)
|
|
|
64,909
|
|
|
|
70,228
|
|
|
|
103,628
|
|
|
|
130,818
|
|
|
|
157,200
|
|
Average daily aircraft
utilization(14)
|
|
|
9.0
|
|
|
|
9.3
|
|
|
|
9.8
|
|
|
|
9.8
|
|
|
|
9.6
|
|
Average passenger fare
|
|
|
153.7
|
|
|
|
156.3
|
|
|
|
129.2
|
|
|
|
139.2
|
|
|
|
160.8
|
|
Yield(15)
|
|
|
14.22
|
|
|
|
14.31
|
|
|
|
14.74
|
|
|
|
15.92
|
|
|
|
16.50
|
|
Passenger revenue per
ASM(16)
|
|
|
9.66
|
|
|
|
10.02
|
|
|
|
10.51
|
|
|
|
11.64
|
|
|
|
12.21
|
|
Operating revenue per
ASM(17)
|
|
|
10.60
|
|
|
|
10.99
|
|
|
|
11.36
|
|
|
|
12.40
|
|
|
|
12.97
|
|
Operating expenses per ASM
(CASM)(18)
|
|
|
8.79
|
|
|
|
8.72
|
|
|
|
9.32
|
|
|
|
9.98
|
|
|
|
10.48
|
|
Departures
|
|
|
25,702
|
|
|
|
27,434
|
|
|
|
48,934
|
|
|
|
65,471
|
|
|
|
71,893
|
|
Average daily departures
|
|
|
70.4
|
|
|
|
75.0
|
|
|
|
156.6
|
|
|
|
179.4
|
|
|
|
197.0
|
|
Average number of aircraft
|
|
|
19.8
|
|
|
|
20.6
|
|
|
|
31.0
|
|
|
|
38.6
|
|
|
|
45.0
|
|
Airports served at period end
|
|
|
28
|
|
|
|
29
|
|
|
|
36
|
|
|
|
42
|
|
|
|
46
|
|
Segment Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copa:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
341,789
|
|
|
$
|
399,837
|
|
|
$
|
505,655
|
|
|
$
|
676,168
|
|
|
$
|
806,201
|
|
Operating expenses
|
|
|
283,493
|
|
|
|
317,494
|
|
|
|
402,684
|
|
|
|
509,540
|
|
|
|
634,521
|
|
Depreciation
|
|
|
14,040
|
|
|
|
19,279
|
|
|
|
19,242
|
|
|
|
23,732
|
|
|
|
30,710
|
|
Aircraft rentals
|
|
|
16,686
|
|
|
|
14,445
|
|
|
|
22,096
|
|
|
|
23,842
|
|
|
|
27,756
|
|
Interest expense
|
|
|
11,613
|
|
|
|
16,488
|
|
|
|
19,424
|
|
|
|
26,907
|
|
|
|
36,300
|
|
Interest capitalized
|
|
|
2,009
|
|
|
|
963
|
|
|
|
1,089
|
|
|
|
1,712
|
|
|
|
2,570
|
|
Interest income
|
|
|
887
|
|
|
|
1,423
|
|
|
|
3,376
|
|
|
|
6,887
|
|
|
|
11,720
|
|
Net income (loss) before tax
|
|
|
52,133
|
|
|
|
74,304
|
|
|
|
89,745
|
|
|
|
155,533
|
|
|
|
165,571
|
|
Total assets
|
|
|
591,915
|
|
|
|
702,050
|
|
|
|
851,075
|
|
|
|
1,168,121
|
|
|
|
1,546,623
|
|
AeroRepública:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
|
|
|
|
|
|
|
|
$
|
103,016
|
|
|
$
|
175,883
|
|
|
$
|
226,042
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
96,839
|
|
|
|
176,388
|
|
|
|
200,474
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
615
|
|
|
|
1,142
|
|
|
|
4,618
|
|
Aircraft rentals
|
|
|
|
|
|
|
|
|
|
|
5,535
|
|
|
|
14,604
|
|
|
|
14,760
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
2,205
|
|
|
|
2,243
|
|
|
|
8,032
|
|
Interest capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
370
|
|
|
|
473
|
|
Net income (loss) before tax
|
|
|
|
|
|
|
|
|
|
|
2,846
|
|
|
|
(9,408
|
)
|
|
|
13,354
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
98,091
|
|
|
|
132,872
|
|
|
|
256,349
|
|
Segment Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copa:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available seat
miles(10)
|
|
|
3,226
|
|
|
|
3,639
|
|
|
|
4,409
|
|
|
|
5,239
|
|
|
|
6,298
|
|
Load
factor(11)
|
|
|
68.0
|
%
|
|
|
70.0
|
%
|
|
|
73.4
|
%
|
|
|
77.8
|
%
|
|
|
78.4
|
%
|
Break-even load factor
|
|
|
52.8
|
%
|
|
|
52.6
|
%
|
|
|
56.8
|
%
|
|
|
56.1
|
%
|
|
|
58.7
|
%
|
Yield(15)
|
|
|
14.22
|
|
|
|
14.31
|
|
|
|
14.41
|
|
|
|
15.49
|
|
|
|
15.33
|
|
Operating revenue per
ASM(17)
|
|
|
10.60
|
|
|
|
10.99
|
|
|
|
11.47
|
|
|
|
12.91
|
|
|
|
12.80
|
|
CASM(18)
|
|
|
8.79
|
|
|
|
8.72
|
|
|
|
9.13
|
|
|
|
9.73
|
|
|
|
10.08
|
|
Average stage
length(20)
|
|
|
1,028
|
|
|
|
1,047
|
|
|
|
1,123
|
|
|
|
1,158
|
|
|
|
1,207
|
|
On time
performance(19)
|
|
|
91.4
|
%
|
|
|
91.8
|
%
|
|
|
91.7
|
%
|
|
|
91.0
|
%
|
|
|
86.9
|
%
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005(22)
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars, except
share and per share data, capital stock and operating data)
|
|
|
AeroRepública:(23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available seat
miles(10)
|
|
|
|
|
|
|
|
|
|
|
950
|
|
|
|
1,627
|
|
|
|
1,620
|
|
Load
factor(11)
|
|
|
|
|
|
|
|
|
|
|
62.0
|
%
|
|
|
57.9
|
%
|
|
|
57.2
|
%
|
Break even load factor
|
|
|
|
|
|
|
|
|
|
|
60.8
|
%
|
|
|
61.9
|
%
|
|
|
54.1
|
%
|
Yield(15)
|
|
|
|
|
|
|
|
|
|
|
16.53
|
|
|
|
17.79
|
|
|
|
22.74
|
|
Operating revenue per
ASM(17)
|
|
|
|
|
|
|
|
|
|
|
10.84
|
|
|
|
10.81
|
|
|
|
13.95
|
|
CASM(18)
|
|
|
|
|
|
|
|
|
|
|
10.19
|
|
|
|
10.84
|
|
|
|
12.37
|
|
Average stage
length(20)
|
|
|
|
|
|
|
|
|
|
|
360
|
|
|
|
370
|
|
|
|
398
|
|
On time
performance(21)
|
|
|
|
|
|
|
|
|
|
|
70.4
|
%
|
|
|
80.3
|
%
|
|
|
72.8
|
%
|
|
|
|
(1)
|
|
Represents impairment losses on our
Boeing
737-200
aircraft and related assets.
|
(2)
|
|
Represents expenses related to
costs associated with terms negotiated for the early termination
of three MD-80 aircraft as a result of AeroRepúblicas
ongoing transition to a more fuel efficient all Embraer-190
fleet.
|
(3)
|
|
Represents gain on involuntary
conversion of non-monetary assets to monetary assets related to
insurance proceeds in excess of aircraft book value.
|
(4)
|
|
Consists primarily of changes in
the fair value of fuel derivative contracts, foreign exchange
gains/losses and gains on sale of Boeing
737-200
aircraft. See Item 5. Operating and Financial Review
and Prospects and the notes to our audited consolidated
financial statements, each of which is included in our annual
report on
Form 20-F
for the year ended December 31, 2007 that is incorporated
by reference herein.
|
(5)
|
|
EBITDA represents net income (loss)
plus the sum of interest expense, income taxes, depreciation and
amortization minus the sum of interest capitalized and interest
income. EBITDA is presented as supplemental information because
we believe it is a useful indicator of our operating performance
and is useful in comparing our operating performance with other
companies in the airline industry. However, EBITDA should not be
considered in isolation, as a substitute for net income prepared
in accordance with U.S. GAAP or as a measure of a companys
profitability. In addition, our calculation of EBITDA may not be
comparable to other companies similarly titled measures.
The following table presents a reconciliation of our net income
to EBITDA for the specified periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of
dollars)
|
|
|
Net income
|
|
$
|
48,489
|
|
|
$
|
68,572
|
|
|
$
|
82,999
|
|
|
$
|
133,839
|
|
|
$
|
161,820
|
|
Interest expense
|
|
|
11,613
|
|
|
|
16,488
|
|
|
|
21,629
|
|
|
|
29,150
|
|
|
|
44,332
|
|
Income taxes
|
|
|
3,644
|
|
|
|
5,732
|
|
|
|
9,592
|
|
|
|
12,286
|
|
|
|
17,106
|
|
Depreciation
|
|
|
14,040
|
|
|
|
19,279
|
|
|
|
19,857
|
|
|
|
24,874
|
|
|
|
35,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
77,786
|
|
|
|
110,071
|
|
|
|
134,077
|
|
|
|
200,149
|
|
|
|
258,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized
|
|
|
(2,009
|
)
|
|
|
(963
|
)
|
|
|
(1,089
|
)
|
|
|
(1,712
|
)
|
|
|
(2,570
|
)
|
Interest income
|
|
|
(887
|
)
|
|
|
(1,423
|
)
|
|
|
(3,544
|
)
|
|
|
(7,257
|
)
|
|
|
(12,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
74,890
|
|
|
|
107,685
|
|
|
|
129,444
|
|
|
|
191,180
|
|
|
|
243,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft rentals represents a
significant operating expense of our business. Because we leased
several of our aircraft during the periods presented, we believe
that when assessing our EBITDA you should also consider the
impact of our aircraft rent expense, which was
$16.7 million in 2003, $14.4 million in 2004,
$27.6 million in 2005, $38.2 million in 2006 and
$38.6 million in 2007.
|
(6)
|
|
Operating margin represents
operating income divided by operating revenues.
|
(7)
|
|
All share and per share amounts
have been retroactively restated to reflect the current capital
structure described under Description of Capital
Stock and in the notes to our audited consolidated
financial statements, included in our annual report on
Form 20-F
for the year ended December 31, 2007 that is incorporated
by reference herein.
|
(8)
|
|
Total number of paying passengers
(including all passengers redeeming OnePass frequent flyer miles
and other travel awards) flown on all flight segments, expressed
in thousands.
|
(9)
|
|
Number of miles flown by scheduled
revenue passengers, expressed in millions.
|
(10)
|
|
Aircraft seating capacity
multiplied by the number of miles the seats are flown, expressed
in millions.
|
(11)
|
|
Percentage of aircraft seating
capacity that is actually utilized. Load factors are calculated
by dividing revenue passenger miles by available seat miles.
|
(12)
|
|
Load factor that would have
resulted in total revenues being equal to total expenses.
|
(13)
|
|
The number of hours from the time
an airplane moves off the departure gate for a revenue flight
until it is parked at the gate of the arrival airport.
|
(14)
|
|
Average number of block hours
operated per day per aircraft for the total aircraft fleet.
|
(15)
|
|
Average amount (in cents) one
passenger pays to fly one mile.
|
13
|
|
|
(16)
|
|
Passenger revenues (in cents)
divided by the number of available seat miles.
|
(17)
|
|
Total operating revenues for
passenger aircraft related costs (in cents) divided by the
number of available seat miles.
|
(18)
|
|
Total operating expenses for
passenger aircraft related costs (in cents) divided by the
number of available seat miles.
|
(19)
|
|
Percentage of flights that arrive
at the destination gate within fifteen minutes of scheduled
arrival.
|
(20)
|
|
The average number of miles flown
per flight.
|
(21)
|
|
Percentage of flights that depart
within fifteen minutes of the scheduled departure time.
|
(22)
|
|
For AeroRepública operating
data, this period covers from April 22, 2005 until
December 31, 2005, which corresponds to the period that
AeroRepública was consolidated in our financial statements.
|
(23)
|
|
AeroRepública has not
historically distinguished between revenue passengers and
non-revenue passengers. Although we have implemented systems at
AeroRepública to record that information, revenue passenger
information and other statistics derived from revenue passenger
data for the year ended December 31, 2005, 2006 and 2007
has been derived from estimates that we believe to be materially
accurate.
|
14
RISK
FACTORS
An investment in our Class A Shares involves a high
degree of risk. You should carefully consider the risks
described below before making an investment decision. Our
business, financial condition and results of operations could be
materially and adversely affected by any of these risks. The
trading price of our Class A Shares could decline due to
any of these risks, and you may lose all or part of your
investment. The risks described below are those known to us and
that we currently believe may materially affect us.
Risks
Relating to Our Company
Our
failure to successfully implement our growth strategy may
adversely affect our results of operations and harm the market
value of our Class A Shares.
We have grown rapidly over the past seven years. We intend to
continue to grow our fleet, expand our service to new markets
and increase the frequency of flights to the markets we
currently serve. Achieving these goals is essential in order for
our business to benefit from cost efficiencies resulting from
economies of scale. We expect to have substantial cash needs as
we expand, including cash required to fund aircraft purchases or
aircraft deposits as we add to our fleet. We cannot assure you
that we will have sufficient cash to fund such projects, and if
we are unable to successfully expand our route system, our
future revenue and earnings growth would be limited.
When we commence a new route, our load factors tend to be lower
than those on our established routes and our advertising and
other promotional costs tend to be higher, which may result in
initial losses that could have a negative impact on our results
of operations as well as require a substantial amount of cash to
fund. We also periodically run special promotional fare
campaigns, particularly in connection with the opening of new
routes. Promotional fares may have the effect of increasing load
factors while reducing our yield on such routes during the
period that they are in effect. The number of markets we serve
and our flight frequencies depend on our ability to identify the
appropriate geographic markets upon which to focus and to gain
suitable airport access and route approval in these markets.
There can be no assurance that the new markets we enter will
provide passenger traffic that is sufficient to make our
operations in those new markets profitable. Any condition that
would prevent or delay our access to key airports or routes,
including limitations on the ability to process more passengers,
the imposition of flight capacity restrictions, the inability to
secure additional route rights under bilateral agreements or the
inability to maintain our existing slots and obtain additional
slots, could constrain the expansion of our operations.
The expansion of our business will also require additional
skilled personnel, equipment and facilities. The inability to
hire and retain skilled pilots and other personnel or secure the
required equipment and facilities efficiently and
cost-effectively may adversely affect our ability to execute our
growth strategy. In recent years, the airline industry has
experienced a pilot shortage that has disproportionately
affected smaller and regional carriers, such as Copa. Expansion
of our markets and flight frequencies may also strain our
existing management resources and operational, financial and
management information systems to the point where they may no
longer be adequate to support our operations, requiring us to
make significant expenditures in these areas. In light of these
factors, we cannot assure you that we will be able to
successfully establish new markets or expand our existing
markets, and our failure to do so could harm our business and
results of operations, as well as the value of our Class A
Shares.
If we
fail to successfully take delivery of and operate reliably the
new Embraer 190 aircraft we have agreed to purchase, our
business could be harmed.
In October 2004, Copa announced an order to purchase ten new
Embraer 190 aircraft with options for an additional 20 new
aircraft. Subsequently, Copa increased its firm orders for the
Embraer 190 aircraft by exercising five of these options.
Through the end of 2007, Copa had accepted delivery of 11
Embraer 190 aircraft. In March 2006, AeroRepública
announced an order to purchase five new Embraer 190 aircraft
with options for an additional 10 new aircraft. Since then
AeroRepública has accepted delivery of five Embraer 190
aircraft, one of which has since sustained damages and has been
permanently removed from operation. Acquisition of an all-new
type of
15
aircraft, such as the Embraer 190, involves a variety of risks
relating to its ability to be successfully placed into service
including:
|
|
|
|
|
difficulties or delays in obtaining the necessary certifications
from the aviation regulatory authorities of the countries to
which we fly;
|
|
|
|
manufacturers delays in meeting the agreed upon aircraft
delivery schedule;
|
|
|
|
difficulties in obtaining financing on acceptable terms to
complete our purchase of all of the aircraft we have committed
to purchase; and
|
|
|
|
the inability of the new aircraft and its components to comply
with agreed upon specifications and performance standards.
|
Although to date we have not had any significant problems with
this aircraft, we have experienced certain issues generally
associated with it, including difficulties with the software
that operates the Embraer avionics system. We may experience
similar or other problems with the Embraer 190s that will be
delivered to us which could result in increased costs or service
interruptions. In addition, new aircraft, such as the Embraer
190, are generally less reliable than the more established
aircraft within the fleet with which we have more experience. If
we fail to successfully take delivery of, and operate reliably
the new Embraer 190 aircraft, our business, financial condition
and results of operations could be harmed.
We are
dependent on our alliance with Continental and cannot assure you
that it will continue.
We maintain a broad commercial and marketing alliance with
Continental Airlines, Inc., or Continental, that has allowed us
to enhance our network and, in some cases, offer our customers
services that we could not otherwise offer. If Continental were
to experience severe financial difficulties or go bankrupt, our
alliance and service agreements may be terminated or we may not
realize the anticipated benefits from our relationship with
Continental. While Continental recorded net income of $343 and
$459 million for 2006 and 2007, respectively, it suffered
significant losses following September 11, 2001, and it has
indicated that several factors threaten its ability to sustain
profitability, including competition from low-cost carriers and
carriers emerging from bankruptcy protection, high fuel cost and
terrorism or other international hostilities. We cannot assure
you that Continental will be able to sustain its profitability,
and as a result, we may be materially and adversely affected by
a deterioration of Continentals financial condition.
Since we began the alliance in 1998, we have benefited from
Continentals support in negotiations for aircraft
purchases, insurance and fuel purchases, sharing of best
practices and engineering support in our maintenance
operations, and significant other intangible support. This
support has assisted us in our growth strategy, while also
improving our operational performance and the quality of our
service. Our alliance relationship with Continental is the
subject of a grant of antitrust immunity from the
U.S. Department of Transportation, or DOT. If our
relationship with Continental were to deteriorate, or our
alliance relationship were no longer to benefit from a grant of
antitrust immunity, or our alliance or services agreements were
terminated, our business, financial condition and results of
operations would likely be materially and adversely affected.
The loss of Copas codesharing relationship with
Continental would likely result in a significant decrease in our
revenues. We also rely on Continentals OnePass frequent
flyer program that we participate in globally and on a
co-branded basis in Latin America, and our business may be
adversely affected if the OnePass program does not remain a
competitive marketing program. In addition, our competitors may
benefit from alliances with other airlines that are more
extensive than our alliance with Continental. We cannot predict
the extent to which we will be disadvantaged by competing
alliances. Our relationship with suppliers depends in part on
our alliance with Continental. As a result of our follow-on
offering in June 2006, Continentals investment in our
company diminished to approximately 10% of our total outstanding
capital stock. Continental is expected to sell its remaining
stake in the Company through this offering, with any unsold
portion to be disposed of in subsequent market transactions.
Although Continentals reduced participation in our company
has not had an adverse effect on our relationships with
suppliers, we cannot assure you that the terms of our current or
future supply agreements will not be affected by this reduced
participation.
16
Continental
will likely no longer have an equity investment in our company
following this offering.
In connection with our initial public offering in December 2005,
Continental reduced its investment in us from 49% to
approximately 27.3% of our capital stock. Through a follow-on
offering in 2006, Continental further reduced its investment in
us to approximately 10.0% of our capital stock. Through this
offering, Continental is seeking to monetize its remaining
investment in us. Despite Continentals reduced investment
in our company, Continental retains the right to appoint one of
our directors so long as our alliance agreement with Continental
continues. As a result of Continentals right to appoint
one member of our board of directors and our dependence on the
alliance between the airlines, Continental has the ability to
exercise significant influence over us. Nevertheless, in light
of Continentals decision to sell its remaining stake in
us, its interests are not necessarily aligned with those of our
shareholders. Other than certain exclusivity provisions and a
termination event for certain competitive activities contained
in our alliance agreement, we do not have any non-competition
agreement with Continental, and as Continental sells its
remaining economic stake in us, it may take actions that are
adverse to the interests of our shareholders.
We
operate using a
hub-and-spoke
model and are vulnerable to competitors offering direct flights
between destinations we serve.
The structure of substantially all of our current flight
operations (other than those of AeroRepública) generally
follows what is known in the airline industry as a
hub-and-spoke
model. This model aggregates passengers by operating flights
from a number of spoke origins to a central hub
through which they are transported to their final destinations.
In recent years, many traditional
hub-and-spoke
operators have faced significant and increasing competitive
pressure from low-cost,
point-to-point
carriers on routes with sufficient demand to sustain
point-to-point
service. A
point-to-point
structure enables airlines to focus on the most profitable,
high-demand routes and to offer greater convenience and, in many
instances, lower fares. As demand for air travel in Latin
America increases, some of our competitors have initiated
non-stop service between destinations that we currently serve
through our Panamanian hub. Non-stop service, which bypasses our
hub in Panama is more convenient and possibly less expensive,
than our connecting service and could significantly decrease
demand for our service to those destinations. We believe that
competition from
point-to-point
carriers will be directed towards the largest markets that we
serve and such competition is likely to continue at this level
or intensify in the future. As a result, the effect of such
competition on us could be significant and could have a material
adverse effect on our business, financial condition and results
of operations.
The
Panamanian Aviation Act and certain of the bilateral agreements
under which we operate contain Panamanian ownership requirements
that are not clearly defined, and our failure to comply with
these requirements could cause us to lose our authority to
operate in Panama or to the international destinations we
serve.
Under Law No. 21 of January 29, 2003, which regulates
the aviation industry in the Republic of Panama and which we
refer to as the Aviation Act, substantial ownership
and effective control of our airline must remain in
the hands of Panamanian nationals. Under certain of the
bilateral agreements between Panama and other countries pursuant
to which we have the right to fly to those other countries and
over their territory, we must continue to have substantial
Panamanian ownership and effective control by Panamanian
nationals to retain these rights. Neither substantial
ownership nor effective control are defined in
the Aviation Act or in the bilateral agreements, and it is
unclear how a Panamanian court or, in the case of the bilateral
agreements, foreign regulatory authorities might interpret these
requirements. In addition, the manner in which these
requirements are interpreted may change over time. We cannot
predict whether these requirements would be satisfied through
ownership and control by Panamanian record holders, or if these
requirements would be satisfied only by direct and indirect
ownership and control by Panamanian beneficial owners.
At the present time, CIASA, a Panamanian entity, is the record
owner of all of our Class B voting shares, representing
approximately 29.2% of our total share capital and all of the
voting power of our capital stock.
On November 25, 2005, the Executive Branch of the
Government of Panama promulgated a decree stating that the
substantial ownership and effective
control requirements of the Aviation Act are met if a
Panamanian
17
citizen or a Panamanian company is the record holder of shares
representing 51% or more of the voting power of the company.
Although the decree has the force of law for so long as it
remains in effect, it does not supersede the Aviation Act, and
it can be modified or superseded at any time by a future
Executive Branch decree. Additionally, the decree has no binding
effect on regulatory authorities of other countries whose
bilateral agreements impose Panamanian ownership and control
limitations on us. We cannot assure you that the decree will not
be challenged, modified or superseded in the future, that CIASA
will continue to own a majority of the Class B shares, or
that record ownership of a majority of our Class B shares
by Panamanian entities will be sufficient to satisfy the
substantial ownership requirement of the Aviation
Act and the decree. A change in the ownership of the
Class B shares or a determination by the Panamanian Civil
Aviation Authority (the Autoridad de Aeronáutica
Civil), which we refer to as the AAC, or a Panamanian court
that substantial Panamanian ownership should be
determined on the basis of our direct and indirect ownership,
could cause us to lose our license to operate our airline in
Panama. Likewise, if a foreign regulatory authority were to
determine that our direct or indirect Panamanian ownership fails
to satisfy the minimum Panamanian ownership requirements for a
Panamanian carrier under the applicable bilateral agreement, we
may lose the benefit of that agreement and be prohibited from
flying to the relevant country or over its territory. Any such
determination would have a material adverse effect on our
business, financial condition and results of operations, as well
as on the value of the Class A Shares.
Our
business is subject to extensive regulation which may restrict
our growth or our operations or increase our
costs.
Our business, financial condition and results of operations
could be adversely affected if we or certain aviation
authorities in the countries to which we fly fail to maintain
the required foreign and domestic governmental authorizations
necessary for our operations. In order to maintain the necessary
authorizations issued by the AAC and other corresponding foreign
authorities, we must continue to comply with applicable
statutes, rules and regulations pertaining to the airline
industry, including any rules and regulations that may be
adopted in the future. We cannot predict or control any actions
that the AAC or foreign aviation regulators may take in the
future, which could include restricting our operations or
imposing new and costly regulations. Also, our fares are
technically subject to review by the AAC and the regulators of
certain other countries to which we fly, any of which may in the
future impose restrictions on our fares.
We are also subject to international bilateral air transport
agreements that provide for the exchange of air traffic rights
between Panama and various other countries, and we must obtain
permission from the applicable foreign governments to provide
service to foreign destinations. There can be no assurance that
existing bilateral agreements between the countries in which our
airline operating companies are based and foreign governments
will continue, or that we will be able to obtain more route
rights under those agreements to accommodate our future
expansion plans. A modification, suspension or revocation of one
or more bilateral agreements could have a material adverse
effect on our business, financial condition and results of
operations. The suspension of our permits to operate to certain
airports or destinations, the cancellation of any of our
provisional routes or the imposition of other sanctions could
also have a material adverse effect. In 2007, for example, our
third daily frequency to Mexico City, which was under
provisional permit, was not extended by the Mexican civil
aviation authority. This development did not have a material
adverse effect on our business, but it is indicative of the
route changes to which we may be subject. Due to the nature of
bilateral agreements, we can fly to many destinations only from
Panama. We cannot assure you that a change in a foreign
governments administration of current laws and regulations
or the adoption of new laws and regulations will not have a
material adverse effect on our business, financial condition and
results of operations.
We plan to continue to increase the scale of our operations and
revenues by expanding our presence in new and existing routes.
Our ability to successfully implement this strategy will depend
upon many factors, several of which are outside our control or
subject to change. These factors include the permanence of a
suitable political, economic and regulatory environment in the
Latin American countries in which we operate or intend to
operate and our ability to identify strategic local partners.
The most active government regulator among the countries to
which we fly is the U.S. Federal Aviation Administration,
or FAA. The FAA from time to time issues directives and other
regulations relating to the maintenance and operation of
aircraft that require significant expenditures. FAA requirements
cover, among other things, security measures, collision
avoidance systems, airborne windshear avoidance systems, noise
abatement and
18
other environmental issues, and increased inspections and
maintenance procedures to be conducted on older aircraft.
We expect to continue incurring expenses to comply with the
FAAs regulations, and any increase in the cost of
compliance could have an adverse effect on our financial
condition and results of operations. Additional new regulations
continue to be regularly implemented by the
U.S. Transportation Security Administration, or TSA, as
well.
The
growth of our operations to the United States and the benefits
of our code-sharing arrangements with Continental are dependent
on Panamas continued favorable safety
assessment.
The FAA periodically audits the aviation regulatory authorities
of other countries. As a result of its investigation, each
country is given an International Aviation Safety Assessment, or
IASA, rating. In May 2001, Panamas IASA rating was
downgraded from Category 1 to Category 2 due to alleged
deficiencies in Panamanian air safety standards and AACs
capability to provide regulatory oversight. As a result of this
downgrade, we were prevented from offering our Copa flights to
any new destinations in the United States and from certifying
new aircraft for flights to the United States, and Continental
was no longer able to codeshare on our flights. In April 2004,
after extensive investment by the Panamanian government in the
AAC and consultations among Copa, the AAC and U.S. safety
officials, Panamas IASA rating was restored to Category 1.
We cannot assure you that the government of Panama, and the AAC
in particular, will continue to meet international safety
standards, and we have no direct control over their compliance
with IASA guidelines. If Panamas IASA rating were to be
downgraded in the future, it could prohibit us from increasing
service to the United States and Continental would have to
suspend the placing of its code on our flights, causing us to
lose direct revenue from codesharing as well as reducing flight
options to our customers.
We are
highly dependent on our hub at Panama Citys Tocumen
International Airport.
Our business is heavily dependent on our operations at our hub
at Panama Citys Tocumen International Airport.
Substantially all of our Copa flights either depart from or
arrive at our hub. The
hub-and-spoke
structure of our operations is particularly dependent on the
on-time arrival of tightly coordinated groupings of flights to
ensure that passengers can make timely connections to continuing
flights. Like other airlines, we are subject to delays caused by
factors beyond our control, including air traffic congestion at
airports, adverse weather conditions and increased security
measures. Delays inconvenience passengers, reduce aircraft
utilization and increase costs, all of which in turn negatively
affect our profitability. A significant interruption or
disruption in service at Tocumen International Airport could
have a serious impact on our business, financial condition and
operating results. Also, Tocumen International Airport provides
international service to the Republic of Panamas
population of approximately 3.3 million, whereas the hub
markets of our current competitors tend to be much larger,
providing those competitors with a larger base of customers at
their hub.
Tocumen International Airport is operated by a corporation that
is controlled by the government of the Republic of Panama. We
depend on our good working relationship with the
quasi-governmental corporation that operates the airport to
ensure that we have adequate access to aircraft parking
positions, landing rights and gate assignments for our aircraft
to accommodate our current operations and future plans for
expansion. The corporation that operates Tocumen International
Airport does not enter into any formal, written leases or other
agreements with airlines that govern rights to use the
airports jetways or aircraft parking spaces. Therefore, in
connection with the ongoing or future expansion of the airport,
the airport authority could assign new capacity to competing
airlines or could reassign resources that are currently used by
us to other aircraft operators. Either such event could result
in significant new competition for our routes or could otherwise
have a material adverse effect on our current operations or
ability for future growth.
We are
exposed to increases in landing charges and other airport access
fees and cannot be assured access to adequate facilities and
landing rights necessary to achieve our expansion
plans.
We must pay fees to airport operators for the use of their
facilities. Any substantial increase in airport charges could
have a material adverse impact on our results of operations.
Passenger taxes and airport charges have also
19
increased in recent years, sometimes substantially. Certain
important airports that we use may be privatized in the near
future which is likely to result in significant cost increases
to the airlines that use these airports. We cannot assure you
that the airports used by us will not impose, or further
increase, passenger taxes and airport charges in the future, and
any such increases could have an adverse effect on our financial
condition and results of operations.
Certain airports that we serve (or that we plan to serve in the
future) are subject to capacity constraints and impose slot
restrictions during certain periods of the day. We cannot assure
you that we will be able to obtain a sufficient number of slots,
gates and other facilities at airports to expand our services as
we are proposing to do. It is also possible that airports not
currently subject to capacity constraints may become so in the
future. In addition, an airline must use its slots on a regular
and timely basis or risk having those slots re-allocated to
others. Where slots or other airport resources are not available
or their availability is restricted in some way, we may have to
amend our schedules, change routes or reduce aircraft
utilization. Any of these alternatives could have an adverse
financial impact on us.
Some of the airports to which we fly impose various
restrictions, including limits on aircraft noise levels, limits
on the number of average daily departures and curfews on runway
use. In addition, we cannot assure you that airports at which
there are no such restrictions may not implement restrictions in
the future or that, where such restrictions exist, they may not
become more onerous. Such restrictions may limit our ability to
continue to provide or to increase services at such airports.
We
have significant fixed financing costs and expect to incur
additional fixed costs as we expand our fleet.
The airline business is characterized by high leverage, and we
have a high level of indebtedness. We also have significant
expenditures in connection with our operating leases and
facility rental costs, and substantially all of our property and
equipment is pledged to secure indebtedness. For the year ended
December 31, 2007, our interest expense and aircraft and
facility rental expense under operating leases aggregated
$91.9 million. At December 31, 2007, approximately 42%
of our total indebtedness bore interest at fixed rates, and a
small portion of our lease obligations was determined with
reference to LIBOR. Accordingly, our financing and rent expense
will not decrease significantly if market interest rates decline.
As of December 31, 2007, we had firm commitments to
purchase eight Boeing 737-Next Generation and four Embraer 190s,
with an aggregate manufacturers list price of
approximately $760.1 million. We have arranged for
financing for a significant portion of the commitment relating
to such aircraft and will require substantial capital from
external sources to meet our remaining financial commitment. The
acquisition and financing of these aircraft will likely result
in a substantial increase in our leverage and fixed financing
costs. A high degree of leverage and fixed payment obligations
could:
|
|
|
|
|
limit our ability in the future to obtain additional financing
for working capital or other important needs;
|
|
|
|
impair our liquidity by diverting substantial cash from our
operating needs to service fixed financing obligations; or
|
|
|
|
limit our ability to plan for or react to changes in our
business, in the airline industry or in general economic
conditions.
|
Any one of these could have a material adverse effect on our
business, financial condition and results of operations.
The
cost of refinancing our debt and obtaining additional financing
for new aircraft could increase significantly if the
Export-Import Bank of the United States does not continue to
guarantee our debt.
We currently finance our aircraft through bank loans and, to a
lesser extent, operating leases and local bond offerings. In the
past, we have obtained most of the financing for our Boeing
aircraft purchases from commercial financial institutions
utilizing guarantees provided by the Export-Import Bank of the
United States. The Export-Import Bank provides guarantees to
companies that purchase goods from U.S. companies for
export, enabling them to obtain financing at substantially lower
interest rates as compared to those that they could obtain
without a
20
guarantee. The Export-Import Bank will not be able to provide
similar guarantees in connection with financing for our aircraft
purchases from Embraer since those aircraft are not exports from
the United States. At December 31, 2007, we had
$390.7 million of outstanding indebtedness that is owed to
financial institutions under financing arrangements guaranteed
by the Export-Import Bank. We cannot predict whether the
Export-Import Banks credit support will continue to be
available to us to fund future purchases of Boeing aircraft. The
Export-Import Bank may in the future limit its exposure to
Panama-based companies, to our airline or to airlines generally,
or may encourage us to diversify our credit sources by limiting
future guarantees. Similarly, we cannot assure you that we will
be able to continue to raise financing from past sources, or
from other sources, on terms comparable to our existing
financing. In addition, the ongoing uncertainty in the credit
markets of the United States could tighten the availability of
credit and impact our ability to obtain lease or debt financing
on terms attractive to us, or at all, in the future. If we are
unable to obtain financing, we may be forced to modify our
aircraft acquisition plans or to incur higher than anticipated
financing costs, which could have an adverse impact on the
execution of our growth strategy and business.
Our
existing debt financing agreements and our aircraft operating
leases contain restrictive covenants that impose significant
operating and financial restrictions on us.
Our aircraft financing loans and operating leases and the
instruments governing our other indebtedness contain a number of
significant covenants and restrictions that limit our ability
and our subsidiaries ability to:
|
|
|
|
|
create material liens on our assets;
|
|
|
|
take certain actions that may impair creditors rights to
our aircraft;
|
|
|
|
sell assets or engage in certain mergers or
consolidations; and
|
|
|
|
engage in other specified significant transactions.
|
In addition, several of our aircraft financing agreements
require us to maintain compliance with specified financial
ratios and other financial and operating tests. For example, our
access to certain borrowings under our aircraft financing
arrangements is conditioned upon our maintenance of minimum debt
service coverage and capitalization ratios. Complying with these
covenants may cause us to take actions that make it more
difficult to execute successfully our business strategy, and we
may face competition from companies not subject to such
restrictions. Moreover, our failure to comply with these
covenants could result in an event of default or refusal by our
creditors to extend certain of our loans.
If we
were to determine that our aircraft, rotable parts or inventory
were impaired, it would have a significant adverse effect on our
operating results.
We perform impairment reviews when there are particular risks of
impairment or other indicators described in Statement of
Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, in order to
determine whether we need to reduce the carrying value of our
aircraft and related assets with a related charge to our
earnings. In addition to the fact that the value of our fleet
declines as it ages, any potential excess capacity in the
airline industry, airline bankruptcies and other factors beyond
our control may further contribute to the decline of the fair
market value of our aircraft and related rotable parts and
inventory. If such impairment does occur, we would be required
under U.S. GAAP to write down these assets to their
estimated fair market value through a charge to earnings. A
significant charge to earnings would adversely affect our
financial condition and operating results. In addition, the
interest rates on and the availability of certain of our
aircraft financing loans are tied to the value of the aircraft
securing the loans. If those values were to decrease
substantially, our interest rates may rise or the lenders under
those loans may cease extending credit to us, either of which
could have an adverse impact on our financial condition and
results of operations.
We
rely on information technology systems, and we may become more
dependent on such systems in the future.
We rely upon information technology systems to operate our
business and increase our efficiency. We are highly reliant on
certain critical systems, such as the Sceptre and Visaer systems
for maintenance, the SHARES
21
computer reservation and check-in system and the Airmax revenue
management system. Other systems are designed to decrease
distribution costs through Internet reservations and to maximize
cargo distributions. These systems may not deliver their
anticipated benefits. Also, in transitioning to new systems we
may lose data or experience interruptions in service, which
could harm our business.
Our
quarterly results can fluctuate substantially, and the trading
price of our Class A Shares may be affected by such
variations.
The airline industry is by nature cyclical and seasonal, and our
operating results may vary from quarter to quarter. We tend to
experience the highest levels of traffic and revenue in July and
August, with a smaller peak in traffic in December and January.
In general, demand for air travel is higher in the third and
fourth quarters, particularly in international markets, because
of the increase in vacation travel during these periods relative
to the remainder of the year. We generally experience our lowest
levels of passenger traffic in April and May. Given our high
proportion of fixed costs, seasonality can affect our
profitability from quarter to quarter. Demand for air travel is
also affected by factors such as economic conditions, war or the
threat of war, fare levels and weather conditions.
Due to the factors described above and others described in this
annual report,
quarter-to-quarter
comparisons of our operating results may not be good indicators
of our future performance. In addition, it is possible that in
any quarter our operating results could be below the
expectations of investors and any published reports or analyses
regarding our company. In that event, the price of our
Class A Shares could decline, perhaps substantially.
Our
reputation and financial results could be harmed in the event of
an accident or incident involving our aircraft.
An accident or incident involving one of our aircraft could
involve significant claims by injured passengers and others, as
well as significant costs related to the repair or replacement
of a damaged aircraft and its temporary or permanent loss from
service. A short time prior to our acquisition of
AeroRepública, one of its aircraft slid off of a runway in
an accident without serious injuries to passengers; although,
the aircraft was severely damaged and declared a total loss by
its insurers. More recently, in July of 2007, one of our
AeroRepública Embraer 190s overran a wet runway in Santa
Marta, Colombia. The accident did not cause any serious injuries
but the aircraft sustained damages causing its permanent removal
from service. We are required by our creditors and the lessors
of our aircraft under our operating lease agreements to carry
liability insurance, but the amount of such liability insurance
coverage may not be adequate and we may be forced to bear
substantial losses in the event of any future accident. Our
insurance premiums may also increase due to an accident or
incident affecting one of our aircraft. Substantial claims
resulting from an accident in excess of our related insurance
coverage or increased premiums would harm our business and
financial results. Moreover, any aircraft accident or incident,
even if fully insured, could cause the public to perceive us as
less safe or reliable than other airlines which could harm our
business and results of operations. Our business would also be
significantly harmed if the public avoids flying our aircraft
due to an adverse perception of the types of aircraft that we
operate arising from safety concerns or other problems, whether
real or perceived, or in the event of an accident involving
those types of aircraft.
Fluctuations
in foreign exchange rates could negatively affect our net
income.
In 2007, approximately 69% of our expenses and 40% of our
revenues were denominated in U.S. dollars. The remainder of
our expenses and revenues were denominated in the currencies of
the various countries to which we fly, with the largest
non-dollar amount denominated in Colombian Pesos. As a result of
the acquisition of AeroRepública in April 2005, we have an
increased exposure to the Colombian Peso. If any of these
currencies decline in value against the U.S. dollar, our
revenues, expressed in U.S. dollars, and our operating
margin would be adversely affected. We may not be able to adjust
our fares denominated in other currencies to offset any
increases in U.S. dollar-denominated expenses, increases in
interest expense or exchange losses on fixed obligations or
indebtedness denominated in foreign currency. Copa currently
does not hedge the risk of fluctuation in foreign exchange
rates. AeroRepública currently has hedges in place with
respect to some of its U.S. dollar / Colombian
Peso exposure. Although we benefited from currency fluctuations
in 2007, we are exposed to exchange rate losses, as well as
gains, due to the fluctuation in the value of local currencies
vis-à-vis the U.S. dollar during the period of
22
time (typically between 1 to 2 weeks) between the time we
are paid in local currencies and the time we are able to
repatriate the revenues in U.S. dollars.
Our
maintenance costs will increase as Copas fleet ages and as
we perform maintenance on AeroRepúblicas older
fleet.
Because the average age of Copas aircraft was
approximately 3.7 years as of December 31, 2007, the
fleet requires less maintenance now than it will in the future.
We have incurred a low level of maintenance expenses in recent
years because most of the parts on Copas aircraft were
still covered under multi-year warranties. Our maintenance costs
will increase significantly, both on an absolute basis and as a
percentage of our operating expenses as our fleet ages and these
warranties expire.
AeroRepúblicas fleet is considerably older than
Copas fleet, having an average age of 7.4 years as of
December 31, 2007. The MD-80 aircraft operated by
AeroRepública will likely be less reliable than Copas
newer aircraft and can be expected to require significantly
greater expenditures on maintenance, which may lead to an
overall increase in our consolidated operating expenses.
If we
enter into a prolonged dispute with any of our employees, many
of whom are represented by unions, or if we are required to
increase substantially the salaries or benefits of our
employees, it may have an adverse impact on our operations and
cash flows.
Approximately 49% of the Companys employees belong to a
labor union. There are currently five unions covering our Copa
employees based in Panama: the pilots union; the flight
attendants union; the mechanics union; the traffic
attendants union; and a generalized union, which
represents baggage handlers, aircraft cleaners, counter agents,
and other non-executive administrative staff. Copa entered into
new collective bargaining agreements with its general union on
October 26, 2005, its flight attendants union on
April 3, 2006 and its pilot union in November 2007. After
extensive negotiations which did not lead to a mutually
satisfactory resolution, Copa and the mechanics union
entered into a government-mandated arbitration, and a collective
bargaining agreement was agreed to on March 29, 2006 as a
result of such arbitration proceedings. Previously, Copa has not
had to resort to arbitration to resolve negotiations with its
unions. Collective bargaining agreements in Panama are typically
between three and four year terms. We also have union contracts
with our Copa employees in Brazil and Mexico. AeroRepública
is a party to collective bargaining agreements that cover all of
AeroRepúblicas 151 pilots and co-pilots and all of
AeroRepúblicas 196 flight attendants. A strike, work
interruption or stoppage or any prolonged dispute with our
employees who are represented by any of these unions could have
an adverse impact on our operations. These risks are typically
exacerbated during periods of renegotiation with the unions. Any
renegotiated collective bargaining agreement could feature
significant wage increases and a consequent increase in our
operating expenses. Employees outside of Panama that are not
currently members of unions may also form new unions that may
seek further wage increases or benefits.
Our business is labor intensive. We expect salaries, wages and
benefits to increase on a gross basis, and these costs could
increase as a percentage of our overall costs. If we are unable
to hire, train and retain qualified pilots and other employees
at a reasonable cost, our business could be harmed and we may be
unable to complete our expansion plans.
Our
investment in AeroRepública may not generate the benefits
we sought when we purchased the company.
In the second quarter of 2005, we purchased AeroRepública,
a Colombian airline currently providing
point-to-point
service among 12 cities in Colombia and to Panama City.
AeroRepúblicas results of operations are highly
sensitive to competitive conditions in the Colombian domestic
air travel market. AeroRepúblicas rapid growth in
recent years came during a period in which the domestic market
leader, Aerovías del Continente Americano S.A. (Avianca),
experienced severe financial difficulties that resulted in its
bankruptcy and the exit from the market of several other
competitors. Avianca has emerged from bankruptcy with new
management and an improved financial condition. It is therefore
likely that AeroRepública will face stronger competition in
the future than it has in recent years, and its prior results
may not be indicative of its future performance.
23
AeroRepúblicas results of operations are
significantly less profitable than those of Copa. While
AeroRepública recorded net income of $9.7 million in
2007, AeroRepública has experienced losses in recent
periods and may have continuing net losses in future fiscal
periods. We may not be able to achieve the cost savings and
other improvements we seek at AeroRepública, and our
failure to do so would harm our consolidated operating margins
and results of operations. Our investment in AeroRepública
is subject to many risks and uncertainties that will ultimately
determine whether the acquisition will continue to increase our
overall profitability.
The
integration of AeroRepública into our business may require
a significant amount of our managements time and distract
our management from our core operations.
Although we believe that our acquisition of AeroRepública
represents an attractive opportunity, substantial resources are
needed to implement our plan to improve its profitability.
Implementation of our plan is subject to many uncertainties and
may eventually require us to dedicate a potentially significant
portion of our limited management resources to this effort.
Inconsistencies in standards, internal controls, procedures,
policies, business cultures and compensation structures between
Copa and AeroRepública, and the need to implement,
coordinate and harmonize various business-specific operating
procedures and systems, as well as the financial, accounting,
information and other systems of Copa and AeroRepública,
may result in substantial costs and may divert a substantial
amount of our managements resources from our core
international operations. Diversion of Copas resources
could materially and negatively affect our financial condition
and results of operations.
Our
revenues depend on our relationship with travel agents and tour
operators.
In 2007, approximately 56% of our revenues were derived from
tickets sold by travel agents or tour operators. We cannot
assure you that we will be able to maintain favorable
relationships with these ticket sellers. Our revenues could be
adversely impacted if travel agents or tour operators elect to
favor other airlines or to disfavor us. Our relationship with
travel agents and tour operators may be affected by:
|
|
|
|
|
the size of commissions offered by other airlines;
|
|
|
|
changes in our arrangements with other distributors of airline
tickets; and
|
|
|
|
the introduction and growth of new methods of selling tickets.
|
We
rely on third parties to provide our customers and us with
facilities and services that are integral to our
business.
We have entered into agreements with third-party contractors to
provide certain facilities and services required for our
operations, such as heavy aircraft and engine maintenance; call
center services; and catering, ground handling, cargo and
baggage handling, or below the wing aircraft
services. For example, at airports other than Tocumen
International Airport, all of the below the wing
aircraft services for Copa flights are performed by contractors.
AeroRepública contracts ground handling equipment in eleven
of the thirteen cities it serves and has contracted labor for
below the wing tasks in eleven of the thirteen
cities. Overhaul maintenance and C-checks for Copa
are handled by contractors in the United States, Panama and
Costa Rica, and some line maintenance for Copa is handled at
certain airports by contract workers rather than our employees.
Substantially all of our agreements with third-party contractors
are subject to termination on short notice. The loss or
expiration of these agreements or our inability to renew these
agreements or to negotiate new agreements with other providers
at comparable rates could harm our business and results of
operations. Further, our reliance on third parties to provide
essential services on our behalf gives us less control over the
costs, efficiency, timeliness and quality of those services. A
contractors negligence could compromise our aircraft or
endanger passengers and crew. This could also have a material
adverse effect on our business. We expect to be dependent on
such agreements for the foreseeable future and if we enter any
new market, we will need to have similar agreements in place.
We
depend on a limited number of suppliers for our aircraft and
engines.
One of the elements of our business strategy is to save costs by
operating a simplified aircraft fleet. Copa currently operates
the Boeing 737-700/800 Next Generation aircraft powered by CFM
56-7B
engines from CFM
24
International and the Embraer 190, powered by General Electric
CF 34-10
engines. AeroRepública currently operates the Embraer 190,
powered by General Electric CF
34-10
engines and MD-80 fleet powered by Pratt & Whitney
JT8D-219 engines. We currently intend to continue to rely
exclusively on these aircraft for the foreseeable future. If any
of Boeing, Embraer, CFM International or GE Engines were unable
to perform their contractual obligations, or if we are unable to
acquire or lease new aircraft or engines from aircraft or engine
manufacturers or lessors on acceptable terms, we would have to
find another supplier for a similar type of aircraft or engine.
If we have to lease or purchase aircraft from another supplier,
we could lose the benefits we derive from our current fleet
composition. We cannot assure you that any replacement aircraft
would have the same operating advantages as the Boeing
737-700/800 Next Generation or Embraer 190 aircraft that would
be replaced or that Copa could lease or purchase engines that
would be as reliable and efficient as the CFM
56-7B and GE
CF34-10. We may also incur substantial transition costs,
including costs associated with retraining our employees,
replacing our manuals and adapting our facilities. Our
operations could also be harmed by the failure or inability of
Boeing, Embraer, CFM International or GE Engines to provide
sufficient parts or related support services on a timely basis.
Our business would be significantly harmed if a design defect or
mechanical problem with any of the types of aircraft or
components that we operate were discovered that would ground any
of our aircraft while the defect or problem was corrected,
assuming it could be corrected at all. The use of our aircraft
could be suspended or restricted by regulatory authorities in
the event of any actual or perceived mechanical or design
problems. Our business would also be significantly harmed if the
public began to avoid flying with us due to an adverse
perception of the types of aircraft that we operate stemming
from safety concerns or other problems, whether real or
perceived, or in the event of an accident involving those types
of aircraft or components. Carriers that operate a more
diversified fleet are better positioned than we are to manage
such events.
We are
dependent on key personnel.
Our success depends to a significant extent upon the efforts and
abilities of our senior management team and key financial,
commercial, operating and maintenance personnel. In particular,
we depend on the services of our senior management team,
including Pedro Heilbron, our Chief Executive Officer, Victor
Vial, our Chief Financial Officer, Lawrence Ganse, our Chief
Operating Officer, and Daniel Gunn, our Vice-President,
Planning. Competition for highly qualified personnel is intense,
and the loss of any executive officer, senior manager or other
key employee without adequate replacement or the inability to
attract new qualified personnel could have a material adverse
effect upon our business, operating results and financial
condition.
Our
operations in Cuba, which has been identified by the U.S.
Department of State as a state sponsor of terrorism, may
adversely affect our reputation and the liquidity and value of
our Class A Shares.
We currently operate approximately six daily departures to and
from Cuba which provide passenger, cargo and mail transportation
service. For the year ended December 31, 2007, our
transported passengers to and from Cuba represented
approximately 4.2% of our total passengers carried. Our
operating revenues from Cuban operations during the year ended
December 31, 2007 represented approximately 6.5% of our
total consolidated operating revenues for such year. Our assets
located in Cuba are insignificant.
Cuba has been identified by the United States government as a
state sponsor of terrorism, and the U.S. Treasury
Departments Office of Foreign Assets Control (OFAC)
administers and enforces economic and trade sanctions based on
U.S. foreign policy against Cuba and certain other targeted
foreign countries. You should understand that our overall
business reputation may suffer as a result of our activities in
Cuba, particularly if such activities grow in the future.
Certain U.S. states have recently enacted legislation
regarding investments by pension funds and other retirement
systems in companies, such as ours, that have business
activities with Cuba and other countries that have been
identified as terrorist-sponsoring states. Similar legislation
may be pending in other states. As a result, pension funds and
other retirement systems may be subject to new reporting
requirements and other burdensome restrictions with respect to
investments in companies such as ours. Pension funds and similar
institutions represent an important source of demand for our
shares, and if their willingness to invest in and hold our
shares were to diminish as a result of any such requirements or
restrictions, or for any other reason, it would likely have a
material adverse effect on the liquidity and value of our
Class A Shares.
25
Risks
Relating to the Airline Industry
The
airline industry is highly competitive.
We face intense competition throughout our route network.
Overall airline industry profit margins are low and industry
earnings are volatile. Airlines compete in the areas of pricing,
scheduling (frequency and flight times), on-time performance,
frequent flyer programs and other services. We compete with a
number of other airlines that currently serve some of the routes
on which we operate, including Grupo TACA, American Airlines
Inc., Delta Air Lines, Mexicana and Avianca. Some of our
competitors, such as American Airlines, have larger customer
bases and greater brand recognition in the markets we serve
outside Panama, and some of our competitors have significantly
greater financial and marketing resources than we have. Airlines
based in other countries may also receive subsidies, tax
incentives or other state aid from their respective governments,
which are not provided by the Panamanian government. The
commencement of, or increase in, service on the routes we serve
by existing or new carriers could negatively impact our
operating results. Likewise, competitors service on routes
that we are targeting for expansion may make those expansion
plans less attractive.
We must constantly react to changes in prices and services
offered by our competitors to remain competitive. The airline
industry is highly susceptible to price discounting,
particularly because airlines incur very low marginal costs for
providing service to passengers occupying otherwise unsold
seats. Carriers use discount fares to stimulate traffic during
periods of lower demand to generate cash flow and to increase
market share. Any lower fares offered by one airline are often
matched by competing airlines, which often results in lower
industry yields with little or no increase in traffic levels.
Price competition among airlines in the future could lead to
lower fares or passenger traffic on some or all of our routes,
which could negatively impact our profitability. We cannot
assure you that any of our competitors will not undercut our
fares in the future or increase capacity on routes in an effort
to increase their respective market share. Although we intend to
compete vigorously and to assert our rights against any
predatory conduct, such activity by other airlines could reduce
the level of fares or passenger traffic on our routes to the
point where profitable levels of operations could not be
maintained. Due to our smaller size and financial resources
compared to several of our competitors, we may be less able to
withstand aggressive marketing tactics or fare wars engaged in
by our competitors should such events occur.
We may
face increasing competition from low-cost carriers offering
discounted fares.
Traditional
hub-and-spoke
carriers in the United States and Europe have in recent years
faced substantial and increasing competitive pressure from
low-cost carriers offering discounted fares. The low-cost
carriers operations are typically characterized by
point-to-point
route networks focusing on the highest demand city pairs, high
aircraft utilization, single class service and fewer in-flight
amenities. As evidenced by the operations of Gol Intelligent
Airlines Inc., or Gol, which continues to grow both in Brazil as
well as in other South American countries, Spirit, which has
begun to serve Latin America from Fort Lauderdale, JetBlue,
which has obtained route rights to fly from Orlando to Bogota,
and a number of low-cost carriers which have recently launched
or are planning to start service in Mexico, among others, the
low-cost carrier business model appears to be gaining acceptance
in the Latin American aviation industry. As a result, we may
face new and substantial competition from low-cost carriers in
the future which could result in significant and lasting
downward pressure on the fares we charge for flights on our
routes.
Significant
changes or extended periods of high fuel costs or fuel supply
disruptions could materially affect our operating
results.
Fuel costs constitute a significant portion of our total
operating expenses, representing approximately 29.9% of our
operating expenses in 2005, 31.8% in 2006 and 32.0% in 2007. Our
fuel prices increased significantly in 2007 and are likely to
increase further. As a result, substantial increases in fuel
costs may materially and adversely affect our operating results.
Jet fuel costs have been subject to wide fluctuations as a
result of increases in demand, sudden disruptions in and other
concerns about global supply, as well as market speculation.
Both the cost and availability of fuel are subject to many
economic, political, weather, environmental and other factors
and events occurring throughout the world that we can neither
control nor accurately predict, including international
political and economic circumstances such as the political
instability in major oil-exporting countries in Latin America,
Africa
26
and Asia. Although we have entered into hedging agreements for a
portion of our fuel needs through the first quarter of 2009 to
hedge against fuel price volatility, these agreements provide
only limited protection against future increases in the price of
fuel, and we may discontinue such agreements in the future. Our
current or future arrangements will not be adequate to protect
us from further increases in the price of fuel, and fuel prices
are likely to increase above their current levels and may do so
in the near future. Indeed, numerous market experts and analysts
have predicted that fuel prices can be expected to increase
further, perhaps significantly, from their already high levels.
If a future fuel supply shortage were to arise as a result of
production curtailments by the Organization of the Petroleum
Exporting Countries, or OPEC, a disruption of oil imports,
supply disruptions resulting from severe weather or natural
disasters, the continued unrest in Iraq, other conflicts in the
Middle East or otherwise, higher fuel prices or further
reductions of scheduled airline services could result.
Significant increases in fuel costs would materially and
negatively affect our operating results. We cannot assure you
that we would be able to offset any increases in the price of
fuel by increasing our fares.
We may
experience difficulty finding, training and retaining pilots and
other employees.
The airline industry is currently experiencing a pilot shortage
caused by extraordinary air traffic growth in the Persian Gulf,
China and India; the rise of lucrative low-cost carriers in
Europe and Asia; and the sustained recovery of the
U.S. airlines from the industry recession caused by the
September 11 terrorist attacks. This worldwide shortage of
pilots disproportionately affects smaller and regional carriers.
An inability to attract and retain pilots may adversely affect
our growth strategy by limiting our ability to add new routes or
increase the frequency of existing routes.
The airline industry is a labor-intensive business. We employ a
large number of flight attendants, maintenance technicians and
other operating and administrative personnel. The airline
industry has, from time to time, experienced a shortage of
qualified personnel. In addition, as is common with most of our
competitors, we may, from time to time, face considerable
turnover of our employees. Should the turnover of employees
sharply increase, our training costs will be significantly
higher. We cannot assure you that we will be able to recruit,
train and retain the qualified employees that we need to
continue our current operations or replace departing employees.
A failure to hire and retain qualified employees at a reasonable
cost could materially adversely affect our business, financial
condition and results of operations.
Because
the airline industry is characterized by high fixed costs and
relatively elastic revenues, airlines cannot quickly reduce
their costs to respond to shortfalls in expected
revenue.
The airline industry is characterized by low gross profit
margins, high fixed costs and revenues that generally exhibit
substantially greater elasticity than costs. The operating costs
of each flight do not vary significantly with the number of
passengers flown and, therefore, a relatively small change in
the number of passengers, fare pricing or traffic mix could have
a significant effect on operating and financial results. These
fixed costs cannot be adjusted quickly to respond to changes in
revenues and a shortfall from expected revenue levels could have
a material adverse effect on our net income.
Airline
bankruptcies could adversely affect the industry.
Since September 11, 2001, several air carriers have sought
to reorganize under Chapter 11 of the United States
Bankruptcy Code, including some of our competitors such as
Avianca and Delta. Successful completion of such reorganizations
could present us with competitors with significantly lower
operating costs derived from labor, supply and financing
contracts renegotiated under the protection of the Bankruptcy
Code. For example, Avianca emerged from bankruptcy with a
significantly improved financial condition. In addition, air
carriers involved in reorganizations have historically
undertaken substantial fare discounting in order to maintain
cash flows and to enhance continued customer loyalty. Such fare
discounting could further lower yields for all carriers,
including us. Further, the market value of aircraft would likely
be negatively impacted if a number of air carriers seek to
reduce capacity by eliminating aircraft from their fleets.
27
Our
business may be adversely affected by downturns in the airline
industry caused by terrorist attacks, war or outbreak of
disease, which may alter travel behavior or increase
costs.
Demand for air transportation may be adversely affected by
terrorist attacks, war or political and social instability,
epidemics, natural disasters and other events. Any of these
events in the markets in which we operate could have a material
impact on our business, financial condition and results of
operations. Furthermore, these types of situations could have a
prolonged effect on air transportation demand and on certain
cost items.
For example, the terrorist attacks in the United States on
September 11, 2001 had a severe adverse impact on the
airline industry. Airline traffic in the United States fell
dramatically after the attacks and decreased less severely
throughout Latin America. Our revenues depend on the number of
passengers traveling on our flights. Therefore, any future
terrorist attacks or threat of attacks, whether or not involving
commercial aircraft, any increase in hostilities relating to
reprisals against terrorist organizations or otherwise and any
related economic impact could result in decreased passenger
traffic and materially and negatively affect our business,
financial condition and results of operations.
The combination of continued instability in the aftermath of the
Iraq war and the publics concerns about the possibility of
an outbreak of a disease that can be spread by fellow commercial
air passengers (such as avian flu or Severe Acute Respiratory
Syndrome) has continued to have a negative impact on the
publics willingness to travel by air. It is impossible to
determine if and when such adverse effects will abate and
whether they will further decrease demand for air travel, which
could materially and negatively affect our business, financial
condition and results of operations.
Increases
in insurance costs and/or significant reductions in coverage
would harm our business, financial condition and results of
operations.
Following the 2001 terrorist attacks, premiums for insurance
against aircraft damage and liability to third parties increased
substantially, and insurers could reduce their coverage or
increase their premiums even further in the event of additional
terrorist attacks, hijackings, airline crashes or other events
adversely affecting the airline industry abroad or in Latin
America. In the future, certain aviation insurance could become
unaffordable, unavailable or available only for reduced amounts
of coverage that are insufficient to comply with the levels of
insurance coverage required by aircraft lenders and lessors or
applicable government regulations. While governments in other
countries have agreed to indemnify airlines for liabilities that
they might incur from terrorist attacks or provide low-cost
insurance for terrorism risks, the Panamanian government has not
indicated an intention to provide similar benefits to us.
Increases in the cost of insurance may result in both higher
fares and a decreased demand for air travel generally, which
could materially and negatively affect our business, financial
condition and results of operations.
Failure
to comply with applicable environmental regulations could
adversely affect our business.
Our operations are covered by various local, national and
international environmental regulations. These regulations
cover, among other things, emissions to the atmosphere, disposal
of solid waste and aqueous effluents, aircraft noise and other
activities that result from the operation of aircraft. Future
operations and financial results may vary as a result of such
regulations. Compliance with these regulations and new or
existing regulations that may be applicable to us in the future
could increase our cost base and adversely affect our operations
and financial results.
Risks
Relating to Panama and our Region
Our
performance is heavily dependent on economic conditions in the
countries in which we do business.
Passenger demand is heavily cyclical and highly dependent on
global and local economic growth, economic expectations and
foreign exchange rate variations. In the past, we have been
negatively impacted by poor economic performance in certain
emerging market countries in which we operate. Any of the
following developments in the countries in which we operate
could adversely affect our business, financial condition and
results of operations:
|
|
|
|
|
changes in economic or other governmental policies;
|
28
|
|
|
|
|
changes in regulatory, legal or administrative practices; or
|
|
|
|
other political or economic developments over which we have no
control.
|
Additionally, a significant portion of our revenues is derived
from discretionary and leisure travel which are especially
sensitive to economic downturns. A worsening of economic
conditions could result in a reduction in passenger traffic, and
leisure travel in particular, which in turn would materially and
negatively affect our financial condition and results of
operations. Any perceived weakening of economic conditions in
this region could likewise negatively affect our ability to
obtain financing to meet our future capital needs in
international capital markets.
We are
highly dependent on conditions in Panama.
A substantial portion of our assets are located in the Republic
of Panama, a significant proportion of our customers are
Panamanian, and substantially all of Copas flights operate
through our hub at Tocumen International Airport. As a result,
we depend on economic and political conditions prevailing from
time to time in Panama. Panamas economic conditions in
turn highly depend on the continued profitability and economic
impact of the Panama Canal. Control of the Panama Canal and many
other assets were transferred from the United States to Panama
in 1999 after nearly a century of U.S. control. Political
events in Panama may significantly affect our operations.
Although the Panamanian government is democratically elected and
the Panamanian political climate is currently stable, Panamanian
elections will be held in 2009 and we cannot assure you that
current conditions will continue under a new administration. If
the Panamanian economy experiences a recession or a reduction in
its economic growth rate, or if Panama experiences significant
political disruptions, our business, financial condition and
results of operations could be materially and negatively
affected.
We
have paid low taxes in the past, and any increase in the taxes
we or our shareholders pay in Panama or the other countries
where we do business would adversely affect the value of our
Class A Shares.
We cannot assure you that we will not be subject to additional
taxes in the future or that current taxes will not be increased.
Our provision for income taxes was $9.6 million,
$12.3 million and $17.1 million in the years ended
December 31, 2005, 2006 and 2007, which represented an
effective income tax rate of 10.4%, 8.4% and 9.6% for the
respective periods. We are subject to local tax regulations in
each of the jurisdictions where we operate, the great majority
of which are related to the taxation of income. In some of the
countries to which we fly, we do not pay any income taxes,
because we do not generate income under the laws of those
countries either because they do not have income tax or because
of treaties or other arrangements those countries have with
Panama. In the remaining countries, we pay income tax at a rate
ranging from 25% to 34% of income. Different countries calculate
income in different ways, but they are typically derived from
sales in the applicable country multiplied by our net margin or
by a presumed net margin set by the relevant tax legislation.
The determination of our taxable income in several countries is
based on a combination of revenues sourced to each particular
country and the allocation of expenses of our operations to that
particular country. The methodology for multinational
transportation company sourcing of revenue and expense is not
always specifically prescribed in the relevant tax regulations,
and therefore is subject to interpretation by both us and the
respective taxing authorities. Additionally, in some countries,
the applicability of certain regulations governing non-income
taxes and the determination of our filing status are also
subject to interpretation. We cannot estimate the amount, if
any, of potential tax liabilities that might result if the
allocations, interpretations and filing positions used by us in
our tax returns were challenged by the taxing authorities of one
or more countries. The low rate at which we pay income tax has
been critical to our profitability in recent years and if it
were to increase, our financial performance and results of
operations would be materially and adversely affected. Due to
the competitive revenue environment, many increases in fees and
taxes have been absorbed by the airline industry rather than
being passed on to the passenger. Any such increases in our fees
and taxes may reduce demand for air travel and thus our revenues.
In the past, our expenses attributable to operations in Panama
have consistently exceeded our revenues attributable to
operations in Panama. As a result, we have typically experienced
losses for Panamanian income tax purposes and were not subject
to any income tax obligations. Beginning in 2004, we adopted an
alternate method of calculating income tax in Panama. Under this
alternative method, allocation of revenues for operations in
Panama is based on a general territorial principle, not
specifically defined in the tax regulations. If the Panamanian
tax
29
authorities do not agree with our methods of allocating
revenues, we may be subject to additional tax liability.
Airlines in Panama are currently not subject to any taxes
relating specifically to the airline industry other than the 4%
tax collected from passengers on tickets sold in Panama for the
benefit of the Panamanian Tourism Bureau.
Any future change in the Panamanian tax law increasing the taxes
payable by us could have materially adverse effects on our
business, financial condition and result of operations.
Political
unrest and instability in Colombia may adversely affect our
business and the market price of our Class A
Shares.
We completed our acquisition of AeroRepública in the second
quarter of 2005. Almost all of AeroRepúblicas
scheduled operations are conducted within Colombia. As a result,
AeroRepúblicas results of operations are highly
sensitive to macroeconomic and political conditions prevailing
in Colombia, which have been highly volatile and unstable and
may continue to be so for the foreseeable future. In addition,
terrorism and violence have plagued Colombia in the past.
Continuing guerrilla activity could cause political unrest and
instability in Colombia, which could adversely affect
AeroRepúblicas financial condition and results of
operations. The threat of terrorist attacks could impose
additional costs on us, including enhanced security to protect
our aircraft, facilities and personnel against possible attacks
as well as increased insurance premiums. As a result, we may
encounter significant unanticipated problems at
AeroRepública, which could have a material adverse effect
on our consolidated financial condition and results of
operations.
Risks
Relating to Our Class A Shares
The
value of our Class A Shares may be adversely affected by
ownership restrictions on our capital stock and the power of our
board of directors to take remedial actions to preserve our
operating license and international route rights by requiring
sales of certain outstanding shares or issuing new
stock.
Pursuant to the Panamanian Aviation Act, as amended and
interpreted to date, and certain of the bilateral treaties
affording us the right to fly to other countries, we are
required to be substantially owned and
effectively controlled by Panamanian nationals. Our
failure to comply with such requirements could result in the
loss of our Panamanian operating license
and/or our
right to fly to certain important countries. Our Articles of
Incorporation (Pacto Social) give special powers to our
independent directors to take certain significant actions to
attempt to ensure that the amount of shares held in us by
non-Panamanian nationals does not reach a level which could
jeopardize our compliance with Panamanian and bilateral
ownership and control requirements. If our independent directors
determine it is reasonably likely that we will be in violation
of these ownership and control requirements and our Class B
shares represent less than 10% of our total outstanding capital
stock (excluding newly issued shares sold with the approval of
our independent directors committee), our independent directors
will have the power to issue additional Class B shares or
Class C shares with special voting rights solely to
Panamanian nationals. See Description of Capital
Stock.
If any of these remedial actions are taken, the trading price of
the Class A Shares may be materially and adversely
affected. An issuance of Class C shares could have the
effect of discouraging certain changes of control of Copa
Holdings or may reduce any voting power that the Class A
Shares enjoy prior to the Class C share issuance. There can
be no assurance that we would be able to complete an issuance of
Class B shares to Panamanian nationals. We cannot assure
you that restrictions on ownership by non-Panamanian nationals
will not impede the development of an active public trading
market for the Class A Shares, adversely affect the market
price of the Class A Shares or materially limit our ability
to raise capital in markets outside of Panama in the future.
Our
controlling shareholder has the ability to direct our business
and affairs, and its interests could conflict with
yours.
All of our Class B shares, representing approximately 29.2%
of the economic interest in Copa Holdings and all of the voting
power of our capital stock, are owned by CIASA. CIASA is in turn
controlled by a group of Panamanian investors. In order to
comply with the Panamanian Aviation Act, as amended and
interpreted to date, we have amended our organizational
documents to modify our share capital so that CIASA will
continue to exercise voting control of Copa Holdings. CIASA will
not be able to transfer its voting control unless control of our
company
30
will remain with Panamanian nationals. CIASA will maintain
voting control of the company so long as CIASA continues to own
a majority of our Class B shares and the Class B
shares continue to represent more than 10% of our total share
capital (excluding newly issued shares sold with the approval of
our independent directors committee). Even after CIASA ceases to
own the majority of the voting power of our capital stock, CIASA
may continue to control our board of directors indirectly
through its control of our Nominating and Corporate Governance
Committee. As the controlling shareholder, CIASA may direct us
to take actions that could be contrary to your interests and
under certain circumstances CIASA will be able to prevent other
shareholders, including you, from blocking these actions. Also,
CIASA may prevent change of control transactions that might
otherwise provide you with an opportunity to dispose of or
realize a premium on your investment in our Class A Shares.
The
Class A Shares will only be permitted to vote in very
limited circumstances and may never have full voting
rights.
The holders of Class A Shares have no right to vote at our
shareholders meetings except with respect to corporate
transformations of Copa Holdings, mergers, consolidations or
spin-offs of Copa Holdings, changes of corporate purpose,
voluntary delistings of the Class A Shares from the NYSE,
the approval of nominations of our independent directors and
amendments to the foregoing provisions that adversely affect the
rights and privileges of any Class A Shares. The holders of
Class B shares have the power, subject to our
shareholders agreement with Continental, to elect the
board of directors and to determine the outcome of all other
matters to be decided by a vote of shareholders. Class A
Shares will not have full voting rights unless the Class B
shares represent less than 10% of our total capital stock
(excluding newly issued shares sold with the approval of our
independent directors committee). See Description of
Capital Stock. We cannot assure you that the Class A
Shares will ever carry full voting rights.
Substantial
future sales of our Class A Shares could cause the price of
the Class A Shares to decrease.
CIASA owns all of our Class B shares, and those
Class B shares will be converted into Class A Shares
if they are sold to non-Panamanian investors. In connection with
our initial public offering in December 2005, Continental and
CIASA reduced their ownership of our total capital stock from
49% to approximately 27.3% and from 51% to approximately 29.2%,
respectively. In a follow-on offering in June 2006, Continental
further reduced its ownership of our total capital stock from
27.3% to 10.0%.%. In this offering and, if the over-allotment is
not exercised by the underwriters, in one or more subsequent
transactions, Continental intends to sell all of its remaining
interest in our Class A Shares. CIASA holds registration
rights with respect to a significant portion of its shares
pursuant to a registration rights agreement entered into in
connection with our initial public offering. The market price of
our Class A Shares could drop significantly if CIASA
further reduces its investment in us, other significant holders
of our shares sell a significant number of shares or if the
market perceives that significant holders intend to sell them.
Holders
of our common stock are not entitled to preemptive rights, and
as a result you may experience substantial dilution upon future
issuances of stock by us.
Under Panamanian law and our organizational documents, holders
of our Class A Shares are not entitled to any preemptive
rights with respect to future issuances of capital stock by us.
Therefore, unlike companies organized under the laws of many
other Latin American jurisdictions, we will be free to issue new
shares of stock to other parties without first offering them to
our existing shareholders. In the future we may sell
Class A or other shares to persons other than our existing
shareholders at a lower price than the shares being sold in this
offering and as a result you may experience substantial dilution
of your interest in us.
You
may not be able to sell our Class A Shares at the price or
at the time you desire because an active or liquid market for
the Class A Shares may not continue.
Our Class A Shares are listed on the NYSE. During the three
months ended March 31, 2008, the average daily trading
volume for our Class A Shares as reported by the NYSE was
approximately 454,244 shares. We cannot predict whether an
active liquid public trading market for our Class A Shares
will be sustained. Active, liquid trading markets generally
result in lower price volatility and more efficient execution of
buy and sell orders for our investors. The liquidity of a
securities market is often affected by the volume of shares
publicly held by unrelated parties.
31
Our
board of directors may, in its discretion, amend or repeal our
dividend policy. You may not receive the level of dividends
provided for in the dividend policy or any dividends at
all.
Our board of directors has adopted a dividend policy that
provides for the payment of dividends to shareholders equal to
approximately 10% of our annual consolidated net income. Our
board of directors may, in its sole discretion and for any
reason, amend or repeal this dividend policy. Our board of
directors may decrease the level of dividends provided for in
this dividend policy or entirely discontinue the payment of
dividends. Future dividends with respect to shares of our common
stock, if any, will depend on, among other things, our results
of operations, cash requirements, financial condition,
contractual restrictions, business opportunities, provisions of
applicable law and other factors that our board of directors may
deem relevant. See Dividends and Dividend Policy.
To the
extent we pay dividends to our shareholders, we will have less
capital available to meet our future liquidity
needs.
Our board of directors has adopted a dividend policy that
provides for the payment of dividends to shareholders equal to
approximately 10% of our annual consolidated net income. The
aviation industry has cyclical characteristics, and many
international airlines are currently experiencing difficulties
meeting their liquidity needs. Also, our business strategy
contemplates substantial growth over the next several years, and
we expect such growth will require a great deal of liquidity. To
the extent that we pay dividends in accordance with our dividend
policy, the money that we distribute to shareholders will not be
available to us to fund future growth and meet our other
liquidity needs.
Our
Articles of Incorporation impose ownership and control
restrictions on our company which ensure that Panamanian
nationals will continue to control us and that these
restrictions operate to prevent any change of control or some
transfers of ownership in order to comply with the Aviation Act
and other bilateral restrictions.
Under the Panamanian Aviation Act, as amended and interpreted to
date, Panamanian nationals must exercise effective
control over the operations of the airline and must
maintain substantial ownership. These phrases are
not defined in the Aviation Act itself and it is unclear how a
Panamanian court would interpret them. The share ownership
requirements and transfer restrictions contained in our Articles
of Incorporation, as well as the dual-class structure of our
voting capital stock are designed to ensure compliance with
these ownership and control restrictions. See Description
of Capital Stock. These provisions of our Articles of
Incorporation may prevent change of control transactions that
might otherwise provide you with an opportunity to realize a
premium on your investment in our Class A Shares. They also
ensure that Panamanians will continue to control all the
decisions of our company for the foreseeable future.
The
protections afforded to minority shareholders in Panama are
different from and more limited than those in the United States
and may be more difficult to enforce.
Under Panamanian law, the protections afforded to minority
shareholders are different from, and much more limited than,
those in the United States and some other Latin American
countries. For example, the legal framework with respect to
shareholder disputes is less developed under Panamanian law than
under U.S. law and there are different procedural
requirements for bringing shareholder lawsuits, including
shareholder derivative suits. As a result, it may be more
difficult for our minority shareholders to enforce their rights
against us or our directors or controlling shareholder than it
would be for shareholders of a U.S. company. In addition,
Panamanian law does not afford minority shareholders as many
protections for investors through corporate governance
mechanisms as in the United States and provides no mandatory
tender offer or similar protective mechanisms for minority
shareholders in the event of a change in control. While our
Articles of Incorporation provide limited rights to holders of
our Class A Shares to sell their shares at the same price
as CIASA in the event that a sale of Class B shares by
CIASA results in the purchaser having the right to elect a
majority of our board, there are other change of control
transactions in which holders of our Class A Shares would
not have the right to participate, including the sale of
interests by a party that had previously acquired Class B
shares from CIASA, the sale of interests by another party in
conjunction with a sale by CIASA, the sale by CIASA of control
to more than one party, or the sale of controlling interests in
CIASA itself.
32
Developments
in Latin American countries and other emerging market countries
may cause the market price of our Class A Shares to
decrease.
The market value of securities issued by Panamanian companies
may be affected to varying degrees by economic and market
conditions in other countries, including other Latin American
and emerging market countries. Although economic conditions in
emerging market countries outside Latin America may differ
significantly from economic conditions in Panama and Colombia or
elsewhere in Latin America, investors reactions to
developments in these other countries may have an adverse effect
on the market value of securities of Panamanian issuers or
issuers with significant operations in Latin America. As a
result of economic problems in various emerging market countries
in the past (such as the Asian financial crisis of 1997, the
Russian financial crisis of 1998 and the Argentine financial
crisis in 2001), investors have viewed investments in emerging
markets with heightened caution. Crises in other emerging market
countries may hamper investor enthusiasm for securities of
Panamanian issuers, including our shares, which could adversely
affect the market price of our Class A Shares.
33
SPECIAL
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements, principally
under the captions Summary and Risk
Factors. We have based these forward-looking statements
largely on our current beliefs, expectations and projections
about future events and financial trends affecting our business.
Many important factors, in addition to those discussed elsewhere
in this prospectus, could cause our actual results to differ
substantially from those anticipated in our forward-looking
statements, including, among other things:
|
|
|
|
|
general economic, political and business conditions in Panama
and Latin America and particularly in the geographic markets we
serve;
|
|
|
|
our managements expectations and estimates concerning our
future financial performance and financing plans and programs;
|
|
|
|
our level of debt and other fixed obligations;
|
|
|
|
demand for passenger and cargo air service in the markets in
which we operate;
|
|
|
|
competitive pressures on pricing;
|
|
|
|
our capital expenditure plans;
|
|
|
|
changes in the regulatory environment in which we operate;
|
|
|
|
changes in labor costs, maintenance costs, fuel costs and
insurance premiums;
|
|
|
|
changes in market prices, customer demand and preferences and
competitive conditions;
|
|
|
|
cyclical and seasonal fluctuations in our operating results;
|
|
|
|
defects or mechanical problems with our aircraft;
|
|
|
|
our ability to successfully implement our growth strategy;
|
|
|
|
our ability to obtain financing on commercially reasonable
terms; and
|
|
|
|
the risk factors discussed under Risk Factors.
|
The words believe, may,
will, aim, estimate,
continue, anticipate,
intend, expect and similar words are
intended to identify forward-looking statements. Forward-looking
statements include information concerning our possible or
assumed future results of operations, business strategies,
financing plans, competitive position, industry environment,
potential growth opportunities, the effects of future regulation
and the effects of competition. Forward-looking statements speak
only as of the date they were made, and we undertake no
obligation to update publicly or to revise any forward-looking
statements after we distribute this prospectus because of new
information, future events or other factors. In light of the
risks and uncertainties described above, the forward-looking
events and circumstances discussed in this prospectus might not
occur and are not guarantees of future performance. Considering
these limitations, you should not place undue reliance on
forward-looking statements contained in this prospectus.
34
USE OF
PROCEEDS
We will not receive any proceeds from the sale of our
Class A Shares by the selling shareholder.
DIVIDENDS
AND DIVIDEND POLICY
The payment of dividends on our shares is subject to the
discretion of our board of directors. Under Panamanian law, we
may pay dividends only out of retained earnings and capital
surplus. So long as we do not default in our payments under our
loan agreements, there are no covenants or other restrictions on
our ability to declare and pay dividends. Our Articles of
Incorporation provide that all dividends declared by our board
of directors will be paid equally with respect to all of the
Class A and Class B shares. See Description of
Capital Stock Dividends.
Our board of directors has adopted a dividend policy that
provides for the payment of approximately 10% of our annual
consolidated net income to shareholders as a dividend to be
declared at our annual shareholders meeting and paid
shortly thereafter. Our board of directors may, in its sole
discretion and for any reason, amend or discontinue the dividend
policy. Our board of directors may change the level of dividends
provided for in this dividend policy or entirely discontinue the
payment of dividends. Future dividends with respect to shares of
our common stock, if any, will depend on, among other things,
our results of operations, cash requirements, financial
condition, contractual restrictions, business opportunities,
provisions of applicable law and other factors that our board of
directors may deem relevant.
On May 7, 2008, our board of directors declared an annual
dividend of $0.37 per share payable June 16, 2008 to
shareholders of record as of May 30, 2008. On May 9,
2007, our board of directors declared an annual dividend of
$0.31 per share payable June 15, 2007 to shareholders of
record as of May 31, 2007 which represented an aggregate
dividend payment of $13.6 million. On May 11, 2006,
our board of directors declared an annual dividend of $0.19 per
share payable June 15, 2006 to shareholders of record as of
May 31, 2006 which represented an aggregate dividend
payment of $8.3 million. In addition, we paid an
extraordinary dividend of $10 million to our shareholders
in December 2004 and another extraordinary dividend of
$10 million in June 2005. Prior to the December 2004
dividend payment, we had not paid a dividend since the formation
of Copa Holdings in 1998.
35
MARKET
INFORMATION
Our Class A Shares have been listed on the New York Stock
Exchange, or NYSE, under the symbol CPA since
December 14, 2005. The following table sets forth, for the
periods indicated, the high and low closing sale prices for the
Class A Shares on the NYSE for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
|
High
|
|
|
2005
|
|
|
|
|
|
|
|
|
Annual(1)
|
|
|
21.95
|
|
|
|
27.40
|
|
2006
|
|
|
|
|
|
|
|
|
Annual
|
|
|
20.31
|
|
|
|
49.05
|
|
First quarter
|
|
|
20.31
|
|
|
|
27.10
|
|
Second quarter
|
|
|
20.95
|
|
|
|
24.25
|
|
Third quarter
|
|
|
21.53
|
|
|
|
35.22
|
|
Fourth quarter
|
|
|
33.15
|
|
|
|
49.05
|
|
2007
|
|
|
|
|
|
|
|
|
Annual
|
|
|
30.25
|
|
|
|
73.33
|
|
First quarter
|
|
|
46.70
|
|
|
|
66.47
|
|
Second quarter
|
|
|
50.54
|
|
|
|
71.00
|
|
Third quarter
|
|
|
38.31
|
|
|
|
73.33
|
|
Fourth quarter
|
|
|
30.25
|
|
|
|
45.24
|
|
2008
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
30.00
|
|
|
|
41.97
|
|
Last Six Months
|
|
|
|
|
|
|
|
|
December 2007
|
|
|
35.27
|
|
|
|
39.25
|
|
January 2008
|
|
|
32.59
|
|
|
|
40.25
|
|
February 2008
|
|
|
36.01
|
|
|
|
41.97
|
|
March 2008
|
|
|
30.00
|
|
|
|
38.39
|
|
April 2008
|
|
|
34.53
|
|
|
|
40.74
|
|
May
2008(2)
|
|
|
33.50
|
|
|
|
43.64
|
|
|
|
|
(1)
|
|
Period beginning December 14,
2005 through December 31, 2005.
|
|
(2)
|
|
Period through May 15, 2008.
|
On May 15, 2008, the last reported sale price of the
Class A Shares on the NYSE was $35.83 per share.
36
CAPITALIZATION
The following table sets forth our cash and cash equivalents,
short-term debt, long-term debt and total capitalization at
March 31, 2008 on an actual basis. As we will receive no
proceeds from the sale of the Class A Shares by the selling
shareholder, there will be no change in our overall
capitalization as a result of this offering. You should read
this table in conjunction with Summary Financial and
Operating Data, and our audited consolidated financial
statements and the related notes included in our annual report
on
Form 20-F
for the year ended December 31, 2007, which is incorporated
by reference herein. None of our indebtedness is guaranteed by a
third party.
|
|
|
|
|
|
|
At March 31, 2008
|
|
|
|
Actual
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
234,593
|
|
Indebtedness:
|
|
|
|
|
Copa
|
|
|
|
|
Secured indebtedness due through 2019
|
|
|
682,207
|
|
Unsecured indebtedness due through 2009
|
|
|
43,286
|
|
AeroRepública
|
|
|
|
|
Secured indebtedness due through 2020
|
|
|
89,736
|
|
Unsecured indebtedness due through 2009
|
|
|
20,900
|
|
Shareholders equity:
|
|
|
|
|
Class A Shares (without par value)
|
|
|
20,761
|
|
Class B shares (without par value)
|
|
|
8,722
|
|
Additional paid in capital
|
|
|
10,037
|
|
Retained earnings
|
|
|
531,098
|
|
Accumulated other comprehensive income
|
|
|
6,371
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
576,989
|
|
|
|
|
|
|
Total capitalization
|
|
|
1,413,118
|
|
|
|
|
|
|
37
PRINCIPAL
AND SELLING SHAREHOLDERS
The following table sets forth information relating to the
beneficial ownership of our Class A shares as of
March 31, 2008 by each person known to us to beneficially
own 5% or more of our common shares and all our directors and
officers as a group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Shares
|
|
|
Class A Shares
|
|
|
|
Beneficially
|
|
|
Beneficially
|
|
|
|
Owned Prior to
|
|
|
Owned After
|
|
|
|
the Offering
|
|
|
the
Offering(1)
|
|
|
|
Shares
|
|
|
(%)(2)
|
|
|
Shares
|
|
|
(%)(2)
|
|
|
CIASA(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continental*(4)
|
|
|
4,375,000
|
|
|
|
14.1
|
%
|
|
|
397,700
|
|
|
|
1.3
|
%
|
Bank of America
Corp.(5)
|
|
|
2,744,160
|
|
|
|
9.1
|
%
|
|
|
2,744,160
|
|
|
|
9.1
|
%
|
Orbis
group(6)
|
|
|
2,593,600
|
|
|
|
8.6
|
%
|
|
|
2,593,600
|
|
|
|
8.6
|
%
|
Citadel Investment Group,
LLC(7)
|
|
|
1,720,798
|
|
|
|
5.7
|
%
|
|
|
1,720,798
|
|
|
|
5.7
|
%
|
Executive officers and directors as a group (18 persons)
|
|
|
168,486
|
|
|
|
0.6
|
%
|
|
|
168,486
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
30,416,440
|
|
|
|
100
|
%
|
|
|
30,416,440
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Selling shareholder.
|
(1)
|
|
Assumes no exercise of the
underwriters over-allotment option. If the
underwriters over-allotment option is exercised in full,
Continental will not own any shares after the offering.
|
(2)
|
|
Based on a total of 30,416,440
Class A Shares outstanding.
|
(3)
|
|
CIASA owns 100% of the Class B
shares of Copa Holdings before and after the offering,
representing 29.2% of our total capital stock.
|
(4)
|
|
Based on a Schedule 13G filed
with the SEC, dated July 5, 2006, in which Continental
reported that it had sole voting and dispositive power over
4,375,000 of Class A Shares.
|
(5)
|
|
Based on a Schedule 13G filed
with the SEC, dated February 5, 2008, in which Bank of
America Corp. and certain related parties, reported beneficial
ownership of 2,744,160 Class A Shares.
|
(6)
|
|
Based on Schedule 13G filed
with the SEC, dated February 14, 2008, in which Orbis
Investment Management Limited and Orbis Asset Management Limited
reported beneficial ownership of 2,575,630 and 17,970 Class A
Shares, respectively.
|
(7)
|
|
Based on a Schedule 13G filed
with the SEC, dated February 13, 2008, in which Citadel
Investment Group LLC and certain related parties, reported
beneficial ownership of 1,720,798 Class A Shares.
|
CIASA currently owns 100% of the Class B shares of Copa
Holdings. After the completion of this offering, CIASA will
continue to own 100% of the Class B shares of Copa
Holdings, representing all of the voting power of our capital
stock. CIASA is controlled by a group of Panamanian investors
representing several prominent families in Panama. This group of
investors has historically acted together in a variety of
business activities both in Panama and elsewhere in Latin
America, including banking, insurance, real estate,
telecommunications, international trade and commerce and
wholesale. Members of the Motta, Heilbron and Arias families and
their affiliates beneficially own approximately 90% of
CIASAs shares. Our Chief Executive Officer, Pedro
Heilbron, and several of our directors, including
Messrs. Stanley Motta, Alberto C. Motta Jr., Osvaldo
Heilbron, Jaime Arias and Ricardo Alberto Arias as a group hold
beneficial ownership of approximately 78% of CIASAs shares.
The holders of more than 78% of the issued and outstanding stock
of CIASA have entered into a shareholders agreement
providing that the parties to the agreement will vote all of
their shares in CIASA together as a group on all matters
concerning CIASAs holdings of Class B shares.
Additionally, the shareholders agreement restricts
transfers of CIASA shares to non-Panamanian nationals.
Messrs. Stanley Motta and Alberto C. Motta Jr. together
exercise effective control of CIASA.
One of our directors, Mark Erwin, is an officer of Continental
and may be deemed to share beneficial ownership with Continental
of our Class A Shares held by Continental, but
Mr. Erwin disclaims such beneficial ownership.
The address of CIASA is Corporación de Inversiones
Aéreas, S.A.,
c/o Compañía
Panameña de Aviación, S.A., Complejo Business Park,
Torre Norte, Urbanización Costa del Este, Parque Lefevre,
Panama City, Panama. The address of Continental is Continental
Airlines, Inc., 1600 Smith Street, Houston, Texas 77002.
38
DESCRIPTION
OF CAPITAL STOCK
The following is a summary of the material terms of Copa
Holdings capital stock and a brief summary of certain
significant provisions of Copa Holdings Articles of
Incorporation. This description contains all material
information concerning the common stock but does not purport to
be complete. For additional information regarding the common
stock, reference is made to the Articles of Incorporation, a
copy of which has been filed as an exhibit to our annual report
on
Form 20-F
for the year ended December 31, 2007, which is incorporated
by reference herein.
For purposes of this section only, reference to
our or the company shall refer only to
Copa Holdings and references to Panamanians shall
refer to those entities or natural persons that are considered
Panamanian nationals under the Panamanian Aviation Act, as it
may be amended or interpreted.
Common
Stock
Our authorized capital stock consists of 80 million shares
of common stock without par value, divided into Class A
Shares, Class B shares and Class C shares. As of
March 31, 2008, we had 30,416,440 Class A Shares
issued, 12,778,125 Class B shares issued and outstanding,
and no Class C shares outstanding. Class A and
Class B shares have the same economic rights and
privileges, including the right to receive dividends, except as
described in this section.
Class A
Shares
The holders of the Class A Shares are not entitled to vote
at our shareholders meetings, except in connection with
the following specific matters:
|
|
|
|
|
a transformation of Copa Holdings into another corporate type;
|
|
|
|
a merger, consolidation or spin-off of Copa Holdings;
|
|
|
|
a change of corporate purpose;
|
|
|
|
voluntarily delisting Class A Shares from the NYSE;
|
|
|
|
approving the nomination of Independent Directors nominated by
our board of directors Nominating and Corporate Governance
Committee; and
|
|
|
|
any amendment to the foregoing special voting provisions
adversely affecting the rights and privileges of the
Class A Shares.
|
At least 30 days prior to taking any of the actions listed
above, we must give notice to the Class A and Class B
shareholders of our intention to do so. If requested by
shareholders representing at least 5% of our outstanding shares,
the board of directors shall call an extraordinary
shareholders meeting to approve such action. At the
extraordinary shareholders meeting, shareholders
representing a majority of all of the outstanding shares must
approve a resolution authorizing the proposed action. For such
purpose, every holder of our shares is entitled to one vote per
share. See Shareholders Meetings.
The Class A shareholders will acquire full voting rights,
entitled to one vote per Class A share on all matters upon
which shareholders are entitled to vote, if in the future our
Class B shares ever represent fewer than 10% of the total
number of shares of our common stock and the Independent
Directors Committee shall have determined that such additional
voting rights of Class A shareholders would not cause a
triggering event referred to below. In such event, the right of
the Class A shareholders to vote on the specific matters
described in the preceding paragraph will no longer be
applicable. The 10% threshold described in the first sentence of
this paragraph will be calculated without giving effect to any
newly issued shares sold with the approval of the Independent
Directors Committee.
At such time, if any, as the Class A shareholders acquire
full voting rights, the Board of Directors shall call an
extraordinary shareholders meeting to be held within
90 days following the date as of which the Class A
Shares are entitled to vote on all matters at our
shareholders meetings. At the extraordinary
shareholders meeting, the shareholders shall vote to elect
all eleven members of the board of directors in a slate
recommended by the
39
Nominating and Governance Committee. The terms of office of the
directors that were serving prior to the extraordinary
shareholders meeting shall terminate upon the election
held at that meeting.
Class B
Shares
Every holder of Class B shares is entitled to one vote per
share on all matters for which shareholders are entitled to
vote. Class B shares will be automatically converted into
Class A Shares upon the registration of transfer of such
shares to holders which are not Panamanian as described below
under Restrictions on Transfer of Common
Stock; Conversion of Class B Shares.
Class C
Shares
Upon the occurrence and during the continuance of a triggering
event described below in Aviation Rights
Protections, the Independent Directors Committee of our
board of directors, or the board of directors as a whole if
applicable, are authorized to issue Class C shares to the
Class B holders pro rata in proportion to such Class B
holders ownership of Copa Holdings. The Class C
shares will have no economic value and will not be transferable,
but will possess such voting rights as the Independent Directors
Committee shall deem necessary to ensure the effective control
of the company by Panamanians. The Class C shares will be
redeemable by the company at such time as the Independent
Directors Committee determines that such a triggering event
shall no longer be in effect. The Class C shares will not
be entitled to any dividends or any other economic rights.
Objects
and Purposes
Copa Holdings is principally engaged in the investment in
airlines and aviation-related companies and ventures, although
our Articles of Incorporation grant us general powers to engage
in any other lawful business, whether or not related to any of
the specific purposes set forth in the Articles of Incorporation.
Restrictions
on Transfer of Common Stock; Conversion of Class B
Shares
The Class B shares may only be held by Panamanians, and
upon registration of any transfer of a Class B share to a
holder that does not certify that it is Panamanian, such
Class B share shall automatically convert into a
Class A share. Transferees of Class B shares will be
required to deliver to us written certification of their status
as a Panamanian as a condition to registering the transfer to
them of Class B shares. Class A shareholders will not
be required or entitled to provide such certification. If a
Class B shareholder intends to sell any Class B shares
to a person that has not delivered a certification as to
Panamanian nationality and immediately after giving effect to
such proposed transfer the outstanding Class B shares would
represent less than 10% of our outstanding stock (excluding
newly issued shares sold with the approval of our Independent
Directors Committee), the selling shareholder must inform the
board of directors at least ten days prior to such transfer. The
Independent Directors Committee may determine to refuse to
register the transfer if the Committee reasonably concludes, on
the basis of the advice of a reputable external aeronautical
counsel, that such transfer would be reasonably likely to cause
a triggering event as described below. After the first
shareholders meeting at which the Class A
shareholders are entitled to vote for the election of our
directors, the role of the Independent Directors described in
the preceding sentence shall be exercised by the entire board of
directors acting as a whole.
Also, the board of directors may refuse to register a transfer
of stock if the transfer violates any provision of the Articles
of Incorporation.
Tag-along
Rights
Our board of directors may refuse to register any transfer of
shares in which CIASA proposes to sell Class B shares
pursuant to a sale at a price per share that is greater than the
average public trading price per share of the Class A
Shares for the preceding 30 days to an unrelated third
party that would, after giving effect to such sale, have the
right to elect a majority of the board of directors and direct
our management and policies, unless the proposed purchaser
agrees to make, as promptly as possible, a public offer for the
purchase of all outstanding Class A Shares and Class B
shares at a price per share equal to the price per share paid
for the shares being sold by CIASA. While our Articles of
Incorporation provide limited rights to holders of our
Class A Shares to sell their shares at the same
40
price as CIASA in the event that a sale of Class B shares
by CIASA results in the purchaser having the right to elect a
majority of our board, there are other change of control
transactions in which holders of our Class A Shares would
not have the right to participate, including the sale of
interests by a party that had previously acquired Class B
shares from CIASA, the sale of interests by another party in
conjunction with a sale by CIASA, the sale by CIASA of control
to more than one party, or the sale of controlling interests in
CIASA itself.
Aviation
Rights Protections
The Panamanian Aviation Act, including the related decrees and
regulations, and the bilateral treaties between Panama and other
countries that allow us to fly to those countries require that
Panamanians exercise effective control of Copa and
maintain significant ownership of the airline. The
Independent Directors Committee have certain powers under our
Articles of Incorporation to ensure that certain levels of
ownership and control of Copa Holdings remain in the hands of
Panamanians upon the occurrence of certain triggering events
referred to below.
In the event that the Class B shareholders represent less
than 10% of the total share capital of the company (excluding
newly issued shares sold with the approval of our Independent
Directors Committee) and the Independent Directors Committee
determines that it is reasonably likely that Copas or Copa
Holdings legal ability to engage in the aviation business
or to exercise its international route rights will be revoked,
suspended or materially inhibited in a manner which would
materially and adversely affect the company, in each case as a
result of such non-Panamanian ownership (each a triggering
event), the Independent Directors Committee may take either or
both of the following actions:
|
|
|
|
|
authorize the issuance of additional Class B shares to
Panamanians at a price determined by the Independent Directors
to reflect the current market value of such shares or
|
|
|
|
authorize the issuance to Class B shareholders such number
of Class C shares as the Independent Directors Committee,
or the board of directors if applicable, deems necessary and
with such other terms and conditions established by the
Independent Directors Committee that do not confer economic
rights on the Class C shares.
|
Dividends
The payment of dividends on our shares is subject to the
discretion of our board of directors. Under Panamanian law, we
may pay dividends only out of retained earnings and capital
surplus. Our Articles of Incorporation provide that all
dividends declared by our board of directors will be paid
equally with respect to all of the Class A and Class B
shares. Our board of directors has adopted a dividend policy
that provides for the payment of approximately 10% of our annual
consolidated net income to Class A and Class B
shareholders. Our board of directors may, in its sole discretion
and for any reason, amend or discontinue the dividend policy.
Our board of directors may change the level of dividends
provided for in this dividend policy or entirely discontinue the
payment of dividends.
Shareholder
Meetings
Ordinary
Meetings
Our Articles of Incorporation require us to hold an ordinary
annual meeting of shareholders within the first five months of
each fiscal year. The ordinary annual meeting of shareholders is
the corporate body that elects the board of directors, approves
the annual financial statements of Copa Holdings and approves
any other matter that does not require an extraordinary
shareholders meeting. Shareholders representing at least
5% of the issued and outstanding common stock entitled to vote
may submit proposals to be included in such ordinary
shareholders meeting, provided the proposal is submitted at
least 45 days prior to the meeting.
Extraordinary
Meetings
Extraordinary meetings may be called by the board of directors
when deemed appropriate. Ordinary and extraordinary meetings
must be called by the board of directors when requested by
shareholders representing at
41
least 5% of the issued shares entitled to vote at such meeting.
Only matters that have been described in the notice of an
extraordinary meeting may be dealt with at that extraordinary
meeting.
Vote
required
Resolutions are passed at shareholders meetings by the
affirmative vote of a majority of those shares entitled to vote
at such meeting and present or represented at the meeting.
Notice
and Location
Notice to convene the ordinary annual meeting or extraordinary
meeting is given by publication in at least one national
newspaper in Panama and at least one national newspaper widely
read in New York City not less than 30 days in advance of
the meeting. We publish such official notices in a national
journal recognized by the NYSE.
Shareholders meetings are to be held in Panama City,
Panama unless otherwise specified by the board of directors.
Quorum
Generally, a quorum for a shareholders meeting is
established by the presence, in person or by proxy, of
shareholders representing a simple majority of the issued shares
eligible to vote on any actions to be considered at such
meeting. If a quorum is not present at the first meeting and the
original notice for such meeting so provides, the meeting can be
immediately reconvened on the same day and, upon the meeting
being reconvened, shareholders present or represented at the
reconvened meeting are deemed to constitute a quorum regardless
of the percentage of the shares represented.
Proxy
Representation
Our Articles of Incorporation provide that, for so long as the
Class A Shares do not have full voting rights, each holder,
by owning our Class A Shares, grants a general proxy to the
Chairman of our board of directors or any person designated by
our Chairman to represent them and vote their shares on their
behalf at any shareholders meeting, provided that due
notice was made of such meeting and that no specific proxy
revoking or replacing the general proxy has been received from
such holder prior to the meeting in accordance with the
instructions provided by the notice.
Other
Shareholder Rights
As a general principle, Panamanian law bars the majority of a
corporations shareholders from imposing resolutions which
violate its articles of incorporation or the law, and grants any
shareholder the right to challenge, within 30 days, any
shareholders resolution that is illegal or that violates
its articles of incorporation or by-laws, by requesting the
annulment of said resolution
and/or the
injunction thereof pending judicial decision. Minority
shareholders representing at least 5% of all issued and
outstanding shares have the right to require a judge to call a
shareholders meeting and to appoint an independent auditor
(revisor) to examine the corporate accounting books, the
background of the companys incorporation or its operation.
Shareholders have no pre-emptive rights on the issue of new
shares.
Our Articles of Incorporation provide that directors will be
elected in staggered two-year terms, which may have the effect
of discouraging certain changes of control.
Listing
Our Class A Shares are listed on the NYSE under the symbol
CPA. The Class B shares and Class C shares
will not be listed on any exchange unless the board of directors
determines that it is in the best interest of the company to
list the Class B shares on the Panama Stock Exchange.
42
Transfer
Agent and Registrar
The transfer agent and registrar for our Class A Shares is
Mellon Investor Services LLC. Until the board of directors
otherwise provides, the transfer agent for our Class B
shares and any Class C shares is the Company, which
maintains the share register for each class in Panama. Transfers
of Class B shares must be accompanied by a certification of
the transferee that such transferee is Panamanian.
Summary
of Significant Differences between Shareholders Rights and
Other Corporate Governance Matters Under Panamanian Corporation
Law and Delaware Corporation Law
Copa Holdings is a Panamanian corporation (sociedad
anónima). The Panamanian corporation law was originally
modeled after the Delaware General Corporation Law. As such,
many of the provisions applicable to Panamanian and Delaware
corporations are substantially similar, including (1) a
directors fiduciary duties of care and loyalty to the
corporation, (2) a lack of limits on the number of terms a
person may serve on the board of directors, (3) provisions
allowing shareholders to vote by proxy and (4) cumulative
voting if provided for in the articles of incorporation. The
following table highlights the most significant provisions that
materially differ between Panamanian corporation law and
Delaware corporation law.
|
|
|
Panama
|
|
Delaware
|
|
Conflict of Interest
Transactions. Transactions involving a Panamanian
corporation and an interested director or officer are initially
subject to the approval of the board of directors.
At the next shareholders meeting, shareholders will then
have the right to disapprove the board of directors
decision and to decide to take legal actions against the
directors or officers who voted in favor of the transaction.
|
|
Conflict of Interest
Transactions. Transactions involving a Delaware
corporation and an interested director of that corporation are
generally permitted if:
(1) the material facts as to the interested
directors relationship or interest are disclosed and a
majority of disinterested directors approve the transaction;
(2) the material facts are disclosed as to the
interested directors relationship or interest and the
stockholders approve the transaction; or
(3) the transaction is fair to the corporation at
the time it is authorized by the board of directors, a committee
of the board of directors or the stockholders.
|
|
|
|
Terms. Panamanian law does not set limits on
the length of the terms that a director may serve. Staggered
terms are allowed but not required.
|
|
Terms. The Delaware General Corporation Law
generally provides for a one-year term for directors. However,
the directorships may be divided into up to three classes with
up to three-year terms, with the years for each class expiring
in different years, if permitted by the articles of
incorporation, an initial by-law or a by-law adopted by the
shareholders.
|
|
|
|
Number. The board of directors must consist of
a minimum of three members, which could be natural persons or
legal entities.
|
|
Number. The board of directors must consist of
a minimum of one member.
|
|
|
|
Authority to take Actions. In general, a
simple majority of the board of directors is necessary and
sufficient to take any action on behalf of the board of
directors.
|
|
Authority to take Actions. The articles of
incorporation or by-laws can establish certain actions that
require the approval of more than a majority of directors.
|
|
|
|
|
|
|
43
|
|
|
Panama
|
|
Delaware
|
|
|
Shareholder Meetings and Voting Rights
|
|
|
|
Quorum. The quorum for shareholder meetings
must be set by the articles of incorporation or the by-laws. If
the articles of incorporation and the notice for a given meeting
so provide, if quorum is not met a new meeting can be
immediately called and quorum shall consist of those present at
such new meeting.
|
|
Quorum. For stock corporations, the articles
of incorporation or bylaws may specify the number to constitute
a quorum but in no event shall a quorum consist of less than
one- third of shares entitled to vote at a meeting. In the
absence of such specifications, a majority of shares entitled to
vote shall constitute a quorum.
|
|
|
|
Action by Written Consent. Panamanian law does
not permit shareholder action without formally calling a
meeting.
|
|
Action by Written Consent. Unless otherwise
provided in the articles of incorporation, any action required
or permitted to be taken at any annual meeting or special
meeting of stockholders of a corporation may be taken without a
meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action to be so taken,
is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and noted.
|
|
Other Shareholder Rights
|
|
|
|
Shareholder Proposals. Shareholders
representing 5% of the issued and outstanding capital of the
corporation have the right to require a judge to call a general
shareholders meeting and to propose the matters for vote.
|
|
Shareholder Proposals. Delaware law does not
specifically grant shareholders the right to bring business
before an annual or special meeting. If a Delaware corporation
is subject to the SECs proxy rules, a shareholder who owns
at least $2,000 in market value, or 1% of the corporations
securities entitled to vote, may propose a matter for a vote at
an annual or special meeting in accordance with those rules.
|
|
|
|
Appraisal Rights. Shareholders of Panamanian
corporations do not have the right to demand payment in cash of
the judicially determined fair value of their shares in
connection with a merger or consolidation involving the
corporation. Nevertheless, in a merger, the majority of
shareholders could approve the total or partial distribution of
cash, instead of shares, of the surviving entity.
|
|
Appraisal Rights. Delaware law affords
shareholders in certain cases the right to demand payment in
cash of the judicially-determined fair value of their shares in
connection with a merger or consolidation involving their
corporation. However, no appraisal rights are available if,
among other things and subject to certain exceptions, such
shares were listed on a national securities exchange or
designated national market system or such shares were held of
record by more than 2,000 holders.
|
|
|
|
Shareholder Derivative Actions. Any
shareholder, with the consent of the majority of the
shareholders, can sue on behalf of the corporation, the
directors of the corporation for a breach of their duties of
care and loyalty to the corporation or a violation of the law,
the articles of incorporation or the by-laws.
|
|
Shareholder Derivative Actions. Subject to
certain requirements that a shareholder make prior demand on the
board of directors or have an excuse not to make such demand, a
shareholder may bring a derivative action on behalf of the
corporation to enforce the rights of the corporation against
officers,
|
44
|
|
|
Panama
|
|
Delaware
|
|
|
|
|
|
|
directors and third parties. An individual may also commence a
class action suit on behalf of himself and other similarly-
situated stockholders if the requirements for maintaining a
class action under the Delaware General Corporation Law have
been met. Subject to equitable principles, a three-year period
of limitations generally applies to such shareholder suits
against officers and directors.
|
|
|
|
Inspection of Corporate Records. Shareholders
representing at least 5% of the issued and outstanding shares of
the corporation have the right to require a judge to appoint an
independent auditor to examine the corporate accounting books,
the background of the companys incorporation or its
operation.
|
|
Inspection of Corporate Records. A shareholder
may inspect or obtain copies of a corporations shareholder
list and its other books and records for any purpose reasonably
related to a persons interest as a shareholder.
|
|
Anti-takeover Provisions
|
|
|
|
Panamanian corporations may include in their articles of
incorporation or by-laws classified board and super-majority
provisions.
|
|
Delaware corporations may have a classified board, super-
majority voting and shareholders rights plan.
|
|
|
|
Panamanian corporation laws anti- takeover provisions
apply only to companies that are (1) registered with the
Comisión Nacional de Valores (CNV) for a period
of six months before the public offering, (2) have over
3,000 shareholders, and (3) have a permanent office in
Panama with full time employees and investments in the country
for more than $1,000,000.
|
|
Unless Delaware corporations specifically elect otherwise,
Delaware corporations may not enter into a business
combination, including mergers, sales and leases of
assets, issuances of securities and similar transactions, with
an interested stockholder, or one that beneficially
owns 15% or more of a corporations voting stock, within
three years of such person becoming an interested shareholder
unless:
|
|
|
|
These provisions are triggered when a buyer makes a public offer
to acquire 5% or more of any class of shares with a market value
of at least $5,000,000. In sum, the buyer must deliver to the
corporation a complete and accurate statement that includes (1)
the name of the company, the number of the shares that the buyer
intends to acquire and the purchase price; (2) the identity and
background of the person acquiring the shares; (3) the source
and amount of the funds or other goods that will be used to pay
the purchase price; (4) the plans or project the buyer has once
it has acquired the control of the company; (5) the number of
shares of the company that the buyer already has or is a
beneficiary of and those owned by any of its directors,
officers, subsidiaries, or partners or the same, and any
transactions made regarding the shares in the last 60 days;
(6) contracts, agreements, business relations or negotiations
regarding securities issued by the company in which the buyer is
a party; (7) contract, agreements, business relations or
negotiations between the buyer and any director, officer
|
|
(1) the transaction that will cause the person to
become an interested shareholder is approved by the board of
directors of the target prior to the transactions;
(2) after the completion of the transaction in which
the person becomes an interested shareholder, the interested
shareholder holds at least 85% of the voting stock of the
corporation not including shares owned by persons who are
directors and also officers of interested shareholders and
shares owned by specified employee benefit plans; or
(3) after the person becomes an interested
shareholder, the business combination is approved by the board
of directors of the corporation and holders of at least 66.67%
of the outstanding voting stock, excluding shares held by the
interested shareholder.
|
45
|
|
|
Panama
|
|
Delaware
|
|
|
|
|
or beneficiary of the securities; and (8) any other significant
information. This declaration will be accompanied by, among
other things, a copy of the buyers financial statements.
|
|
|
|
|
|
If the board of directors believes that the statement does not
contain all required information or that the statement is
inaccurate, the board of directors must send the statement to
the CNV within 45 days from the buyers initial
delivery of the statement to the CNV. The CNV may then hold a
public hearing to determine if the information is accurate and
complete and if the buyer has complied with the legal
requirements. The CNV may also start an inquiry into the case,
having the power to decide whether or not the offer may be made.
|
|
|
|
|
|
Regardless of the above, the board of directors has the
authority to submit the offer to the consideration of the
shareholders. The board should only convene a shareholders
meeting when it deems the statement delivered by the offeror to
be complete and accurate. If convened, the shareholders
meeting should take place within the next 30 days. At the
shareholders meeting, two-thirds of the holders of the
issued and outstanding shares of each class of shares of the
corporation with a right to vote must approve the offer and the
offer is to be executed within 60 days from the
shareholders approval. If the board decides not to
convene the shareholders meeting within 15 days
following the receipt of a complete and accurate statement from
the offeror, shares may then be purchased. In all cases, the
purchase of shares can take place only if it is not prohibited
by an administrative or judicial order or injunction.
|
|
|
|
|
|
The law also establishes some actions or recourses of the
sellers against the buyer in cases the offer is made in
contravention of the law.
|
|
|
|
|
|
|
|
|
46
|
|
|
Panama
|
|
Delaware
|
|
|
Previously Acquired Rights
|
|
|
|
In no event can the vote of the majority shareholders deprive
the shareholders of a corporation of previously-acquired
rights. Panamanian jurisprudence and doctrine has established
that the majority shareholders cannot amend the articles of
incorporation and deprive minority shareholders of previously-
acquired rights nor impose upon them an agreement that is
contrary to those articles of incorporation.
|
|
No comparable provisions exist under Delaware law.
|
|
|
|
Once a share is issued, the shareholders become entitled to the
rights established in the articles of incorporation and such
rights cannot be taken away, diminished nor extinguished without
the express consent of the shareholders entitled to such
rights. If by amending the articles of incorporation, the
rights granted to a class of shareholders is somehow altered or
modified to their disadvantage, those shareholders will need to
approve the amendment unanimously.
|
|
|
47
INCOME
TAX CONSEQUENCES
United
States
The following summary describes the material United States
federal income tax consequences of the ownership and disposition
of our Class A Shares as of the date hereof. The discussion
set forth below is applicable to United States Holders (as
defined below) that beneficially own our Class A Shares as
capital assets for United States federal income tax purposes
(generally, property held for investment). This summary does not
represent a detailed description of the United States federal
income tax consequences applicable to you if you are subject to
special treatment under the United States federal income tax
laws, including if you are:
|
|
|
|
|
a bank;
|
|
|
|
a dealer in securities or currencies;
|
|
|
|
a financial institution;
|
|
|
|
a regulated investment company;
|
|
|
|
a real estate investment trust;
|
|
|
|
an insurance company;
|
|
|
|
a tax-exempt organization;
|
|
|
|
a person holding our Class A Shares as part of a hedging,
integrated or conversion transaction, a constructive sale or a
straddle;
|
|
|
|
a trader in securities that has elected the
mark-to-market
method of accounting for your securities;
|
|
|
|
a person liable for alternative minimum tax;
|
|
|
|
a person who owns 10% or more of our voting stock;
|
|
|
|
a partnership or other pass-through entity for United States
federal income tax purposes; or
|
|
|
|
a person whose functional currency is not the United
States dollar.
|
The discussion below is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the
Code), and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities
may be replaced, revoked or modified so as to result in United
States federal income tax consequences different from those
discussed below.
You should consult your own tax advisors concerning the
United States federal income tax consequences to you in light of
your particular situation as well as any consequences arising
under the laws of any other taxing jurisdiction.
As used herein, United States Holder means a
beneficial owner of our Class A Shares that is for United
States federal income tax purposes:
|
|
|
|
|
an individual citizen or resident of the United States;
|
|
|
|
a corporation (or other entity treated as a corporation for
United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or
the District of Columbia;
|
|
|
|
an estate the income of which is subject to United States
federal income taxation regardless of its source; or
|
|
|
|
a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person.
|
Taxation
of Dividends
Distributions on the Class A Shares (including amounts
withheld to reflect Panamanian withholding taxes, if any) will
be taxable as dividends to the extent paid out of our current or
accumulated earnings and profits, as determined under United
States federal income tax principles. Such income (including
withheld taxes) will be includable in your gross income as
ordinary income on the day actually or constructively received
by you. Such dividends will not be eligible for the dividends
received deduction allowed to corporations.
48
With respect to non-corporate United States Holders, certain
dividends received in taxable years beginning before
January 1, 2011 from a qualified foreign corporation may be
subject to reduced rates of taxation. A foreign corporation
generally is treated as a qualified foreign corporation with
respect to dividends paid by that corporation on shares that are
readily tradable on an established securities market in the
United States. United States Treasury Department guidance
indicates that our Class A Shares, which are listed on the
NYSE, are readily tradable on an established securities market
in the United States. There can be no assurance, however, that
our Class A Shares will be considered readily tradable on
an established securities market in later years. Non-corporate
United States Holders that do not meet a minimum holding period
requirement during which they are not protected from the risk of
loss or that elect to treat the dividend income as
investment income pursuant to Section 163(d)(4)
of the Code will not be eligible for the reduced rates of
taxation regardless of our status as a qualified foreign
corporation. In addition, the rate reduction will not apply to
dividends if the recipient of a dividend is obligated to make
related payments with respect to positions in substantially
similar or related property. This disallowance applies even if
the minimum holding period has been met. You should consult your
own tax advisors regarding the application of these rules to
your particular circumstances.
Subject to certain conditions and limitations, Panamanian
withholding taxes on dividends may be treated as foreign taxes
eligible for credit against your United States federal income
tax liability. For purposes of calculating the foreign tax
credit, dividends paid on the Class A Shares will be
treated as income from sources outside the United States and
will generally constitute passive income. Further, in certain
circumstances, if you:
|
|
|
|
|
have held Class A Shares for less than a specified minimum
period during which you are not protected from risk of
loss, or
|
|
|
|
are obligated to make payments related to the dividends,
|
you will not be allowed a foreign tax credit for foreign taxes
imposed on dividends paid on the Class A Shares, if any.
The rules governing the foreign tax credit are complex. You are
urged to consult your tax advisors regarding the availability of
the foreign tax credit under your particular circumstances.
To the extent that the amount of any distribution exceeds our
current and accumulated earnings and profits for a taxable year,
as determined under United States federal income tax principles,
the distribution will first be treated as a tax-free return of
capital, causing a reduction in the adjusted basis of the
Class A Shares (thereby increasing the amount of gain, or
decreasing the amount of loss, to be recognized by you on a
subsequent disposition of the Class A Shares), and the
balance in excess of adjusted basis will be taxed as capital
gain recognized on a sale or exchange (as discussed below under
Taxation of Capital Gains).
Consequently, such distributions in excess of our current and
accumulated earnings and profits would generally not give rise
to foreign source income and you would generally not be able to
use the foreign tax credit arising from any Panamanian
withholding tax imposed on such distributions unless such credit
can be applied (subject to applicable limitations) against
United States federal income tax due on other foreign source
income in the appropriate category for foreign tax credit
purposes. However, we do not intend to maintain calculations of
earnings and profits in accordance with United States federal
income tax principles. Therefore, you should expect that a
distribution will generally be treated as a dividend (as
discussed above).
Passive
Foreign Investment Company
We do not believe that we are a passive foreign investment
company (a PFIC) for United States federal income
tax purposes (or that we were one in 2007), and we expect to
operate in such a manner so as not to become a PFIC. If,
however, we are or become a PFIC, you could be subject to
additional United States federal income taxes on gain recognized
with respect to the Class A Shares and on certain
distributions, plus an interest charge on certain taxes treated
as having been deferred under the PFIC rules. Further,
non-corporate United States Holders will not be eligible for
reduced rates of taxation on any dividends received from us in
taxable years beginning prior to January 1, 2011, if we are
a PFIC in the taxable year in which such dividends are paid or
the preceding taxable year.
Taxation
of Capital Gains
For United States federal income tax purposes, you will
recognize taxable gain or loss on any sale, exchange or
redemption of a Class A share in an amount equal to the
difference between the amount realized for the Class A
49
share and your tax basis in the Class A share. Such gain or
loss will generally be capital gain or loss. Capital gains of
individuals derived with respect to capital assets held for more
than one year are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations. Any
gain or loss recognized by you will generally be treated as
United States source gain or loss.
Information
reporting and backup withholding
In general, information reporting will apply to dividends in
respect of our Class A Shares and the proceeds from the
sale, exchange or redemption of our Class A Shares that are
paid to you within the United States (and in certain cases,
outside the United States), unless you are an exempt recipient
such as a corporation. A backup withholding tax may apply to
such payments if you fail to provide a taxpayer identification
number or certification of other exempt status or fail to report
in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against your United States
federal income tax liability provided the required information
is timely furnished to the Internal Revenue Service.
Panamanian
Taxation
The following is a discussion of the material Panamanian tax
considerations to holders of Class A Shares under
Panamanian tax law, and is based upon the tax laws and
regulations in force and effect as of the date hereof, which may
be subject to change. This discussion, to the extent it states
matters of Panamanian tax law or legal conclusions and subject
to the qualifications herein, represents the opinion of Galindo,
Arias & Lopez, our Panamanian counsel.
General
principles
Panamas income tax regime is based on territoriality
principles, which define taxable income only as that revenue
which is generated from a source within the Republic of Panama,
or for services rendered outside of Panama, but which, by their
nature, are intended to directly benefit the local commercial
activities of individuals or corporations which operate within
its territory. Said taxation principles have governed the
Panamanian fiscal regime for decades, and have been upheld
through judicial and administrative precedent.
Taxation
of dividends
Distributions by Panamanian corporations, whether in the form of
cash, stock or other property, are subject to a 10% withholding
tax for the portion of the distribution that is attributable to
Panamanian sourced income, as defined pursuant to the
territoriality principles that govern Panamanian tax law.
Distributions made by a holding company which correspond to
dividends paid by its subsidiary for which the dividend tax was
paid, are not subject to any further withholding under
Panamanian law. Therefore, distributions on the Class A
Shares being offered would not be subject to withholding taxes
to the extent that said distributions are attributable to
dividends received from any of our subsidiaries.
Taxation
of capital gains
As long as the Class A Shares are registered with the CNV
and are sold through an organized market, Panamanian taxes on
capital gains will not apply either to Panamanians or other
countries nationals. As part of this offering process, we
will register the Class A Shares, with both the New York
Stock Exchange and the CNV.
Other
Panamanian taxes
There are no estate, gift or other taxes imposed by the
Panamanian government that would affect a holder of the
Class A Shares, whether such holder were Panamanian or a
national of another country.
50
UNDERWRITERS
Under the terms and subject to the conditions contained in an
underwriters agreement dated the date of this prospectus, the
underwriters named below, for whom Morgan Stanley &
Co. Incorporated is acting as representative, have severally
agreed to purchase, and the selling shareholder has agreed to
sell to them the number of shares indicated below:
|
|
|
|
|
Underwriter
|
|
Number of Class A
Shares
|
|
|
Morgan Stanley & Co. Incorporated
|
|
|
2,784,110
|
|
UBS Securities LLC
|
|
|
1,193,190
|
|
|
|
|
|
|
Total
|
|
|
3,977,300
|
|
|
|
|
|
|
The underwriters are offering the Class A Shares subject to
their acceptance of the Class A Shares from the selling
shareholder and subject to prior sale. The underwriters
agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the Class A
Shares offered by this prospectus are subject to the approval of
specified legal matters by their counsel and to other
conditions. The underwriters are obligated to take and pay for
all of the Class A Shares offered by this prospectus if any
such shares are taken. However, the underwriters are not
required to take or pay for the Class A Shares covered by
the underwriters over-allotment option described below,
unless and until the option is exercised.
The underwriters initially propose to offer part of the
Class A Shares directly to the public at the public
offering price listed on the cover page of this prospectus and
part to certain dealers at a price that represents a concession
not in excess of $0.91 a share under the public offering price.
After the initial offering of the Class A Shares, the
offering price and other selling terms may from time to time be
varied by the representative.
The selling shareholder has granted to the underwriters an
option, exercisable for 30 days from the date of this
prospectus, to purchase up to an aggregate of 397,700 additional
Class A Shares at the public offering price listed on the
cover page of this prospectus, less underwriters discounts and
commissions. The underwriters may exercise this option solely
for the purpose of covering over-allotments, if any, made in
connection with the offering of the Class A Shares offered
by this prospectus. To the extent the option is exercised, each
underwriter will become obligated, subject to certain
conditions, to purchase about the same percentage of the
additional Class A Shares as the number listed next to the
underwriters name in the preceding table bears to the
total number of Class A Shares listed next to the names of
all underwriters in the preceding table. If the
underwriters option is exercised in full, the total price
to the public would be $156,406,250, the total
underwriters discounts and commissions would be $6,647,375
and the total proceeds to the Selling Shareholder would be
$149,758,875.
The underwriters have informed us that they do not intend sales
to discretionary accounts to exceed five percent of the total
number of shares of Class A Shares offered by them.
Copa Holdings, Copa Holdings directors and executive
officers and CIASA have agreed that, without the prior written
consent of the representative of the underwriters, Copa Holdings
and they will not, until 90 days after the date of this
prospectus:
|
|
|
|
|
offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of directly or indirectly, any
Class A Shares or any securities convertible into or
exercisable or exchangeable for Class A Shares; or
|
|
|
|
enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the Class A Shares, whether any transaction
described above is to be settled by delivery of Class A
Shares or such other securities, in cash or otherwise. Copa
Holdings and each such person also agrees that, without the
prior written consent of the representative on behalf of the
underwriters, they will not, during the 90 day period after
the date of this prospectus, make any demand for, or exercise
any right with respect to, the registration of any Class A
Shares or any security convertible into or exercisable or
exchangeable for Class A Shares.
|
51
The restrictions described in the immediately preceding
paragraph do not apply to:
|
|
|
|
|
any existing employee benefits plan (in the case of Copa
Holdings);
|
|
|
|
transactions by any person other than Copa Holdings relating to
Class A Shares or other securities acquired in open market
transactions after the completion of the offering of the
Class A Shares; or
|
|
|
|
transfers by any person other than Copa Holdings made under a
trading plan pursuant to
Rule 10b5-1
under the Securities Exchange Act of 1934, as amended, which
trading plan is in existence on the date of this prospectus.
|
In order to facilitate the offering of the Class A Shares,
the underwriters may engage in transactions that stabilize,
maintain or otherwise affect the price of the Class A
Shares. Specifically, the underwriters may sell more shares than
they are obligated to purchase under the underwriters agreement,
creating a short position. A short sale is covered if the short
position is no greater than the number of shares available for
purchase by the underwriters under the over-allotment option.
The underwriters can close out a covered short sale by
exercising the over-allotment option or purchasing Class A
Shares in the open market. In determining the source of shares
to close out a covered short sale, the underwriters will
consider, among other things, the open market price of
Class A Shares compared to the price available under the
over-allotment option. The underwriters may also sell
Class A Shares in excess of the over-allotment option,
creating a naked short position. The underwriters must close out
any naked short position by purchasing Class A Shares in
the open market. A naked short position is more likely to be
created if the underwriters are concerned that there may be
downward pressure on the price of the Class A Shares in the
open market after pricing that could adversely affect investors
who purchase in this offering. In addition, to stabilize the
price of the Class A Shares, the underwriters may bid for,
and purchase, shares of Class A Shares in the open market.
Finally, the underwriters may reclaim selling concessions
allowed to an underwriter or a dealer for distributing the
Class A Shares in this offering, if the representative
repurchases previously distributed Class A Shares in
transactions to cover short positions or to stabilize the price
of the Class A Shares. Any of these activities may
stabilize or maintain the market price of the Class A
Shares above independent market levels. The underwriters are not
required to engage in these activities, and may end any of these
activities at any time.
Each of the underwriters has represented and agreed that:
(a) (i) it is a person whose ordinary activities
involve it in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of its
business and (ii) it has not offered or sold and will not
offer or sell the Class A Shares other than to persons
whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or as agent)
for the purposes of their businesses or who it is reasonable to
expect will acquire, hold, manage or dispose of investments (as
principal or agent) for the purposes of their businesses where
the issue of the Class A Shares would otherwise constitute
a contravention of Section 19 of the Financial Services and
Markets Act 2000 (the FSMA) by Copa Holdings;
(b) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by
it in connection with the issue or sale of the Class A
Shares in circumstances in which Section 21(1) of the FSMA
does not apply to Copa Holdings; and
(c) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the Class A Shares in, from or otherwise
involving the United Kingdom.
In relation to each Member State of the European Economic Area
(the European Union plus Iceland, Norway and Liechtenstein)
which has implemented the Prospectus Directive (each, a Relevant
Member State), each of the underwriters has represented and
agreed that with effect from and including the date on which the
Prospectus Directive is implemented in that Relevant Member
State (the Relevant Implementation Date) it has not made and
will not make an offer of Class A Shares to the public in
that Relevant Member State prior to the publication of a
prospectus in relation to the Class A Shares which has been
approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the Prospectus Directive,
except that it may, with
52
effect from and including the Relevant Implementation Date, make
an offer of Class A Shares to the public in that Relevant
Member State at any time:
(a) to legal entities which are authorised or regulated to
operate in the financial markets or, if not so authorised or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts; or
(c) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of Class A Shares to the public in
relation to any Class A Shares in any Relevant Member State
means the communication in any form and by any means of
sufficient information on the terms of the offer and the
Class A Shares to be offered so as to enable an investor to
decide to purchase or subscribe the Class A Shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
Class A Shares may not be offered or sold by means of any
document other than to persons whose ordinary business is to buy
or sell shares or debentures, whether as principal or agent, or
in circumstances which do not constitute an offer to the public
within the meaning of the Companies Ordinance (Cap. 32) of
Hong Kong, and no advertisement, invitation or document relating
to the Class A Shares may be issued, whether in Hong Kong
or elsewhere, which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the securities laws of Hong
Kong) other than with respect to Class A Shares which are
or are intended to be disposed of only to persons outside Hong
Kong or only to professional investors within the
meaning of the Securities and Futures Ordinance (Cap.
571) of Hong Kong and any rules made thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
Class A Shares may not be circulated or distributed, nor
may the Class A Shares be offered or sold, or be made the
subject of an invitation for subscription or purchase, whether
directly or indirectly, to persons in Singapore other than
(i) to an institutional investor under Section 274 of
the Securities and Futures Act, Chapter 289 of Singapore
(the SFA), (ii) to a relevant person, or any person
pursuant to Section 275(1A), and in accordance with the
conditions, specified in Section 275 of the SFA or
(iii) otherwise pursuant to, and in accordance with the
conditions of, any other applicable provision of the SFA.
Where the Class A Shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for 6 months after
that corporation or that trust has acquired the Class A
Shares under Section 275 except: (1) to an
institutional investor under Section 274 of the SFA or to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the SFA; (2) where no consideration is
given for the transfer; or (3) by operation of law.
This offering has not been and will not be registered under the
Financial Instruments and Exchange Law of Japan (Law No. 25
of 1948 of Japan, as amended), or FIEL, and the underwriters
will not offer or sell any Class A Shares, directly or
indirectly, in Japan or to, or for the benefit of, any resident
of Japan (which term as used herein means, unless otherwise
provided herein, any person resident in Japan, including any
corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly,
in Japan or to a
53
resident of Japan, except pursuant to an exemption from the
registration requirements of, and otherwise in compliance with,
the FIEL and any other applicable laws, regulations and
ministerial guidelines of Japan.
Copa Holdings and the selling shareholder have agreed to
indemnify the several underwriters against certain liabilities,
including liabilities under the Securities Act or to contribute
to payments the underwriters may be required to make because of
any of these liabilities.
From time to time, certain of the underwriters have provided,
and may provide in the future, investment banking, commercial
banking and other financial services to Copa Holdings and
Continental for which they have received and may continue to
receive customary fees and commissions.
54
EXPENSES
OF THE OFFERING
We estimate that the total expenses in connection with this
offering, other than underwriters discounts and commissions,
will be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
Net Proceeds of
|
|
Expenses
|
|
Amount
|
|
|
this Offering (%)
|
|
|
SEC registration fee
|
|
$
|
6,169.12
|
|
|
|
|
*
|
Financial Industry Regulatory Authority, Inc.
(FINRA) filing fee
|
|
|
16,197.50
|
|
|
|
|
*
|
Legal fees and expenses
|
|
|
300,000.00
|
|
|
|
|
*
|
Accountant fees and expenses
|
|
|
110,000.00
|
|
|
|
|
*
|
Miscellaneous costs
|
|
|
50,000.00
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
482,366.62
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
We will not receive any of the
proceeds of this offering.
|
All amounts in the table are estimated except the SEC
registration fee and the FINRA filing fee.
Pursuant to the Supplemental Agreement among CIASA, Continental
and ourselves, Continental is required to pay (i) all of
the underwriting commissions, filing fees, listing fees and
legal fees and expenses and (ii) all other expenses
incurred by us in connection with this offering. The total
underwriters discounts and commissions that the selling
shareholder will be required to pay will be approximately $6.04
million or 4.25% of the gross proceeds of this offering,
assuming the underwriters over-allotment option is not
exercised.
VALIDITY
OF SECURITIES
The validity of the Class A Shares and other matters
governed by Panamanian law will be passed upon for us by
Galindo, Arias & Lopez, Panama City, Panama and for
the underwriters by Arias, Fabrega & Fabrega, Panama
City, Panama. Certain matters of New York law will be passed
upon for us Cleary Gottlieb Steen & Hamilton, LLP, New
York, New York and for the underwriters by Davis
Polk & Wardwell, New York, New York.
Messrs. Jaime Arias and Ricardo Alberto Arias, partners of
Galindo, Arias & Lopez, are indirect shareholders of
CIASA and serve on our board of directors.
EXPERTS
The consolidated financial statements of Copa Holdings, S.A.
appearing in Copa Holdings, S.A.s Annual Report
(Form 20-F)
for the year ended December 31, 2007 (including the
schedule appearing therein), and the effectiveness of Copa
Holdings, S.A.s internal control over financial reporting
as of December 31, 2007 have been audited by
Ernst & Young Panama, independent registered public
accounting firm, as set forth in their reports thereon, included
therein, and incorporated herein by reference. Such consolidated
financial statements and Copa Holdings, S.A. managements
assessment of the effectiveness of internal control over
financial reporting as of December 31, 2007 are
incorporated herein by reference in reliance upon such reports
given on the authority of such firm as experts in accounting and
auditing.
55
WHERE YOU
CAN FIND MORE INFORMATION
As required by the Securities Act, we have filed a registration
statement on
Form F-3
relating to the securities offered by this prospectus with the
United States Securities and Exchange Commission, or the SEC.
This prospectus is a part of that registration statement, which
includes additional information. For further information, we
refer you to the registration statement and the exhibits and
schedules filed as part of the registration statement. If a
document has been filed as an exhibit to the registration
statement, we refer you to the copy of the document that has
been filed. Each statement in this prospectus relating to a
document filed as an exhibit is qualified in all respects by the
filed exhibit.
We are subject to the informational requirements of the
U.S. Securities Exchange Act of 1934, which is also known
as the Exchange Act. Accordingly, we are required to file
reports and other information with the SEC, including annual
reports on
Form 20-F
and reports on
Form 6-K.
You may inspect and copy reports and other information to be
filed with the SEC at the Public Reference Room of the SEC at
100 F Street, N.W., Washington D.C. 20549, and
copies of the materials may be obtained there at prescribed
rates. The public may obtain information on the operation of the
SECs Public Reference Room by calling the SEC in the
United States at
1-800-SEC-0330.
In addition, the SEC maintains a website at www.sec.gov, from
which you can electronically access the registration statement
and its materials.
As a foreign private issuer, we are not subject to the same
disclosure requirements as a domestic U.S. registrant under
the Exchange Act. For example, we are not required to prepare
and issue quarterly reports. However, we furnish our
shareholders with annual reports containing financial statements
audited by our independent auditors and make available to our
shareholders quarterly reports containing unaudited financial
data for the first three quarters of each fiscal year. We file
such quarterly reports with the SEC within two months of each
quarter of our fiscal year, and we file annual reports on
Form 20-F
within the time period required by the SEC, which is currently
six months from December 31, the end of our fiscal year.
The SEC allows us to incorporate by reference the
information we file with the SEC. This means that we can
disclose important information to you by referring you to
another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this
prospectus. Any information that we file later with the SEC and
that is deemed incorporated by reference will automatically
update and supersede the information in this prospectus. In all
such cases, you should rely on the later information over
different information included in this prospectus.
This prospectus will be deemed to incorporate by reference the
following documents:
|
|
|
|
|
our annual report on
Form 20-F
for the year ended December 31, 2007, filed on May 9,
2008, to the extent the information in that report has not been
updated or superseded by this prospectus;
|
|
|
|
our reports on
Form 6-K,
which contain the announcements of the annual shareholders
meeting and the annual dividend, filed on May 8, 2008 and
May 9, 2008, respectively;
|
|
|
|
any amendment to our annual report on
Form 20-F
for the year ended December 31, 2007 filed subsequent to
the date hereof and prior to the termination of this
offering; and
|
|
|
|
any report on
Form 6-K
submitted by us to the SEC prior to the termination of this
offering and identified by us as being incorporated by reference
into this prospectus.
|
You may request a copy of these filings, at no cost, by writing
or telephoning us at Boulevard Costa del Este, Avenida Principal
y Avenida de la Rotonda, Urbanización Costa del Este,
Complejo Business Park, Torre Norte, Parque Lefevre, Panama
City, Panama, Attention: Joseph Putaturo, telephone number:
(+507 304 2677).
56
ENFORCEABILITY
OF CIVIL LIABILITIES
Copa Holdings is a corporation (sociedad anónima)
organized under the laws of the Republic of Panama. Most of our
directors and officers and certain of the experts named in this
prospectus reside outside of the United States, and all or a
substantial portion of the assets of such persons and ours are
located outside the United States. As a result, it may not be
possible for investors to effect service of process within the
United States upon such persons, including with respect to
matters arising under the Securities Act, or to effect the due
process necessary to enforce judgments of courts of the United
States against us or any of our directors and officers. Any
judgment rendered by a U.S. court may be enforced in Panama
through a suit on the judgment (exequatur), would be
recognized and accepted by the courts of Panama and would be
enforceable by the courts of Panama without a new trial or
examination of the merits of the original action, provided due
process had been granted to all parties and that the obligation
the judgment is seeking to enforce is not illegal or against
public policy in Panama.
57