AEROFLOT GROUP ANNUAL REPORT...

AEROFLOT GROUP

ANNUAL REPORT 2016

CONTENTS 1. Aeroflot Group profile

1.1. Aeroflot Group`s Airlines ..................................................................................................

1.2. 2016 Results .......................................................................................................................

1.3. Operating and Financial Highlights ...................................................................................

1.4. Investment Case .................................................................................................................

1.5. Key Events .........................................................................................................................

1.6. Industry Recognition and Awards ......................................................................................

2. Strategic Report ............................................................................................................. 2.1. Chairman`s Statement ........................................................................................................

2.2. Chief Executive Officer`s Statement..................................................................................

2.3. Market Overview................................................................................................................

2.4. Strategy Overview ..............................................................................................................

2.5. Business Model ..................................................................................................................

3. Business Overview 3.1. Operating Results ...............................................................................................................

3.2. Route Network ...................................................................................................................

3.3. Aircraft Fleet ......................................................................................................................

3.4. Sales and Distribution ........................................................................................................

3.5. Aircraft Maintenance and Repair Stations .........................................................................

3.6. Flight Safety and Aviation Security ...................................................................................

3.7. Customer Service and Brand Management ........................................................................

3.8. Information Technology and Innovation............................................................................

3.9. Procurement .......................................................................................................................

4. Corporate Social Responsibility 4.1. HR Policy ...........................................................................................................................

4.2. Charity and Community Initiatives ....................................................................................

4.3. Environmental Protection Programme ...............................................................................

5. Financial Review .....................................................................................................................

6. Corporate Governance 6.1. Coprorate Governance System ...........................................................................................

6.2. Risk Management ...............................................................................................................

6.3. Investor Relations, Equity and Debt ..................................................................................

7. Appendixes 7.1. IFRS Consolidated Financial Statements

7.2. Entities in which PJSC Aeroflot Holds Shares or Interest

7.3. Interested party transactions ...............................................................................................

7.4. Execution of Presidential and Governmental Instructions .................................................

7.5. Complance with the Corporate Governance Code .............................................................

7.6. Information about the programme for Disposal of non-core assets

7.7. Energy Consumption by Aeroflot Group Airlines in 2016 ................................................

7.8. Aeroflot Group Operating Data .........................................................................................

7.9. Glossary ..............................................................................................................................

7.10. Contact Information ...........................................................................................................

ABOUT THE REPORT

This 2016 Annual Report (the “Report”) has been prepared by Public Joint Stock Company

Aeroflot – Russian Airlines (“PJSC Aeroflot”, “Aeroflot airline”, or the “Company”).

“Aeroflot Group” or the “Group” refer to PJSC Aeroflot and its subsidiaries.

Other annual reports of the Company are available on its website in the Shareholders and

Investors section at http://ir.aeroflot.com/shareholders-and-investors/.

This Report discloses information on the implementation of the Group’s long-term and medium-

term strategy in 2016, presents the Group’s operating and financial results, and describes the

Group’s corporate governance system. This Report has a particular focus on the Group’s

corporate social responsibility activities.

This Report has been prepared based on PJSC Aeroflot’s management reports and in line with

PJSC Aeroflot’s consolidated IFRS financial statements for 2016. It also incorporates elements of

the GRI G4 Sustainability Reporting Guidelines.

PJSC Aeroflot’s consolidated IFRS financial statements for 2016 were audited by

AO PricewaterhouseCoopers Audit.

This Report has been prepared based on the information available to the Company and the Group

as at the time when this Report was prepared, including information obtained from third parties.

The Company reasonably believes that this information is complete and accurate as at the

publication date of this Report; however, it does not make any representation or warranty that this

information will not be updated, revised, or otherwise amended in the future.

This Report includes estimates or forward-looking statements related to operating, financial,

economic, social and other measures that can be used to assess the performance of PJSC Aeroflot

and Aeroflot Group. The Company does not make any representation or warranty that the results

anticipated by such forward-looking statements will be achieved. The Company shall not be

liable to any individual or legal entity for any loss or damage which may arise from their reliance

on such forward-looking statements.

http://ir.aeroflot.com/shareholders-and-investors/

AEROFLOT GROUP PROFILE

1.1. Aeroflot Group Airlines

Aeroflot Group is Russia’s largest airline group and one of Europe’s leading passenger airlines.

Description

Share of the

Group’s passenger

traffic

Operating performance in

2016

Aircraft fleet as at

31 December 2016 Scheduled routes in 2016

Aeroflot is Russia’s biggest carrier, leader of

the Russian civil aviation industry, and one

of the oldest airlines in the world. Aeroflot is

based in Moscow at Sheremetyevo Airport.

Passengers carried:

29.0 million PAX

Passenger turnover:

82.7 billion RPK

Available seat-kilometres:

101.8 billion ASK

Passenger load factor: 81.3%

SSJ100 – 30

Airbus A320/321 – 102

Boeing 737 – 20

Airbus A330 – 22

Boeing 777 – 15

Total: 189 aircraft

Domestic – 46

International – 87

Total: 133 scheduled routes

Rossiya is one of Russia’s largest carriers

and the market leader in the North-West of

the country. Based in Saint Petersburg, the

company also operates flights from Vnukovo

airport in Moscow and has branches in

Moscow, Rostov-on-Don, and Orenburg. In

addition to its scheduled flights, Rossiya

operates charter flights.

Passengers carried: 8.8 million PAX

Passenger turnover:

20.5 billion RPK


25.2 billion ASK


Airbus A319/320 – 31

Boeing 747 – 17

Boeing 747 – 7

Boeing 777 – 6

An-148 – 6 (subleased)

Total: 67 aircraft

Domestic – 68



Aurora is the Group’s carrier in the Russian

Far East. It is based at Vladivostok, Yuzhno-

Sakhalinsk and Khabarovsk airports and

operates flights between major cities in the

Far East and Siberia, regional flights and

flights on the most popular routes.


Passenger turnover: 2.2 billion RPK


3.0 billion ASK


Airbus A319 – 10

DHC 6-400 – 2

DHC 8-200 – 2

DHC 8-300 – 4

DHC 8-402 – 5

An-24 – 1 (subleased)

Total: 24 aircraft

Domestic – 17

Local – 18



Pobeda is the Group’s low-cost carrier,

launched to further increase social mobility.

Pobeda is based at Vnukovo airport in

Moscow.


Passenger turnover: 6.7 billion RPK


7.6 billion ASK


Boeing 737 – 12

Total: 12 aircraft

Domestic – 59



66.7%

20.3%

3.2%

9.9%

2016 Results

In 2016, Aeroflot Group achieved high operating and financial results despite the challenging

situation in the passenger transportation market. The Group strengthened its market position thanks

to its effective strategy, which is well adapted to external requirements and is founded on having a

presence in different market segments, and also to digitalisation and focus on financial discipline.

Staying on a

growth track

42.3%

share of the Russian

air transportation

market

43.4 million

passengers carried in

2016

10.3%

Passenger traffic

increase in 2016

+14.1%

international

passenger traffic

increase

+7.6%

domestic passenger

traffic increase

42.1%

share of international

passenger traffic

81.5% passenger load factor

3,2 p.p.

passenger load

factor increase

Connecting cities

and continents

326

scheduled routes

Flights to 51

countries

153 unique destinations

in the summer schedule

144 in the winter

schedule

Aeroflot is a

member of the

SkyTeam global

alliance

292

aircraft in the fleet

(as at 31 December

2016)

30 aircraft – net

increase in the fleet 4.2 years average age of Aeroflot

airline fleet

6.5 years average age of

Aeroflot Group fleet

Delivering the

best offers

4 stars in the

Skytrax rating –

Aeroflot airline

Aeroflot is the Best

Airline in Eastern

Europe according to

Skytrax World

Airline Awards

37 long-haul aircraft

have Wi-Fi access

points

72%

Aeroflot airline’s

Net Promoter Score

Ensuring

sustainable

development

36.6 thousand

people employed by

the Group

companies (as at

31 December 2016)

Responsible approach

to employees: social

support, non-state

pension coverage

Over 6.9 thousand free

tickets issued as part of

the Mercy Miles project

Support for

Russian sports,

culture, and

cinema

Improving

corporate

governance

7+

corporate

governance rating

assigned by the

Russian Institute of

Directors

3 independent

directors on the Board

of Directors

Compliance with the

key requirements of the

Corporate Governance

Code

40.3% free float

Enhancing

financial stability

RUB 495.9 billion

revenue (+19.4%)

RUB 137.6 billion EBITDAR, 27.7%

EBITDAR margin

RUB 38.8 billion net

income

Net debt decreased

by RUB 91 billion

Operating and Financial Highlights

Passenger traffic, million PAX

Пассажиропоток Passenger traffic

Темп роста Growth rate

Passenger load factor

Процент занятости

кресел


Изменение занятости

кресел (п.п.)


change (p.p.)

Passenger turnover, billion RPK

Пассажиропоток Passenger turnover


Available seat-kilometres, billion ASK

Предельный

пассажирооборот

Available seat-

kilometres


Revenue, RUB billion

Выручка Revenue


EBITDAR, RUB billion, and EBITDAR margin, %

EBITDAR EBITDAR

Рентабельность

EBITDAR

EBITDAR margin

27,5 31,4 34,7 39,4 43,4

67,6%

14,3% 10,7% 13,4% 10,3%

2012 2013 2014 2015 2016

Пассажиропоток Темп роста

78,1% 78,2% 77,8% 78,3% 81,5%

1,3

0,1 (0,4)

0,5

3,2

2012 2013 2014 2015 2016

Процент занятости креселИзменение занятости кресел (п.п.)

74,6 85,3 90,1 97,6 112,1

61,9%

14,3% 5,6% 8,4% 14,8%

2012 2013 2014 2015 2016

Пассажирооборот Темп роста

95,6 109,1 115,8 124,7 137,6

59,3%

14,1% 6,2% 7,7% 10,3%

2012 2013 2014 2015 2016

Предельный пассажирооборот Темп роста

253,0 291,0 319,8

415,2 495,9

60,1%

15,0% 9,9%29,8% 19,4%

2012 2013 2014 2015 2016

Выручка Темп роста

38,5 51,0 48,7

103,1

137,6

15,2% 17,5% 15,2%24,8% 27,7%

2012 2013 2014 2015 2016

EBITDAR Рентабельность EBITDAR

EBITDA, RUB billion, and EBITDA margin, %

Net profit, RUB billion1

EBITDAR EBITDAR

Рентабельность

EBITDAR

EBITDAR margin

Чистая прибыль / убыток Reported net

profit/loss

Скорректированная

чистая прибыль

Adjusted net profit

Investment Case

Aeroflot Group

Leader of the Russian air transportation market

Young and efficient aircraft fleet

Business highly adaptable to macroeconomic environment

Stable operational growth and improving financial results

The Group’s strength Description & objective 2016 results

Business diversification based on

a multi-brand strategy

Diversification of the

Group’s activity by

segment to maximise

flexibility in any economic

environment

Integration of regional companies (Donavia and

Orenair) to create a single regional carrier in the

mid-market price segment, Rossiya airline.

Further development of Pobeda airline. In 2016,

Pobeda carried 4.3 million passengers.

Presence in attractive market

segments

Expansion in profitable

segments and in markets

with the long-term potential

Flights to new destinations in Kazakhstan

launched in 2015 (about 0.5 million passengers

carried).

The frequency of flights to London increased

(from 21 to 35 flights per week).

Aeroflot airline’s passenger traffic on

international routes increased by 10.6%.

Standardised high-quality

product

Ensuring consistently high

product quality to attract

and retain passengers

Aeroflot was awarded 4-Star Airline status and

recognised as the Best Airline in Eastern Europe

for the fifth time by Skytrax World Airline

Awards.

1 Adjusted net profit for 2014 and 2015 excludes result from derivatives, reserves, and other one-off effects.

20,9 31,8 24,8

58,7

78,0

8,2% 10,9% 7,8% 14,1% 15,7%

2012 2013 2014 2015 2016

EBITDA Рентабельность EBITDA

5,2 7,3

(17,1)

(6,5)

38,8

10,8

30,9

2012 2013 2014 2015 2016

Чистая прибыль / убыток Скорректированная чистая прибыль

The Group’s strength Description & objective 2016 results

Balanced route network built

around the hub at Sheremetyevo

airport

Diversification of

destinations to optimise

presence in regions with

different demand patterns

and network development

to promote synergies

The Group continued to improve route network

quality: scheduled flights frequency grew by

4.8%, driving better flight connectivity.

Route network expansion promotes transit traffic

growth, including in the international transit

segment: Aeroflot airline carried

3.7 million passengers in the segment.

Efficient financial

management and consistent

cost control

Cost optimisation to ensure

competitive edge RASK growth (+10.3%) outpacing CASK

growth (+5.7%).

Key Events

Developing a multi-brand platform

28 March. The new combined Rossiya airline, formed from the integration of the Group’s three

regional carriers (Rossiya, Donavia, and Orenair), launched flight operations.

31 December. Pobeda airline’s passenger turnover reached 4.3 million in 2015 (+38.7% y-o-y). For more details see the Strategy section.

Improving the fare system

28 January. Aeroflot airline reduced fares for its own and subsidiaries’ outbound flights under its

commercial management by 10%.

1 November. Aeroflot airline introduced an improved fare structure. The difference between fare

categories was reduced significantly in the new flexible fare line, making extra services and

privileges more affordable for passengers. For more details see the Sales Development section.

Fleet development 25 August. PJSC Aeroflot and United Aircraft Corporation announced the completion of the firm

contract for the delivery of 30 Sukhoi Superjet 100 aircraft. In 2017 and 2018, the Company

expects to receive 20 more SSJ100 aircraft.

23 September. During the year, the Company worked to accept aircraft previously operated by

Transaero: a total of 12 Boeing 747 and Boeing 777 were accepted, as well as

6 Airbus A320Family aircraft from the bid book. For more details see the Aircraft Fleet section.

Route network development 1 June. Aeroflot launched scheduled flights to Valencia and Alicante (Spain) and to Lyon (France).

30 October. Aeroflot launched domestic flights on the new domestic route from Moscow to

Syktyvkar. For more details see the Route Network section.

Increasing social mobility 11 January and 28 September Russian President V. Putin held working meetings with Aeroflot’s

CEO Vitaly Saveliev. They discussed the airline’s results and future plans, the situation in the air

transportation market, including Transaero crisis resolution, the low-cost carrier development, and

the flat fare programme aimed at improving transport connection with Russia’s remote regions and

increasing mobility across Russia. For more details see the Corporate Social Responsibility section.

Developing the IT infrastructure 29 March. Aeroflot launched its own online lost baggage tracking service based on the World

Tracer international tracking system and enabling users to obtain information about the status of the

missing baggage.

28 June. Aeroflot switched to the Aeroflot Bonus loyalty programme management system based on

the innovative Oracle Siebel Loyalty Management platform.

18 August. Aeroflot airline and SAP completed the transition to the SAP HANA ERP platform to

increase business process productivity.

19 September. Aeroflot and Technoserv IT company completed a new data centre based on

Hewlett Packard Enterprise equipment. The project increased the capacity of the Company’s main

data centre by 2.5 times. For more details see the Information Technology section.

Passenger service and new technologies 1 July. Aeroflot lifted the restriction on the use of mobile phones and tablets during take-off and

landing.

19 July. Aeroflot started cooperation with TripAdvisor. As an electronic feedback platform for air

passengers, TripAdvisor enables Aeroflot to improve customer feedback handling and customer

service.

1 September. Aeroflot reduced the cost of the Internet on-board (in-flight Wi-Fi) service and

introduced a time-based rate. Internet connection is available on-board all the airline’s wide-body

aircraft.

6 October. Aeroflot provided access to Apple Pay for its passengers. Apple Pay is a simple and

secure payment tool which completely transforms the mobile payment segment, offering speed and

convenience. For more details see the Information Technology section.

Developing corporate governance, investor relations and increasing transparency 31 March. Aeroflot launched an updated version of its website for shareholders and investors. The

completely new IR section will offer information and resources for the investment community in a

modern, convenient, and user-friendly format.

8 July. Aeroflot was assigned a 7+ corporate governance rating by the Russian Institute of

Directors, based on the monitoring results.

18 October. Aeroflot held the Capital Markets Day, a meeting between the Company’s top

managers and leading Russian and foreign investors and analysts. For more details see the Corporate Governance section.

Supporting sports 24 May. Aeroflot acted as the official carrier of Russia’s national basketball teams.

28 July. Aeroflot’s SU7150 special flight delivered Russia’s Olympic team from Moscow's

Sheremetyevo airport to Rio de Janeiro (Brazil), that hosted 2016 Summer Olympic Games. For more details see the Brand and Service Quality section.

1.6. Industry Recognition and Awards

Awards

Aeroflot airline was awarded four stars (out of five) by Skytrax (a global consulting company

considered the world’s most influential assessor of airline and airport service quality) for its high-

quality service and was recognised as the Best Airline in Eastern Europe by Skytrax World Airline

Awards for the fifth time.

For the fourth time in a row, Aeroflot won the Condé Nast Traveller Readers’ Choice Award as the

Best Russian Airline.

Aeroflot won the Readers’ Choice prize at Air Transport News Awards 2016. The airline’s CEO

Vitaly Saveliev was named Leader of the Year.

Aeroflot Group companies won in a number of categories of the Wings of Russia national airline

award. Aeroflot was recognized as the Russian Airline of the Year — People’s Choice and won in

the International Carriage category.

Once again, Aeroflot won the prestigious international Randstad Award as the most attractive

Russian employer in the Transport and Logistics category.

Aeroflot won the Best.ru/Company of the Year national business award in the Transport category.

Aeroflot airline’s in-flight entertainment system interface won silver at the International Design

Awards in the Multimedia / Interface Design category.

Aeroflot won the prestigious travel award, Business Traveller Russia and CIS, in the Best European

Airline, Best Business Class on Medium-Haul Flights, and Best Airline in Russia and CIS

categories.

Aeroflot won the prestigious SAP Value Award in the IT sector, in the Expanding Horizons

category, for the transition to a new level of business transformation.

Aeroflot received the independent award Innovation Time 2016 in the Transport and Mechanical

Engineering category.

Ratings

Aeroflot received the top rating (seven out of seven stars) as the safest airline in the world. The

rating is compiled by Airlineratings.com, an independent rating website, on a regular basis.

In the rating compiled by the international analytical portal anna.aero, Aeroflot Group was rated

among top 20 global carriers by the number of new destinations, and among top 3 by new routes

with the most frequent flights. Pobeda airline was rated No. 7 globally by the number of new routes

launched.

According to Routehappy, a search engine for comfortable flights, Aeroflot is among the top 10

airlines globally in terms of on-board Wi-Fi Internet access for passengers on long-haul flights.

Aeroflot was rated eighth in the Top 10 Airlines in the World 2016 rating compiled by TripAdvisor

based on passenger reviews.

Aeroflot came second among the world’s best airlines and remains the best air carrier in Russia

according to National Geographic Traveler.

The low-cost carrier Pobeda was rated the third best Russian airline by National Geographic.

STRATEGIC REPORT

2.1. Chairman's Statement

Dear Shareholders,

In 2016 Aeroflot once again convincingly proved its place as the flagship Russian airline and a

strategically important company in the Russian aviation sector. To a great extent, our airline forms

the architecture of our industry, bringing it dynamism and stability, both of which are especially

important in challenging times for the economy.

In the period from 2009 to 2016 Aeroflot Group’s passenger volumes have quadrupled, passenger

load factor has grown by 11.3 percentage points and revenue has risen nearly fivefold. Meanwhile,

industry experts have recognized the achievements of the management team led by Aeroflot’s Chief

Executive Officer Vitaly Saveliev. As the Centre for Aviation (CAPA) has highlighted, thanks to

the efforts of top management, the Group’s structure has changed beyond recognition, transforming

from a model of non-integrated subsidiary airlines into a streamlined, results-oriented multi-brand

strategy focused on different market segments.

Aeroflot carries out a number of multifaceted duties in its role as a national carrier. Last year, the

airline did much more than simply deliver profitability. By staying commercially successful,

Russia’s leading air carrier continued to effectively execute tasks of State importance, which were

extremely meaningful for the socio-economic development of the country and strengthening of its

position in the world in a challenging geopolitical environment.

We have made noticeable progress in our key strategic initiative to improve access to air

transportation and increase overall mobility of the Russian population. Aeroflot has made a unique

contribution to the improvement of transportation links between the remote regions and central part

of Russia. The Company has extended its flat tariff programme through 2017-2018, while at the

same time expanding it to include the Moscow-Magadan-Moscow route. Aeroflot’s budget airline

Pobeda offers unprecedented low rates, which makes travel possible even for individuals with

modest income. Twelve percent of Pobeda’s passengers are using the airline for their first ever

flight. Additionally, every year during Victory Day celebrations Aeroflot carries out a broad

programme of free flights for veterans.

Today, having completed its integration, Aeroflot Group is the benchmark for the Russian air

transportation industry, leading by example in best business practices, innovative decisions and

implementation of advanced corporate standards while remaining a socially responsibly company.

Impressive progress has been made in implementing the steps laid out in the roadmap for enhancing

corporate governance at Aeroflot. A large part of the sections and key principles of the Corporate

Governance Code has already been implemented. Aeroflot Group has also updated the section of its

Risk Management Policy related to preventing and countering corruption.

Another noteworthy trend is that Aeroflot has significantly strengthened its role in formulating

government policy as it relates to civil aviation. At the initiative of our Company, a number of

legislative changes were introduced to benefit the entire industry, and in particular low-cost travel.

Among the most important developments was the introduction of non-refundable tariffs. Now, the

process of adopting stricter legal measures in relation to rowdy passengers is no longer at a

standstill. This is important as such passengers present a serious nuisance to the airline and a real

threat to flight safety. Aeroflot has been successful in improving the organisation of air travel and

ground infrastructure, and remains in continuous dialogue with its home airport Sheremetevo on

such matters.

Aeroflot is strategically important for Russia not only as its largest air carrier, but also in that it is

the main consumer of innovative products produced by the domestic aviation industry.

Furthermore, with the aim of supporting and improving the State preparatory system for flight

personnel, we maintain direct contact with civil flight schools. In 2016, our Company signed an

agreement with the Krasnokutsk Flight School to place its top graduates in jobs within Aeroflot.

Our efforts are met with understanding and constructive responses from government leaders. This is

evidenced by the two in-depth meetings that were held in 2016 between Aeroflot’s CEO and

Russian President Vladimir Putin.

In 2017, we see signs that the Russian aviation industry has passed the low point of the crisis. The

prospects of a recovery in growth are evident thanks to the revived economy, the development of

domestic tourism and the revival of some popular foreign tourist destinations.

The economic environment is becoming more favourable, but it would be wrong to take this as a

guarantee of automatic success. There is a window of opportunity before us and we must act

efficiently and without delay to make the most of it.

I am confident that these opportunities will not be missed. The foundation of this confidence is our

track record of team work, creative approach to business, close interaction with the State, as well as

our success in 2016.

I am counting on Aeroflot making significant progress by 2018 toward our goal of becoming one of

the largest global airlines, strengthening our position as a strategic asset for Russia and reaching

new heights in the interests of our shareholders and for the good of our great country.

Kirill Androsov

Chairman of the Board of Directors PJSC Aeroflot

2.2. Chief Executive Officer’s Statement

Dear Shareholders,

For Aeroflot, 2016 was a year of breakthrough achievements across a number of areas. And it is

particularly notable that these results were achieved despite a negative backdrop for the Russian air

travel market as well as the economy as a whole.

The key achievement of the year was completion of the formation of Aeroflot Group, which today

is the largest aviation holding in Eastern Europe and serves all the main market segments. Aeroflot,

our parent company and the Group’s premium carrier, has truly entered the ranks of the elite of

global aviation. The airline’s biggest breakthrough accomplishment in 2016 was achieving a Four

Star quality and service ranking from British consultancy Skytrax, the leading benchmark for

quality in our industry. The Aeroflot product was recognised as fully in line with the very best

European carriers. And in 2016 the Aeroflot brand was recognised as the strongest brand of any

airline globally according to Brand Finance, the world’s leading independent branded business

valuation and strategy consultancy.

Our low-cost carrier, Pobeda, has completely changed the landscape for budget air travel in Russia.

In 2016 Pobeda increased passenger traffic nearly 40% and took top place globally in a number of

international rankings, including for growth rate of low-cost carriers, average passenger load factor

and profit per aircraft. Pobeda’s greatest achievement, however, is that it has made air travel

infinitely more accessible for the Russian population.

We fully rolled out our mid-tier subsidiary, Rossiya. Regional carrier Aurora is successfully serving

the Russian Far East market. And we achieved new passenger traffic records. Aeroflot Group

carried a total of 43.4 million passengers in 2016, a year-on-year increase of 10.3%. Aeroflot airline

served 29 million passengers, representing year-on-year growth of 11%. These achievements were

all despite the Russian air travel market shrinking by 4.1% on the year. Aeroflot Group revenue

passenger kilometres increased by 14.8% and available seat kilometres increased by 10.3%. The

passenger load factor increased by 3.2 percentage points (p.p.) to 81.5%, directly supporting

profitability.

Our financial performance also set new records. Aeroflot Group’s revenue under IFRS increased by

19.4% versus 2015 to RUB 495.9 billion. EBITDAR totalled RUB 137.6 billion, an increase of

33.4%. The EBITDAR margin improved by 2.9 p.p. to 27.7%. EBITDA increased by a third to

reach RUB 78.0 billion. Operating profit increased by 43.4% to 63.3% and net profit was RUB 38.8

billion versus a loss in 2015. Aeroflot’s share price rose 172.5% over the course of 2016. The

company’s market capitalisation was $2.8 billion as of 30 December 2016, higher than some of the

large European airline groups.

Alongside strong operating performance, other key factors that drove financial success were strict

cost control and improvements in efficiency of business processes as a result of implementation of

digital technologies. These initiatives allow Aeroflot to offer some of the most competitive airfares

of any airline globally. According to a ranking by Australia-based analytical agency Rome2rio,

Aeroflot’s economy class fares were among the five lowest of airlines globally in 2016, and we had

the lowest fares among legacy carriers.

In 2016 Aeroflot placed fourth globally in a ranking of digitalisation at airlines carried out by

consultancy Bain & Company, and Aeroflot’s website ranked as the number one online store in

Russia. We have digitised nearly 100% of our business processes, we’re continuously improving

our mobile apps as one of the most effective tools to engage with customers, and we launched a

major initiative to leverage Big Data. All of Aeroflot’s wide-body aircraft are WiFi-enabled, with

plans to expand that service to the entire fleet with the exception of regional jets.

Aeroflot’s fleet is state of the art. The average aircraft age is 4.2 years, making it the youngest of

any airline globally with a fleet of at least 100 aircraft. Our fleet strategy includes increasing the

proportion of domestically manufactured aircraft by taking delivery of 50 Sukhoi Superjet 100s and

50 MC-21 aircraft.

All of these achievements are not just our success. They represent the success of our country. It’s

irrefutable that Aeroflot Group has become a significant contributor to Russia’s socio-economic

development, strengthening Russia’s position globally and indeed improving the quality of life for

the Russian population.

With your support Aeroflot plans to reach new heights. We see potential to accelerate growth at

Aeroflot Group, particularly by boosting international transit traffic at Aeroflot airline and

continuing to grow low-cost carrier Pobeda.

I am confident that we have all the resources at our disposal – both material and immaterial – to

continue to grow the company step by step in a way that benefits all shareholders, including our

largest shareholder, the Russian state and the Russian people.

Vitaly Saveliev

Chief Executive Officer

PJSC Aeroflot

2.3. Market Overview

Airline Industry Trends

Global airline industry

2016 was a successful year for the global aviation industry, with passenger turnover increasing by

5.9% y-o-y, according to IATA. Scheduled passenger traffic grew by 5.7% to 3.8 billion

passengers. Worldwide, the passenger load factor was pre-estimated at 80.2%, down 0.2 percentage

points (p.p.) y-o-y.

In 2016, the Middle East delivered the highest growth rates with the passenger turnover up

10.8% y-o-y.

Asia Pacific ranked second in terms of growth, with passenger turnover growing by 8.9%.

Passenger turnover in Europe grew by 3.8%. The European market was mainly driven by growing

international traffic. This trend was the result of a 3.8% increase in capacity, a reduction in yields

due to the expansion of the low-cost segment, and falling fuel prices.

The North American market saw a 3.2% increase in passenger turnover, driven by the steady

economic growth in the USA and an upward trend in domestic flights.

IATA reported a fall of 2.4% y-o-y in industry-wide revenue to USD 701 billion. Traditionally,

passenger flights account for the bulk of the industry’s revenue, their share standing at 71.9%. The

decline in revenue was due to falling fuel prices, which enabled carriers to reduce yields without

affecting margins.

IATA pre-estimated the 2016 industry’s net income at USD 35.6 billion, a ten-year high.

Scheduled passenger traffic in the global market,

billion PAX

Sources: IATA (estimate)

Passenger turnover and available seat-kilometre growth

in the global market

Sources: IATA (estimate)

Количество пассажиров Passenger numbers Темп роста Growth rate Пассажирооборот Passenger turnover Предельный пассажирооборот Available seat-kilometres Здесь и далее заменить запятые на точки Note: immaterial deviations in numbers in the charts and tables subtotals of the Annual Report are due to rounding

3,0 3,2 3,3 3,63,8

4,7%5,1%

5,6%

7,2%

5,7%

2012 2013 2014 2015 2016

Количество пассажиров Темп роста*

5,3% 5,2%

5,7%

7,4%

5,9%

4,0%

4,8%

5,5%

6,7%

6,2%

2012 2013 2014 2015 2016

Пассажирооборот

Предельный пассажирооборот

Russian airline industry2

In 2016, the total size of the Russian market, including foreign carriers, shrank by 4.1% y-o-y to

102.8 million passengers (PAX). In particular, Russian airlines carried a total of 88.6 million

passengers, down 3.8% y-o-y. Russian air carriers’ passenger turnover was down by 5.0% to

215.6 billion passenger-kilometres (RPK). At the same time, the capacity reduced by 6.6% to

265.8 billion available seat-kilometres (ASK), driving an increase of 1.4 p.p. in the passenger load

factor for Russian airlines to 81.1%.

In the reporting period, the market continued to be affected by reduced consumer purchasing power

due to the weakening national currency, restrictions on flights to Turkey, Egypt, and Ukraine

introduced in late 2015, and the resulting weaker sales in the outbound travel market. These factors

were behind the decline in the leisure segment serviced primarily by charter airlines. According to

Transport Clearing House (TCH), in 2016, charter passenger traffic fell by 27.0% y-o-y, including a

39.8% reduction in international charter flights. As a result, the total passenger traffic on

international flights (including foreign carriers) decreased by 15.1% y-o-y to 46.4 million

passengers in 2016.

The domestic segment maintained its strong operating performance: the total number of passengers

increased by 7.3% y-o-y to 56.4 million passengers due to the development of domestic tourism

driven, among other factors, by shifts in outbound tourism flows. The average passenger load factor

for domestic flights was 79.5%, up 2.9 p.p. y-o-y.

Passenger traffic, million PAX (including foreign

carriers)

Sources: Transport Clearing House, Federal Air

Transport Agency (Rosaviatsia).

Passenger traffic, million PAX (excluding foreign carriers)

Source: Federal Air Transport Agency.

2 In this section of the Annual report Russian market is discussed in line with statistics disclosed by market regulators (only for Russian

airlines), analytical adjustments based on TCH data (for foreign carriers) and company’s estimates (for international transit). Operating results

of the Russian market if not stated otherwise or implied by the context are generated by all flights originating or terminating in Russia and

serviced by Russian and Foreign carriers. Given that Russian carriers present statistics to the regulator with international transit passengers carried on respective flights accounted for in their operating results, market numbers for “Russian carriers excluding foreign carriers” include

also international transit passengers (non-Russian O&D). For the same reason non-Russian O&D is included in the “Russian market including

foreign carriers”. For analytical purposes international transit is presented separately in respective part of the section.

56,2 64,4 65,5 54,7 46,4

35,439,2 46,3

52,6 56,4

91,6103,7

111,8 107,2 102,8

14,5% 13,1%

7,8%

-4,1% -4,1%

2012 2013 2014 2015 2016

МВЛ ВВЛ Темп роста*

38,6 45,3 46,9 39,5 32,2

35,439,2 46,3 52,6 56,4

74,084,6

93,2 92,1 88,6

15,5% 14,2%10,2%

-1,2%-3,8%

2012 2013 2014 2015 2016


Passenger turnover, billion RPK (excluding foreign

carriers)


Available seat-kilometres, billion ASK (excluding foreign

carriers)


МВЛ International flights

ВВЛ Domestic flights


Passenger load factor, % (excluding foreign carriers)

Sources: Transport Clearing House, Federal Air Transport Agency.

МВЛ International flights

ВВЛ Domestic flights

Всего All flights

Throughout 2016, the passenger traffic in the Russian market was shrinking; however, in Q4, this

decline was halted and passenger traffic grew by 10.6% y-o-y. A change in the trend was due to a

low comparison base effect, the reduced impact of negative factors affecting the airline industry

(including stabilised exchange rates) and adjusted industry yields, all of which (including the

foreign exchange rate effect) led to lower rouble-denominated prices for passengers.

Aeroflot Group acts as a key contributor to the growth in the Russian air transportation market

ensuring transport accessibility and mobility of the population. Aeroflot Group’s gain in passenger

traffic excluded, the market demonstrated a 12.5% decline y-o-y.

124,3 147,3 152,6 127,6 111,5

71,577,9 88,9

99,2 104,1

195,8225,2 241,4 226,8 215,6

17,4% 15,0%

7,2%

-6,0% -5,0%

2012 2013 2014 2015 2016


152,0 179,4 186,3 155,2 134,8

97,9103,8 116,3

129,6131,0

250,0283,2 302,5 284,6 265,8

15,8% 13,3%

6,8%

-5,9% -6,6%

2012 2013 2014 2015 2016


81,8% 82,1% 81,9% 82,2% 82,7%

73,0%

75,0%76,4% 76,6%

79,5%78,3%

79,5% 79,8% 79,7%

81,1%

2012 2013 2014 2015 2016

МВЛ ВВЛ Всего

Passenger traffic growth* in 2016: Russian vs foreign carriers

I квартал Q1

II квартал Q2

III квартал Q3

IV квартал Q4

Российские авиакомпании Russian carriers

Российский рынок (с учетом иностранных

авиакомпаний)

Russian market (including foreign carriers)

Иностранные авиакомпании Foreign carriers


Passenger traffic growth* in 2016: Aeroflot Group vs Russian market

Группа «Аэрофлот» Aeroflot Group

Российский рынок без учета Группы «Аэрофлот» Russian market excluding Aeroflot Group

I квартал Q1





-2,8%

-11,0%

-8,4%

12,5%

-3,8%

-3,9%

-11,6%

-7,2%

10,6%

-4,1%

-10,7%

-15,3%

0,5%

-0,2%

-6,1%

I квартал II квартал III квартал IV квартал 2016

Российские авиакомпании Российский рынок

(с учетом иностранных авиакомпаний)

Иностранные авиакомпании

13,6 %

7,7 % 7,6 %

13,6 %10,3 %

-15,6%

-22,0%

-14,4%

8,4%

-12,5%


Группа «Аэрофлот» Российский рынок без учета Группы «Аэрофлот»

Aeroflot Group’s market share evolution by Russian passenger traffic in 2016

+7,3 п. п. +7.3 p.p. +7.3 p.p.

+7,7 п. п. +7.7 p.p.

+5,2 п. п. +5.2 p.p.

+1,1 п. п. +1.1 p.p.

+5,6 п. п. +5.6 p.p.

Доля Группы «Аэрофлот» Aeroflot Group’s share Aeroflot Group’s share

Прирост доли* Share growth* Share growth*

I квартал Q1





*Y-o-y change.

The Russian airline industry is highly consolidated with five largest players accounting for 70.4%

of the total passenger traffic. Aeroflot Group’s leadership in the market remains undisputed. In

2016, Aeroflot Group had 42.3% of the total Russian market by passenger traffic (including foreign

carriers) as compared to 36.7% in 2015. Aeroflot Group’s market share grew throughout the

reporting period, with the biggest gains posted in Q1 and Q2.

Aeroflot Group’s market share growth was ensured by its effective business model and strategy,

which helped the Group build resilience to external economic and market factors. The Group’s

share growth is also associated with the redistribution of Transaero’s market share among key

players (Transaero ceased its operations in October 2015) and the shrinking presence of foreign

carriers in the Russian market. Enhanced international transit operations, primarily between Europe

and Asia, also contributed to the increased market share of Aeroflot Group among airlines that

service the Russian market. Excluding international transit traffic, Aeroflot Group’s “net” market

share was 40.0% in 2016. The “net” market figures provide for a more accurate representation of

the Group’s Russian market share, since passengers flying between Europe and Asia and making

connections in Moscow by definition are not originating or terminating their trips in Russian cities.

Aeroflot Group’s closest competitors are S7 Group (12.8%), UTair Group (6.8%), and Ural Airlines

(6.3%). Foreign carriers’ share in the Russian was 13.9%.

47,3%42,6%

38,0%44,0% 42,3%


Доля Группы «Аэрофлот» Прирост доли*

+ 7,3 п.п.+ 7,7 п.п.

+ 5,2 п.п.+ 1,1 п.п. + 5,6 п.п.

Key Russian airline industry players by total passenger

traffic

Sources: Transport Clearing House, Federal Air Transport

Agency.

Evolution of key players’ market shares and

consolidation of the passenger transportation

segment


Группа S7 S7 Group

Группа «ЮТэйр» UTair Group

Уральские авиалинии Ural Airlines

Другие российские авиакомпании Other Russian carriers


Топ-5 авиационных групп Top 5 carriers

Aeroflot Group’s market share evolution by Russian passenger traffic (including foreign carriers)

2012 2013 2014 2015 2016

International traffic 28.4% 27.0% 26.1% 29.3% 39.4%

Domestic traffic 32.6% 36.1% 38.0% 44.6% 44.6%

Total 30.0% 30.5% 31.0% 36.8% 42.3%

Aeroflot Group’s market share evolution by passenger traffic in the “net” market

2012 2013 2014 2015 2016

International traffic 25.7% 24.1% 22.6% 24.1% 33.9%

Domestic traffic 32.6% 36.1% 38.0% 44.6% 44.6%

Total 28.4% 28.8% 29.1% 34.5% 40.0%

*“Net” market means the passenger traffic including foreign carriers but excluding connecting passengers on

international flights, which are not relevant for the Russian O&Ds.

Air cargo market

According to IATA, in 2016, the global air cargo market volume was estimated at 53.9 million

tonnes (up 3.2% y-o-y). Global cargo turnover increased by 3.4%. The industry’s cargo revenue fell

by 9.4% to USD 47.8 billion. The decrease in aviation fuel prices enabled a reduction in yields

without affecting margins.

In 2016, the Russian air cargo market (including foreign carriers) fell by 7.4% y-o-y to 1.0 million

tonnes. International cargo traffic reduced by 11.1% to 779.4 thousand tonnes, which is about

74.2% of the total cargo traffic in the Russian market. Domestic cargo traffic was up 5.3% to

271.6 thousand tonnes.

As at year-end, Volga-Dnepr Group remained the undisputed market leader by cargo traffic in

Russia (50.8%). Aeroflot Group came second with 19.4%. Top 5 players account for 78.7% of the

total cargo traffic.

42,3%

12,8%6,8%

6,3%

18,0%

13,9%

Группа «Аэрофлот»

Группа S7

Группа «ЮТэйр»

«Уральские авиалинии»

Другие российские

авиакомпании

Иностранные


63,0% 64,0% 64,9% 69,2% 70,4%

17,8% 17,6% 18,4% 16,7% 15,8%

19,2% 18,4% 16,7% 14,1% 13,9%

2012 2013 2014 2015 2016

Иностраные авиакомпании

Другие российские авиакомпании

Топ-5 авиационных групп

Russian air cargo market volume, thousand tonnes

(including foreign carriers)

МВЛ International routes

ВВЛ Domestic routes


1 076,4 1,076.4

1 092,1 1,092.1

1 121,0 1,134.9

1 051,1 1,051.1


Transport Agency.

Russian air cargo market by volume in 2016

Группа компаний «Волга-

Днепр»

Volga-Dnepr Group


Группа S7 S7 Group

Группа «ЮТэйр» UTair Group

Другие авиакомпании Other Russian

carriers



Transport Agency.

761,7 775,3 820,4 877,0 779,4

314,7 316,8 300,6 257,9271,6

1 076,4 1 092,1 1 121,0 1 134,91 051,1

0,7% 1,5% 2,6% 1,2%

-7,4%

2012 2013 2014 2015 2016


50,8%

19,4%

4,8%2,4%

15,5%

7,1%

Группа компаний

«Волга-Днепр»


Группа S7

Группа «ЮТэйр»

Другие


Иностранные


2.4. Strategy Overview

Aeroflot Group’s strategic goal is to strengthen leadership in the global airline industry by seizing

opportunities in the Russian and international air transportation markets.

Aeroflot Group Development Strategy 2025 was approved by PJSC Aeroflot’s Board of Directors

and defines the key focus areas and long-term growth targets.

To implement Aeroflot Group’s long-term strategy, the Company has developed a medium-term

strategic plan defining the key focus areas, operational and financial targets supporting strategic

goals. The medium-term strategy is reviewed and updated on an annual basis.

In line with the medium-term development strategy and pursuant to the directives of the Russian

Government, Aeroflot Group has developed and updates annually its Long-Term Development

Programme, which covers management-related activities, goals, and KPIs. The Group’s

consolidated IFRS budget and KPIs for the budget year are developed in line with the targets of the

medium-term strategy of Aeroflot Group and its Long-Term Development Programme.

Parameter Medium-term strategy Long-term strategy

Period 2017–2021 Up to 2025

Key areas

Pillars of Aeroflot Group’s growth strategy

Growth taking in the account the infrastructure

constraints

Pillars of the fleet development strategy

Principles of route network expansion

The Group’s updated goals up to 2021

Selection of the Group’s growth

scenario

Selection of the “global player” strategy

Strategy elements:

– Marketing strategy

– Network strategy

– Fleet strategy

Identification of constraints and risk

assessment

Strategic goals

A set of operational and financial targets for

2017–2021, in line with the Group’s long-term

goals

Long-term passenger traffic and

revenue targets benchmarked against

global peers

The date of approval by

the Board of Directors 13 July 2011 (Minutes No. 1) 24 November 2016 (Minutes No. 6)

Aeroflot Group’s strategic goals for 2025

2025 goals Status

Join the Top 5 European airlines by passenger traffic and

revenue

Ranked 7th by passenger traffic and 7th by revenue3

Join the Top 20 global players by passenger traffic and

revenue

Ranked 24th by passenger traffic and 23rd by revenue1

Carry over 70 million passengers, including at least

30 million within Russia

43.4 million passengers in total, including 25.2 million

within Russia

Increase passenger traffic via the main hub in Moscow,

with the share of transfer passengers reaching at least 32%

Aeroflot’s share of transfer passengers is 42.1%

Ensure strong presence in the market The Group is present in all price segments across all

geographies

Sources: Airline Business, ATW, Flight Global, the Company’s estimates.

Analysis of Aeroflot Group’s growth trends and changes in external business environment during

2016 suggests that the Group is well-positioned to achieve all goals set in its Strategy 2025.

However, the Group’s performance against these goals may be affected by significant fluctuations

of FX rates and the continued process of international market consolidation.

3As at the publication date of this Annual Report – data for 2015 (published in 2016).

Key initiatives and work streams underpinning long-term strategy implementation

Strategic priorities Marketing priorities Financial priorities

Develop the multi-brand platform to

strengthen positioning and synergy

across the Group

Customer experience strategy

designed to ensure service standards

as part of the Group’s marketing

strategy

Investment strategy aimed at

achieving the Group’s strategic goals

in the medium and long term

Promote transit traffic via

Sheremetyevo airport (including

international traffic)

Deploy technology and innovation to

ensure the Group’s fundamental

advantages

Improve labour productivity

Enhance the network development

strategy to reinforce the key

principles of route network expansion

for the Group’s airlines

Cut costs to ensure the Group’s

financial stability in the medium and

long term

Enhance the fleet development

strategy to deliver Aeroflot Group’s

growth in line with the approved

route network expansion principles

Boost the Group’s ancillary revenue

Impact of risks on the Group’s strategy

The following types of risks are seen as the key potential risks that may affect the Group’s

development strategy: risk of changes in the external business environment;

risk arising from infrastructure constraints;

macroeconomic risks.

To mitigate the key risks, the medium-term strategy of the Group provides for the following

initiatives: development of a high-performing hub at Sheremetyevo to promote international transfer traffic and increase

fleet flexibility;

growth planning and control at each of Aeroflot Group’s companies to maintain manageable growth and the

market share;

monitoring the progress of infrastructure development and new facilities construction at Moscow

Sheremetyevo airport;

flexible development of Aeroflot and Pobeda airlines;

diversification of revenue streams by currency and geography.

Strategy implementation and adjustment results

In 2016, Aeroflot Group made significant progress towards achieving its long-term goals, primarily,

through continued route network enhancement by frequency and connectivity, supported by

consistent efforts to improve the hub at Moscow Sheremetyevo airport. Measures were taken to

reduce CASK, optimise the fleet and boost sales efficiency. Pobeda, Aeroflot’s low-cost carrier, is

making good headway, having carried 4.3 million passengers in 2016. In 2016, we completed the

transformation of regional airlines to set up Rossiya Airlines, a united regional carrier.

Aeroflot Group’s progress in achieving 2025 strategic goals

2012 2014 2016 2025 target

Revenue, RUB billion 253.0 319.8 495.9 Top 5 and Top 20

Passenger traffic, million PAX 27.5 34.7 43.4 Top 5 and Top 20,

>70 million

Domestic passenger traffic, million PAX 11.5 17.6 25.2 >30 million

Aeroflot’s share of transit passengers, % 32.7 39.2 42.1 Over 32

In 2016, the Russian airline industry performed as projected, with no structural shifts; therefore, no

significant adjustments or dramatic changes to the development strategy were needed. The action

plans outlined in previously approved strategies proved effective. Based on the current market

environment, the Company made decisions to accelerate Aeroflot Group’s growth via its parent

company Aeroflot, including through active promotion of international transfer traffic and the low-

cost carrier Pobeda. We updated a number of targets, including those set for passenger traffic: in

2021, Aeroflot Group plans to carry 66 million passengers, including 41.8 million passengers to be

carried by Aeroflot airline. According to our estimates, by this year, the Group’s fleet will comprise

380 aircraft. The fleet enhancement strategy provides for increasing the share of Russian aircraft

through execution of contracts for 50 Sukhoi Superjet 100 and 50 МС-21 aircraft.

Multi-brand platform

Aeroflot Group’s strategy is based on a multi-brand platform, with each of the Group’s airlines

targeting a dedicated market segment. The multi-brand platform enables the Group to maximise its

market penetration across price segments and geographies.

Aeroflot airline focuses on addressing the needs of the premium passenger segment by offering

best-in-class services, a high frequency route network with extensive flight geography, access to the

route network of partners from the SkyTeam Alliance, convenient connecting flights for

international transit passengers, and a modern aircraft fleet.

Rossiya and Aurora airlines target the mid-market price segment and operate regional and inter-

regional flights. They focus on the relevant geographical areas with higher price sensitivity by

primarily offering their passengers flights from the base regions with lower flight frequency.

Rossiya airline also operates in the leisure (charter) segment. In 2016, the Company successfully

implemented its decision made in late 2015 to establish a united regional carrier, Rossiya Airlines,

by combining airlines of JSC Rossiya Airlines, JSC Orenair, and JSC Donavia.

Pobeda airline targets the low-cost segment. Domestic flights from Moscow to Russia’s regions,

along with additional inter-regional flights within Russia, make up the bulk of the airline’s route

network, which is designed to improve links between Russian regions. The airline also expands the

international route network.

Aeroflot Group’s multi-brand platform

2015

Positioning Premium product

Mid-price

regional

product

Charter product Low-cost product Regional product for Far

East

2016

Positioning Premium product Regional and charter products in the mid-price

segment Low-cost product

Regional product for Far

East

Type of flights Scheduled flights Scheduled and charter flights Scheduled flights Scheduled flights

Business model

– Hub and spoke model

– Transit passenger traffic on domestic

and international routes

– High frequency of flights

– Economy and business class

– Point-to-point flights within Russia

– Limited connectivity

– Popular international destinations

– Charter flights to the most popular leisure

destinations


– Point-to-point flights via

Moscow

– Point-to-point flights between

regions

– High passenger load factor and

fleet utilisation

– Economy class

– Passenger flights in the Far

East

– Local flights to remote

destinations within the region


Flight range Unlimited Unlimited Up to 3–4 hours Short- and medium-haul flights

Aircraft fleet – Narrow-body aircraft

– Wide-body aircraft

– Narrow-body aircraft

– Wide-body aircraft – Narrow-body aircraft – Narrow-body aircraft

Target group

– Business tourism

– Visiting friends and relatives

– Leisure


– Leisure

– Business

– Leisure



– Business

Base airport Moscow (Sheremetyevo)

– Moscow (Vnukovo)

– Saint Petersburg (Pulkovo)

– Airports in Orenburg and Rostov-on-Don

Moscow (Vnukovo)

Airports in Russia’s regions

– Vladivostok

– Khabarovsk

– Yuzhno-Sakhalinsk

Share of

international

passengers in the

airline’s passenger

traffic

~50%

(extensive geography)

~20%–30%

(mainly within the CIS)

~10%

~20% (Asia Pacific)

Long-term development programme and progress report

Long-Term Aeroflot Group Development Programme 2015–2020 (the Programme) was

designed in accordance with Decree of President of the Russian Federation No. Pr-3086 dated

27 December 2013, and approved by PJSC Aeroflot’s Board of Directors on 2 December 2014

(Minutes No. 8). On 27 January 2016, the Strategy Committee of PJSC Aeroflot’s Board of

Directors approved proposed amendments (Minutes No. 1) to the Long-Term Aeroflot Group

Development Programme 2015–2020.

In 2016, the Long-Term Aeroflot Group Development Programme 2016–2021 was updated to

reflect the key amendments to Aeroflot Group’s strategy for 2017–2021. This involved the

review of the Programme’s key initiatives to support the strategy implementation4. We updated

the Programme’s KPI framework to adjust the set and weighting of KPIs. A dedicated section on

Ensuring Priority Funding for the Social and Economic Development of the Russian Far East

was added in line with Russian Government Directive No. 4531p-P13 dated 28 June 2016.

In 2016, the Long-Term Aeroflot Group Development Programme 2016–2021 and its key

implementation initiatives were updated to reflect the key amendments to Aeroflot Group’s

strategy for 2017–2021. We also updated the Programme’s KPI framework to adjust the set and

weighting of KPIs. A dedicated section on Ensuring Priority Funding for the Social and

Economic Development of the Russian Far East was added, in line with Russian Government

Directive No. 4531p-P13 dated 28 June 2016.

The progress on PJSC Aeroflot’s Long-Term Development Programme for 2016 was audited by

the Company’s external auditor, AO BDO Unicon.

The independent audit was followed by an opinion on the information prepared to reflect the

progress on the Programme’s initiatives from 1 December to 31 December 2016, on the actual

2016 KPI values and achievement of target KPIs, in all material respects, against the criteria set

out in the Programme, on the relevance, in all material respects, of clarifications made by

PJSC Aeroflot’s management on discrepancies between the Group’s actual KPIs and the

Programme’s targets, and on spending the relevant 2016 budgets in line with their intended

purpose. The auditor’s opinion was issued on 31 March 2017 under No. 1744-BDO-17.

Overall, the Programme planning and implementation are in line with the principles set out in the

Programme Development Guidelines, the KPI Guidelines, and other directives and instructions

of the Russian Government and the Federal Agency for State Property Management.

In 2017, the Regulations on Updating and Managing the Implementation of Aeroflot Group’s

Long-Term Development Programme were approved to improve updating, reporting, and auditor

communication processes. These Regulations were developed to comply with the auditor’s

recommendation following the 2015 Programme results audit.

The Programme’s key goal is to ensure the Group’s long-term sustainable development,

strengthen its competitive position, create and develop a competitive edge, and improve

performance and financial stability.

Key initiatives to support the implementation of the Long-Term Development Programme in

2016:

reduce operating expenses and increase labour productivity;

improve the procurement process;

implement the investment programme;

implement Aeroflot Group’s Innovative Development Programme;

expand the route network;

4 The Resolution of the Board of Directors dated 8 September 2016 (Minutes No. 2); the Resolution of the

Board of Directors dated 24 November 2016 (Minutes No. 6); the Resolution of the Board of Directors dated

22 December 2016 (Minutes No. 7).

enhance the aircraft fleet;

expand the production capacity;

develop and adopt mandatory internal documents to improve corporate governance;

ensure adequate talent pipeline;

implement Aeroflot Group’s marketing strategy.

The Programme’s key objectives are to:

develop action plans to ensure achievement of the Group’s strategic growth targets;

identify areas and initiatives to improve the Group’s competitive edge and performance;

analyse risks to and opportunities for achieving the strategic targets and implementing

Programme initiatives.

The Programme details strategic areas for the Group’s development and includes a list of key

initiatives and action plans ensuring implementation of the strategy in the medium and long term.

The Programme complements and expands the key strategic initiatives set out in the Aeroflot

Group Development Strategy 2021.

Development programmes

The Group is implementing its strategy through a number of programmes designed to ensure

long-term growth and profitable growth. Key programmes underpinning PJSC Aeroflot’s growth

and development strategy:

Investment Programme,

Cost Cutting Programme,

Innovative Development Programme,

Management Incentive Programme,

Corporate Governance Improvement Programme.

Investment Programme 2017 was adopted by PJSC Aeroflot’s Board of Directors on

24 November 2016 (Minutes No. 6). It is designed to address the air carrier’s strategic objectives

and ensure the development of its business units. Planned investments in property, plant and

equipment and financial investments in software for 2017 are primarily designed to:

ensure maintenance and repair operations (procure tools and equipment to ensure maintenance

for all types of aircraft, and invest in hangar facility development);

ensure ground handling at the airport (procure equipment and custom machinery for aircraft

ground handling);

develop a training platform (upgrade the FFS A320 flight simulator and purchase the

TSFT SSJ100 trainer);

ensure high-quality passenger experience (procure uniforms for front line staff, equip aircraft

with WiFEC, replace business class seats onboard Airbus A330 aircraft);

upgrade aircraft (continue the project to integrate electronic devices for pre-flight and in-flight

management of air navigation information on Airbus A320 family aircraft (Electronic Flight

Bag – EFB), provide wheelchairs onboard Boeing 777, Boeing 737, and Airbus A320 aircraft);

build new facilities (continue the construction of a new hangar for aircraft servicing and build a

central power distribution station to expand the capacity of PJSC Aeroflot’s power grid);

develop the IT infrastructure (maintain existing and develop new information systems, procure

communication, telephone and computer equipment, update the situation centre);

invest in R&D projects under the Innovative Development Programme;

provide software solutions (develop the SAP system, maintain and develop the Company’s

website, commercial, operations-related, office, and other systems);

provide other types of investment in property, plant and equipment (deliver on fire safety

initiatives, procure workwear, ensure seamless operation of a number of business units).

Cost Cutting Programme was implemented in 2016 pursuant to Russian Government Directive

No. 4750p-P13 dated 4 July 2016 and the Resolution of the Board of Directors of PJSC Aeroflot

dated 25 August 2016 (Minutes No. 1), to achieve the KPI of reducing operating expenses

(costs) by at least 10% in the reporting period. The updated Programme was approved by the

Resolution of PJSC Aeroflot’s Management Board dated 17 October 2016 (Minutes No. 26). To

improve the Group’s operational efficiency, the Programme provided for low-cost/quick-win

initiatives. The Programme was implemented in full. With the cost reduction target of

RUB 12.1 billion, the actual cost savings amounted to RUB 14.3 billion.

Innovative Development Programme 2020 was adopted by PJSC Aeroflot’s Board of Directors

on 24 June 2011 (Minutes No. 16) and by the working group on Private-Public Partnership in

Innovation under the Government Commission on High Technologies and Innovation on 28 June

2011. The Programme defines the key focus areas of the Company’s innovative development.

For more details on the Programme see the Innovation and Information Technology section of

this Annual Report.

Management Incentive Programme was approved by the Board of Directors of PJSC Aeroflot on

25 September 2014 (Minutes No. 5) and amended by the Resolution of the Board of Directors of

PJSC Aeroflot on 2 December 2014 (Minutes No. 8). The Programme covers PJSC Aeroflot

employees whose remuneration is KPI-based. The remuneration is paid at the end of the year for

meeting the net profit target and depends on the amount allocated by PJSC Aeroflot’s General

Meeting of Shareholders for this purpose out of the total net profit. The Programme sets the

maximum remuneration pool which is subsequently distributed among the employees based on

their individual contribution to the year-end financial results. For more details on the

Management Incentive Programme see the Corporate Governance section of this Annual Report.

Corporate Governance Improvement Programme is linked to the implementation of the

Corporate Governance Code as approved by the Board of Directors of the Bank of Russia on

21 March 2014. For more details see the Corporate Governance section of this Annual Report.

2.5. Business Model

OUR MISSION

We work to ensure that our

customers can quickly and

comfortably travel great distances, and thus be mobile,

meet more often, work

successfully, and see the

world in all its diversity.

We give our customers a

choice through an extensive

route network and different

carriers operating within our Group, from low-cost to

premium class airlines.

OUR STRATEGIC GOALS

– Join the Top 20 and the Top 5

global players by passenger

traffic and revenue

– Carry over 70 million

passengers, including at least

30 million within Russia

– Increase passenger traffic via

the main hub in Moscow, with

the share of transit passengers

reaching at least 32%

– Ensure strong presence in the

market

OUR LONG-TERM STRATEGY

Aeroflot Group’s strategic goal is to strengthen

leadership in the global airline industry by seizing opportunities in the Russian and international air

transportation markets.

ASSET BASE

43.4 million PAX

Aeroflot Group’s

passenger traffic

in 2016

RUB 495.9 billion

Aeroflot Group’s

revenue in 2016

Value

creation

SkyTeam

partners

Internal cost streams

– Maintenance and repair

– Staff

– General and

administrative

– Other

Counterparties

– Fueling facilities

– Airports

– Service providers

– Maintenance and repair

Trade payables, finance lease

payments, and other operating

expenses and accruals

Leasing

companies

RUB 78.0 billion

Aeroflot Group’s

EBITDA in 2016

RUB 38.8 billion

Aeroflot Group’s

net profit in 2016

BUSINESS SEGMENTS

Premium

segment

Mid-price

segment

regional

basic

Low-cost

segment

66.7%

Aeroflot

20.2%

Rossiya

3.2%

Aurora

9.9%

Pobeda

Route

network

326

scheduled

routes

51 countries

Aircraft fleet 292 aircraft 4.2 years average

age of Aeroflot

airline fleet

In-house

maintenance and

repair facility

8 hangars to maintain Aeroflot’s

own and third-party aircraft

Well-established

brand and leader

in the Russian

market

5.1 million

participants in

the loyalty

programme

40.0% share in

the “net” Russian

air transportation

market

Highly skilled

personnel

36.6 thousand

employees Training platform

and simulation centre

Medical centre

3. BUSINESS OVERVIEW

3.1. Operating Results

Aeroflot Group: total

Item 2012 2013 2014 2015 2016

Passenger traffic, million PAX 27.5 31.4 34.7 39.4 43.4

change, % 67.6 14.3 10.7 13.4 10.3

Passenger turnover, billion RPK 74.6 85.3 90.1 97.6 112.1

change, % 61.9 14.3 5.6 8.4 14.8

Available seat-kilometres, billion ASK 95.6 109.1 115.8 124.7 137.7

change, % 59.3 14.1 6.2 7.7 10.4

Passenger load factor, % 78.1 78.2 77.8 78.3 81.4

change, p.p. 1.3 0.1 (0.4) 0.5 3.1

Cargo and mail carried, thousand tonnes 223.8 204.6 166.3 156.3 205.8

change, % 32.8 (8.6) (18.7) (6.0) 31.6

Revenue tonne-kilometres, billion TKM 7.9 8.7 8.8 9.5 11.0

change, % 56.3 9.3 1.9 7.0 16.5

Flights, thousand 241.8 264.9 286.7 323.8 331.9

change, % 18.1 9.5 8.2 13.0 2.5

Stage length, km 2,716 2,717 2,593 2,479 2,581

change, % (3.4) 0.0 (4.5) (4.4) 4.1

Aeroflot Group: domestic flights

Item 2012 2013 2014 2015 2016

Passenger traffic, million PAX 11.5 14.0 17.6 23.4 25.1 change, % 65.3 21.6 26.0 32.5 7.6

Passenger turnover, billion RPK 24.3 29.2 35.0 44.7 48.7

change, % 57.0 19.8 19.9 27.8 8.9 Available seat-kilometres, billion ASK 31.7 37.6 43.6 56.3 58.3

change, % 59.2 18.2 16.2 29.0 3.7 Passenger load factor, % 76.7 77.7 80.2 79.4 83.5

change, p.p. (1.0) 1.0 2.5 (0.8) 4.1

Cargo and mail carried, thousand tonnes 70.7 82.8 82.0 79.1 107.8 change, % 50.4 17.1 (0.9) (3.4) 36.2

Revenue tonne-kilometres, billion TKM 2.5 3.0 3.5 4.3 4.8 change, % 55.0 19.2 17.4 24.5 11.9

Flights, thousand 112.7 127.8 151.0 195.0 196.0 change, % 19.2 13.4 18.2 29.2 0.5

Stage length, km 2,115 2,083 1,982 1,912 1,935

change, % (5.0) (1.5) (4.8) (3.5) 1.2

Aeroflot Group: international flights

Item 2012 2013 2014 2015 2016

Passenger traffic, million PAX 16.0 17.4 17.1 16.0 18.3 change, % 69.3 8.9 (1.7) (6.2) 14.1

Passenger turnover, billion RPK 50.3 56.1 55.1 52.9 63.4 change, % 64.4 11.6 (1.8) (3.9) 19.8

Available seat-kilometres, billion ASK 63.9 71.5 72.2 68.5 79.4

change, % 59.4 12.0 1.0 (5.2) 15.8 Passenger load factor, % 78.7 78.4 76.3 77.3 80.0

change, p.p. 2.4 (0.3) (2.1) 1.0 2.7 Cargo and mail carried, thousand tonnes 153.1 121.8 84.3 77.2 98.0

change, % 26.1 (20.5) (30.8) (8.5) 27.0 Revenue tonne-kilometres, billion TKM 5.4 5.7 5.3 5.2 6.2

change, % 56.9 4.9 (6.1) (4.3) 20.3

Flights, thousand 129.1 137.1 135.7 128.8 135.9 change, % 17.1 6.2 (1.0) (5.1) 5.5

Stage length, km 3,150 3,226 3,223 3,304 3,468 change, % (2.9) 2.4 (0.1) 2.5 5.0

Aeroflot Group

In 2016, Aeroflot Group significantly improved its operational performance on key metrics,

despite an overall decline in the Russian air transportation market.

During the year, Aeroflot Group carried a total of 43.4 million passengers (up 10.3% y-o-y)

making 331,853 scheduled and charter flights. The Group’s turnover grew 14.8% to 112.1 billion

revenue passenger-kilometres (RPK). On the back of 10.4% capacity growth to 137.7 billion

available seat-kilometres (ASK) passenger load factor increased by 3.1 p.p. to 81.4%.

Aeroflot Group’s passenger traffic, million PAX

Domestic flights

International flights


Aeroflot Group’s passenger turnover, billion RPK,

and passenger load factor

Aeroflot Group’s operational performance by region (scheduled and charter flights)

Region

Passenger traffic,

million PAX

Passenger turnover,

billion RPK

Available seat-kilometres,

billion ASK Passenger load factor, %

2015 2016

change,

%

2015 2016 change

, % 2015 2016

change,

% 2015 2016

change,

p.p.

Russia 23.3 24.7 6.0 44.6 47.9 7.4 56.1 57.5 2.4 79.5 83.4 3.9

Europe 7.9 9.0 13.9 17.5 20.1 14.9 23.6 26.5 12.4 74.0 75.6 1.6

Asia 2.7 3.1 14.5 17.5 19.8 13.1 22.3 24.8 11.4 78.7 79.9 1.2

CIS 2.5 2.4 (4.4) 4.7 5.4 14.6 6.1 6.6 8.2 77.7 82.2 4.5

Middle East 1.6 1.5 (7.7) 4.7 4.6 (2.4) 6.2 6.0 (4.5) 76.0 77.7 1.7

Americas 0.8 0.9 15.2 6.8 7.9 16.0 8.2 9.3 12.7 82.5 84.9 2.4

Total scheduled

flights 38.9 41.7 7.1 95.9 105.7 10.3 122.6 130.6 6.6 78.2 80.9 2.7

Charter flights 0.5 1.8 245.2 1.7 6.4 265.1 2.2 7.0 223.8 80.8 91.1 10.3

Total passenger

flights 39.4 43.4 10.3 97.6 112.1 14.8 124.7 137.7 10.4 78.3 81.4 3.1

Domestic flights

In the reporting year, Aeroflot Group’s total domestic passenger traffic (including scheduled and

charter flights) increased by 7.6% y-o-y to 25.1 million passengers. Domestic flights accounted

for 57.9% of the total carried passengers.

Domestic passenger turnover grew 8.9% to 48.7 billion RPK, with capacity growing by 3.7% to

58.3 billion ASK. The passenger load factor was 83.5%, up 4.1 p.p. y-o-y.

Such performance improvements were associated with persistently strong demand for domestic

services (including domestic tourism), which allowed the Group to increase its flight frequency

16,0 17,4 17,1 16,0 18,3

11,5 14,0 17,6 23,425,1

27,531,4

34,739,4

43,4

2012 2013 2014 2015 2016

Внутренние перевозки

Международные перевозки

50,3 56,1 55,1 52,9 63,4

24,329,2 35,0 44,7

48,774,685,3 90,1

97,6112,1

78,1% 78,2% 77,8% 78,3%81,5%

2012 2013 2014 2015 2016



Занятость кресел

on the most popular routes and to launch new routes. A 40.8% share of total growth in domestic

passenger traffic of the Group was driven by Pobeda airline.

Aeroflot Group’s 2016 passenger traffic breakdown

by airline

Aeroflot Group’s 2016 passenger traffic breakdown

by destination

Aeroflot

Rossiya

Pobeda

Aurora

Domestic flights



In the reporting year, Aeroflot Group’s international passenger traffic increased by 14.1% y-o-y

to 18.3 million passengers. International flights accounted for 42.1% of the total carried

passengers.

Passenger turnover grew 19.8% to 63.4 billion RPK, with capacity growing by 15.8% to


Macroeconomic stabilisation, higher flight frequency, the launch of new flights based on obtained

permits to operate to international destinations, the development of Pobeda’s international

network, and the re-launch of Rossiya’s charter programme had a positive effect on the

performance in the international segment.

Scheduled passenger traffic on European routes (the Group’s second largest business segment)

grew by 13.9% to 9.0 million passengers, driven by the higher frequency of flights to most

popular destinations based on obtained permits (London, Rome, Milan), and by the newly

launched flights to new destinations (Valencia, Alicante, Lyon). Another factor contributing to

the passenger traffic growth on European routes was the reduction in the frequencies of services

operated by foreign carriers to Russia.

Aeroflot Group continued to focus on Asian destinations, where the number of passengers carried

on scheduled flights grew by 14.5% to 3.1 million passengers. Another major contributing factor

was stronger passenger traffic from destinations in China, driven, among other factors, by the

higher frequency of flights to Beijing.

In 2016, traffic to the CIS and the Middle East was impacted by the ban on flights to Ukraine,

suspension of flights to Egypt and reduced frequency of flights to Turkey (due to overall declines

in demand and restrictions on charter flights) in Q4 2015. The number of passengers carried on

scheduled flights within the CIS decreased by 4.4%. At the same time, the results of operations in

the CIS region were supported by the launch of new flights to six destinations in Kazakhstan and

higher demand for leisure flights to Georgia, Azerbaijan, and Armenia. Scheduled passenger

traffic in the Middle East decreased by 7.7% to 1.5 million passengers. The higher frequency of

flights to Tel-Aviv (a market with significant potential for leisure and transit traffic) helped

partially offset the decline in passenger traffic to Istanbul and Antalya.

66,7%

20,2%

9,9%

3,2%

Аэрофлот

Россия

Победа

Аврора

42,1%

57,9%

Международные

перевозки

Внутренние

перевозки

The number of passengers carried on scheduled flights to North and Central America increased

by 15.2% to 0.9 million passengers, due to increased frequency of flights to Cuba and a higher

demand for flights to the USA, driven, among other things, by transit passenger traffic.

Aeroflot Airline

In 2016, Aeroflot airline carried a total of 29.0 million passengers, up 11.0% y-o-y. The airline’s

passenger turnover grew 11.6% to 82.7 billion RPK, with capacity growing by 8.9% to


Aeroflot airline’s passenger traffic, million PAX

Domestic flights



Aeroflot airline’s passenger turnover, billion RPK,

and passenger load factor

Aeroflot airline’s 2016 passenger traffic breakdown by destination

Domestic flights


10,7 12,3 12,5 13,4 14,9

7,08,6 11,1 12,7 14,117,7

20,923,6

26,129,0

2012 2013 2014 2015 2016



34,9 40,6 42,7 46,8 53,315,6

19,6 24,4 27,329,450,5

60,2 67,1 74,182,7

77,9%78,8%

78,2%79,3%

81,3%

2012 2013 2014 2015 2016



Занятость кресел

51,3%

48,7%Международные

перевозки


перевозки

Aeroflot airline’s operating performance by region (scheduled and charter flights)

Region

Passenger traffic,

million PAX

Passenger turnover,

billion RPK


billion ASK

Passenger load factor, %

2015 2016 change,

% 2015 2016

change,

% 2015 2016

change,

% 2015 2016

change,

p.p.

Russia 12.7 14.1 11.3 27.3 29.4 7.4 33.3 34.4 3.3 82.2 85.4 3.2

Europe 7.0 7.7 10.5 15.4 17.3 11.8 20.9 22.9 9.6 74.0 75.4 1.4

Asia 2.5 2.8 12.8 17.2 19.3 12.7 21.6 24.1 11.4 79.3 80.2 0.9

CIS 1.9 2.1 14.1 3.3 4.7 39.8 4.2 5.7 33.9 79.0 82.5 3.5

Middle East 1.4 1.4 (0.3) 4.0 4.1 3.5 5.2 5.4 3.1 77.1 77.4 0.3

Americas 0.8 0.9 15.7 6.8 7.9 16.0 8.2 9.3 12.7 82.5 84.9 2.4

Total scheduled

flights 26.1 29.0 11.0 74.1 82.7 11.6 93.4 101.7 8.8 79.3 81.3 2.0

Charter flights 0.01 0.01 – 0.01 0.03 – 0.03 0.08 – – – –

Total passenger

flights 26.1 29.0 11.0 74.1 82.7 11.6 93.5 101.8 8.9 79.3 81.3 2.0

Domestic flights

In 2016, the total number of passengers carried by Aeroflot airline on domestic routes increased

by 11.4% y-o-y to 14.1 million. Passenger turnover grew 7.4% to 29.4 billion RPK, with capacity

growing by 3.3% to 34.4 billion ASK. The passenger load factor increased by 3.2 p.p. to 85.4%.

Domestic flights accounted for 48.7% of Aeroflot airline’s total passenger traffic.


In 2016, the total number of passengers carried by Aeroflot airline on international routes

increased by 10.6% y-o-y to 14.9 million. Passenger turnover grew 14.0% to 53.3 billion RPK,

with capacity growing by 11.9% to 67.4 billion ASK. The passenger load factor increased by

1.5 p.p. to 79.2%. International flights accounted for 51.3% of Aeroflot airline’s total passenger

traffic.

Aeroflot airline’s operating results by region are explained by the factors affecting the Group’s

overall performance mentioned above.

Subsidiary Airlines

In the reporting year, the total passenger traffic of subsidiary airlines (Rossiya, Pobeda, Aurora)

was 14.5 million passengers, accounting for 33.3% of the total number of passengers carried by

Aeroflot Group in 2016.

The growth in subsidiaries’ passenger traffic is primarily driven by the development of

Pobeda airline. Subsidiaries are focused on domestic routes, which account for 76.4% of their

total passenger traffic. The share of international traffic is 23.6%, with more than half of it

generated by Rossiya airline.

Subsidiaries’ passenger traffic*, million PAX

Subsidiaries’ 2016 passenger traffic breakdown*

Domestic flights


Rossiya

Pobeda

Aurora

Orenair

Donavia

Subsidiaries’ passenger traffic*, million PAX

Subsidiaries’ 2016 passenger traffic breakdown*

Domestic flights


Rossiya

Pobeda

Aurora

Orenair

Donavia

*Data on Rossiya airline for 2016 includes flights of Orenair and Donavia prior to their integration into

Rossiya airline.

4,2 4,6 5,2 4,8

8,83,2 3,1 3,0 2,8

1,0 1,41,7

1,51,4

1,41,1

1,1 1,4

0,1 3,14,3

9,810,5

11,2

13,314,5

2012 2013 2014 2015 2016

Россия

Оренбургские авиалинии

Донавиа

Аврора

Победа


перевозки

23,6%


перевозки

76,4%

18,1%

3,3%2,2%

42,7%

26,4%

7,3%

Россия

Победа

Аврора

4,2 4,6 5,2 4,8

8,83,2 3,1 3,0 2,8

1,0 1,41,7

1,51,4

1,41,1

1,1 1,4

0,1 3,14,3

9,810,5

11,2

13,314,5

2012 2013 2014 2015 2016

Россия

Оренбургские авиалинии

Донавиа

Аврора

Победа


перевозки

23,6%


перевозки

76,4%

18,1%

3,3%2,2%

42,7%

26,4%

7,3%

Россия

Победа

Аврора

Cargo and Mail Operations

Aeroflot Group does not have dedicated cargo fleet and exploits belly cargo model for cargo and

mail transportation. In 2016, Aeroflot Group carried 205.8 thousand tonnes of cargo and mail,

up 31.6% y-o-y.

In the reporting period, the cargo/mail tonne-kilometres (TKM) increased by 16.5% to

11.0 billion, while the revenue load factor went up by 3.0 p.p. to 65.7%.

The growth in cargo and mail operations is associated with the expansion of the wide-body

aircraft fleet, including Transaero’s Boeing 747 and Boeing 777 aircraft added to the Group’s

fleet.

In 2016, Aeroflot airline carried 175.5 thousand tonnes of cargo and mail, up 29.9% y-o-y. The

cargo/mail tonne-kilometres increased by 13.2% to 8.3 billion, while the revenue load factor

grew by 2.7 p.p. y-o-y to 65.0%. Aeroflot Group’s cargo and mail operations,

thousand tonnes

Domestic flights


Revenue load factor

Aeroflot Group’s revenue tonne-kilometres,

billion TKM, and revenue load factor

Aeroflot airline’s cargo and mail operations,

thousand tonnes

Aeroflot airline’s revenue tonne-kilometres,

billion TKM, and revenue load factor

153,1121,8

84,3 77,198,0

70,782,8

82,0 79,2

107,8

223,8204,6

166,3 156,3

205,8

2012 2013 2014 2015 2016



5,4 5,7 5,3 5,1 6,2

2,5 3,0 3,5 4,34,8

7,98,7 8,8

9,511,0

65,2% 64,7% 63,8% 62,7%65,7%

2012 2013 2014 2015 2016



Коммерческая загрузка

147,7118,0

81,5 74,696,1

46,258,5

63,8 60,5

79,4

193,9176,5

145,3135,1

175,5

2012 2013 2014 2015 2016



4,1 4,3 4,2 4,6 5,3

1,6 2,0 2,52,7

3,05,76,3

6,77,3

8,3

63,8% 64,4% 63,1% 62,3% 65,0%

2012 2013 2014 2015 2016



Коммерческая загрузка

3.2. Route Network

Route Network Development Strategy

Aeroflot Group implements a strategy of balanced route network development based on a multi-

brand model ensuring maximum coverage of the air transportation market and the Group’s

presence in various price segments across different regions. The route network management

strategy relies on increasing frequency of flights to most popular destinations and improving

flight connections by adopting a wave system structure in flight schedules at its main hub,

Moscow Sheremetyevo airport, which enhances customer experience. Flights to new destinations

are launched based on the analysis of demand, competition, and potential efficiency of new

routes, both in terms of direct passenger traffic and contribution to the route network synergy.

Aeroflot Group pays particular attention to making socially important destinations accessible for

its customers.

Aeroflot Group Route Network Development5

In 2016, Aeroflot Group’s network comprised 326 scheduled routes to 51 countries, including 47

unique routes operated by the low-cost carrier Pobeda. Excluding the low-cost segment, the

Group’s airlines operated scheduled flights on 279 routes.

Regional developments imply a growth in the number of both scheduled (up 13.8% to 140) and

charter (up 7.1% to 60) domestic routes. The number of international scheduled routes declined

during the year by 13.1% to 139, with charter routes down by 10.8% to 116. The decline was due

to the optimisation of route networks carried out by the subsidiaries in 2015, and the launch of

Rossiya airline, a new integrated carrier.

In 2016, the total number of routes decreased by 6.5% to 377, primarily at the expense of charter

segment driven by lower demand for tourist flights.

Number of Aeroflot Group’s routes

2015 2016 Change, %

Sch. Chart. Total Sch. Chart. Total Sch. Chart. Total

International 160 130 260 139 116 214 (13.1) (10.8) (17.7)

Domestic 123 56 143 140 60 163 13.8 7.1 14.0

Medium-haul 249 170 356 253 161 341 1.6 (5.3) (4.2)

Long-haul 34 16 47 26 15 36 (23.5) (6.3) (23.4)

Total 283 186 403 279 176 377 (1.4) (5.4) (6.5)

During 2016, Aeroflot Group’s airlines launched scheduled flights to 28 new destinations,

including 19 domestic and 9 international.

Airline Destination Destination

Aeroflot

Moscow Alicante

Moscow Lyon

Moscow Syktyvkar

Moscow Valencia

Kazan Frankfurt

Rossiya

Anapa Krasnoyarsk

Sochi Nizhny Novgorod

Sochi Krasnoyarsk

5 Due to the separate status of the low-cost segment, the data on Aeroflot Group’s route network presented in

this section of the Annual Report includes the routes of Aeroflot airline and subsidiaries excluding Pobeda,

unless otherwise stated.

Airline Destination Destination

Sochi Orenburg

Sochi Tyumen

Nizhny Novgorod Simferopol

St Petersburg Heraklion

St Petersburg Rimini

Moscow Goa

Moscow Paphos

Moscow Rimini

Omsk Simferopol

Yekaterinburg Anapa

Aurora

Amgu Kavalerovo

Blagoveshchensk Neryungri

Dalnegorsk Kavalerovo

Khabarovsk Shakhtersk

Khabarovsk Neryungri

Khabarovsk Nogliki

Yuzhno-Sakhalinsk Blagoveshchensk

Yuzhno-Sakhalinsk Petropavlovsk-Kamchatsky

Vladivostok Blagoveshchensk

Vladivostok Preobrazheniye

* Highlighted in blue are own flights of subsidiary airlines.

At the same time, in 2016, nine scheduled routes were discontinued as part of the network

restructuring effort prompted by the launch of Rossiya airline.

Destination Destination

Krasnodar Sochi

Krasnodar Yerevan

Mineralnye Vody Yerevan

Mineralnye Vody Tashkent

Rostov-on-Don Yerevan

Rostov-on-Don Istanbul

Rostov-on-Don Tashkent

St Petersburg Urgench

Krasnodar Yekaterinburg

Aeroflot Group’s scheduled routes

(2016 vs 2015)

Aeroflot Group’s scheduled flights by region

(2016 vs 2015)

International

Domestic

Medium-haul

Long-haul

Total

Russia

Europe

CIS

Asia

Middle East

Americas

Total

In 2016, the number of Aeroflot Group’s scheduled flights grew 1.8% y-o-y. Asia and North

America reported the highest growth (+20.9% and +8.5%, respectively), driven by higher

demand on these routes and weaker competition. The number of scheduled flights to Europe grew

by 5.7 % in response to additional market opportunities in the region. The number of flights to

the Middle East in 2016 was almost flat year-on-year, due to the falling demand for certain

leisure destinations. The decline in number of flights to CIS countries was mainly due to the

network optimisation efforts by subsidiaries, and discontinued services to Kiev and Odessa in

Ukraine since late 2015.

Average weekly frequency of Aeroflot Group’s flights

Scheduled flights

International scheduled flights

-1,4%

-23,5%

1,6%

-13,1%

13,8%

Итого

Дальнемагистральные

Среднемагистральные



1,8%

8,5%

0,9%

20,9%

-18,6%

5,7%

1,5%

Итого

Америка

Бл. и Ср. Восток

Азия

СНГ

Европа

Россия

11,8

9,1

13,5

6,4

11,8

0,8

12,4

10,0

15,0

7,9

12,9

1,6

Регулярные Международные

регулярные







Чартерные

2015 2016

+ 4,8%

+ 11,0%

+ 10,1%

+ 23,6%

+ 9,5%

>2,0x

Domestic scheduled flights

Long-haul scheduled flights

Medium-haul scheduled flights

Charter flights

In 2016, Aeroflot Group continued increasing the frequency of service to the most popular and

lucrative destinations. The average weekly frequency of scheduled flights grew by 4.8% y-o-y

(from 11.8 to 12.4). This figure has grown 10.1% (from 9.1 to 10.0) for international scheduled

destinations and 11.0% (from 13.5 to 15.0) for domestic flights.

In planning its flight schedule, Aeroflot Group focuses on:

improving the accessibility of Russia’s regions;

improving customer experience of direct (non-stop) flights;

optimising targeted connections on intercontinental (Asia – Europe, North America – Middle

East), and interregional routes (Far East / Urals – Centre / South);

maintaining and further developing the hub structure at Sheremetyevo airport;

growing the market share on existing routes (large markets) and launching new destinations in

prospective markets with high transfer traffic potential.

Aeroflot Airline’s Route Network Development

In 2016, Aeroflot airline’s route network covered 133 scheduled routes to 50 countries. The

number of both domestic and international scheduled routes stayed flat year-on-year. The total

number of routes serviced by Aeroflot airline (including charter) grew 5.0% y-o-y to 147.

Number of Aeroflot airline’s routes

2015 2016 Change, %

Sch. Chart. Total Sch. Chart. Total Sch. Chart. Total

International 87 12 92 87 20 99 – 66.7 7.6

Domestic 46 9 48 46 13 48 – 44.4 –

Medium-haul 107 21 114 108 30 119 0.9 42.9 4.4

Long-haul 26 – 26 25 3 28 (3.8) – 7.7

Total 133 21 140 133 33 147 – 57.1 5.0

Aeroflot continued expanding its network by launching five new scheduled routes, including four

international (from Moscow to Alicante, Valencia, and Lyon, and from Kazan to Frankfurt) and

one domestic (from Moscow to Syktyvkar).

Russia

Europe

CIS

Asia

Middle East

Americas

Total

Aeroflot airline’s scheduled flights by region

(2016 vs 2015)

6,0%

8,5%

-1,0%

16,3%

-2,3%

6,9%

6,6%

Итого

Америка

Бл. и Ср. Восток

Азия

СНГ

Европа

Россия

In 2016, the total number of Aeroflot airline’s scheduled flights grew by 6.0% y-o-y due to the

increase in capacity on the most popular routes and the changes in the route network mentioned

above. This growth was mainly driven by an increase in flights on domestic and European routes

by 6.6% and 6.9%, respectively. It was also supported by a 16.3% increase in flights to Asian

countries. The result saw the connectivity ratio for Aeroflot airline’s own flights improve from

16.0 in 2015 to 19.1 in 2016.

Average weekly frequency of Aeroflot airline’s flights

Scheduled flights

International scheduled flights

Domestic scheduled flights

Long-haul scheduled flights

Medium-haul scheduled flights

Charter flights

The average weekly frequency of scheduled flights grew by 0.4%, from 16.1 to 16.2 flights per

route per week.

Subsidiary Airlines’ Route Network Development

Rossiya Airline

In response to recent market shifts and pursuant to the relevant resolution by its Board of

Directors, PJSC Aeroflot has established Rossiya airline, an integrated regional carrier, to

consolidate the operations of JSC Rossiya Airline, JSC Orenair, and JSC Donavia. The new

carrier started its operations on 28 March 2016.

The route network of the integrated carrier has been overhauled to improve operational and

financial efficiency and to account for the addition of the long-haul aircraft previously operated

by Transaero.

In 2016, Rossiya airline operated scheduled services on 112 routes (68 domestic and

44 international), including 85 routes under commercial management of PJSC Aeroflot.

Plans for the carrier’s network expansion provide for further development of the regional

Northwestern transport hub at Pulkovo airport (Saint Petersburg), and for services from

Moscow’s Vnukovo airport. Flights from Vnukovo cover destinations in Russia’s Far East and

targeted domestic connection airports, as well as Nice and Paris (Orly) in France.

Aurora Airline

Aurora is focused on securing transport accessibility and accommodating the demand for flights

in the Russian Far East and to major cities in Siberia: Irkutsk, Krasnoyarsk, Novosibirsk, and

16,1

12,4

22,9

6,9

18,4

0,40

16,2

12,5

23,1

7,4

18,3

0,43

Регулярные Международные








Чартерные

2015 2016

+ 0,4%

+ 1,0%

+ 0,4%

+ 7,1%

- 0,8%

+ 7,5%

Yakutsk. Aurora also operates international services from Khabarovsk, Vladivostok, and

Yuzhno-Sakhalinsk to the Republic of Korea, China, and Japan.

In 2016, Aurora airline operated scheduled services on 51 routes in 4 countries (38 domestic and

13 international routes).

In the reporting year, the airline strengthened its position in the region’s international air

transportation market. Aurora remains the only carrier operating flights from Vladivostok and

Yuzhno-Sakhalinsk to Harbin, China, from Vladivostok to Busan in the Republic of Korea and

Dalian in China, and from Khabarovsk to Krasnoyarsk.

To attract transit passengers and offer them a smooth travel experience, the airline increased

flight frequency on the routes connecting the major hubs in Khabarovsk and Vladivostok, and

also adjusted certain flight schedules. The frequencies of services from Khabarovsk and

Vladivostok to Seoul, the Republic of Korea, and Petropavlovsk-Kamchatsky, and from

Vladivostok to Beijing, China, have been increased in response to surging demand.

In 2016, Aurora also enhanced its offering across a number of destinations through a codeshare

agreement with S7 Airlines, which came into force during the reporting year. The agreement

covers flights from Vladivostok to Hong Kong, Beijing, Tokyo, and Yuzhno-Sakhalinsk; and

from Khabarovsk to Beijing. Dash-8 Q400 aircraft were partially involved to support the turnover

of Airbus A319 aircraft and to improve passenger load factors on short-haul flights.

Aeroflot Group continues to integrate Aurora’s own domestic local routes into the Group’s

network to improve travel experience and accessibility for passengers flying to/from destinations

in the Russian Far East from/to other domestic and international destinations.

No. Route Type

1 DR Yuzhno-Sakhalinsk – Okha

2 DR Yuzhno-Sakhalinsk – Kurilsk

3 DR Yuzhno-Sakhalinsk – Yuzhno-Kurilsk

4 DR Yuzhno-Sakhalinsk – Shakhtersk

5 DR Terney – Amgu

6 DR Terney – Svetlaya

7 DR Terney – Yedinka

8 DR Vladivostok – Kavalerovo

9 DR Vladivostok – Plastun

10 DR Vladivostok – Terney

11 DR Vladivostok – Dalnerechensk

12 DR Vladivostok – Dalnegorsk

13 DR Khabarovsk – Kavalerovo

14 DR Khabarovsk – Okha

15 DR Khabarovsk – Nogliki

16 DR Khabarovsk – Shakhtersk

17 DR Khabarovsk – Neryungri

18 DR Vladivostok – Preobrazheniye

Note: A local route means a route between a major city (regional capital) and a smaller district centre within

the same region.

Highlighted in blue are new services launched during 2016.

1 DR Khabarovsk – Blagoveshchensk

2 DR Yuzhno-Sakhalinsk – Blagoveshchensk

3 DR Yuzhno-Sakhalinsk – Petropavlovsk-Kamchatsky

4 DR Vladivostok – Blagoveshchensk

1 IR Yuzhno-Sakhalinsk – Tokyo (Narita)

2 IR Yuzhno-Sakhalinsk – Sapporo

3 IR Yuzhno-Sakhalinsk – Harbin

Pobeda Airline

In 2016, Pobeda airline operated flights on 72 routes, including seasonal routes from Russian

regions to the Black Sea resorts in Sochi and Anapa. During the year, Pobeda operated 47 unique

routes which have not been serviced by any other airline within the Group.

In the reporting period, Pobeda was rapidly expanding its network, launching not only direct

flights between Moscow and other Russian regions, but also interregional routes that directly

connect large regional centres, specifically Yekaterinburg with Krasnoyarsk and Novosibirsk,

Saint Petersburg with Yekaterinburg, Makhachkala, and Krasnodar, etc. Its schedule not only

aims to boost direct passenger traffic, e.g. between Novosibirsk and Yekaterinburg,

Yekaterinburg and Saint Petersburg, but also intends to offer an attractive alternative to transit

passengers who need to travel between Novosibirsk and Saint Petersburg.

The company continued to add new international destinations. In addition to the flights to

Milan (Bergamo) and Bratislava launched in 2015, new destinations were added in 2016

including Cologne, Memmingen, Girona, Larnaca, Paphos, Tivat, Pisa, and Gyumri. A number of

international flights include an option of a group transfer to city centre, including Milan,

Florence, Zurich, Barcelona, Yerevan, and others).

Pobeda has also launched services on Rostov – Baku, Rostov – Tbilisi, and Samara – Almaty

routes.

Transit Passenger Traffic

The extensive route network of Aeroflot Group not only provides passengers with the benefits of

flying point-to-point, but also offers travelling options with connections at Moscow’s

Sheremetyevo airport, its main hub, and in base airports of regional airlines. From the business

perspective, transit passenger traffic falls into three groups: domestic transit, transit between

Russia and other countries, and international transit. The bulk of the Group’s transit passenger

traffic is handled by Aeroflot airline, which takes advantage of Russia’s beneficial geographical

position to pick up transit passenger traffic between Europe and Asia and from other transit

markets.

In 2016, total transit traffic on Aeroflot airline’s flights rose 5.5% y-o-y to c. 12.0 million

passengers. Passengers in transit accounted for 42.1% of Aeroflot airline’s total passenger traffic

in 2016 (44.2% in 2015). The share of transit passenger traffic declined as a result of higher

demand for point-to-point flights. In 2016, with an increase in the overall passenger traffic and a

higher passenger load factor, there was a shift in passenger traffic towards direct flights,

indicating improved network efficiency across Aeroflot Group.

The increase in the transit passenger traffic was mainly driven by the growth in transit passenger

traffic between Russia and other countries, reaching 16.9% of Aeroflot airline’s total passenger

traffic. The share of international transit traffic was 13.1%. Although the share of this segment

declined year-on-year, its passenger traffic grew 3.5% in absolute terms. International transit has

the highest impact, since it provides the company with an opportunity to capture more value from

international markets and global passenger flows.

Aeroflot continued its focus on boosting Moscow’s profile as an attractive transit hub by

increasing the frequencies of services, maintaining a wave system structure in flight schedule and

improving connectivity. Tactical moves made by Aeroflot in 2016 to enhance its value

proposition for transit passengers include changes in the flight schedule from Moscow to

Cuba (morning departure from Sheremetyevo and morning arrival, which has fundamentally

changed the connection pattern by providing convenient connections to all flights of the

European morning arrival wave, as well as Delhi and destinations in China). Additionally, in

2016 Aeroflot added a second daily flight from Moscow to Delhi and back to ensure two-way

connections for all popular routes that might include this flight (Europe and Americas). During

the year, Aeroflot introduced 14 additional weekly flights to London (two additional daily flights)

to improve the route’s connectivity with the Asian market. The company continues expanding its

network in Kazakhstan, a market with a strong potential for transfer traffic. Aeroflot is also

consistent in its efforts to increase the frequencies and capacity on high-margin routes with a high

share of transfer traffic (Spain, Israel, France, Italy, Vietnam, India, and Thailand).

Aeroflot airline’s key international transit routes in 2016 included New York – Tel Aviv,

Yerevan – Los Angeles, Bangkok – Tel Aviv, Hanoi – Prague, Shanghai – Tel Aviv, Berlin –

Hanoi, Delhi – Tel Aviv, Barcelona – Seoul, Barcelona – Tokyo, and Madrid – Seoul.

Share of transit passengers in Aeroflot airline’s total passenger traffic

Russia – Other Countries

International

Domestic

Obtaining approvals and operating permits to increase the frequencies of services and

launch new flights

In 2016, the Federal Air Transport Agency issued the following operating permits to companies

of Aeroflot Group that are under commercial management of PJSC Aeroflot.

Aeroflot Airline:

Four new permits to operate international scheduled passenger services from Moscow to Lisbon,

Kyzylorda, and Kostanay, and from Kazan to Frankfurt am Main;

Ten additional permits to increase the frequencies of international scheduled passenger services

from Moscow to Aktobe, Bologna, Vienna, Yerevan, Chisinau, Lyon, Malaga, Paris, and Beijing;

Three new permits to operate international non-scheduled (charter) passenger services from

Moscow to Grenoble, Chambery and Varadero.

Rossiya Airline:

One new permit to operate international scheduled passenger service from Moscow to Yerevan;

Three additional permits to increase the frequencies of international scheduled passenger services

from Moscow to Tenerife and from Saint Petersburg to Baku and Urgench;

One new permit to operate international non-scheduled (charter) passenger service from Moscow

to Punta Cana.

Aurora Airline:

Four new permits to operate international scheduled passenger services from Vladivostok to

Jiamusi and Yanji; and from Khabarovsk to Sanya and Jiamusi;

One additional permit to increase the frequency of international scheduled passenger service from

Yuzhno-Sakhalinsk to Sapporo.

There have also been certain changes within the Group. With the Group’s regional airlines now

integrated into Rossiya airline, all operating permits held by Donavia (for 16 routes) and

Orenair (for 41 routes) were transferred to the consolidated carrier, with effect from 27 March

2016. Aeroflot airline’s permit to operate a scheduled service between Moscow and Karlovy

Vary was transferred to Pobeda airline. Rossiya airline’s permit to operate scheduled flights

between Moscow and Rimini (one weekly frequency) was transferred to Pobeda airline as part of

15,0% 16,0% 16,7% 16,7% 16,9%

10,6%11,6% 11,8% 14,0% 13,1%

7,1%7,9%

10,7%

13,5%12,1%

2012 2013 2014 2015 2016

Россия - Зарубежье Международный Внутренний

32,7%35,5%

39,2%

44,2%42,1%

the effort to reallocate the flight frequencies between the services operated between Moscow and

Rimini and between Moscow and Bergamo.

Permits were renewed for Aeroflot airline (for 20 routes) and Rossiya airline (for 17 routes) to

operate services on Transaero’s routes until the end of the IATA Winter 16/17 Season, with an

extension option (a total of 36 routes). In order to streamline the use of operating permits held by

Aeroflot airline and Rossiya airline, a number of permits inherited from Transaero have been

waived.

With support from the Russian Ministry of Transport, a number of scheduled designations were

secured from the Russian Ministry of Foreign Affairs on the following routes:

Aeroflot: Kazan – Frankfurt am Main;

Rossiya: Krasnodar – Yerevan, Mineralnye Vody – Yerevan, Mineralnye Vody – Tashkent,

Moscow – Varadero, Rostov-on-Don – Yerevan, Rostov-on-Don – Istanbul, Rostov-on-Don –

Tashkent, Rostov-on-Don – Tel Aviv, Saint Petersburg – Beijing, Sochi – Yerevan, and Sochi –

Istanbul;

Aurora: Vladivostok – Sapporo, Khabarovsk – Niigata, Vladivostok – Jiamusi, and Khabarovsk –

Jiamusi;

Pobeda: Rostov-on-Don – Baku, and Rostov-on-Don – Tbilisi.

International Cooperation

Codeshare agreements

Aeroflot actively cooperates with other carriers under codeshare agreements. These arrangements

enable the Group to build its presence in promising markets, gain a foothold in the markets where

restrictions apply, expand the route network coverage, and more efficiently use own fleet.

In 2016, the number of marketing flights operated by Aeroflot airline grew from 299 to 320.

Agreements for joint free-sale flight operation signed with S7, Finnair and Cubana de Aviacion,

and with Aurora Airlines, a subsidiary of Aeroflot (codeshare flights on a free-sale basis) entered

into force. Joint flights with Air Malta were resumed on the Malta – Moscow – Malta route.

In 2016, Aeroflot had 29 codeshare agreements with foreign and Russian airlines, including:

19 agreements under which Aeroflot airline acted both as a partner operator and a marketing

operator: Air France, KLM, Alitalia, Finnair, Czech Airlines, LOT-Polish Airlines, Bulgaria Air,

Korean Air, Air Serbia, MIAT, airBaltic, Air Europa, Garuda Indonesia, Icelandair, Kenya

Airways, Saudi Arabian Airlines, China Eastern Airlines, China Southern Airlines, and Siberia

Airlines PJSC;

Four agreements under which Aeroflot airline acted as a partner operator only: Cubana de

Aviacion, Iran Air, Tarom, and Middle East Airlines;

Five agreements under which Aeroflot airline acted only as a marketing operator, selling partner

flights under its code: Adria Airways, Air Malta, Bangkok Airways, Royal Air Maroc, and

Aurora airline (codeshare flights on a free-sale basis);

Two agreements with Aeroflot Group’s airlines under commercial management arrangements for

operation of joint flights: with Rossiya and Aurora.

Commercial management of the flights operated by subsidiary airlines under codeshare

agreements enables Aeroflot to implement its model of integrated centralised management in

such strategic areas as sales, revenue management, route network and fleet planning.

Interline agreements

As at the end of 2016, Aeroflot airline had interline agreements with 145 carriers, including two

subsidiary airlines, five other Russian carriers, and six airlines based in the CIS.

Membership in the SkyTeam Alliance

In 2016, SkyTeam Alliance had 20 members, including Aeroflot, Aerolineas Argentinas,

Aeromexico, Air Europa, Air France, KLM, Alitalia, China Airlines, China Eastern, China

Southern, Czech Airlines, Delta Air Lines, Kenya Airways, Korean Air, Middle East Airlines,

Saudi Arabian Airlines, TAROM, Vietnam Airlines, Xiamen Airlines, and Garuda Indonesia.

Membership of the SkyTeam Alliance enables Aeroflot to expand its route network while

offering its customers access to the global alliance’s unique product, and providing Aeroflot

Bonus members with an opportunity to enjoy the privileges on the flights of other members of the

SkyTeam Alliance.

In 2016, the Alliance’s aggregate route network comprised 1,062 destinations in 177 countries.

SkyTeam’s members were making a total of 17,343 flights on a daily basis.

In 2016, under SkyTeam-based cooperative arrangements, Aeroflot serviced 810 thousand

passengers and 331 thousand tonnes of cargoes, sold 386 flight segments as part of SkyTeam’s

fare products, and issued 6,825 tickets under three corporate contracts. Over 538 million bonus

miles were awarded to participants of Aeroflot Bonus programme on flights operated by

SkyTeam partners.

3.3. Aircraft Fleet

Fleet Development Strategy

Aeroflot Group operates a balanced in terms of aircraft types and modifications fleet and keeps

on enhancing it in line with its multi-brand strategy. Over the last years, the Group has invested

much effort in optimisation and upgrade of the fleet to improve the efficiency of the Group’s

operations and cost control. In 2012–2016, the types of aircraft in operation reduced from 14 to 8.

Aeroflot Group’s aircraft fleet evolution

2012 2016

Narrow-body (regional)

SSJ100

An-148

An-12

An-24

DHC-8-200/300

SSJ100

DHC-8-200/300/400

DHC-6-400

Narrow-body (medium-haul) Airbus A319/320/321

Boeing 737 (Classic)

Boeing 737 (NG)

Airbus A319/320/321

Boeing 737 (NG)

Wide-body

Airbus A330

Boeing 767

Boeing 777

Il-96

Tu-204

MD-11F

Airbus A330

Boeing 747

Boeing 777

14 types 8 types

Note: Data exclude aircraft that were out of operation by the Group’s airlines and/or subleased to third parties (Mi-

8, Yak-40, Tu-154 in 2012; An-148 and An-24 in 2016).

As a result of active fleet upgrades from 2012 to 2016, the average age of aircraft in operation

dropped from 8.8 to 6.5 years for Aeroflot Group and from 5.2 to 4.2 years for Aeroflot airline

(as at the year-end). Aeroflot airline’s fleet is one of the youngest in the world.

Aeroflot Group’s fleet as at the year-end, number of

aircraft

Airline subsidiaries

Aeroflot airline

Aeroflot Group

Note: Including subleased aircraft.

Average age of aircraft fleet in operation, years

Aeroflot Group’s aircraft fleet was built and is grown in line with specific business models and

route networks of each airline.

Aeroflot airline’s fleet comprises several types of aircraft produced by major manufacturers and

focuses on addressing the needs of both the premium and mass-market segments. Aircraft offer

two to three travel classes to serve passengers in flight.

Rossiya airline operates Airbus and Boeing narrow-body aircraft primarily on scheduled routes,

while its Boeing wide-body aircraft are operated primarily on leisure markets (to destinations

served by the charter programme and resorts of the Black Sea) and flights to the cities in the Far

East.

Aurora airline operates Airbus A319 narrow-body aircraft on scheduled routes and turboprops for

local flights.

The aircraft fleet of the low-cost carrier Pobeda comprises one aircraft type, Boeing 737-800,

with a single-class cabin configuration.

Airline Manufacturer Types Models

Narrow-body Wide-body

5

Airbus A320 (Family)

Boeing 737 NG

SSJ100

Airbus A330

Boeing 777

4 Airbus A320 (Family)

Boeing 737 NG

Boeing 747

Boeing 777

3

DHC-6-400

DHC-8-200/300/400

Airbus A319

1 Boeing 737 NG

Aeroflot Group’s Aircraft Fleet

As at 31 December 2016, Aeroflot Group had 292 aircraft: 50 regional aircraft (including

Bombardier DHC-8 and Viking DHC-6 turboprops, SSJ100 jets, as well as An-148 and An-24

aircraft that were out of operation and subleased), 192 narrow-body aircraft for medium-haul

flights (Airbus А320 Family and Boeing 737 Family), and 50 wide-body long-haul aircraft

(Airbus А330s, Boeing 767s and Boeing 777s).

In 2016, following the active route network expansion and the launch of new routes and flights,

the Group focused on expanding its aircraft fleet. During the year, 53 aircraft were added to the

Group’s fleet. The Group together with lessors conducted pre-delivery checks in order to phase-in

128 143 155 170 189

105 96 106 92103

233 239261 262

292

2012 2013 2014 2015 2016

Дочерние авиакомпании

Авиакомпания «Аэрофлот»

8,87,7

7,06,4 6,5

5,2 5,24,1 4,4 4,2

2012 2013 2014 2015 2016



12 aircraft previously operated by Transaero (seven Boeing 747 and five Boeing 777 aircraft),

and also phased in five Airbus A321s ordered by Transaero. Following expiry of the lease period

in 2016 and in line with the Group’s fleet optimisation, 23 airliners were phased out. Thus, in

2016, the net increase in Aeroflot Group’s fleet amounted to 30 aircraft. Aeroflot Group’s fleet by type of aircraft

Aeroflot Group’s fleet by type of ownership


Narrow-body (medium-haul)

Wide-body

Operating lease

Owned

Finance lease

Aeroflot Group’s aircraft fleet

Type of aircraft

Aircraft

fleet as at

31 Decem

ber 2015

Change Aircraft

fleet as at

31 Decem-

ber 2016

Owned Operati

ng lease

Finance

lease during 2016

phased

in

phased

out

An-148 6 – – 6 – – 6

An-24 1 – – 1 1 – –

DHC 6-400 2 – – 2 – 2 –

DHC 8-200 2 – – 2 – 2 –

DHC 8-300 4 – – 4 1 3 –

DHC 8-402 3 2 – 5 5 – –

SSJ100 24 6 – 30 – 30 –

Narrow-body (regional) 42 8 – 50 7 37 6

Airbus А319 40 1 (5) 36 – 27 9

Airbus А320 70 9 (4) 75 – 75 –

Airbus А321 26 12 (6) 32 – 17 15

Boeing 737-500 3 – (3) – – – –

Boeing 737-800 42 9 (2) 49 – 49 –

Narrow-body (medium-

haul) 181 31 (20) 192

– 168 24

Airbus A330-200 5 – – 5 – 5 –

Airbus A330-300 17 – – 17 – 9 8

Boeing 767 1 – (1) – – – –

Boeing 777-200ER 3 – (2) 1 – 1 –

Boeing 777-300ER 13 7 – 20 – 10 10

Boeing 747-400 – 7 – 7 – 7 –

Wide-body 39 14 (3) 50 – 32 18

Total 262 53 (23) 292 7 237 48

Note: As at 31 December 2016, six Аn-148s and one An-24 were out of operation.

17,1%

65,8%

17,1%Узкофюзеляжные

(региональные)

Узкофюзеляжные

(среднемагистральные)

Широкофюзеляжные

16,4%

2,4%

81,2%

Финансовый

лизинг

Собственность

Операционный

лизинг

Aeroflot Airline’s Aircraft Fleet

As at 31 December 2016, Aeroflot airline had 189 aircraft including 30 regional narrow-body

aircraft, 122 narrow-body medium-haul aircraft, and 37 wide-body aircraft.

In 2016, the Company’s fleet was expanded to include new SSJ100, Airbus A320, Airbus A321,

Boeing 737-800, and Boeing 777-300ER aircraft. Airbus A319 aircraft were phased out. The net

fleet increase amounted to 19 aircraft. Aeroflot airline’s fleet by type of aircraft

Aeroflot airline’s fleet by type of ownership


Narrow-body (medium-haul)

Wide-body

Operating lease

Finance lease

Aeroflot airline’s aircraft fleet

Type of aircraft

Aircraft fleet

as at

31 December

2015

Aircraft fleet

as at

31 December

2016

Change

SSJ100 24 30 6

DHC 8-400 3 – (3)

Narrow-body (regional) 27 30 3

Airbus A319 5 – (5)

Airbus A320 63 70 7

Airbus A321 26 32 6

Boeing 737 14 20 6

Narrow-body (medium-haul) 108 122 14

Airbus A330 22 22 –

Boeing 777 13 15 2

Wide-body 35 37 2

Total 170 189 19

Note: DHC 8-400 regional aircraft were purchased in 2015 and recorded as an asset of PJSC Aeroflot prior to

being transferred to Aurora airline in 2016.

Subsidiaries’ Aircraft Fleet

Subsidiaries’ aircraft fleet composition was transformed as a result of the set-up of the united

regional carrier Rossiya Airlines and the arrival of ex-Transaero aircraft from leasing companies.

Aurora airline continued to enhance its fleet to operate local flights. Pobeda airline’s fleet

remained unchanged.

15,9%

64,5%

19,6%Узкофюзеляжные

(региональные)

Узкофюзеляжные

(среднемагистральные)

Широкофюзеляжные

17,5%

82,5%

Финансовый

лизинг

Операционн

ый лизинг

Subsidiaries’ aircraft fleet

Type of aircraft

Aircraft fleet

as at

31 December

2015

Aircraft fleet

as at

31 December

2016

Change

An-148 6 6 –

Airbus A319 26 26 –

Airbus A320 7 5 (2)

Boeing 767 1 – (1)

Boeing 737 16 17 1

Boeing 747 – 7 7

Boeing 777 3 6 3

Rossiya airline 59 67 8

An-24 1 1 –

Airbus A319 9 10 1

Boeing 737 3 – (3)

DHC (6 and 8) 8 13 5

Aurora airline 21 24 3

Boeing 737 12 12 –

Pobeda airline 12 12 –

Total 92 103 11

Note: For data comparability purposes, Rossiya airline’s fleet in 2015 also includes the aircraft of Donavia and

Orenair airlines. Six aircraft owned by Rossiya were out of operation and were (are being) leased out.

Flight Hours

Despite the dramatic fleet expansion (+30 aircraft), Aeroflot Group throughout the year

maintained high fleet utilisation rates. In 2016, Aeroflot Group’s flight hours increased by

6.1% y-o-y to 911.8 thousand hours. Aeroflot airline posted a 7.5% increase in flight hours to

639.5 thousand following the expansion of its operations.

In 2016, Aeroflot Group’s flight hours per aircraft in operation per day averaged 9.4, down

1.1% y-o-y. Immaterial decline was driven by substantial fleet enhancement in 2H 2016, which

requires certain time to ramp-up utilisation. Aeroflot airline’s average flight hours per aircraft in

operation per day was 9.9 hours and was affected by increased share of narrow-body aircraft.

Flight hours, thousand hours

Average flight hours per aircraft in operation per day

Note: The number of aircraft in operation in the reporting

year is calculated as the average of the number of aircraft

as at the start and the end of the period.

Airline subsidiaries

Aeroflot airline

Aeroflot Group

460,7 509,1 554,7 594,9 639,5

259,9267,2 260,7 264,7

272,3720,6

776,3 815,4 859,6911,8

2012 2013 2014 2015 2016

Дочерние авиакомпании


6,1%5,4%5,0%

7,7%

9,19,4 9,3

9,5 9,4

10,810,5 10,5 10,3

9,9

2012 2013 2014 2015 2016



Fuel Efficiency

High fuel efficiency is an important benefit of the young aircraft fleet. Fuel costs account for a

major part of an airline’s expenses. Their share in Aeroflot Group’s 2016 operating costs

amounted to 23.5%. New airliners feature various technical solutions, which enable a reduction in

fuel and other operating costs, including optimisation of maintenance costs. Specifically, since

2014 Aeroflot has been operating the most advanced Airbus A320 family aircraft equipped with

sharklets that reduce lift-induced drag and improve aero-dynamics at the wingtips. As a result

aircraft deliver a 3%–4% reduction in fuel consumption (according to Airbus), increased flight

range, and improved takeoff performance. As at the end of 2016, 38 aircraft in the Group’s fleet

were equipped with sharklets.

Operating a young aircraft fleet also helps reduce the environmental footprint and slash harmful

CO2 and NOx emissions to the atmosphere. For more details on the fleet fuel efficiency see the

Environmental Impact and Performance section. Specific fuel consumption in Aeroflot Group

Specific fuel consumption in Aeroflot airline

g/ASK

g/TKM

In 2016, specific fuel consumption across Aeroflot Group decreased by 18.1 grammes (or

5.9%) y-o-y to 286.4 grammes per tonne-kilometre (TKM). Specific fuel consumption at

Aeroflot airline decreased by 12.9 grammes (or 4.3%) to 286.3 g/TKM. Moderate improvement

is also posted on a gramme per available seat-kilometre (ASK) basis.

26,1

24,8

23,523,1 22,9

315,0 312,6308,2

304,5

286,4

2012 2013 2014 2015 2016

г/ккм г/ткм

26,9

25,5

23,623,3 23,2

308,4 307,0

301,6 299,2

286,3

2012 2013 2014 2015 2016

г/ккм г/ткм

3.4. Sales and Distribution

Aeroflot Group6 sells tickets in Russia and abroad through a variety of channels, including the

official Aeroflot website where passengers can buy tickets both for Aeroflot airline’s flights and

the flights of its subsidiaries under commercial management. To ensure a uniform offering of

online services, subsidiary websites have been deep-linked with Aeroflot airline’s platform for

online sales. Pobeda airline sells tickets independently through their own website and online

booking systems.

In the report period (2016), the Group continued to streamline the structure and increase

efficiency of its ticket sales. Growth in online sales is a common trend in the airline industry,

driven by more accessible and easy-to-use web apps and the growing number of digital devices

(laptops, tablets, and smartphones).

In 2016, online sales grew to 29.2% of Aeroflot Group’s revenue, while agents accounted for the

largest share (63.3%). Sales offices and the call centre accounted for 6.3% and 1.2%,

respectively.

Breakdown of Aeroflot Group’s revenue

Aeroflot Group’s sales by channel

Call centre

Aeroflot website sales

International Sales

Sales in Russia

Own sales offices

Authorised agents

Sales in Russia

In Russia, sales are carried out through authorised agents (under direct agency agreements),

neutral sales systems (Transport Clearing House (TCH) and BSP Russia), own sales offices,

Aeroflot airline’s website, and the call centre.

In 2016, the share of neutral agents in the total sales grew up to 71.7% y-o-y. Streamlined agency

fee costs and a partial migration of sales online drove sales through authorised agents down to

16.7%. Sales through own sales offices accounted for 11.6%.

In 2016, we launched a new incentive programme for agents in Russia, which helped cut our

agency fee costs in Russia by more than two times.

6 In this section of the Annual Report the Group’s sales include revenue of Aeroflot airline and subsidiary flights

under 100% commercial management.

44,8% 39,3%

29,8%30,3%

24,0% 29,2%

1,4% 1,2%

2015 2016

Колл-центр

Интернет-продажи

Продажи за рубежом

Продажи на территории России

67,1% 63,3%

24,0% 29,2%

7,5% 6,3%1,4% 1,2%

2015 2016

Колл-центр

Офисы собственных продаж

Интернет-продажи

Агентские продажи

Split by region, Moscow (60.4%), St Petersburg and the Russian Far East accounted for the

largest share in Aeroflot Group’s sales in 2016. Breakdown of Aeroflot Group’s domestic revenue

Breakdown of Aeroflot Group’s domestic revenue

(excluding Moscow)

Agents and own sales offices in Moscow

Agents and representative offices in regions

St Petersburg

Vladivostok

Yuzhno-Sakhalinsk

Khabarovsk

Novosibirsk

Kaliningrad

Other cities

Aeroflot Group’s domestic sales by channel

Own sales offices

Authorised agents

Neutral sales systems

International Sales:

International ticket sales of the Aeroflot Group are carried out through the network of agents

within BSP and ARC settlement systems, authorised agents (under direct agency agreements),

sales offices, Aeroflot airline’s website, and the call centre.

In 2016, sales through the network of agents in neutral sales system (BSP, ARC, TCH) accounted

for 87.4%. Sales through authorised agents totalled 6.7%, and sales through own offices

accounted for 5.9%.

60,4%

39,6%

Москва (агенты +

собственные офисы

продаж)

Регионы (агенты +

представительства)

30,4%

11,8%

7,2%

5,3%4,5%

4,3%

36,5%

Санкт-Петербург

Владивосток

Хабаровск

Южно-Сахалинск

Калининград

Новосибирск

Другие города

64,4% 71,7%

24,1% 16,7%

11,5% 11,6%

2015 2016


Официальные агенты

Нейтральные системы продаж

Throughout the year, Aeroflot Group has introduced several initiatives aimed at strengthening

relations with the international agency network by optimising agency terms, offering special rates

to sales agents, and leading joint marketing campaigns.

In 2016, the highest international sales were generated in Europe (46.1%). Aeroflot Group’s international sales by channel

Breakdown of Aeroflot Group’s revenue from

international sales in 2016

Authorised agents

Own sales offices

Neutral sales systems

Europe

Asia

America

CIS

Middle East

Corporate Sales Aeroflot Group is actively enhancing its corporate sales. Aeroflot’s corporate customers include a

variety of fuel and energy, finance, pharmaceutical, retail, food, and construction companies. Our

well-balanced mix of industries ensures sustainability of the corporate sales segment.

Aeroflot Group’s corporate sales priorities include:

global companies maintaining representative offices or business projects in Russia or the CIS;

major international or regional Russian companies;

state-funded institutions.

Aeroflot’s sales force meet with key market players, identify opportunities, work out partnership

terms and conditions, and sign contracts with promising companies.

Pricing Policy

Aeroflot’s pricing strategy primarily seeks to develop and maintain a sophisticated schedule of

fares and fare rules, serving as a sales management tool to maximise revenue. The pricing policy

takes into account both the price factor and the load factor, which is supposed to ensure profitable

operations throughout the network. Aeroflot’s pricing policy is tailored to the chosen market and

Aeroflot’s positioning objectives. Fares are based on changes in competition on the market;

demand fluctuations; seasonal changes in capacity driven by flight frequencies, type of aircraft

operated on the route and quality of connections; FX fluctuations; fuel prices; political and

economic environment. Aeroflot’s fare schedule and fare rules are designed to encourage the use

of all fare groups taking into consideration passenger segments.

Our Sabre and Sabre-based IT tools enable maximization of revenue and include a number of

software packages providing for seat inventory and pricing management.

2016 saw carriers actively migrating from a simple fare schedule to fare brands, i.e. the model

that uses 3–4 fare groups differentiated not only by fare rules but also by the set of value-added

services and privileges. Starting from November 2016, Aeroflot has applied a fully branded fare

84,8%87,4%

8,4%6,7%

6,8% 5,9%

2015 2016


Официальные агенты

Нейтральные системы продаж

46,1%

25,7%

11,7%

9,4%7,0%

Европа

Азия

Америка

СНГ

Ближний и

Средний Восток

schedule offering two fare groups in the Business and Comfort Classes (Classic and Flex) and

four fare groups in the Economy Class (Promo, Saver, Classic, Flex). Price differences between

the fare groups were reduced to provide free access to value-added services and privileges.

3.5. Aircraft Maintenance and Repair Stations

Aeroflot Group has an efficient aircraft maintenance, repair and overhaul (MRO) system that

enables to service the fleet of Aeroflot airline and subsidiaries as well as provide services to third

party customers. MRO operations focus on keeping the fleet in good condition, and ensuring high

reliability, flight safety and on-time performance.

The maintenance and repair policy of Aeroflot Group’s airlines provides for strict compliance

with the requirements of countries of registration, maintenance programmes and aircraft lease

agreements. It is focused on enhancing capacity and technical competencies, rolling out cutting

edge technological solutions, and employee training and development, while constantly

improving performance.

Each of the Group’s companies has departments responsible for airworthiness and maintenance

of operated aircraft. The airlines also cooperate with one another under signed agreements.

Aeroflot Group has in place a strategic programme to centralise maintenance of aircraft and

aircraft components. The centralisation provides for separating base and line maintenance.

In late 2015, as part of its strategy, the Group established LLC A-Technics, its new aircraft

maintenance and repair subsidiary, based at Vnukovo airport and in Orenburg. In 2016, the

company was certified by EASA and launched its operations. Aeroflot Group’s MRO facilities

487 employees

Hangars Headcount (2016) Amount of work

> 3,500 employees > 3,350,000 man-hours

361 employees

Yuzhno-Sakhalinsk

Vladivostok

2,060 employees

138 employees 469 employees

Wide-body hangar Narrow-body hangar

Note: Aurora’s hangar in Yuzhno-Sakhalinsk is designed for repair and maintenance of turboprops only.

Orenburg

Moscow

St. Petersburg

Maintenance facilities at airports and types of maintenance

Airport and location Company Line maintenance Base maintenance

Sheremetyevo

airport (Moscow) Aeroflot

Airbus A330, А320 Family,

Boeing 777, Boeing 737-

800 NG, and Sukhoi

Superjet RRJ-95

А320 Family, A330,

Boeing 737-800 NG, and

Sukhoi Superjet RRJ-95

Vnukovo airport (Moscow) A-Technics Boeing 737, Boeing 747,

Boeing 777

Boeing 737, Boeing 747,

Boeing 777

Pulkovo

airport (Saint Petersburg) Rossiya Airbus A320 Family Airbus A320 Family

Orenburg

airport (Orenburg) A-Technics Boeing 737 Boeing 737

Vladivostok

airport (Vladivostok) Aurora

DHC-6-400, DHC-8-200/300,

and А319 N/A

Yuzhno-Sakhalinsk

airport (Yuzhno-

Sakhalinsk)

Aurora DHC-6-400, DHC-8-200/300

and А319 N/A

As at the end of 2016, PJSC Aeroflot included the following divisions related to aircraft

maintenance and repair:

Repair and maintenance divisions at PJSC Aeroflot

Aircraft Maintenance

Department Airworthiness Department Quality Assurance Department

Maintenance of aircraft of

Aeroflot and other Group

airlines.

Maintains airworthiness of aircraft operated

by Aeroflot airline, manages technical

condition of the fleet throughout the entire

aircraft life cycle, develops and implements

PJSC Aeroflot’s strategy and policy

covering aircraft operation.

Develops a quality management

system for aircraft maintenance

and airworthiness.

PJSC Aeroflot holds and maintains certificates issued by European, Bermudian, and Russian

aviation authorities for maintaining airworthiness of the following types of aircraft and

components:

A320 Family (line maintenance, A-check, C-check, 6YE check);

B-737 (line maintenance, base maintenance);

A330 (line maintenance, A-check, C-check);

B-777 (line maintenance);

RRJ-95B (line maintenance, base maintenance).

In 2016, Aeroflot provided aircraft maintenance and repair services to 26 airlines, and provided

technical assistance to 46 airport operators and aircraft maintenance companies.

Aeroflot Group partners with leading maintenance and repair market players, which enables it to

keep the fleet in good condition and optimise costs. The Group’s partners are: Volga Dnepr

Technics Moscow (line maintenance, Boeing 737-800NG), STARCO (Airbus A330), Boeing

Shanghai (Boeing 777), and S7 Engineering (Airbus A320 and Boeing 737-800NG).

Aeroflot Group continues cooperate with Lufthansa Technik AG for have maintenance of

Group’s aircraft.

In 2016, the Group approved its MRO Strategy until 2021, to increase insourced and decrease

outsourced services, and to centralise its repair and maintenance operations. In particular, the

Strategy provides for:

constructing Hangar 4 at Sheremetyevo airport to perform base maintenance of Boeing 777-

300ERs;

introducing new types of maintenance and repair operations;

carrying out C-checks of frames and further expanding the range of services offered by A-

Technics;

developing component repair capacities and expertise;

creating a single Big Data analytics facility driven by predictive maintenance principles;

setting up a targeted framework of providers of maintenance stations.

Take-offs serviced at Sheremetyevo airport,

thousand

Labour intensity per flight hour of Aeroflot airline

aircraft, man-hour

3.6. Flight Safety and Aviation Security

Flight safety and aviation security have always been a top priority for Aeroflot Group. The Group

airlines have an integrated management system for flight safety and aviation security to ensure

compliance with IOSA international standards and the Federal Aviation Rules of the Russian

Federation.

Flight Safety

The Company regularly performs risk analysis and successfully passes audits for compliance with

Russian and international safety regulations. The safety level of Aeroflot flights in 2016 was

99.975%, exceeding the 99.957% target set for the reporting period and staying comfortably

within the 99.900%–100% top range. Flight safety level of Aeroflot airline, %

SAFA ratio of Aeroflot airline

74,083,7

91,8103,2

109,5

2012 2013 2014 2015 2016

3,032,65

2,44 2,39 2,36

2012 2013 2014 2015 2016

99,965

99,961

99,972

99,978

99,975

2012 2013 2014 2015 2016

0,750,85

0,64

0,21

0,45

2012 2013 2014 2015 2016

Граница «черного списка» SAFA Ratio >2

Blacklist line

SAFA Ratio >2

In 2016, the airline was audited for compliance with IOSA’s ORG (SMS) section and ISAGO’s

ORM-HS (SMS) section. Following the audit, a Corrective and Preventive Action Plan was

developed.

In line with the external audit plan, 2016 saw regular inspections of airport refuelling facilities by

the IATA Fuel Quality Pool (IFQP).

In 2016, as part of the Safety Assessment of Foreign Aircraft (SAFA) Programme, the European

Civil Aviation Conference (ECAC) state inspectors carried out scheduled inspections of Aeroflot

airline’s aircraft. For fleet safety inspections, the SAFA Programme has set up a safety ratio with

the standard value of ≤ 2. In 2016, Aeroflot airline’s aircraft demonstrated a strong SAFA safety

ratio of 0.45. The Company’s aircraft were recognised to be in full compliance with all the

applicable safety regulations.

In 2016, Aeroflot continued to develop its IT infrastructure supporting the flight safety

management system. The Company’s intranet website features a voluntary reporting system for

flight safety issues encouraging active employee involvement. The airline also continued to

develop its Air Accident Database, which helps to identify and minimise safety risks.

Aviation and Transportation Security

Aeroflot cooperates closely with airport security services, airlines, and law enforcement

authorities to implement an action plan to maintain a high level of aviation and transportation

security, passenger and staff safety.

In 2016, the Company continued to successfully operate its Automated Aviation Security

Management System (AA SEMS), introduced in 2015. This system helps assess the actual status

of the security system and monitor its compliance with standards provided for by the airline’s

Security Programme, recommended ICAO and IATA standards, and laws of destination airport

countries.

PJSC Aeroflot passes regular audits for compliance with international safety regulations. In 2016,

it successfully passed an audit for compliance with the US Transportation Security

Administration requirements and the АСС3 (Air Cargo or Mail Carrier operating into the Union

from a Third Country Airport) validation procedure carried out by an EU validator. Following the

audit, the EU validator noted Aeroflot’s high level of all stages of cargo and mail handling

operations and the unique and content-rich nature of the new Aeroflot – Russian Airlines АСС3

Security Programme.

In 2016, Aeroflot airline’s experts were actively involved in improving the Russian aviation and

transportation security legislation. As proposed by PJSC Aeroflot, the Russian Ministry of

Transport amended its regulations covering transfer baggage, cargo and mail safety in Russian

airports. As part of a working group set up by the Russian Ministry of Transport, the Company’s

representatives contributed to the development of a new version of the Ministry’s decree on the

procedure for air carriage of weapons. Aeroflot also continued to collaborate with its SkyTeam

partners on aviation security matters. In June 2016, Aeroflot specialists attended a scheduled

meeting of SkyTeam Aviation Security Functional Experts (ASFE).

Canine Team

In 2016, the Company continued to develop its canine service. Aeroflot’s integrated canine

service is a biotech-based security solution, which ensures consistent and regular inspections of

the airline’s infrastructure and vehicles. The Company’s ensures olfactory monitoring of

Sheremetyevo airport facilities to detect explosives and explosive devices. Aeroflot’s experience

of using specially-trained dogs as extra safety measures is completely unique in many respects

and is of interest to the entire air transportation industry.

Interaction with Subsidiary Airlines

Aeroflot Group companies maintain an ongoing security information sharing. As part of its multi-

brand strategy, the Group will seek further integration of its subsidiary airlines in this area. In

particular, the Group plans to create a shared information space to monitor the progress of

aviation security efforts, and trace the security status across its base airports and route network.

All necessary information will be available from the planned information system, which will be

as sophisticated as the one currently used by PJSC Aeroflot.

3.7. Customer Service and Brand Management

Customer Service and Brand Management

In 2016, the Company continued to consistently improve service quality and promote the

Aeroflot brand in the Russian and global markets. In the reporting period, Aeroflot launched a

series of advertising and marketing campaigns, ran programmes to boost demand for and provide

informational support to new domestic and international services, and delivered a number of

media projects involving a variety of promotional channels and tools. Important brand building

tools include service quality improvement, the loyalty programme and sponsorship programmes.

In 2016, Aeroflot became the first Russian company to be awarded 4-Star Airline status by

Skytrax for quality of customer service, and for the fifth time won the SkyTrax World Airline

Award as the Best Airline in Eastern Europe (the airline also won the award in 2011, 2013, 2014,

and 2015).

According to Brand Finance research, Aeroflot is the strongest brand among the world’s largest

airlines. The brand strength indicator relies on marketing research data along with benchmarking

of financial results and measurements of overall potential versus peers. Our extraordinary brand

strength provides a compelling indication of its sustainability and growth outlook, and testifies to

the success of the Company’s marketing efforts. The Aeroflot brand was valued at

USD 1.27 billion as at 31 December 2016, placing it among Top 30 airlines by value.

During 2016, we rolled out a number of advertising campaigns in more than 30 countries,

including the EU, USA, Japan, India, CIS countries and etc. These campaigns were designed to

improve sales of direct flights to Moscow, connecting flights between Europe and Asia,

connecting flights to Russian destinations, as well as promote individual services and options. In

2016, the Company placed particular focus on raising the brand profile in our priority Asian

markets, including China and South Korea, to boost demand for connecting flights between Asia

to Europe. In addition, we took efforts to promote the Group’s products and services among the

professional community.

In 2016, Aeroflot airline took part in the Moscow International Festival “Circle of Light”,

organised and ran a successful New Year Travel light show in major Russian cities

(Saint Petersburg, Novosibirsk, Yekaterinburg, Kazan, and Samara) and in Astana, Kazakhstan.

As part of activities to establish a united regional carrier under the Rossiya brand, we undertook a

rebranding exercise to build on the valuable legacy of the previous logo and add some new,

modern attributes. The launch of the new airline brand was supported by an advertising campaign

in Russia in TV, outdoor, press, and web advertising channels.

Improving Customer Experience Aeroflot Group continuously strives to improve customer experience as a strong competitive

advantage to secure its leadership in the future. In 2016, the Group’s companies continued to

improve their products and services focusing on a wider use of information technologies.

Key Achievements in Customer Experience in 2016

In-flight services

carry-on electronic devices are now permitted for use in Flight Mode during the entire

flight when flying with the Group’s airlines;

menus for all travel classes were improved, including based on the results of a

crowdsourcing-based poll;

Asian national cuisine dish sets were included on the in-flight menus on flights to China,

Korea, Thailand, Vietnam, and Japan;

new (halal) meals were introduced;

amenity kits on flights lasting more than three hours were expanded and upgraded;

selection of printed matter in English was expanded on a number of routes;

in-flight magazine for children, “Aeroflot. The Young Traveller” was introduced.

Online services

a new fare schedule was launched on the Company’s website, mobile website and mobile

apps;

first wave of the E-Commerce Platform project was launched, its functionality including

purchasing of health and flight insurance policies, Aeroexpress tickets and car rent;

delayed baggage tracing service was launched, enabling passengers to trace lost baggage

online through the World Tracer system;

open for Check-in service was launched to inform passengers via text messages that their

flight is open for online check-in on the Company’s website www.aeroflot.ru;

international and national passports can now be scanned at the time of ticket purchase

using a mobile app on iOS (including iPad) or Android platforms;

Aeroflot website is now available in eight foreign languages (English, German, French,

Italian, Spanish, Chinese, Korean, and Japanese);

online sales of government-sponsored / subsidised transport services were launched;

all Aeroflot website sections are now accessible to customers with disabilities;

Rossiya airline’s new website was launched;

updated English version of Aurora airline’s website was launched.

Contact Centre services

additional Contact Centre platform was launched in Volgograd;

Web Callback service was introduced in the eight languages used on the Company’s

website www.aeroflot.ru;

Short Number *555 service was launched for calls to the Contact Centre, enabling

customers to obtain full information about the Company’s products and services, as well

as book and purchase air tickets. The number is toll free and available for calls throughout

Russia for customers of the Big 3 mobile operators – Beeline, MegaFon, and MTS;

an extra line was launched for calls from a toll free number in Korea in the Korean

language.

Airport services

coverage and stability of free Wi-Fi service (125 Wi-Fi access points, with a speed of up

to 100 Mbps) was improved, and additional panel charges for electronic devices were

installed at Sheremetyevo airport;

new electronic scales for hand luggage were installed at boarding gates.

Aeroflot Bonus

Aeroflot Bonus is the largest frequent flyer programme in Russia, CIS and Eastern Europe. In

2016, the number of programme members increased by 15% y-o-y to 5.9 million people, with a

frequent Aeroflot Bonus flyer (defined as a passenger who travelled within 24 months) averaging

6.2 flights.

Aeroflot Bonus offers its members an opportunity to earn free miles when flying with Aeroflot

Group and SkyTeam Alliance or using partner services around the globe.

http://www.aeroflot.ru/

Aeroflot Bonus members, million Aeroflot Bonus partners

Airlines

Banks

Hotels

Car rentals

Car dealers

Restaurants

Appliances and electronics

Food and beverages

Fashion and accessories

Health and beauty

In 2016, 48 new partners joined the programme. The total number of Aeroflot Bonus partners

reached 97, of which 78 are not involved in the aviation business. The partners include airlines,

banks, hotels, and restaurants.

During the year, we implemented a number of initiatives to improve customer service, namely:

added online mile earning function available to Aeroflot Bonus members;

piloted mile redemptions for travel class upgrades on one-way routes;

launched a Feedback service available from personal accounts of Aeroflot Bonus members with

an extended functionality to view previous requests and track processing time and status;

provided broader opportunities for members to earn and use bonus miles to pay for goods, work

or services of partners not involved in the aviation business and significantly expanded the range

of goods and services offered in our Rewards Catalogue on www.rewards.aeroflot.ru, which can

be paid for with miles.

Corporate Sponsorship

PJSC Aeroflot continues its traditional sponsorship support to multiple sports, culture, business

and other social projects, initiatives, and organisations.

Aeroflot’s sponsorship efforts are focused on:

promoting Russian sports and providing support to Russian sports organisations;

supporting cultural organisations in their efforts to promote Russian culture abroad.

In 2016, PJSC Aeroflot allocated a total of RUB 2.1 billion for sponsorship support (2015:

RUB 1.9 billion).

3,4

4,04,6

5,1

5,9

2012 2013 2014 2015 2016

http://www.rewards.aeroflot.ru/

Breakdown of PJSC Aeroflot’s spending

on sponsorship programmes, 2016

Football-related projects

Other sports initiatives

Cultural projects

Cultural projects

In 2016, the Company continued to support ROSKINO film production company in holding

events to promote Russian cinema at international film festivals in Berlin, Cannes, Venice,

Toronto, London, and Los Angeles. Aeroflot provided support to a number of cultural initiatives

run by the Centre of Film Festivals and International Programmes, which, during the year, held a

series of Russian cinema and art festivals in Venice, Rome, Milan, Nice, and Cannes. As part of

the Russian Cinema Year, the Company named some of its new aircraft after prominent Russian

film directors.

In the reporting year, Aeroflot partnered with THREE T PRODUCTIONS to release a remake of

legendary Soviet movie “Flight Crew”, with KVN competition series, and was a partner for the

Golden Mask, National Theatre Award and Performing Arts Festival, and The Golden

Gramophone, Russian national music award.

In 2016, Aeroflot became a General Partner of the 6th Moscow International Festival “Circle of

Light”, Grebnoy Kanal site. The spectacular multimedia show with the largest ever video

projection as the central attraction, took the viewers on a virtual tour of Russian cities.

Aeroflot and its subsidiaries have a strong track record of running awareness-raising campaigns

to draw public attention to the importance of conservation of the Amur tiger and Far Eastern

leopard. The company partnered with the Amur Tiger Centre to create animal images to be used

for livery design for some of Rossiya airline’s aircraft. In addition, in late 2016, Aeroflot

launched its in-flight magazine for children, “Aeroflot. The Young Traveller”, featuring the

Amur tiger and Far Eastern leopard as its main characters. The magazine aims to both entertain

children during the flight and promote a responsible attitude towards Nature among the younger

generation.

Support for sports

Traditionally, sports have been placed high on the airline’s sponsorship agenda. Aeroflot actively

promotes its own sport teams and supports the world’s largest international sports events.

In 2016, the Company continued to provide sponsorship support to CSKA Professional Football

Club, with which it has a long-standing partnership. Through a wide range of marketing and

advertising tools, Aeroflot has access to a multi-million audience of football fans.

To raise the levels of brand recognition and boost Aeroflot’s profile as a premium carrier in the

global market, in 2013 the airline entered into a partnership agreement with Manchester United

FC. In 2016, Aeroflot held a number of marketing events, including a sponsored match and

training session for its partners at Old Trafford Stadium in Manchester, UK, an online project

with Ctrip, China’s largest tourist agency, and an online GeoQuest. The events sought to increase

12,5%

63,8%

23,7% Проекты в сфере культуры

Футбольные проекты

Прочие спортивные проекты

awareness of the Aeroflot brand in the Company’s key markets, promote the airline’s route

network linking Asia and Europe, and enhance the brand loyalty among the target groups.

Aeroflot airline has been a General Partner of the Olympic and Paralympic Committees of Russia

since 2010. In 2016, it continued providing support to the committees in its role as the carrier of

their delegations.

As a partner of the Russian Volleyball Federation and the Russian Football Union, Aeroflot

provides support for the participation of Russian national teams in international competitions. In

2016, the Company’s sports sponsorship portfolio grew substantially as it launched partnerships

with the Russian Basketball Federation, Russian Cycling Federation, and the Russian Federation

of Acrobatic Rock’n’Roll. In addition, we resumed partnership with the Russian Golf

Association, thus securing access to the closed community of golf lovers.

In conjunction with the Russian Chess Federation and the Association of Chess Federations, the

Company held Aeroflot OPEN 2016 international chess tournament, which over the years of its

existence has gained immense popularity among international chess players.

In 2016, Aeroflot also provided support to Otradnoe show jumping club, which hosted a Show

Jumping World Cup stage.

Marketing Research

In 2016, we conducted a number of marketing surveys, including:

assessment of the Net Promoter Score (NPS) with Bain & Company. NPS has demonstrated an

upward trend year after year. In 2016, NPS remained strong at 72%.

Aeroflot airline’s NPS index

survey of compliance with customer service standards carried out in association with Romir

Monitoring Standard as mystery passenger audit. Over the past two years, the project’s results

have shown a sustainably high level of compliance at 93%;

assessment of compliance with international customer service standards based on the airline star

rating from SkyTrax, UK’s independent rating agency. Following flight audits by SkyTrax

experts, Aeroflot airline was awarded a 4-Star Airline status, achieving the levels of the world’s

top airlines;

assessment of customer satisfaction with Aeroflot airline’s products on the markets of Europe,

Middle East, and Asia in cooperation with IATA in its Airs@t customer satisfaction survey, as

well as in joint SkyTeam Customer Experience Research project covering all member airlines.

As part of the efforts to update Aeroflot’s marketing strategy for the Russian and CIS markets,

we ran a major questionnaire survey, carried out passenger segmentation, analysed consumer

trends, analysed competition, and polled over 10,000 current and potential customers. The survey

results were used as inputs to develop a set of marketing initiatives. The Aeroflot brand

performance in the Russian market improved year-on-year across key metrics: passenger

retention and repurchase intention are the highest across the peer group. The Aeroflot brand

stands out for its high score on willingness to recommend and shows the highest score on the

service performance expectations metric.

In the reporting year, we surveyed the perceptions of and attitudes to key elements of Aeroflot

airline’s image among our target customer audience in China (respondents were shown a video

56% 58% 67%

72% 72%

2012 2013 2014 2015 2016

ad, the logo, and the slogan). The results were used to inform a communications strategy for this

market.

The Company also led a major marketing study to research the brand health in China, South

Korea, Germany, Italy, and the UK.

3.8. Information Technology and Innovation

Innovation-Driven Development

As the industry’s leader in Russia and a major European airline, Aeroflot seeks to set standards in

technological advancement and innovation. The Company is focused on continuously driving

innovations across its operations.

Innovative Development Programme 2020 (the “Programme”), approved by Aeroflot’s Board of

Directors on 24 June 2011 (Minutes No. 16) and by the working group on Private-Public

Partnership in Innovation under the Government Commission on High Technologies and

Innovation on 28 June 2011, defines the key focus areas of the Company’s innovative

development. In 2016, the Programme was updated and extended to 2025.

The Programme’s goals and KPIs reflect long-term development vision for the Russian and

international air transport industries, as well as the innovative profile of Aeroflot and its

subsidiaries, and the goals and KPIs of the Long-Term Development Programme, Strategy and

Investment Programme of the Company.

Summary of Aeroflot Group’s Innovative Development Programme

Programme’s

purpose

support the implementation of Aeroflot Group’s strategy and gain

technology leadership in the global aviation industry

Key focal areas

improve flight safety

build an integrated security and anti-terrorist system

improve operational efficiency and promote resource saving

automate operating processes

Key Performance

Indicators (KPIs)

reduced costs of product with improved marketability

energy savings

reduce environmental footprint

increased labour productivity

Key initiatives

introduce new types of aircraft

deliver reliable, punctual, accessible, high-quality air services

increase labour productivity

improve operational performance

drive energy efficiency and reduce the environmental footprint

increase the share of Russian-made innovative products used in our

operations

harmonise the route network of Aeroflot Group

expand the application of innovative solutions

Operational and management performance projects account for the bulk of our R&D costs. In

pursuing its Innovative Development Programme, Aeroflot engages third parties, including

universities and SMEs, development centres and technology platforms.

R&D costs by segment

R&D costs by researcher

Operations

Management

In-flight service

Commerce

Safety and security

Environment and energy saving

Universities

Research organisations

SMEs

Key innovative projects in operations in 2016

New data centre

Aeroflot and IT company Technoserv completed a new data

centre based on equipment supplied by Hewlett Packard

Enterprise. The new backup DC boosted the capacity of the

Company’s primary data centre by two and a half times to

c. 110 racks. The Company’s data centres accommodate

hardware and software platforms (computing resources, data

storage systems) to support the operation of all corporate

IT systems, including data storage, processing and transfer.

Expansion of data centre capacity will enable the Company to

introduce and roll-out new IT solutions and services to support

our rapidly growing business, larger fleet and higher traffic.

Development and deployment

of a pilot version of an

integrated information

security system at Aeroflot

Aeroflot is focused on the development and trial deployment of

a pilot version of an integrated information security system to

structure, streamline, and automate its processes and

procedures. This solution provides anti-virus protection and

protection against data leaks, prevents DDOS attacks and

supports risk management.

Construction of a new

advanced hangar facility

The new hangar facility for repair and maintenance of

Boeing 777 type aircraft is completely unique for Russia. Once

completed, it will streamline maintenance processes and

improve efficiency by reducing open-air maintenance of

Boeing 777 type aircraft.

Development and launch of

domestic multi-purpose de-

icing fluid

The Company is involved in an R&D project to develop a de-

icing fluid, implemented by Kazan National Research

Technological University. The research project aims to reduce

30%

32%

16%

10%

9% 3%

производственная деятельность

управление

сервис на борту

коммерческая деятельность

безопасность

экология и энергосбережение

37%

5%

58%

высшие учебные заведения

научные организации

малые и средние

инновационные предприятия

reliance on imported de-icing fluids. Among other priorities,

the researchers focus on making the product environmentally

safe.

Development of a pilot

hardware and software

package for measurement and

integral analysis of a sniffer

dog’s physiological responses

to objectivise dog inspection

results

The solution will be used by the canine service to improve

security and prevent emergencies. It will serve to maximise

efficient interaction between the security system’s biological

and technical components in detecting various substances.

Introduction of remote work

management

The Company has designed a methodology to remotely

organise and administer activities of Aeroflot’s staff. Remote

management of certain tasks will decrease our operating

expenses and increase staff mobility.

Information Technology

In 2016, Aeroflot continued implementing a broad range of programmes to roll out advanced

IT solutions across all areas of its activities. Digitalisation drives wider application of advanced

digital technologies and, as such, has become a key avenue of development for the entire Group.

IT projects are pursued as part of Aeroflot’s Innovative Development Programme, which

provides for building a shared information space across the Group through a number of

initiatives, including:

unification and integration of IT systems across the Group’s airlines;

roll-out of uniform operations-related IT solutions;

automation of route network and fleet management;

development of a single ticket sales system for all flights operated by the Group airlines;

development of a single system for aviation fuel procurement;

roll-out of effective IT solutions to support in-flight and airport passenger service.

Key IT projects in 2016 Website and mobile applications

Further enhancement of the mobile

application for passengers

In 2016, Aeroflot continued to further enhance its proprietary mobile

application for passengers, seeking to provide an even better user experience.

E.g. the Company added a feature that scans and saves travelling passport data

in the app. It also added functionality to save personal data of travel

companions for easier booking, purchases via Apple Pay, and push

notifications updating passengers on their flights. The application also

generates tailored offers for passengers using iBeacons to boost sales.

Website enhancement to assist air

travellers with disabilities

Aeroflot’s website has been enhanced to make it accessible to disabled

travellers in line with the requirements of the United States Department of

Transportation.

Region-specific website

customisation

The website customisation function offers users a localised version depending

on the country of login to make it more user-friendly.

Modification of the Content

Management System (CMS)

CMS modification aims to expand content customisation capabilities and

speed up the updating of websites in different languages.

New booking system

As part of our project to shift to a new pricing policy, we have introduced a

new booking system to automate sales in online channels. The new online

booking system is designed to enable passengers to book air tickets via the

airline’s primary and mobile websites. The system is a 100% proprietary

solution, interfaced with Sabre via web services. With this system in place, the

Company can now quickly and more flexibly adapt and respond to user

requirements.

Fraud monitoring module

A new system designed to create and manage rules and filters of the fraud

monitoring module within the payment gateway enables more effective checks

of suspicious activity related to online sales of air tickets.

Information security

Development of a personal data In order to protect personal data in accordance with applicable laws, Aeroflot

protection system for the

Company’s website and

Sabre IX platform

has put in place a project to simulate information security threats to users of

Aeroflot.ru website and Sabre IX. Measures to address existing IT threats to

these systems were developed, and Aeroflot intends to subsequently extend

them to other systems of the Group. The project is scheduled for completion

by late 2017.

Safe Key

The Safe Key protocol will enable Aeroflot to accept payments made with

American Express cards via its official website more securely. As a result, the

Group will reduce its financial losses caused by fraudulent online purchases of

air tickets.

Improved sales process

Building an integrated airline

retailing environment under the

NDC programme

Aeroflot has started building an integrated air retailing environment in

accordance with IATA’s NDC (New Distribution Capability) standards. The

concept of unified distribution environment is driven by an innovative

approach to adopting common standards of access to the airline’s systems via

all potential retailing channels. The airline will be able to identify the end

buyer that has requested the product and generate a tailored personalised offer,

which will dramatically improve loyalty among agencies and passengers. The

project is scheduled for completion by late 2017.

Big data enabled dynamic

segmentation

In 2016, we designed and launched a big data enabled dynamic segmentation

IT system. The new system uses data processing, machine learning and

simulation to boost the inflow of customers.

In-flight innovation

Internet On-Board project

In 2016, we launched in-flight Wi-Fi service on two new Boeing 777s.

Software was upgraded on twenty-two A330s. New time-based tariffs and no-

voice GSM services are now offered on all of Aeroflot’s wide-body aircraft.

SITA CrewTablet mobile app for

flight attendants

In 2016, Aeroflot continued to implement a project to equip flight attendants

with CrewTablet tablet-based applications. This mobile application designed

by SITA enables crew members to use their tablets to quickly and easily

access all passenger and operational data to enhance in-flight services to

customers. Another 700 tablets were distributed under the programme in

2016.

Company management

Manager Dashboard

Manager Dashboard is a unique patented IT system developed by Aeroflot for

desktop PCs and tablets to track consolidated data from all operational and

commercial systems operated by the airline.

The solution provides the management with online access to up-to-date

information on any out of the 427 indicators used to give a snapshot view of

the airline’s business activity.

3.9. Procurement

Procurement activities at Aeroflot Group comply with Federal Law No. 223-FZ On Procurement

of Goods, Works, and Services by Certain Legal Entities dated 18 July 2011, PJSC Aeroflot’s

Regulations on Procurement of Goods, Works, and Services, relevant policies of Aeroflot’s

subsidiaries, and other procurement-related regulations adopted by the Russian Government.

Procurement needs of subsidiaries are met both through a consolidated procurement process by

Aeroflot, and individual subsidiary procedures.

Procurement transparency, no discrimination and unreasonable restrictions, and ability to procure

from a wide pool of quality bidders are top priorities for the Group in its strive to maximise

procurement efficiency and reduce costs.

The procurement process in Aeroflot and its subsidiaries is organised in line with the best

practices, including online bidding. In 2016, the value of Aeroflot’s competitive procurements in

electronic format accounted for 56.36% (50.45% in 2015) of the total, in line with the

requirements of the Federal Agency for State Property Management (Instruction No. GN-13/1206

dated 21 January 2011). For Aeroflot Group, this share totalled 56.31%.

Each bidding procedure averaged at 3.3 bids (+1.1 y-o-y) from potential contractors. This

testifies to complete transparency and competitive nature of Aeroflot’s procurement process, and

a growing interest of potential suppliers.

In 2016, competitive procurements saved RUB 1,732 million for Aeroflot and RUB 2,186 million

for the Group.

Item Aeroflot Aeroflot Group

Competitive procurements in electronic format (by value) 56.36% 56.31%

Single source procurements 63.91% 53.44%

Procurements from SMEs 64.96% 59.27%

Average number of bidders 3.30 2.36

Savings through competitive procurements, RUB million 1,732 2,186

Savings through competitive procurement, % 1.25% 0.82%

Fuel Procurement

In 2016, all fuel supply contracts were signed by Aeroflot based on results of bidding processes

won by tenderers who could offer the best financial terms and guarantee required reliability,

including flight safety assurance.

Transparent competitive procedures and formula-based pricing optimise fuel costs, which has

always been a major expense item for the Company. Fuel pricing formulas are devised in the

bidding process. In 2016, the share of fuel procured by Aeroflot Group at formula-based prices in

Russia reached 90%.

Pursuant to the order of the Deputy Prime Minister and paragraph 3 of Meeting Minutes No. IS-

P9-25pr dated 21 November 2011, Aeroflot focuses on direct cooperation with vertically

integrated oil producers through contracts with their subsidiaries specialising in aircraft fuel sales

to avoid an unjustified rise in fuel prices or an artificial supply shortage.

At the Group level, fuel procurement terms are determined by agency agreements. When making

a consolidated order covering the demand of all the Group’s companies, Aeroflot initiates bidding

processes to select suppliers of fuel and related aircraft services.

Aeroflot settles accounts for supplied fuel and aircraft storage and refuelling directly with

counterparties, and supervises separate accounting for transactions with consignees, which allows

to promptly charge controlled entities for the costs incurred.

These arrangements cover virtually the entire fuel needs of subsidiary airlines, excluding a small

number of Russian airports (less than 3%), which are not contracted or alternate airports, as well

as airports where fuel procurement is part of integrated ground handling agreements.

Optimisation of fuel procurement at Aeroflot is supervised by the Fuel Commission.

Procurement from Small and Medium-Sized Enterprises

In 2016, Company’s initiatives to support small business substantially increased supplies from

small and medium-sized enterprises (SMEs). The number of contracts concluded by Aeroflot

with SMEs increased by 85.4% y-o-y, or more than fourfold by value. Aeroflot’s procurements

from SMEs accounted for 64.96% of the Company’s procurement volume. For Aeroflot Group,

this share was 59.27%.

According to Resolution of the Russian Government No. 1352 dated 11 December 2014, annual

procurements from SMEs shall not be less than 18% of the aggregate annual volume of contracts

concluded by customers as a result of the procurement process. Procurement data both for

Aeroflot and the entire Group for 2016 reflect Aeroflot’s focus on SMEs as priority suppliers

(subject to specific business profiles).

In 2016, Aeroflot signed an agreement with JSC RSMB Corporation promoting cooperation of

the parties to ensure access for SMEs to procurements of goods, works, and services. A

representative of JSC RSMB Corporation is a member of the Advisory Board in charge of

independent audit of Aeroflot’s procurement efficiency.

In the reporting year, the Company implemented a number of initiatives to ensure accurate

reporting on procurements from SMEs, including optimisation of the list of procurement codes,

updating SAP data to verify counterparties’ SME status, in line with the Unified Register of

Small and Medium-Sized Business Entities effective from 1 August 2016.

The Group is committed to continue supporting SMEs by facilitating their access to corporate

tenders, in accordance with the specifics of SME participation in procurements and the specifics

of civil aviation.

Advisory Board in Charge of Independent Audit of Procurement Efficiency

In its pursuit of procurement transparency, Aeroflot has in place the Advisory Board in charge of

independent audit of procurement efficiency. The Advisory Board includes representatives of

public organisations, academic and industry scientists, and well-known procurement experts.

The Advisory Board:

is responsible for auditing Aeroflot’s procurement operations;

monitors implementation by Aeroflot of measures enhancing access of small and medium-sized

businesses to corporate tenders;

improves efficiency of applied advanced technologies, ensures transparency, and enhances fair

competition in Aeroflot’s procurement processes.

The Advisory Board operates under an action plan approved for each calendar year. Proceedings

of the Advisory Board are published on Aeroflot’s website at:

http://www.aeroflot.ru/cms/content/soveshchatelnyi-organ.

http://www.aeroflot.ru/cms/content/soveshchatelnyi-organ

CORPORATE SOCIAL RESPONSIBILITY

Aeroflot Group conducts its business in a sustainable way, seeking to safeguard the interests of

passengers, employees, shareholders, investors, and other stakeholders. We take a tailored

approach to every target stakeholder group, having developed and implemented group-specific

tools of communication, feedback and engagement.

Aeroflot complies with all applicable HR, health, safety and environmental protection legislation,

striving to meet the highest global standards for corporate social responsibility. As it closely links

its performance with Russia’s overall social and economic development, Aeroflot Group pursues

multiple projects promoting culture and sports, providing support for vulnerable groups, and

preserving the environment.

In 2014, we established PJSC Aeroflot’s Public Council, a consultative and advisory body

consisting of prominent public figures and helping the Company to formulate its policy on key

sustainability issues with due regard for the needs and interests of society. The Public Council

comprises 25 prominent figures of Russian culture, education, healthcare, sports, mass media,

business, industry associations, civil society organisations and human rights groups. The Public

Council members participate to its activities on a pro-bono basis.

The main purpose of the Council is to help PJSC Aeroflot to formulate its position on key aspects

of the Russian airline industry’s development and make recommendations to the Government on

regulation and development of the industry.

The Council held two meetings in 2016, discussing a number of topics, including:

PJSC Aeroflot’s performance, including outcomes of the project to establish a regional carrier

operating under the Rossiya brand;

maintaining and developing a pipeline of talent for the airline industry across the Company’s

geography of operations;

overall social and economic development agenda for the regions in which the Company operates;

the Company’s treatment of disruptive passengers.

4.1. HR Policy

Principles and Areas of the HR Policy Aeroflot Group’s HR policy is designed to attract the best industry talent and ensure their

professional development. The Group has built up and is continuously developing a relationship

framework promoting generation of economic efficiency gains across all business lines. HR

management involves a wide range of programmes helping each employee reach their full

potential, including training, incentive and social support programmes.

In 2016, for the second year in a row, PJSC Aeroflot was named the Best Employer in Transport

and Logistics in Russia by the jury of the prestigious international Randstad Award.

Priority areas of HR policy:

identify and attract candidates to support the current and future business needs;

match the staffing needs of business units with candidates who have the required profession,

specialisation and qualification;

build up the talent pool in line with the Group’s strategic development goals;

retain qualified and highly skilled employees;

conduct employee certifications;

foster and maintain high levels of employee loyalty;

promptly resolve issues at all stages of the HR management process.

Employees of the HR Department of PJSC Aeroflot (the parent company) interact closely with

HR functions of subsidiary airlines across a number of areas, including alignment of

organisational and staff structures, implementation of a single organisational structure, and

deployment of single standards modelled after Aeroflot’s HR function.

In their approach to human rights, Aeroflot Group companies are guided by both Russian and

international laws. Aeroflot Group does not tolerate any form of discrimination or harassment,

with anti-discrimination provisions included in key internal regulations. Aeroflot fully embraces

difference by valuing diversity in race, religion, physical ability, etc. among its employees. No

instances of discrimination or human rights violation were recorded in Aeroflot Group during the

reporting period. The Company has never used and does not tolerate child, compulsory or forced

labour.

Aeroflot Group’s headcount, thousand people

PJSC Aeroflot’s headcount, thousand people

Aeroflot Group’s personnel breakdown by

category, 2016

*Includes pilots-in-command, co-pilots, and other

flight crew members (flight engineers, pilot

instructors, and others).

Aeroflot Group’s personnel breakdown by company,

2016

**JSC Orenair, JSC Donavia, JSC Sherotel,

LLC Aeroflot-Finance.

28,8 30,5 32,2 34,036,6

2012 2013 2014 2015 2016

16,417,9 19,0

20,4 21,6

2012 2013 2014 2015 2016

28,1%

17,9%

12,0%

10,2%

4,9%

14,8%

12,0%

Бортпроводники

Аэропортовые службы

(обслуживание в порту)Персонал технического

обслуживания и ремонтаЛетный состав*

Продажа билетов, услуг и

рекламаПрочий персонал

авиакомпанийПрочий персонал

неавиационных компаний

59,0%19,2%

11,4%

5,7%

1,7%1,5%

1,4%ПАО "Аэрофлот"

АО "Авиакомпания "Россия"

ЗАО "Аэромар"

АО "Авиакомпания "Аврора"

ООО "Авиакомпания

"Победа"ООО "А - Техникс"

Другие компании**

PJSC Aeroflot’s personnel breakdown by

category, 2016

Note: headcount and personnel breakdown as at the year end.

Прочий персонал неавиационных компаний Other personnel of non-airline subsidiaries

Летный состав* Cockpit crew*

Бортпроводники Cabin crew

Персонал технического обслуживания и ремонта MRO staff

Продажа билетов, услуг и реклама Ticket sales and distribution

Аэропортовые службы (обслуживание в порту) Airport services

Прочий персонал авиакомпаний Other personnel of airline subsidiaries

Прочий персонал Other personnel

ПАО «Аэрофлот» PJSC Aeroflot

АО «Авиакомпания «Россия» JSC Rossiya Airlines

ЗАО Аэромар CJSC Aeromar

АО «Авиакомпания «Аврора» JSC Aurora Airlines

ООО «Авиакомпания «Победа» LLC Pobeda Airlines

ООО «А-Техникс» LLC A-Technics

Другие компании** Other companies**

Headcount statistics

As at 31 December 2016, the total headcount of Aeroflot Group was 36,556 employees

(34,031 employees as at 31 December 2015). A growth of 7.4% in the reporting period was

driven by the fleet expansion and implementation of a programme to provide employment to ex-

Transaero airline’s employees – the Group’s companies employed circa 4,300 people.

As at 31 December 2016, the headcount of PJSC Aeroflot was 21,554 employees (20,404 as at

31 December 2015).

Aeroflot is committed to equal opportunity for men and women. Women account for 50.7% of

Aeroflot Group’s total headcount. Specifically, PJSC Aeroflot employs 10,823 women, including

flight attendants, office and maintenance service employees, as well as pilots. As of the end of

2016 21 female pilots were employed by the PJSC Aeroflot, while the total number for the Group

is 23 (vs. 14 and 18 as of the end of 2015 respectively). About 35% of PJSC Aeroflot’s managers

(division head level and higher) are women.

Group also employs foreign pilots to offset pressure on the labour market. As at 31 December

2016, there were 41 non-resident pilots on PJSC Aeroflot’s headcount. Personnel turnover at

PJSC Aeroflot in 2016 was 7.5% (6.7% in 2015).

32,1%

22,7%11,4%

10,9%

7,0%

15,8%

Бортпроводники

Аэропортовые службы

(обслуживание в порту)

Персонал технического

обслуживания и ремонта

Летный состав*

Продажа билетов, услуг

и реклама

Прочий персонал

Gender breakdown of Aeroflot Group’s personnel,

2016

Aeroflot Group’s personnel breakdown by age, 2016

Мужчины Men

Женщины Women

До 29 лет Under 29 years

30—39 лет 30–39 years

40—49 лет 40–49 years

Старше 50 лет 50+ years

PJSC Aeroflot’s personnel breakdown by years

with the Company, 2016

До 1 года Up to 1 year

1—4 года 1–4

5—9 лет 5–9

10—14 лет 10–14

15—19 лет 15–19

20—24 года 20–24

25—29 лет 25–29

30 лет и более 30+

Corporate Culture and Values

Aeroflot has its own distinctive corporate culture, representing a unique combination of

philosophy, values, beliefs, standards, and behaviours that unite Aeroflot Group and are shared

by all employees. Corporate culture supports our business strategy and underpins all

HR management processes.

49,3%50,7%

Мужчины

Женщины

29,1%

27,3%

20,9%

22,7%

до 29 лет

30 – 39 лет

40 – 49 лет

старше 50 лет

11%

35%

20%

8%

8%

8%

5%5% до 1 года

1 – 4 года

5 – 9 лет

10 – 14 лет

15 – 19 лет

20 – 24 лет

25 – 29 лет

30 лет и более

CUSTOMER TRUST

Each airline of our Group guarantees its customers

faultless safety and high quality service at all stages of

air travel.

We strive to exceed the expectations of our customers

and do everything possible to ensure that our customers

come back again and again.

We work hard every day to ensure the highest safety

level.

TEAMWORK

We are a closely-knit team of professionals who cannot

imagine living without the sky.

We are always open to innovation, initiatives and new

knowledge in order to develop and move forward.

We respect our colleagues and are ready to engage in

constructive dialogue in order to achieve results.

We provide a stable work environment with equal

opportunities for learning and personal growth.

RESULTS FOR SHAREHOLDERS

Our goals are to achieve sustainable and dynamic

growth, increase the company’s value and provide stable

income to our shareholders.

We are committed to high standards of corporate

governance and business ethics.

We are a company with transparent reporting and we are

always open to our partners and shareholders.

SOCIAL RESPONSIBILITY

We care about the environment and continuously

improve energy and environmental efficiency, using a

modern and young fleet of aircraft and the most

advanced technology.

We are fully aware of our responsibility to society and

actively participate in socially important and charitable

projects.

We participate actively in the development of the

Russian air transport network and create new jobs in the

regions.

We support and actively participate in the development

of the Russian aircraft manufacturing industry.

Corporate communications

Aeroflot publishes a monthly company newspaper covering, on a regular basis, the most

prominent and exciting corporate events. The My Aeroflot newspaper is a key internal

communication tool, reflecting our engaging corporate culture.

One of the 2016 highlights was the launch of our renewed intranet portal. The renewed intranet is

based on the advanced MS SharePoint platform. The new intranet offers mobile access, a major

improvement over the previous version.

Personnel Training and Development Aeroflot delivers staff training and professional development to ensure that its employees

maintain and develop high specialist skills in line with current requirements of international

standards and the Federal Aviation Rules. In 2016, PJSC Aeroflot arranged for training for almost

30 thousand employees both in-house and externally, across a range of training, retraining,

professional development, and certification programmes.

Employees enrolled in training programmes,

thousand people

Сторонние учебные заведения External training

Департамент подготовки авиационного

персонала

Programmes offered by the Department for

Aviation Personnel Training

Авиашкола Аэрофлота Aeroflot Aviation School’s programmes

Note. Some employees completed more

than one training programme.

In 2016, the Department for Aviation Personnel Training delivered training to nearly

6,000 employees from across engineering, flight operations and ground operations, with students

attending instruction courses in new aircraft types, flight simulator training and other courses. In

2016, over 4,000 employees completed training courses at external educational institutions under

compulsory operations personnel training and other training programmes.

In 2016, Aeroflot was assigned the status of ACCA Approved Employer, confirming compliance

with high standards of training and professional development of finance employees.

Aeroflot Aviation School’s programmes

Aeroflot Aviation School, Aeroflot’s in-house educational institution, is a reliable provider of

vocational training services for airlines, airports, and other companies and entities in the Russian

civil aviation industry. For many years, the School has successfully collaborated with leading

international industry organisations and has accreditations with ICAO, IATA, TCH, Sabre,

Amadeus, SITA, and other industry bodies and organisations; the Aviation School is also

certified for compliance with ISO 9001-2011.

In 2016, the Aviation School trained more than 19 thousand students – employees of the

Company.

Retraining and professional development courses mainly focus on:

ground handling and ground service operations,

flight attendant training,

pilot retraining on new aircraft types,

aviation security,

regulations for hazardous cargo transportation,

foreign languages, etc.

12,317,9

14,1 13,919,2

6,7

5,28,0 11,2

6,03,6

5,84,2

3,3 4,422,6

28,926,3

28,4 29,6

2012 2013 2014 2015 2016

Сторонние учебные заведения

Департамент подготовки авиационного персонала

Авиашкола Аэрофлота

Training platform

As from the end of 2006, the Company uses its own training platform providing training for

cockpit and cabin crew of Aeroflot, subsidiary or third-party airlines in passenger rescue

procedures in case of emergencies on board an aircraft, emergency landing or ditching.

The training platform currently offers 11 types of simulators and mock-ups for emergency

response training, a simulator for real firefighting on board an aircraft, a mezzanine area with

Airbus A320, Boeing 767, and Boeing 737 aircraft stairs to practise emergency evacuation

procedures, and a 24 by 22 metres training swimming pool. In 2016, almost 28 thousand aviation

specialists were trained at the training platform.

Students trained at the

training platform, thousand people

Best in Trade professional skills competition

In 2016, PJSC Aeroflot re-launched the Best in Trade professional skills competition to identify

and reward the best employees and ensure their professional development. The competition was

held in nine professions that are key to Aeroflot: passenger service agent, flight attendant, senior

flight attendant, pilot-in-command, co-pilot, pilot instructor, air ticket sales agent, aircraft

technician, aircraft mechanic, and aircraft mechanic for aircraft frames and engines.

The competition tasks challenged participants to show both theoretical knowledge and practical

skills, demonstrated on simulators and in situations as close to real life as possible. A total of five

business units took part in the competition, and 27 winners were named the best in their trade.

The competitions was widely covered in corporate media and Aeroflot’s official channels on

social networks.

Collaboration with technical schools and universities

For many years, PJSC Aeroflot has been developing successful partnerships with leading industry

technical schools and universities, in particular, by organising internships for students. Based on

the results of such internships, talented young specialists are offered employment opportunities

with the Company. Since 2013, PJSC Aeroflot has been involved in targeted training programme

at the following industry universities:

Saint Petersburg State University of Civil Aviation,

Ulyanovsk Civil Aviation Institute,

Moscow State Technical University of Civil Aviation.

Over this period, 206 students signed educational contracts for targeted training. The first

students enrolled in the programme will graduate in 2017.

18 19,3

21,6 24,1

27,9

0

5

10

15

20

25

30

2012 2013 2014 2015 2016

In addition to the targeted training programme, PJSC Aeroflot cooperates with seven civil

aviation technical schools and universities under the Personal Scholarship project. Mutual

cooperation agreements have been signed with Ulyanovsk Civil Aviation Institute,

Saint Petersburg State University of Civil Aviation, Buguruslan, Sasovo, and Krasny Kut Civil

Aviation Schools, as well as Egorievsk and Kirsanov Civil Aviation Technical Colleges. For the

2016–2017 academic year, 50 personal scholarships of RUB 10 thousand per month have been

allocated. As at 31 December 2016, PJSC Aeroflot employed 63 graduates who received the

scholarship as students.

In 2016, Aeroflot signed an agreement on guaranteed employment of top-grade graduates with

Krasny Kut Civil Aviation School (a branch of Ulyanovsk Civil Aviation Institute). There are

plans to amend the training programme to provide targeted training for students in the types of

aircraft operated by Aeroflot.

Employee Incentive System

PJSC Aeroflot offers competitive remuneration package comprising salary and performance

bonuses. The Company’s remuneration system takes into account position grades, business unit

performance, regional labour market specifics, as well as each employee’s personal contribution.

The Company’s senior management performance assessment is based on key performance

indicators approved by the Board of Directors.

Non-financial motivation tools are widely used in the Company to help recognise employees’

contribution to the Group’s operations and reward high performance.

In 2016, over 1,300 employees of PJSC Aeroflot were recognised with corporate awards,

including three employees awarded the Aeroflot Excellence badge of honour, 523 employees

awarded Certificate of Honour of PJSC Aeroflot, and 99 employees awarded the Operational

Excellence in Aeroflot badge. 57 employees of the Flight Operations Department were awarded

distinctions For Incident-Free Flight Hours.

More than 70 employees received government awards, as well as industry awards of the Russian

Ministry of Transport and other agencies.

Best performers in the Group’s subsidiaries were also celebrated with corporate awards, industry

awards of the Russian Ministry of Transport, and with regional and municipal awards.

Talent Pool

In 2016, to strengthen its talent capabilities and meet PJSC Aeroflot’s need for qualified

personnel to fill vacant and new positions, the Company continued leveraging its management

talent pools at different levels, targeting level 1, 2, and 3 management positions.

In 2016, the lists of employees included in the talent pools were updated and their total number

reached 288. A talent pool for senior management positions was created, its participants passed

an independent assessment, and their key areas of development were identified.

Candidates to management talent pools are selected in accordance with the selection criteria set

forth in the Regulations, focusing on:

higher education in line with the profile of the target position;

at least two years’ employment with the Company;

high level of expertise;

strong performance in the area of expertise;

personal and business potential required for further professional development and career

advancement.

Social Programmes for Company Employees Aeroflot has in place a comprehensive incentive system comprising a wide range of social

programmes that help create a comfortable environment encouraging employees’ professional

and personal development. The Company’s social policy is based on applicable local internal

regulations, including PJSC Aeroflot’s Collective Agreement.

Occupational pension scheme

The Company runs a pension scheme based on joint participation of the employer and the

employee. In 2016, personal contributions of the scheme participants were matched by those of

the airline at the rate of 20%; the corporate programme covered 5,800 employees.

The special Golden Anchor pension plan is in place for pilots-in-command. The airline awards

annual bonuses to the scheme participants’, contributed into personal accounts in the corporate

pension fund.

Upon retirement, the airline complements the state-funded pension of an employee participating

in the private pension scheme with a corporate pension. As at 31 December 2016, corporate

pensions were paid to 4,300 former employees.

The Company runs its private pension scheme in parallel with an incentive scheme to provide

mandatory pension insurance through co-financed contributions to the cumulative part of the

state-paid pensions.

Resort therapy programme for employees and their families

Aeroflot runs a resort therapy programme to improve the health of its employees and their

families. In 2016, 2,300 employees were sent to health resorts. More than 400 children of the

Company’s employees spent time in the Vita children’s holiday camp in Anapa. A health

rehabilitation programme for 450 pilots and flight attendants was set up at health resorts in the

Czech Republic.

Resort therapy programmes are financed using voluntary health insurance coverage and funds

from the budget of the Social Insurance Fund of the Russian Federation. Average employees’

share of contribution does not exceed 10% of the total treatment cost. Employees exposed to

harmful working conditions receive health resort treatment free of charge.

Sports events

The Company regularly organises sports events and celebrations. In 2016, Aeroflot’s sports teams

successfully competed in futsal, volleyball, and table tennis tournaments held as part of the

industry Spartakiad to celebrate the Civil Aviation Day; an ice hockey exhibition game with

Finnair airline’s team; the Crimean Autumn ice hockey tournament for amateurs teams; futsal

and volleyball tournaments for the Aviation Industry Cup; a football exhibition game with the

Administration of the Khimki Urban District. In addition, corporate volleyball and swimming

contests were held.

To improve health and promote wellbeing among the Company’s employees, fitness club

memberships were offered throughout the year.

Housing programme for Aeroflot airline’s crew

In 2016, 47 Aeroflot’s pilots continued to participate in a housing programme, with the Company

subsidising interest payments on employees’ mortgage loans.

Corporate housing

During the year, the airline’s key employees from the regions were provided with company-

owned housing close to Sheremetyevo airport, with 1,500 employees on average benefiting from

the free lease arrangements.

Company vehicles and corporate parking programmes

Company vehicles are used to transport Aeroflot’s employees to work at the Company’s offices

located near Sheremetyevo airport and back. In 2016, around 3,400 people benefited from

company vehicle transportation on a daily basis. An average of 2,200 corporate parking places

were provided to PJSC Aeroflot’s employees every day.

Financial assistance to current and former employees

In 2016, PJSC Aeroflot’s Social Policy Commission provided financial support to 183 current

and former employees in difficult circumstances.

Daycare spending compensation programme for employees’ kids

During 2016, over 1,800 employees of the Company were provided with daycare spending

compensation benefits for their children.

Medical centre

Aeroflot has set up its own medical centre providing healthcare services to current employees and

their families, as well as retired employees of PJSC Aeroflot, including aeromedical assessment

and rehabilitation of cockpit and cabin crew, and pre-flight medical examinations. The medical

centre also participates in the Company’s social programme as regards arranging resort therapy

for employees. In 2016, the medical centre’s polyclinic reported a total of 230 thousand visits.

Number of people registered with the medical centre for healthcare services

Работники ПАО «Аэрофлот» Employees of PJSC Aeroflot

Члены семей Family members

Пенсионеры ПАО «Аэрофлот» Retired employees of PJSC Aeroflot

Коммерческие пациенты Private patients

Staff travel benefits

Aeroflot offers special terms for employees travelling on flights operated by the airline. In

addition, starting from 2006, PJSC Aeroflot has been a member of ZED/MIBA FORUM, a non-

profit organisation uniting over 230 member airlines and regulating the offering of special terms

for employee personal and duty travel.

In 2016, Aeroflot airline renewed its agreements on employees’ personal and business travel with

Air France, Adria Airways, and airBaltic, and reactivated its ZED agreement with Aeromexico;

an agreement on employee travel with Lufthansa came into force. As at the end of 2016, PJSC

Aeroflot cooperated with 60 airlines under employee interline travel agreements, including with

SkyTeam Alliance member airlines.

Throughout 2016, about 15,700 employees of PJSC Aeroflot and their families got tickets for

partners’ flights under agreements on employee personal and duty travel.

Occupational Health and Safety

PJSC Aeroflot’s occupational health and safety system is designed to eliminate occupational

injuries and diseases, promote safe behaviours, develop hazard avoidance skills, and continuously

improve working conditions. PJSC Aeroflot has a certificate confirming its compliance with

regulatory occupational safety requirements. Health and safety aspects are included in the

Collective Agreement.

In 2016, PJSC Aeroflot’s key health and safety performance indicators did not exceed industry

averages for relevant types of business activity7. During the reporting year, there were

19 accidents of varying severity, including two serious accidents. Human factor played a

significant part in all the accidents.

Number of injuries per 1,000 employees of

PJSC Aeroflot, people Lost time incident rate (per injured person) in

PJSC Aeroflot

*Mean value of key indicators by type of business activity.

In 2016, we continued consistent efforts to ensure safe working conditions, with special attention

paid to health and safety training, monitoring the state of health and safety performance and

preventing occupational injuries and diseases. Induction training was provided to 2,000 new

employees. Health and safety trainings run by an accredited training organisation covered

1,600 managers and specialists of business units; and 473 managers and specialists on business

units’ commissions were trained and tested in health and safety.

To prevent occupational diseases, 16,700 people passed regular medical examinations.

As at the end of 2016, in accordance with Federal Law No. 426-FZ On Special Assessment of

Working Conditions, PJSC Aeroflot carried out a special assessment of 5,835 workplaces, of

which 4,249 were found to have acceptable working conditions, and 1,586 were recognised as

having harmful working conditions. Workplaces with harmful working conditions accounted for

27% of the total number of workplaces subject to special assessment of working conditions in

2016. A premium of 4% to 24% to the salary is set for employees exposed to harmful working

conditions.

7 In accordance with Resolution of the Social Insurance Fund of the Russian Federation No. 72 On Approval of

Values for Key Indicators by Type of Business Activity for 2016 dated 26 May 2015.

1,65 1,56

1,15 1,03 0,99

0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

1,8

2012

2013

2014

2015

2016

22,2

29,73

46,6

21,2

36,9

0

10

20

30

40

50

2012

2013

2014

2015

2016

5

0

.

0

9

*

Number of workplaces subject to special

assessment of working conditions

4.2. Charity and Community Initiatives

Aeroflot Group strives to contribute to society, focusing mostly on support for vulnerable social

groups. Aeroflot supports charities and a vast number of socially important initiatives.

The Company sees support for children and war veterans as priorities for its charitable efforts. In

the reporting period, Aeroflot also ran a number of projects to support and contribute to the

country’s social and economic development.

Charity Programmes

Helping Children

Miles of Mercy programme

The Miles of Mercy programme, launched in 2008, enables the Aeroflot Bonus programme

participants to contribute the bonus miles they earn to charity organisations such as the Give Life

charitable fund, the Life Line fund, the Russian Assistance Fund operated by Kommersant

Publishing House, and Vladimir Spivakov International Charity Foundation. The miles are

converted into tickets for children with serious illnesses and talented children. In 2016, a total of

6,917 tickets and 141,283,961 bonus miles were donated to support the activities of charitable

organisations. Since the start of the programme, almost 1 million miles were donated and about

30,000 free tickets issued. In the reporting year, Aeroflot simplified the Miles of Mercy donation

procedure: minimum transfer was decreased to 100 miles, with required minimum balance on a

personal account reduced from 5,000 to 3,000 miles.

Tickets issued under the

Miles of Mercy programme

4 415

5 615 5 835

0

2 000

4 000

6 000

8 000

2014

2015

2016

10,501

4,983 5,730

6,829 6,917

2012 2013 2014 2015 2016

Train of Hope In 2016, Aeroflot airline, for the tenth time, took part in the national charity programme, Train of

Hope, organised by Radio Russia as part of its Child’s Question social project. The Programme

helped to adopt about 3,500 orphans. In 2016, nine children found a new family through the Train

of Hope Programme. Aeroflot issued 30 free tickets to provide free transportation to adopters

travelling from Moscow to Chelyabinsk and back.

Support for children’s homes

During 2016, the Company supported two children’s homes: the Pokrov Children’s Home in the

Vladimir Region and the St. Sergius Boarding School in the Sergiev Posad District of the

Moscow Region. In particular, the Company took children to a summer recreation camp,

purchased seasonal clothes and footwear, and financed renovation at the Pokrov Children’s

Home. The Boarding school students saw a performance from a visiting music band consisting of

flight attendants and volunteer employees, had a tour of Aeroflot’s simulator complex and

benefited from a charity craft fair we helped set up for them. A total of RUB 5.9 million were

spent on charitable support for children’s homes in 2016.

Support for children with disabilities

For three years now, Aeroflot has been supporting the Galchonok Charity Foundation for children

with organic disorders of the central nervous system. In 2016, the Company became a general

partner of Galafest inclusive charity family festival which supports social integration of children

with organic CNS disorders. The event was attended by about 7,000 people.

The Company and the Foundation jointly produced unique New Year souvenirs hand-painted by

the Foundation’s beneficiaries. The Foundation spent the funds it received to pay for

rehabilitation courses and devices, as well as to support its inclusive education project for

impaired children.

Targeted aid to children Aeroflot annually provides targeted assistance to a variety of organisations. In 2016, Aeroflot

continued to support the student Aviation Olympiad held by the Moscow comprehensive school

with primary pilot training (a non-governmental educational institution). The Company provided

support for a New Year gala held in Chelyabinsk for orphaned children and children from low-

income or large families.

Aeroflot also supported for the sixth National Festival “The Future of Russia” for talented

orphaned children across Russia, held by “The Future” Centre of Spiritual and Moral Unity, by

providing free air tickets to children and accompanying persons. In 2016, Aeroflot provided

financial support to Aviator aviation-themed children’s club.

Support for Great Patriotic War (WWII) Veterans

Annual Great Victory Day campaign In 2016, as part of celebrations of the 71th anniversary of Victory Day, Aeroflot held its annual

campaign, launched in 2001, to carry veterans of the Great Patriotic War (WWII), prisoners of

Nazi concentration camps, and survivors of the Siege of Leningrad. Rossiya, part of

Aeroflot Group, was also involved in the campaign. Heroes of the Soviet Union, Full Cavaliers of

the Order of Glory and accompanying persons were provided with business class tickets.

Depending on the load factors and availability of seats, Aeroflot Group’s airlines made travel

class upgrades for other campaign participants and provided access to business class lounges at

airports.

Free tickets were provided to over 10,000 veterans and accompanying persons.

Charitable support to WWII veterans from among retired Aeroflot employees

Aeroflot provides monthly food packages to WWII veterans from among retired Aeroflot

employees. In 2016, about 1,600 food packages were provided, worth a total of RUB 7.7 million.

Targeted aid to veterans

In 2016, Aeroflot continued to provide individual targeted aid, including RUB 1.3 million worth of financial support for veterans in need, to mark Victory Day;

financial support for WWII veterans with serious health conditions;

seven meetings for WWII veterans to celebrate various holidays;

financial support for the Veteran Club of Top Managers of the Civil Aviation Industry (“Opyt Club”, a

non-profit partnership).

Charitable Activities of Subsidiaries

The Group’s subsidiaries strive to contribute to charity campaigns initiated by PJSC Aeroflot and

provide targeted aid in the regions in which they operate. The Group’s companies make a special

focus on veteran support through dedicated campaigns and events held to celebrate Victory Day.

In 2016, the companies continued with their own support programmes for vulnerable groups and

local communities. In particular, Aeromar traditionally donated about RUB 700,000 to a church

in Khimki.

Contribution to Social and Economic Development of Russia

In addition to charity and sponsorship projects, Aeroflot pursues a number of other programmes

and is involved in initiatives aimed to support and contribute to the country’s social and

economic development.

Improving the accessibility of Russia’s regions

Aeroflot is committed to supporting the government-sponsored programme of maintaining airline

passenger service between the Far East and European Russia, and flights to Kaliningrad and

Simferopol, which ensures transport accessibility of these remote Russian regions.

In addition, Aeroflot has extended its “flat” fare programme into 2017–2018 and included the

Moscow–Magadan–Moscow flight within its scope. “Flat” fares currently apply also to flights to

Vladivostok, Yuzhno-Sakhalinsk, Khabarovsk, Petropavlosk-Kamchatsky, Kaliningrad, and

Simferopol.

To maintain transport accessibility of the Far East, the Company increased capacity on these

routes and introduced additional flights. In 2016, the fares were adjusted for inflation; however,

they are still lower than the costs of flights.

Support of passenger in need

In December 2015, Aeroflot launched a programme to support passengers in urgent need to get to

their destinations fast due to force majeure circumstances. The programme covers higher-demand

domestic flights where the least expensive economy booking classes are sold out.

Employment of Transaero employees by Aeroflot Group

After Transaero discontinued its operations, Aeroflot management resolved to provide

employment to Transaero’s employees, with 4,300 people filling positions in PJSC Aeroflot and

its subsidiaries.

4.3. Environmental Protection Programme

Aeroflot is committed to environmental protection, environmental safety, and sustainable use of

natural resources. The Company’s management is responsible for compliance with laws and other

requirements applicable to environmental aspects of Aeroflot’s operations.

Governed by the precautionary principle, PJSC Aeroflot seeks to prevent any potential

environmental harm even where there is no definitive science to prove that any particular activity

is harmful to the environment. The Company strives to preserve natural resources and, therefore,

carries out environmental risk assessments and implements a number of environmental activities

to prevent or minimise adverse environmental impacts.

PJSC Aeroflot’s environmental policy is aimed at improving the energy efficiency and

environmental performance of its operations related to air transportation of passengers, baggage,

cargo, and mail. The key focus of this policy is on improving fuel efficiency of the Group’s

aircraft fleet, which helps reduce its environmental footprint while at the same time cutting fuel

costs, a major contributor to overall operating expenses.

To achieve its environmental policy objectives, PJSC Aeroflot:

maintains an environmental management system;

monitors and analyses its operations and operational processes to identify new opportunities to

improve environmental performance;

improves energy efficiency of its operations;

manages waste with a focus on recycling as the most effective method of waste disposal;

upgrades its aircraft fleet;

optimises the route network and rolls out new piloting techniques to reduce noise pollution and

cut emissions from aircraft engines;

selects suppliers based on their environmental performance;

raises environmental awareness and promotes waste efficiency among employees. Total environmental protection costs, RUB thousand

2014 2015 2016

11,964 16,072 8,475

Quality Management System

PJSC Aeroflot has in place an integrated management system, the efficiency and effectiveness of

which is regularly confirmed by independent external auditors.

The core integration platform for the Company’s management framework is its quality

management system (“QMS”), which for many years has successfully passed certification audits

under ISO 9001 (Quality Management Systems) and registrations under IATA’s industry

programmes (IOSA – Operational Safety Audit, ISAGO – Safety Audit for Ground Operations).

Aeroflot Group’s efforts to improve its QMS are aligned with activities to further improve the

assessment framework for KPI-based evaluation of performance and progress on the

implementation of internal and external QMS standards applied both by IATA and SkyTeam, and

Aeroflot Group. In particular, all our subsidiaries successfully pass regular IATA – IOSA

operational safety audits and demonstrate strong safety and quality levels.

PJSC Aeroflot is committed to further develop and improve its QMS through driving innovation

in management, improvement and optimisation of internal processes.

In 2016, as part of supervision of Aeroflot Group airlines’ preparations for IOSA compliance

certification audits, PJSC Aeroflot’s experts provided advisory support and auditing services to

Aurora airline. Non-compliances revealed by the audit were promptly remedied, allowing the

airline to successfully pass the independent IOSA certification audit.

To minimise vendor inspection costs across the route network, PJSC Aeroflot maintains

membership of the following IATA pools: IFQP (IATA Fuel Quality Pool),

DAQCP (De-Icing/Anti-Icing Quality Control Pool), and

ISAGO (IATA Safety Audit for Ground Operations Pool).

As part of the activities carried by the above pools, during the year, the airline’s employees

conducted a number of vendor audits and follow-up assessments to verify the completeness and

adequacy of corrective actions, thus ensuring supplier operations monitoring across the route

network. The Company’s relevant committees and business units have developed and are

implementing risk mitigation actions to address all identified risks.

In 2016, PJSC Aeroflot’s integrated environmental management system successfully passed an

external compliance audit. The audit was carried out by TÜV SÜD Russia, a branch of the

world’s leading certification agency, and looked at compliance with ISO 9001:2008 (Quality

Management Systems) and ISO 14001:2004 (Environmental Management Systems). The purpose

of such comprehensive audits is to obtain independent assurance of compliance and an objective

assessment of the efficiency and effectiveness of actual integration of the airline’s Quality

Management and Environmental Management Systems within its unified corporate governance

structure.

The compliance audit revealed no instances of non-compliance and confirmed that

PJSC Aeroflot’s integrated management system met the international standards ISO 9001 and

ISO 14001. The auditor also made recommendations and highlighted areas to improve the

management systems, which the airline will take into account in its future operations.

Fuel Efficiency

During 2016, to mitigate environmental impacts and achieve other objectives, the Group’s

airlines continued implementing existing programmes to improve fuel efficiency and shift to

more advanced aircraft.

Fuel-efficiency initiatives at Group airlines focus on:

analysis of route options to select the best flight routes between destination and departure

airports;

optimisation of fuel consumption during ignition and taxiing;

use of optimal approach and landing procedures;

minimising the variance between the projected and actual revenue loads in departure airports;

centre-of-gravity control;

optimal use of airborne auxiliary power;

use of ground systems for pre-flight air conditioning of aircraft cockpit and cabins;

improving aircraft aerodynamics through quality, full aircraft surface washing;

improving aircraft engine efficiency through gas/air duct cleaning;

reducing fuel consumption through monitoring and reduction of water supplies on-board; use of

updated weight estimates for kitchen equipment and in-flight meals.

Over the past five years, specific fuel consumption across Aeroflot Group decreased by 9.1% to

286.4 grammes per tonne-kilometre (TKM) in 2016.

Throughout 2016, efforts were taken to implement the roll-out plan for a fuel and lubricant cost

reduction system covering the fleets of special-purpose vehicles operated by PJSC Aeroflot and

its subsidiary airlines.

For energy consumption by Aeroflot Group airlines in 2016 see Appendix to this Annual Report.

Air Quality Initiatives

Aeroflot Group has in place a СО2-emissions monitoring and measuring system to ensure

compliance with Russian and European requirements for monitoring, reporting and verification of

greenhouse gas (GHG) emissions. This system is in particular used at Aeroflot and Rossiya

airlines.

СО2 emissions are fully monitored and recorded throughout the route network in line with the

methodology adopted by the EU Emissions Trading System (EU ETS) and the national system

for monitoring, reporting and verification of GHG emissions.

The Company takes efforts to reduce СО2 emissions under its Fuel Efficiency Programme and the

Energy Saving and Environmental Performance Programme until 2020. PJSC Aeroflot direct GHG emissions, tonnes СО2

2014 2015 2016

6,387,498.2 6,871,735.4 7,442,391.6

Aeroflot airline’s entire fleet complies with ICAO standards for noise levels and atmospheric

pollution.

To reduce the environmental impact of ground vehicles the Group’s airlines carry out regular

fine-tuning of instrumental controls and fuel system to ensure compliance with permitted toxicity

and smoke levels.

As part of the Carbon Offset Programme, PJSC Aeroflot has introduced an Online СО2

Emissions Calculator developed in line with the best industry practices and using ICAO and

IATA methodologies.

The Online СО2 Emissions Calculator is currently available on Aeroflot’s official website to give

passengers an idea of their individual carbon footprint for the journey as they select their flight.

Going forward, this environmental initiative will give passengers an opportunity to offset their

carbon footprint by donating to green projects focused on reducing GHG emissions (tree planting,

protection of forests against bark beetles, clean energy initiatives, clean-ups of water bodies, etc.).

In 2016, the Company took part in testing DAO IPCI platform, designed with support from

Microsoft. The platform records green projects, commitments and reductions and is based on

smart contracts and blockchain technology, giving each passenger a chance to offset his/her

carbon footprint as per the Online СО2 Emissions Calculator.

Water Resource Management

In the reporting year, PJSC Aeroflot set up a framework to monitor the quantity and quality of

waste water discharged by Melkisarovo office building treatment facilities. A total of 316 treated

waste water samples were tested. The results suggest that all relevant standards are met.

The water protection and water resource management activities to monitor the morphometric

characteristics of the Klyazma River enabled the Company to successfully secure a relevant

official Decision to Grant a Water Body for Use and obtain a Permit for Wastewater Discharges.

Water consumption by PJSC Aeroflot, thousand cubic metres

2015 2016

Total: 22.0 24.1

from public water supply network 22.0 24.1

Total water discharge by PJSC Aeroflot, thousand cubic metres

2015 2016

Total: 19.4 19.3

including: treated water (surface drains from the

site of the office building complex, facilities

and structures)

2.2 1.2

passed to other companies for treatment

(sewage) 17.1 18.1

Reduced Generation and Disposal of Production and Consumption Waste

Consistent efforts to reduce production and consumption waste disposed to landfills and grow the

share of recycled waste sent for disposal to specialist recyclers are among PJSC Aeroflot’s

environmental priorities. In 2016, 73.3% of the total waste generated by PJSC Aeroflot were

recycled.

Throughout 2016, PJSC Aeroflot regularly inspected waste storage sites and maintained monthly

records of generation and movement of production and consumption waste across its business

units.

Total waste of PJSC Aeroflot by hazard class, tonnes

2015 2016

Total: 21,385.9 23,127.5

including: hazard class 1 2.2 3.9

hazard class 2 1.4 4.8

hazard class 3 2,448.5 2,508.3

hazard class 4 18,528.3 19,918.5

hazard class 5 405.5 692.0

Total waste of PJSC Aeroflot by disposal method, tonnes

2015 2016

Recycled (transferred for recycling) 2,066.6 250.6

Landfilled 7,138.4 6,164.0 Other disposal method (transferred for

neutralisation) 12,180.9 16,713.0

PJSC Aeroflot collects and recycles de-icing fluid used for treatment of own aircraft and aircraft

operated by other airlines.

Environmental Fees

In accordance with the applicable environmental laws, PJSC Aeroflot pays fees for negative

environmental impacts from its business operations.

Environmental fees totalled RUB 3.6 million in 2016.

Total environmental fees paid by PJSC Aeroflot, RUB million

2012 2013 2014 2015 2016

2.1 5.1 6.7 6.8 3.6

No fines or non-monetary penalties for non-compliance with the applicable environmental laws

were imposed on the Company in 2016.

FINANCIAL REVIEW

Financial Highlights for 2016

Key figures of profit and loss statement, RUB million, unless otherwise stated

Item 2015 2016 Change

Revenue 415,173 495,880 19.4%

EBITDAR8 103,118 137,567 33.4%

EBITDAR margin 24.8% 27.7% 2.9 p.p.

EBITDA1 58,703 78,004 32.9%

EBITDA margin 14.1% 15.7% 1.6 p.p.

Operating profit 44,107 63,254 43.4%

Operating profit margin 10.6% 12.8% 2.2 p.p.

Profit / (loss) for the period (6,494) 38,826 –

Net profit margin – 7.8% –

In 2016, Aeroflot Group significantly improved its financial performance, driven by solid

operating results, which determined both expansion of business volumes and improvement of

margins. The volume factor is associated with the growth in passenger traffic and passenger

turnover by 10.3% and 14.8%, respectively. A 3.2 p.p. growth in the passenger load factor to

81.5% was one of the key drivers behind higher margins since it helped earn extra revenues

without increasing fixed and semi-fixed costs.

Other factors boosting performance were a proactive approach to network and revenue

management and a net positive FX effect on revenue and costs. As a result, EBITDA and

EBITDAR increased by 1.6 p.p. and 2.9 p.p. y-o-y to 15.7% and 27.7%, respectively.

The above factors as well as no extra costs included in the 2016 consolidated statement of profit

and loss due to commitments to transport Transaero’s passengers (in 2015, the total expensed

costs amounted to RUB 16,811 million) supported net profit growth, to reach

RUB 38,826 million in 2016.

Traffic and other revenue

Revenue, RUB million, unless otherwise stated

2015 2016 Change

Revenue from passenger flights 349,574 421,377 20.5%

including scheduled flights 343,428 403,760 17.6%

charter flights 6,146 17,617 х2.9

Revenue from cargo 9,631 12,589 30.7%

Total traffic revenue 359,205 433,966 20.8%

Other revenue 55,968 61,914 10.6%

including revenue from airline agreements 31,596 35,923 13.7%

revenue from partners under the frequent flyer programme 10,275 11,846 15.3%

other revenue 14,097 14,145 0.3%

Total revenue 415,173 495,880 19.4%

Note: immaterial deviations in numbers in the charts and tables subtotals of the Annual Report are due to rounding.

8 EBITDAR = EBITDA + operating lease expenses. EBITDA = operating profit + depreciation and

amortisation + customs duties.

In 2016, Aeroflot Group’s revenue increased by 19.4% y-o-y to RUB 495,880 million.

Revenue from scheduled passenger flights increased by 17.6% to RUB 403,760 million, driven

by a 10.3% y-o-y increase in the Group’s passenger traffic in 2016 and the year-average Rouble

exchange rate movements leading to a growth in revenue from international services denominated

in foreign currencies.

Revenue from charter flights rose almost threefold to RUB 17,617 million, supported, among

other things, by the growth in this segment following the launch of Rossiya airline’s charter

programme.

Revenue from cargo increased by 30.7% y-o-y to RUB 12,589 million on the back of additions of

long-haul aircraft to the Group’s fleet and a 31.6% growth in the cargo and mail volumes.

Other revenue was up 10.6% y-o-y and stood at RUB 61,914 million, primarily due to an increase

in revenue from airline agreements denominated in foreign currency following the depreciation of

the Russian currency and higher revenue from banks under the Aeroflot Bonus programme.

Revenue breakdown, 2016

Чартерные перевозки Charter flights

Грузовые перевозки Cargo

Прочая выручка Other revenue

Регулярные перевозки Scheduled flights

Программа «Аэрофлот Бонус» Aeroflot Bonus

Соглашения с авиакомпаниями Airline agreements

81,4%

3,6%

2,5%

7,2%2,4%

2,9%

Регулярные перевозки Чартерные перевозки

Грузовые перевозки Соглашения с авиакомпаниями

Программа «Аэрофлот Бонус» Прочая выручка

Revenue growth decomposition, RUB million

Выручка 12М 2015 года Revenue 12M 2015

Регулярные перевозки Scheduled flights

Чартерные перевозки Charter flights

Грузовые перевозки Cargo

Прочая выручка Other revenue

Выручка 12М 2016 года Revenue 12M 2016

Yields

In 2016, scheduled flight yields increased by 6.6%, including yields on international destinations

(by 6.3%) and on domestic destinations (by 6,5%). International yield growth primarily resulted

from the foreign exchange effect as all fare groups (for outbound and inbound flights and for

international transit) are denominated in foreign currencies. Despite the gradual appreciation of

the Russian rouble throughout 2016, the average RUB/EUR exchange rate, which directly

impacts the y-o-y change in yields, increased by 9,5% (RUB 67.78 per EUR in 2015,

RUB 74.23 per EUR in 2016).

The upward trend in domestic yields was driven by the higher demand for domestic flights, which

enabled the Company to raise the passenger load factor by 4.1 p.p. to 83.5% with no additional

promotion. Moreover, in 1H 2016 domestic yields were supported by the lower VAT rate, which

was reduced from 18% to 10% in mid-2015.

In addition to market factors, the Group’s development also led to structural changes in revenue

contributions from airlines. In particular, Rossiya airline increased its share of “long-haul” flights

with lower yields. The low-cost carrier Pobeda is also actively expanding its operations.

Scheduled flight yields, RUB

415 173

60 332 11 4712 958 5 946

495 880

Выручка 12М 2015 года

Регулярные перевозки

Чартерные перевозки

Грузовые перевозки Прочая выручка Выручка 12М 2016 года

3,263,86 3,583,47

4,11 3,82

Доходне ставки на ВВЛ Доходне ставки на МВЛ Доходне ставки по сети

Доходные ставки на ВВП Domestic yields

Доходные ставки на МВЛ International yields

Доходные ставки по сети Total yields

Рост Growth

Operating Costs

Operating costs, RUB million, unless otherwise stated

2015 2016 Change

Aircraft, traffic and passenger servicing 75,186 87,227 16.0%

% of revenue 18.1% 17.6% (0.5 p.p.)

Staff 55,619 64,682 16.3%

% of revenue 13.4% 13.0% (0.4 p.p.)

Operating lease 44,415 59,563 34.1%

% of revenue 10.7% 12.0% 1.3 p.p.

Aircraft maintenance 32,042 38,236 19.3%

% of revenue 7.7% 7.7% 0.0 p.p.

Sales and marketing, administration and general expenses 26,084 30,294 16.1%

% of revenue 6.3% 6.1% (0.2 p.p.)

Depreciation, amortisation, and customs duties 14,596 14,750 1.1%

% of revenue 3.5% 3.0% (0.5 p.p.)

Communication expenses 12,890 14,697 14.0%

% of revenue 3.1% 3.0% (0.1 p.p.)

Other expenses 15,852 21,595 36.2%

% of revenue 3.8% 4.4% 0.5 p.p.

Operating costs, excluding aircraft fuel 276,684 331,044 19.6%

% of revenue 66.6% 66.8% 0.2 p.p.

Aircraft fuel 94,382 101,582 7.6%

% of revenue 22.7% 20.5% (2.2 p.p.)

Total operating costs 371,066 432,626 16.6%

% of revenue 89.4% 87.2% (2.2 p.p.)

Operating costs breakdown, 2016

Расходы на авиационное топливо Aircraft fuel

Обслуживание воздушных судов и пассажиров Aircraft, traffic and passenger servicing

Расходы на оплату труда Staff

Расходы по операционной аренде Operating lease

Теххническое обслуживание воздушных судов Aircraft maintenance

Коммерческие, общехозяйственные и

административные расходы

Sales and marketing, administration and general expenses

Амортизация и таможенные пошлины Depreciation, amortisation, and customs duties

Услуги связи Communication expenses

Прочие расходы нетто Other expenses, net

In 2016, aircraft fuel costs increased by 7.6% y-o-y to RUB 101,582 million. Despite the growth

in traffic and higher flight hours, aircraft fuel costs were almost flat due to lower average fuel

prices denominated in roubles for the same period and initiatives implemented by the Group to

boost its fuel efficiency, which improved the Group’s specific fuel consumption rates.

Operating costs less aircraft fuel increased by 19.6% y-o-y to RUB 331,044 million.

The cost of aircraft, traffic and passenger servicing stood at RUB 87,227 million, up 16.0% y-o-y.

Excluding the foreign exchange impact, these costs went up by 13.6%, driven by the Group’s

expansion and higher traffic. This cost item was also impacted by higher fares of some Russian

airports.

Staff costs went up by 16.3% y-o-y to RUB 64,682 million, mainly due to indexation of salaries

of eligible employee categories in early 2016 and the employment of over 4,000 of Transaero

staff.

Operating lease expenses stood at RUB 59,563 million, a 34.1% increase y-o-y, primarily driven

by the effect of the Rouble exchange movements (this item is almost entirely denominated in

foreign currency). Excluding the foreign exchange impact, these costs went up by 24.2%. Other

factors contributing to operating lease expenses included fleet expansion (the net increase in the

Group’s leased fleet was 37 aircraft, or 18.5% growth y-o-y) and a higher average LIBOR 3M

rate in the reporting period (0.74 against 0.3 in 2015).

Aircraft maintenance costs increased by 19.3% y-o-y to RUB 38,236 million. Excluding the

foreign exchange impact, these costs went up by 13.6%, due to growth in flight hours and higher

additional costs on preparing aircraft to be phased out.

Sales and marketing, administration and general expenses gained 16.1% y-o-y and reached

RUB 30,294 million, driven by higher sales and marketing expenses pegged to foreign currencies

and the IT infrastructure enhancement. Excluding the foreign exchange impact, these expenses

went up by 11.2%.

23,5%

20,2%

15,0%

13,8%

8,8%

7,0%

3,4%3,4%

5,0% Расходы на авиационное топливо

Обслуживание воздушных судов и пассажиров

Расходы на оплату труда

Расходы по операционной аренде

Техническое обслуживание воздушных судов

Коммерческие, общехозяйственные и административные расходыАмортизация и таможенные пошлины

Услуги связи

Прочие расходы

Depreciation, amortisation and customs duties increased by 1.1% y-o-y to RUB 14,750 million.

Communication expenses went up by 14.0% y-o-y and amounted to RUB 14,697 million as a

result of higher rouble equivalent of global distribution systems expenses denominated in foreign

currency.

Other expenses increased by 36.2% y-o-y to RUB 21,595 million due to allocations to provisions

for overdue accounts receivable and for aircraft maintenance.

As a result of the above factors, Aeroflot Group posted an operating profit of RUB 63,254 million

(12.8% of revenue) for 2016. EBITDAR amounted to RUB 137,567 million, with a 2.9 p.p.

increase in margin to 27.7%. EBITDA amounted to RUB 78,004 million, with a 1.6 p.p. increase

in margin to 15.7%.

Revenue and Cost per Available Seat-Kilometre

Effective management of the route network, capacity and revenue, and tight cost control provided

for Aeroflot Group’s RASK growth rate outstripping the CASK growth rate. In 2016, the

scheduled RASK was RUB 3.09 per seat-kilometre, up 10.3% y-o-y, while CASK amounted to

RUB 3.14, up 5.7% y-o-y.

Scheduled flights RASK, RUB Total RASK, RUB CASK, RUB

+10.3% +8.2% +5.7%

EBITDA and EBITDAR

In 2016, Aeroflot Group’s EBITDA amounted to RUB 78,004 million, with EBITDA margin

growing to 15.7% (14.1% in 2015). EBITDAR for 2016 was RUB 137,567 million, with

EBITDAR margin reaching 27.7% (24.8% in 2015). Margins were driven by revenue growth

outstripping cost inflation as a result of the aforementioned factors.

EBITDAR, RUB million, and EBITDAR margin, %

EBITDA, RUB million, and EBITDA margin, %

2,80 3,09

2015 2016

3,33 3,60

2015 2016

2,97 3,14

2015 2016

103 118

137 56724,8%

27,7%

2015 2016

EBITDAR Рентабельность по EBITDAR

58 703

78 004

14,1%

15,7%

2015 2016

EBITDA Рентабельность по EBITDA

EBITDAR EBITDAR

Рентабельность по EBITDAR EBITDAR margin

EBITDA EBITDA

Рентабельность по EBITDA EBITDA margin

Finance Income and Costs

Non-operating profit and loss, RUB million, unless otherwise stated

2015 2016 Change

Operating profit 44,107 63,254 43.4%

Loss from sale and impairment of investments, net (9,159) (2,935) (68.0%)

Finance income 15,811 19,802 (25.2%)

Finance costs (28,556) (9,443) (66.9%)

Hedging result (23,746) (12,310) (48.2%)

Share of results of associates (17) 12 –

Result from disposal of subsidiaries – (5,099) –

Profit/(loss) before income tax (1,560) 53,281 –

Income tax expense (4,934) (14,455) х2.9

Profit/(loss) for the period (6,494) 38,826 –

Finance income for 2016 increased by 25.2% y-o-y to RUB 19,802 million, mainly due to the

foreign exchange gain primarily coming from the return of aircraft pre-delivery payments .

Finance costs decreased by 66.9% y-o-y to RUB 9,443 million, primarily due to the recognition

of loss on derivative financial instruments following transactions execution in 2015 and rouble

appreciation throughout 2016.

The hedging result of RUB 12,310 million is attributable to settlements under financial

instruments recognised in equity, as well as to the effect of revenue hedging with liabilities in

USD (finance lease).

As a result of the effect of the above operational and non-operational factors on revenue and

costs, Aeroflot Group posted a net profit of RUB 38,826 million for 2016.

Cash Flows

Condensed consolidated statement of cash flows, RUB million, unless otherwise stated

2015 2016 Change, %

(Loss)/profit before income tax (1,560) 53,281 –

Depreciation and amortisation 13,306 13,395 0.7

Change in provisions 10,353 8,845 (14.6)

Foreign exchange loss/(gain) 849 (15,597) –

(Gain)/loss on change in fair value of derivative financial

instruments (11,885) 53 –

Realised loss on hedging 23,746 12,310 (48.2)

Interest expense 7,737 8,907 15.1

Loss on derivative financial instruments, net 19,803 – –

Loss on sale of investments and accrual of provision for

impairment of investments and loans issued 9,159 8,034 (12.3)

Gain on recovery of VAT (8,021) – –

Other adjustments 800 (3,425) –

Working capital changes and income tax paid/refunded 5,377 (9,091) –

Net cash flows from operating activities 69,664 76,712 10.1

Purchases of property, plant and equipment and intangible assets (9,196) (10,222) 11.2

2015 2016 Change, %

Proceeds from sale of assets held for sale – 6,471 –

Purchases of investments and deposits placement (20,393) (10,435) (48.8)

Proceeds from sale of investments and deposits return 6,405 9,840 53.6

Proceeds from acquisition/sale of a subsidiary, net – 9 –

Prepayments/return of prepayments for aircraft, net (14,880) 10,556 –

Other (706) 1,047 –

Net cash (used in)/from investing activities (38,770) 7,266 –

Free cash flow 30,894 83,978 171.8

Proceeds from loans and borrowings 73,331 30,885 (57.9)

Repayment of loans and borrowings (36,267) (72,991) 101.3

Repayment of the principal of financial lease liabilities (19,455) (27,024) 38.9

Interest paid (5,914) (6,954) 17.6

Dividends paid (88) (49) (44.3)

Proceeds from settlement of derivative financial instruments, net (39,682) (4,362) (89.0)

Net cash used in / from financing activities (28,075) (80,495) 186.7

Effect of exchange rate fluctuations 1,327 (2,700)

Net increase/(decrease) in cash and cash equivalents 4,146 783 (81.1)

Cash and cash equivalents at the beginning of the year 26,547 30,693 15.6

Cash and cash equivalents at the end of the year 30,693 31,476 2.6

Cash flows from operating activities

In 2016, net cash flows from operating activities reached RUB 76,712 million

(RUB 69,664 million in 2015), with profit before income tax amounting to RUB 53,281 million

(loss of RUB 1,560 million in 2015). Key non-cash adjustments made to income before income

tax to arrive to net cash flows from operating activities for 2016 were related to:

changes in provisions in the amount of RUB 8,845 million (RUB 10,353 million in 2015), mainly

attributed to accrual of the provision for scheduled maintenance and repair of aircraft, and the

provision for doubtful accounts;

hedging result in the amount of RUB 12,310 million (RUB 23,746 million in 2015) attributable to

the effect of revenue hedging with liabilities in foreign currency in the amount of

RUB 8,316 million and realised loss on hedging derivative instruments subject to hedge

accounting in the amount of RUB 3,994 million;

loss on sale of investments and accrual of provision for impairment of investments and loans

issued, in the amount of RUB 8,034 million, mainly attributed to disposal of

JSC Vladivostok Air, CJSC Aeroflot-Cargo and impairment of long-term financial investments in

JSC Sheremetyevo International Airport;

foreign exchange gain in the amount of RUB 15,597 million (loss of RUB 849 million in 2015);

depreciation and amortisation of RUB 13,395 million (RUB 13,306 million in 2015).

Working capital

In 2016, working capital change was RUB 3,663 million, mainly impacted by an increase in

accounts receivable and prepayments by RUB 6,915 million (RUB 2,251 million in 2015) in line

with the revenue growth by 19.4% in 2016.

Cash flows from operating activities were largely affected by an increase in accounts payable and

accrued liabilities, in line with the growth in operating costs by 16.6% in 2016.

Free cash flow

In 2016, free cash flow totalled RUB 83,978 million, up by RUB 53,084 million, or 171.8% y-o-

y, which was driven by the increase in net cash flows from investing activities by

RUB 46,036 million, and the increase in net cash flows from operating activities by

RUB 7,048 million.

Key drivers of y-o-y change in net cash flows used in investing activities were:

placement of deposits totalling RUB 10,435 million (RUB 11,741 million in 2015);

return of deposits totalling RUB 9,840 million, primarily to Pobeda and Aurora airlines, due to

maturing (RUB 6,375 million in 2015);

prepayments of RUB 18,806 million (RUB 22,708 million in 2015) for 22 Airbus A350 aircraft

expected to be delivered in 2018–2023, and Airbus A320/A321 aircraft expected to be delivered

in 2017–2018, and return of prepayments of RUB 29,362 million (RUB 7,828 million in 2015)

for Boeing 777, Airbus A320/321, and SSJ100;

purchases of property, plant and equipment and intangible assets, totalling RUB 10,222 million

(RUB 9,196 million in 2015);

proceeds from sale of assets held for sale, totalling RUB 6,471 million.

In 2016, the internal-financing ratio (net cash flows from operating activities to capital

expenditure) stood at 2,092.0% (813.1% in 2015).

Cash and cash equivalents grew by RUB 783 million (2.6% y-o-y) to RUB 31,476 million,

driven, among other factors, by the effect of exchange rate fluctuations in the amount of

RUB 2,700 million (RUB 1,327 million in 2015).

Net capital expenditure, cash flows from operating

activities, depreciation and amortisation, RUB million

Cash flows from operating activities and free cash

flow, RUB million

Капитальные затраты, нетто Net capital expenditure

Чистая сумма денежных средств от

операционной деятельности

Net cash flows from operating activities

Амортизация Depreciation and amortisation

Свободный денежный поток Free cash flow

Capital Expenditure

In 2016, purchases of property, plant and equipment primarily included two DHC-8 aircraft to

Aurora Airlines purchased for RUB 2,807 million, and equipment acquired by PJSC Aeroflot

under finance lease for RUB 2,156 million.

3 667 8 568

76 712

69 664

13 395 13 306

20162015

Капитальные затраты, нетто

Чистая сумма денежных средств от операционной

деятельности Амортизация

76 712

69 664

83 978

30 894

20162015

Чистая сумма денежных средств от

операционной деятельности

Свободный денежный поток

Purchases of intangible assets in 2016 mainly included SAP development software, as well as

other software solutions and licences for office and other IT systems.

Net capital expenditure, RUB million, unless otherwise stated

31 December

2015

31 December

2016 Change, %

Purchases of property, plant and equipment and intangible

assets (9,196) (10,222) (11.2)

Purchases of investments (5) – –

Proceeds from sale of assets held for sale – 6,471 –

Proceeds from sale of property, plant and equipment 603 84 (86.1)

Gain on disposal of investments 30 – –

Net capital expenditure (8,568) (3,667) (57.2)

Purchases of property, plant and equipment and intangible assets, RUB million

Приобретение основных средств Purchases of property, plant and equipment

Приобретение нематериальных активов Purchases of intangible assets

9 488 9,488

Non-current assets

In 2016, non-current assets decreased by 7.0% and reached RUB 169,161 million. The change

was mainly attributable to reduction in deferred tax assets by RUB 9,380 million, primarily

resulting from the decrease in finance lease liabilities backed by the rouble appreciation and

repayment of liabilities.

In addition, the change in non-current assets was influenced by lower prepayments for aircraft in

2016 as delivery time got closer, and reclassification of prepayments to current assets. Net change

in prepayments for aircraft amounted to RUB 7,461 million.

9 488

734

Приобретение основных

средств

Приобретение

нематериальных активов

Change in prepayments for aircraft (non-current portion), RUB million

Внесение авансов Advances paid

Переход долгосрочной части в

краткосрочную

Non-current prepayments reclassified to

current prepayments

Change in prepayments for aircraft (current portion), RUB million

Внесение авансов Advances paid

Переход долгосрочной части в


Non-current prepayments reclassified to

current prepayments

Возврат авансов Advances returned

Изменение курса валют Exchange rate differences

Current assets

Current assets decreased by 2.4% and reached RUB 130,146 million, primarily driven by disposal

of assets held for sale, following the sale of six Airbus A321, one Airbus A320 and two

Airbus A319 aircraft with the total residual value of RUB 4,504 million.

Equity

In 2016, equity, including non-controlling interest, grew by RUB 76,889 million to

RUB 40,769 million.

The key driver behind this change was the decrease in the hedging reserve of

RUB 30,533 million, which comprised revaluation of derivatives confirmed to be effective under

IAS 39 and revaluation of finance lease liabilities. Another contributor to the gain was retained

earnings, which primarily went up due to the profit of RUB 37,443 million earned in 2016 and

35 291

27 830

18 631 (26 092)

31.12.2015 Внесение авансов Переход

долгосрочной

части в


31.12.2016

attributable to the shareholders of the Company. For more details on share capital see Note 32 to

the 2016 consolidated financial statements (Appendix to this Annual Report).

Current liabilities

In 2016, total current liabilities decreased by 32.2% y-o-y (by RUB 57,356 million), primarily

driven by a reduction of RUB 44,776 million in short-term loans and borrowings and the current

portion of long-term loans and borrowings. The decrease was also attributed to a

RUB 7,371 million reduction in liabilities related to assets held for sale, a RUB 4,883 million

decrease in accounts payable and accrued liabilities, a RUB 2,215 million decrease in provisions

for liabilities, a RUB 3,911 million decrease in finance lease liabilities, and a RUB 4,853 million

decrease in derivative financial instruments. Unearned traffic revenue grew by

RUB 10,353 million, and deferred revenue related to frequent flyer programme by

RUB 300 million.

Non-current liabilities

In 2016, non-current liabilities decreased by 20.4%, and reached RUB 137,813 million. The key

drivers behind this decrease were finance lease liabilities, which went down by

RUB 37,877 million due to the rouble appreciation in 2016, and the reclassification of finance

lease liabilities from non-current to current liabilities.

Debt and Liquidity

Debt, RUB million, unless otherwise stated

31.12.2015 31.12.2016 Change

Loans and borrowings 68,460 20,367 (70.2%)

Finance lease 164,524 122,736 (25.4%)

Pension liabilities 745 805 8.1%

Total debt 233,729 143,908 (38.4%)

Cash, cash equivalents and short-term investments 36,610 37,795 3.2%

Net debt 197,119 106,113 (46.2%)

Net debt / EBITDA ratio 3.4x 1.37х –

As at 31 December 2016, total debt reduced by 38.4% y-o-y, to RUB 143,908 million, primarily

driven by scheduled and early repayments of loans and borrowings, revaluation of finance lease

liabilities following the y-o-y change in the RUB/USD exchange rate as at 31 December 2016,

and the reduction of number of aircraft under finance lease agreements by nine aircraft (by

15.8% y-o-y).

Aeroflot Group’s loans and borrowings were both fixed-rate and variable-rate and were mainly

used to finance the working capital. The shares of foreign currency and rouble-denominated

liabilities in the loan portfolio are 23.9% and 76.1%, respectively. The share of foreign currency

loans decreased due to the effect from revaluation of loans backed by the rouble appreciation

throughout 2016, and repayments of more expensive borrowings ahead of schedule.

Finance lease liabilities are entirely denominated in foreign currencies; however, 46.4% of

liabilities under finance lease agreements mature as late as 2021 and further.

As at 31 December 2016, Aeroflot Group had RUB 89,247 million undrawn credit lines from

major Russian and international banks.

Breakdown of loans and borrowings by currency as

at 31 December 2016

Net Debt / EBITDA ratio

Note: Excluding operating lease capitalisation

Рубли Russian rouble

Доллары США US dollar

Евро Euro

Finance lease repayment schedule, RUB million

31 декабря 2015 31 December 2015

31 декабря 2016 31 December 2016

Breakdown of total debt as at 31 December 2016

Краткосрочные

обязательства

Current liabilities

Долгосрочные

обязательства

Non-current liabilities

Loan portfolio

Bank Currency

Short-term loans and borrowings and

current portion of long-term loans

and borrowings

Long-term

loans and

borrowings

Sberbank of Russia RUB 4,831 7,863

VTB Bank EUR 4,478 –

Sovcombank RUB – 2,800

Other USD – 395

Total 9,309 11,058

76%

2%

22%

Рубли Доллары США Евро

3,4

1,4

31 декабря 2015 31 декабря 2016

15 59318 032 16 364 15 857

56 890

2017 2018 2019 2020 2021+

31,5%17,3%

68,5%82,7%

2015 2016

Долгосрочные обязательства

Краткосрочные обязательства

CORPORATE GOVERNANCE

6.1. Corporate Governance System

Aeroflot Group’s structure

as at 31 December 2016

PJSC Aeroflot

Airlines Other subsidiaries

JSC Rossiya Airlines 75% – 1

share CJSC Aeromar 51%

LLC Pobeda Airlines 100% LLC Aeroflot-Finance 99.99%

JSC Aurora Airlines 51% JSC Sherotel 100%

JSC Orenair 100% LLC A-Technics 100%

JSC Donavia 100% Aeroflot Aviation School 100%

Note: PJSC Aeroflot holds a stake in A-Technics via Aeroflot-Finance.

PJSC Aeroflot also holds 45.0% in JSC AeroMASH – AS, 8.96% in JSC Sheremetyevo International Airport, 3.85%

in PJSC Transport Clearing House, and 49.0% in TRANSNAUTIC Aero GmbH (in liquidation).

Corporate Governance System

In line with top standards and requirements, PJSC Aeroflot’s corporate governance system aims

to implement the principles of transparency and accessibility of information about the Company

and ensure equitable treatment of minority and majority shareholders.

As part of its efforts to improve corporate governance, in 2013, PJSC Aeroflot started

implementing the roadmap on introduction of recommendations of nonprofit partnership Russian

Institute of Directors, in 2015 the Company started implementing the recommendations of the

Corporate Governance Code, as approved by the Board of Directors of the Bank of Russia on

21 March 2014.

On 19 March 2015, PJSC Aeroflot’s Board of Directors approved the Action Plan (Roadmap) to

improve corporate governance practices at PJSC Aeroflot. In 2016, we continued to implement

recommendations of the Corporate Governance Code and approved the Corporate Conduct Code

of PJSC Aeroflot, the Regulations on the Executive Secretary of the Board of Directors and the

Board of Directors Office of PJSC Aeroflot, amended the Regulations on the Personnel and

Remuneration Committee, and took major efforts to enhance Aeroflot Group’s integrated risk

management system.

PJSC Aeroflot also contributes greatly to the improvement of the corporate governance

regulation framework through involvement in dedicated working groups and round table

discussions. Compliance with the Russian Corporate Governance Code

Code section Principles recommended

by the Code Complied with

Not fully

complied with

Not complied

with

Shareholder Rights 13 11 1* 1

Board of Directors 36 29 6 1

Corporate Secretary 2 2 – –

Remuneration System 10 9 1 –

Risk Management System 6 6 – –

Information Disclosure 7 7 – –

Material Corporate Actions 5 4 1 –

Total 79 68 9 2

*Non-compliance relates to quasi treasury shares.

Note: Statistics are based on the Corporate Governance Code Compliance Report (Appendix to this Annual Report).

PJSC Aeroflot’s Corporate Governance Structure

Corporate governance is exercised by PJSC Aeroflot’s governance and supervisory bodies,

including the General Meeting of Shareholders, the Board of Directors, the Management Board,

the CEO, and the Revision Committee.

The responsibilities of PJSC Aeroflot’s corporate secretary are vested with the Executive

Secretary of the Board of Directors, also holding the position of Director of PJSC Aeroflot’s

Corporate Governance Department. For two consecutive years (2015 and 2016), the Director of

Aeroflot’s Corporate Governance Department – was recognised as one of the best corporate

governance directors by the Independent Directors Association (IDA).

PJSC Aeroflot’s financial and business activities are audited by an external auditor in accordance

with both the Russian Accounting Standards (RAS) and the International Financial Reporting

Standards (IFRS), as well as by the Internal Audit Department functionally reporting to the Audit

Committee of the Board of Directors of PJSC Aeroflot.

Key documents ensuring protection of PJSC Aeroflot shareholder rights include: Articles of

Association of PJSC Aeroflot, Regulations on the General Meeting of Shareholders of

PJSC Aeroflot, Regulations on the Board of Directors of PJSC Aeroflot, Regulations on the

Management Board of PJSC Aeroflot, Regulations on the Revision Committee of PJSC Aeroflot,

Regulations on the Corporate Information Policy of PJSC Aeroflot, Dividend Policy of

PJSC Aeroflot, and Corporate Conduct Code of PJSC Aeroflot. In addition, the Company is

developing the Corporate Governance Code of PJSC Aeroflot, which provides for high quality

corporate governance standards at PJSC Aeroflot.

PJSC Aeroflot controls interests in (holds shares in the charter capital of) a number of

subsidiaries, including airlines, where PJSC Aeroflot also ensures compliance with the top

standards of corporate governance by development and implementation of Group-wide policies

and principles. On top of that, the Company developed and put in place a cross-functional

governance system for its aviation subsidiaries.

To ensure supervision over financial and business activities of its subsidiary airlines, the Group

enabled each of them to have a dedicated revision committee made up of PJSC Aeroflot’s

representatives. In addition to revision committee inspections, the airlines are subject to

inspections by an auditor approved pursuant to the relevant bidding procedures.

In accordance with the applicable laws and their articles of association, each subsidiary airline

developed and adopted dedicated internal documents stipulating the responsibilities of its

governing bodies.

Superior expertise of PJSC Aeroflot’s management team has been widely acclaimed in the

business community.

General Meeting of Shareholders

The General Meeting of Shareholders is the Company’s supreme governing body. The respective

scope of authority and procedures for convening, holding and summarising Annual General

Meetings of Shareholders (AGMs) are set forth in the Company’s Articles of Association and

General Meeting

of Shareholders Board of Directors

CEO

Management Board

Management Board

External auditor

Revision Committee Internal Audit

Department

Personnel and

Remuneration Committee

Audit Committee

Strategy Committee

Committee for Finance

and Investments

Committee for

Innovative

Development

Regulations on the General Meeting of Shareholders. The Company holds its AGMs in June

every year.

In 2016, PJSC Aeroflot convened the Annual General Meeting of Shareholders in Moscow on

27 June (Minutes No. 38 dated 30 June 2016). The meeting was attended by holders of 71.27%

of PJSC Aeroflot’s total voting stock.

The Annual General Meeting of Shareholders approved the Company’s Annual Report, 2015

financial statements (including the profit and loss statement), the Board’s recommendations on

the distribution of the net profit for FY2015, and the remunerations of the members of the Board

of Directors and the Revision Committee, as recommended by the Board of Directors. The

Company also approved a number of related-party transactions.

The Meeting approved a new composition of the Board of Directors and the Revision

Committee, and the Company’s auditor for 2016 annual accounting (financial) statements

(selected pursuant to the relevant bidding procedures). It also adopted new versions of

PJSC Aeroflot’s Articles of Association, Regulations on the General Meeting of Shareholders,

Regulations on the Board of Directors, and Regulations on the Management Board.

The Annual General Meeting of Shareholders resolved not to announce or pay out dividends on

PJSC Aeroflot’s shares for FY2015, since Aeroflot Group reported no net profit for that year.

This resolution took into account the recommendations of PJSC Aeroflot’s Board of Directors

and was passed in line with the Company’s Dividend Policy, which stipulates that Aeroflot

Group’s net profit (under IFRS) forms the base for calculating dividends.

The Extraordinary General Meeting (EGM) of Shareholders held on 26 December 2016

(Minutes No. 39 dated 27 December 2016) was attended by holders of 67.81% of

PJSC Aeroflot’s total voting stock.

The EGM approved the related-party transaction (several associated transactions) related to

assignment of the right to acquire 22 Boeing 787 aircraft.

Board of Directors

PJSC Aeroflot’s Board of Directors has overall authority over the Company. The Board of

Directors is responsible for the Company’s operations, excluding matters within the authority of

PJSC Aeroflot’s General Meeting of Shareholders, Management Board, and Chief Executive

Officer. The procedures for convening and holding the Board meetings, along with other Board

activities, are stipulated by the Regulations on the Company’s Board of Directors in line with the

Federal Law On Joint-Stock Companies.

The Board’s key focus areas include the Company’s long-term sustainable development,

effective oversight of its executive bodies, uncompromising observance and protection of

shareholder rights and their legitimate interests.

The main objectives of the Board of Directors are to:

define the core areas of business for the Company (including subsidiary airlines) to increase its

operating profit;

operate for the benefit of shareholders, supervise the implementation of corporate initiatives;

supervise the activities of the Management Board and Chief Executive Officer;

present resolutions on matters within the authority of the General Meeting of Shareholders for

approval by shareholders;

discuss and approve business plans;

determine the procedure for distributing profit and covering for loss;

develop the Company’s dividend policy, work out proposals on the amount of dividends on the

Company’s shares and dividend payout procedure, and present them for approval by the General

Meeting of Shareholders;

approve and monitor performance of the annual budget;

discuss and pre-approve draft annual reports, annual accounting statements and profit and loss

accounts;

analyse audit reports and opinions of the Revision Committee, and present documents featuring

the results of such audits for consideration by the Company’s shareholders;

present proposals to the General Meeting of Shareholders on the appointment of the Company’s

auditor;

determine the policy on issuing the Company’s securities;

approve the Company’s special registrar and the terms and conditions of the contract therewith,

as well as the contract termination.

In line with the action plan for the Board of Directors, the Board meetings are held at least once

a month. The action plan for the Board of Directors is approved at the end of the year preceding

the year covered in the plan. As a rule, the action plan includes essential matters concerning the

Company’s operations (strategy, finance, budget and risks, human resources, etc.), which are to

be discussed in line with the strategic and business planning cycle. Proposals made by members

of the Board of Directors and the Company’s management are factored in. Extraordinary

meetings may be convened to make decisions on urgent matters.

The agenda of the Board of Directors’ meetings must include items proposed for discussion by

shareholders who in aggregate hold at least 2% of shares, members of the Board of Directors, the

Revision Committee and the Management Board, and by the CEO.

All items on the agenda of the Board of Directors’ meetings are generally previewed by

dedicated committees to enable a more detailed discussion and prepare recommendations for

voting to the Board of Directors.

The Board of Directors’ meetings held in absentia consider matters on which members of the

Board of Directors do not have any material comments, as well as matters of procedure.

However, a matter may be moved to the agenda of a meeting held in person upon request of two

members of the Board of Directors.

Chairman of the Board of Directors

is responsible for the general stewardship of the Board of Directors, convenes and chairs

meetings, arranges for keeping the minutes of meetings, chairs the General Meeting of

Shareholders;

helps ensure the timely provision to members of the Board of Directors of all the information

required to pass resolutions and vote on agenda items;

ensures productive discussion of agenda items involving non-executive and independent

directors;

controls the execution of resolutions passed by the Board of Directors and the General Meeting

of Shareholders.

Independent directors and their role

Independent directors promote opinions and judgements unaffected by relations with the

Company’s shareholders or executive bodies, as well as decision-making which benefits

different groups of stakeholders.

The presence of independent directors enhances corporate governance in the Company.

Independent members of the Board of Directors are actively involved in the activities of the

Board committees. In accordance with the requirements of the Moscow Exchange, independent

directors head the Board of Directors’ Audit Committee and Personnel and Remuneration

Committee. The majority of members of the Board of Directors’ Committees are also

independent directors, which helps achieve a balanced and independent position on agenda

items.

Membership of the Board of Directors

As at 31 December 2016, PJSC Aeroflot’s Board of Directors was comprised of the Chairman

(non-executive director), one executive director, seven non-executive directors (including the

Chairman), and three independent directors.

PJSC Aeroflot’s Board of Directors is largely independent of the Company’s management: the

only executive director on the Board is Vitaly Saveliev, the Chief Executive Officer and

Chairman of PJSC Aeroflot’s Management Board.

Members of the Board of Directors efficiently performed their functions and tasks

notwithstanding their service on boards of directors at other companies.

The Chairman and members of the Board of Directors, except for Vitaly Saveliev, held no stake

in PJSC Aeroflot during the reporting year. In the reporting year, no members of the Company’s

Board of Directors purchased or disposed of their shares in the Company.

In 2016, no claims were filed against members of the Board of Directors.

Membership of the Board of Directors as at 31 December 2016

Kirill

Androsov

Chairman of the Board of Directors

Born on 13 June 1972 in Murmansk. In 1994, graduated with honours from St Petersburg

Maritime Engineering University (School of Engineering and Economics). In 2000, presented his

thesis to and was awarded a PhD degree at St Petersburg State University of Economics and

Finance. From 2003 to 2005, received training at Chicago University Business School (Executive

MBA). From 2000 to 2004, First Deputy CEO at LENENERGO; from 2004 to 2005, Director of

the Department for Government Regulation of Tariffs and Infrastructural Reforms at the Ministry

of Economic Development and Trade of the Russian Federation; since November 2005, Deputy

Minister for Economic Development and Trade of the Russian Federation. From April 2008 to

April 2010, Deputy Head of the Executive Office of the Government of the Russian Federation.

Since 2010, Managing Partner at Altera Capital. Member of boards of directors at

Otkritie Holding, Russian Machines, Altera Investment Fund, Ruspetro plc, RUSNANO

Management Company.

At different periods, served on boards of directors at RAO UES of Russia, Rosneft,

Zarubezhneft, VTB, Svyazinvest, All-Russian Exhibition Centre (VVC), Channel One Russia.

Since 2011, member of the Public Council under the Federal Tax Service of Russia; since 2012,

professor at the Higher School of Economics. Member of the Civic Chamber of the Russian

Federation and member of the Public Council under the Ministry of Energy of Russia.

Currently, holds the position of the Managing Director at Altera Investment Fund SICAV-SIF.

Does not own PJSC Aeroflot’s shares.

Mikhail

Alekseev

Member of the Board of Directors, member of the Strategy Committee

Born on 4 January 1964 in Moscow. In 1986, graduated with honours from Moscow Finance

University (Finance Academy under the Government of the Russian Federation) with a degree in

Finance and Credit. In 1992, presented his thesis and was awarded a Doctor of Economics

degree. From 1989 to 1991, Senior Expert, Lead Expert, Department Head, Deputy Head of the

Main Directorate at the USSR Ministry of Finance. In 1992, joined the Management Board at

Mezhkombank. In 1995, left for ONEXIM Bank as Deputy Chairman of the Board of Directors.

From 1999 to 2006, Senior Vice-President and Deputy Chairman of the Management Board at

Rosbank.

From 2006 to 2008, President and Chairman of the Management Board at Rosprombank.

Since 2008, Chairman of the Management Board at UniCreditBank.


Igor

Kamenskoy

Independent member of the Board of Directors, Head of the Personnel and Remuneration

Committee, member of the Audit Committee

Born on 25 January 1968 in Kiev. In 1993, graduated from Moscow State Pedagogical Institute

with a degree in Russian Language and Literature. From 1992 to 1998, Vice-President at

Soyuzcontract. In 1999, Vice-President at Rosbank. From 2000 to 2002, Advisor to the Chairman

of the State Duma. From 2002 to 2009, member of the Council of the Federation, Deputy

Chairman of the Council of the Federation Committee. From 2009 to 2015, Chairman of the

Board of Directors at Renaissance Capital.

Currently, holds the position of the Managing Director at Renaissance Broker.


Aleksey

Germanovich

Independent member of the Board of Directors, member of the Personnel and Remuneration

Committee and the Strategy Committee

Born on 19 July 1977 in Moscow. In 1998, graduated from the Department of Economics, and in

2002, from the Department of Journalism at Lomonosov Moscow State University; in 2008,

graduated from Cranfield University, UK (Executive MBA). From 2002 to 2009, Deputy CEO at

Severstal Group; from 2009 to 2012, director at Moscow SKOLKOVO Management School;

from 2012 to 2014, Director, member of the Executive Board and advisor to the Russian Direct

Investment Fund. Currently, independent director on boards of directors at Unipro (formerly,

E.On Russia), Bank St Petersburg, and Ameriabank (Armenia). At different periods, served on

boards of directors at a variety of Russian transport companies, such as Siberia Airlines, Irkutsk

International Airport, Rossiya State Transport Company, SG-Trans, etc. For the past four years,

was named among Russia’s 50 best independent directors in the rating compiled by the Russian

Union of Industrialists and Entrepreneurs with PwC and the IDA. Member of the Board at

Endowment Asset Маnagement Fund “Development of Saint Petersburg State University”,

Chairman of the Corporate Governance Committee at the Expert and Advisory Council of the

Federal Agency for State Property Management.


Roman

Pakhomov

Member of the Board of Directors, Head of the Strategy Committee, member of the Audit

Committee, and the Personnel and Remuneration Committee

Born on 4 March 1971 in Havana (Cuba). Graduated from Makarov State Marine Academy. He

holds MBA degree from the Graduate School of International Business at the Russian

Presidential Academy of National Economy and Public Administration (Moscow) and a degree

from Kingston University (UK). Started his career at Northern Shipping Company. From 1996 to

1998, Senior Expert for corporate customers at Inkombank. From 1998 to 1999, Deputy

Chairman of the Management Board at Maritime Bank. From 1999 to 2004, CEO at IC Center

Capital. From 2004 to 2008, Deputy CEO and CEO at VIM-avia. From 2008 to 2009, Executive

Director at Atlant Soyuz Airlines. From 2009 to 2010, CEO at Rossiya State Transport Company,

Advisor to Deputy CEO at ROSTEC Corporation.

Since September 2010, CEO at Aviacapital-Service.


Dmitry Peskov Member of the Board of Directors, member of the Personnel and Remuneration Committee, and

the Strategy Committee

Born on 26 December 1975 in Voronezh. Graduated from Voronezh State University in 1998. In

1999, obtained a Master’s degree in Political Studies from Moscow School of Social and

Economic Sciences and the University of Manchester. Since 2000, has led the strategy

development exercise, chaired the Internet Policy Centre and overseen the establishment of the

Russian International Studies Association at Moscow State Institute of International Relations

(MGIMO University). Last position held — Deputy Scientific Vice-President, Innovation

Director. Since 2009, Head of Strategic Initiatives at All-Russian Exhibition Centre (VVC).

Since 2011, Director of Young Professionals at the Agency for Strategic Initiatives. Member of

the Government Expert Council, member of the Board of Directors at RVC.


Vitaly Saveliev Member of the Board of Directors, CEO, Chairman of the Management Board

Born on 18 January 1954 in Tashkent. In 1977, graduated from the Department of Mechanics and

Engineering at Leningrad Polytechnic Institute with a Mechanical Engineer degree (Construction

and Road Machinery and Equipment); in 1986, graduated from Leningrad Institute of

Engineering and Economics. Since 1987, Deputy Head of Civil Engineering at

Glavleningradinzhstroi. Since December 1988, CEO at US-Soviet Union joint venture

DialogInvest (Leningrad office). In 1989, co-founder and member of the Board of Directors at

Dialogue Bank. From 1990 to 1993, CEO at the US-Soviet Union joint venture DialogInvest;

from 1993 to 1995, Chairman of the Management Board at Rossiya Bank; since November 1995,

Chairman of the Management Board at Menatep Saint Petersburg; since September 2001, Deputy

Chairman of the Management Board at Gazprom; from 2002 to 2004, Vice-President at GROS

United Company, Financial and IT Advisor to the CEO at Svyazinvest; from 2004 to 2007,

Deputy Minister for Economic Development and Trade of the Russian Federation. From 2007 to

April 2009, First Vice-President and Head of Telecom Assets at Sistema Financial Corporation.

Has held his current role since 10 April 2009.

Holds 0.121% of PJSC Aeroflot’s share capital.

Dmitry

Saprykin

Member of the Board of Directors, member of the Strategy Committee

Born in 1974 in Moscow. In 1996, graduated from Moscow State Law Academy with a degree in

Law. PhD in Law (2000). In 2001, graduated from Cornell Law School. From 1996 to 1998,

Chief Legal Adviser at Bank Menatep. From 2001 to 2004, Division Head and Director of M&A

and Capital Markets Department at MTS. From 2004 to 2006, Deputy CEO for Corporate Affairs

and Finance at SkyLink; from 2006 to 2007, CEO at Moscow Cellular Communications; from

2007 to 2009, Director of Transaction Support, Deputy Head of the Legal Division at Sistema

Financial Corporation. From July 2009 to July 2013, Deputy CEO for Legal and Property Issues

at PJSC Aeroflot. From July 2013 to November 2015, Deputy CEO for Sales and Property Issues

at PJSC Aeroflot. Since November 2015, CEO at Rossiya Airlines.


Vasiliy Sidorov Independent member of the Board of Directors, Head of the Audit Committee, member of the

Personnel and Remuneration Committee, and the Strategy Committee

Born on 2 February 1971 in Athens (Greece). In 1993, graduated from Moscow State Institute of

International Relations (MGIMO University) with a degree in International Public Law, and from

Wharton Business School of the University of Pennsylvania with a degree in Finance. From 1997

to 2000, Deputy CEO at Svyazinvest. From 2000 to 2003, First Vice-President at Sistema

Telecom. From 2003 to 2006, President at MTS. From 2006 to 2010, co-owner of Telecom

Express Group. Since 2010, Managing Partner at Euroatlantic Investments Ltd. Since June 2012,

members of the Board of Directors at Russian Railways. Since 2012, CEO at the Agency for

Recapitalisation of Infrastructure and Long-Term Assets.


Yury Slyusar Member of the Board of Directors, member of the Strategy Committee

Born on 20 July 1974 in Rostov-on-Don. In 1996, graduated from Lomonosov Moscow State

University with a degree in Law. In 2003, completed a post-graduate programme at the Academy

of National Economy under the Government of the Russian Federation. PhD in Economics. Until

2003, worked with various business entities. Since 2003, Commercial Director at Rostvertol

(Rostov-on-Don). In 2009, was appointed Assistant to the Minister of Industry and Trade of the

Russian Federation. In 2010, Director of the Aviation Industry Department at the Ministry of

Industry and Trade of the Russian Federation. In 2012, was appointed Deputy Minister of

Industry and Trade of the Russian Federation. Since January 2015, President at United Aircraft

Corporation.


Sergey

Chemezov

Member of the Board of Directors

Born on 20 August 1952 in Cheremkhovo (Irkutsk Region). Graduated from Irkutsk Institute of

National Economy, completed Advanced Courses at the Military Academy of the General Staff

of the Russian Armed Forces. Doctor of Economics, Professor, full member of the Academy of

Military Science. Started his career at Irkutsk Scientific and Research Institute for Rare and Non-

Ferrous Metals. Since 1980, worked at the Luch Research-Industrial Association. From 1983 to

1988, served as Head of the Luch Association representative office in East Germany. From 1988

to 1996, Deputy CEO at Sovintersport. From 1996 to 1999, Head of Foreign Economic Relations

at the Administrative Office of the Russian President. From 1999 to 2001, CEO at Promexport.

Since February 2001, First Deputy CEO at Rosoboronexport. From 2004 to 2007, CEO at

Rosoboronexport. Since December 2007, CEO at ROSTEC Corporation (a state corporation set

up to further the development, manufacture and export of hi-tech industrial products). Member of

the Bureau of the Supreme Council of United Russia Party. Chairman of the public organisation

“Russian Engineering Union”. President of the Russian Union of Engineering Employers. Head

of the Department of Military and Engineering Cooperation and High-Tech at Moscow State

Institute of International Relations (MGIMO University). Chairman of boards of directors at

Rosoboronexport, VSMPO-AVISMA Corporation, Kamaz, and Uralkali. Member of boards of

directors at United Aircraft Corporation, International Financial Club, and Alliance Rostec

AUTO BV Joint Venture. Member of supervisory boards at Rostec State Corporation, United

Rocket and Space Corporation, and Roscosmos. Mr Chemezov has received high government

awards and won a large number of other prestigious awards.


Executive Secretary of the Board of Directors

Aleksey Melekhin

Born in 1977. In 2001, graduated from Institute of Economics and Entrepreneurship. Obtained

his PhD degree from the Russian Presidential Academy of National Economy and Public

Administration. Mr Melekhin joined PJSC Aeroflot in 1998. He held a number of positions from

legal counsel to regulations drafting and alignment team of the Company’s Administration to

Corporate Governance Department Director.

He is currently responsible for the administrative and information support of the Company’s

Board of Directors and General Meeting of Shareholders, and supervises compliance by the

Company’s bodies and officers with corporate governance rules and procedures set forth by the

laws of the Russian Federation, the Company’s Articles of Association, and internal documents.


Changes in the membership of the Board of Directors in 2016

Marlen Manasov – stepped down from the Board of Directors as from 27 June 2016 by

resolution of the Annual General Meeting of Shareholders (Minutes No. 38 dated 30 June 2016).

Aleksey Germanovich – elected to the Board of Directors as from 27 June 2016 by resolution of

the Annual General Meeting of Shareholders (Minutes No. 38 dated 30 June 2016).

There were no other changes in the membership of PJSC Aeroflot’s Board of Directors in 2016.

Other members of the Board of Directors were re-elected at the 2016 AGM.

Board of Directors’ Performance Report for 2016

In 2016, PJSC Aeroflot’s Board of Directors held 18 meetings, including 9 meetings in person

and 9 meetings in absentia. The said meetings addressed over 180 items and passed over 440

resolutions on matters of the Board.

In its resolutions, the Board of Directors covers a number of priority areas to:

ensure flight safety and frequency;

determine Aeroflot Group’s strategy and identify priority lines of business;

build and maintain effective corporate controls and risk management;

map out a development strategy for Aeroflot Group’s aircraft fleet and route network;

improve the aircraft fleet composition through additions and aircraft mix optimisation;

improve operating, financial and marketing practices and methods through upgrades, innovation,

and implementation of best practices from global peers;

improve the performance of Aeroflot’s branches and representative offices both domestically and

internationally;

enforce higher standards for airport and inflight passenger services, expand the service mix and

improve customer experience;

promote cooperation with SkyTeam partners, use the membership to expand the Company’s

route network and boost the international flight performance;

promote strategic partnerships with airlines;

improve operational performance of subsidiaries and streamline the non-core asset structure to

cut unnecessary spending and increase investment returns;

develop and upgrade information technologies;

ensure information transparency (including investor relations and procurement);

develop and improve corporate policies.

Directors’ attendance at Board meetings in 2016

Board member Status Board of

Directors

Audit

Committee

Personnel and

Remuneration

Committee

Strategy

Committee

Kirill Androsov Chairman of the

Board of Directors 18(9)/18

Mikhail Alexeev Non-Executive

Director 18(12)/18 6(2)/6 7(4)/7

Aleksey

Germanovich* Independent Director 8(4)/8 3/3 3/3 3/3

Igor Kamenskoy Independent Director 18(10)/18 9(2)/9 6(1)/6 3/3

Marlen Manasov** Independent Director 10(5)/10 3(1)/3 4/4

Roman Pakhomov Non-Executive

Director 18(9)/18 9(1)/9 6(1)/6 7/7

Dmitry Peskov Non-Executive

Director 18(12)/18 5(1)/6 6(1)/7

Vitaly Saveliev Executive Director 18(9)/18

Dmitry Saprykin Non-Executive

Director 18(9)/18 6(3)/7

Vasiliy Sidorov Independent Director 18(9)/18 9/9 6(1)/6 7/7

Yury Slyusar Non-Executive

Director 18(13)/18 6(6)/7

Sergey Chemezov Non-Executive

Director 17(12)/18

Data format: the number of meetings attended by the member of the Board of Directors / the total number of

meetings held in 2016. Attendance through written opinions or questionnaires (for meetings held in absentia) is

shown in brackets.

*Member of the Board of Directors as from the Annual General Meeting of Shareholders held on 27 June 2016.

**Member of the Board of Directors up to the Annual General Meeting of Shareholders held on 27 June 2016.

Number of meetings held by the Board of Directors

Очные In person

Заочные In absentia

Matters discussed by the Board of Directors

Стратегия и инвестиции Strategy and investments

Бюджетное планирование и финансирование Budget planning and funding

Другие вопросы Other

Корпоративное управление Corporate Governance

Сделки с заинтересованностью Related-party transactions

Key matters discussed by the Board of Directors in 2016 Strategic management

and investment

activities

progress in implementation of Aeroflot Group’s Strategy;

Aeroflot Group’s Long-Term Development Programme update;

Aeroflot Group’s IT Strategy;

Aeroflot Group’s Investment Programme;

Aeroflot Group’s Innovative Development Programme;

PJSC Aeroflot’s branches and representative offices;

progress in implementation of PJSC Aeroflot’s marketing strategy.

119

79 9

311

9

119

14

20

16

2018

2012 2013 2014 2015 2016

Очные Заочные

7,0%

3,3%

5,0%

5,6%

9,3%

17,8%

15,7%

21,0%

18,0%

21,9%

11,9%

7,2%

5,0%

10,6%

7,9%

15,8%

30,1%

37,1%

32,9%

37,1%

47,5%

43,7%

31,9%

32,9%

23,8%

2012

2013

2014

2015

2016

Стратегия и инвестиции

Корпоративное управление

Бюджетное планирование и финансирование

Сделки с заинтересованностью

Другие вопросы

Budget planning and

funding

performance of Aeroflot Group’s consolidated budget KPIs;

PJSC Aeroflot’s budget for 2017;

PJSC Aeroflot’s budget for 2015;

annual accounting statements, including the Company’s income statement for the fiscal

year 2015;

opinions of PJSC Aeroflot’s auditors (under RAS and IFRS) for the fiscal year 2015;

materials and opinions of the Revision Committee and the Audit Committee of the Board

of Directors for the fiscal year 2015;

Aeroflot Group’s operational KPIs forecast for 2017;

distribution of the Company’s profit and loss for the fiscal year 2015;

Corporate Governance Dividend Policy of PJSC Aeroflot;

implementation of the Corporate Governance Code;

supervision of corporate governance practices;

KPIs for 2017;

incentive programme at PJSC Aeroflot;

remuneration payable to members of PJSC Aeroflot’s Board of Directors and Revision

Committee;

preparation for the next Annual General Meeting of Shareholders of PJSC Aeroflot;

PJSC Aeroflot’s internal documents;

shareholder and investor relations.

Related-party

transactions

approval of a number of PJSC Aeroflot’s related-party transactions.

Other flight safety at PJSC Aeroflot in 2015;

outcomes of Transaero bailout;

aircraft lease transactions;

enhancement of service offerings within Aeroflot Group;

procurement at PJSC Aeroflot.

Committees of the Board of Directors

To improve the effectiveness of resolutions passed by the Board of Directors, ensure more

detailed preliminary discussions of most important matters and prepare relevant

recommendations, PJSC Aeroflot has three dedicated Committees of the Board of Directors:

Audit Committee,

Personnel and Remuneration Committee, and

Strategy Committee.

The Board of Directors’ Committees are elected by the Board of Directors and act in compliance

with relevant Committee Regulations approved by the Company’s Board of Directors. The

Committees act as per the Board’s resolutions and action plans based on the Board’s action plan.

In 2016, the Board of Directors’ Committees held a total of 22 meetings, addressing matters

related to the operations of Aeroflot Group and submitting detailed recommendations and

proposals to the Company’s Board of Directors and Management Board.

Audit Committee’s Performance Report

The Audit Committee supervises the Company’s financial and business operations to protect

shareholder interests and ensure the growth of the Company’s assets. Coordinating with the

Company’s executive bodies, the Revision Committee, and the Internal Audit Department, the

Audit Committee prepares and submits for consideration by the Board of Directors

recommendations and proposals on matters of the Board.

In 2016, the Audit Committee held a total of nine meetings (in person). The Committee’s

meeting agendas were compiled in line with the Committee’s action plan approved by the first

post-election meeting, and reflected the instructions of the Board of Directors.

Key matters discussed in 2016:


Aeroflot Group’s and PJSC Aeroflot’s budgets;

initiatives to reduce Aeroflot Group’s operating expenses;

financial hedging;

extending and restructuring of loans;

controls and risk management;

improvement of internal audit at Aeroflot Group;

auditor’s reports on the financial and business audit results;

reports on audits conducted by the Internal Audit Department;

reports on the results of analysis of the companies’ debt to PJSC Aeroflot;

PJSC Aeroflot’s key financial and business audit areas;

procurement;

aircraft sale transactions;

dividend policy;

shareholder and investor relations;

PJSC Aeroflot’s internal documents, including Operational Quality Guidelines of PJSC Aeroflot;

Aeroflot Group’s Risk Register; Aeroflot Group’s Risk Map; Aeroflot Group’s Investment

Programme; the Regulations on Procurement of Goods, Works, and Services; the Regulations on

the Internal Audit Department.

Changes in the membership of the Audit Committee in 2016

Committee membership

from January to June 2016


from September to December 2016

Vasiliy Sidorov – independent member of the Board

of Directors, Head of the Committee

Vasiliy Sidorov – independent member of the Board of

Directors, Head of the Committee

Igor Kamenskoy – independent member of the Board

of Directors

Aleksey Germanovich – independent member of the

Board of Directors

Roman Pakhomov – member of the Board of

Directors


of Directors

Roman Pakhomov – member of the Board of Directors

Elected by resolution of the Board of Directors on

3 September 2015


8 September 2016

Personnel and Remuneration Committee’s Performance Report

Personnel and Remuneration Committee promotes the development of the HR policy, supervises

matters concerning the Company’s organisational structure, selection and assessment of persons

appointed to the Company’s governing bodies, their remuneration, and the remuneration system.

In 2016, the Personnel and Remuneration Committee held a total of six meetings, including one

meeting held in absentia. The Committee’s meeting agendas were compiled in line with the

Committee’s action plan approved by the first post-election meeting, and reflected the

instructions of the Board of Directors.


remunerations of members of the Board of Directors and the Revision Committee;

profile of the PJSC Aeroflot’s long-term incentive programme;

CEO and management KPIs;

Aeroflot Group’s Long-Term Development Programme KPIs;

assessment of the Board of Directors;

candidates and proposals on the members of the Board of Directors representing the interests of

the Russian Federation at PJSC Aeroflot’s Board of Directors in the corporate year 2017–2018;

the Company’s organisational structure;

PJSC Aeroflot’s internal documents, including The Regulations on PJSC Aeroflot’s Key

Performance Indicators; the Regulations on the Long-Term Incentive Programme; the

Regulations on Remuneration of Employees of PJSC Aeroflot out of the Net Profit for the Year;

the Policy on Exercising the Rights to PJSC Aeroflot’s Phantom Shares; the Regulations on the

Executive Secretary of the Board of Directors and the Board of Directors Office of

PJSC Aeroflot, the new version of the Regulations on the Personnel and Remuneration

Committee.

Changes in the membership of the Personnel and Remuneration Committee in 2016




from September to December 2016*


of Directors, Head of the Committee

Igor Kamenskoy – independent member of the Board of


Mikhail Alekseev – member of the Board of Directors Mikhail Alekseev – member of the Board of Directors

Marlen Manasov – independent member of the Board

of Directors


Board of Directors


of Directors

Vasiliy Sidorov – independent member of the Board of

Directors


Directors Roman Pakhomov – member of the Board of Directors

Dmitry Peskov – member of the Board of Directors Dmitry Peskov – member of the Board of Directors


3 September 2015


8 September 2016

*By Resolution of the Board of Directors dated 22 December 2016 (Minutes No. 7), Mikhail Alekseev was removed

from the Personnel and Remuneration Committee (with his consent).

In December 2016, the number of members of the Personnel and Remuneration Committed was

reduced from six to five members to comply with the recommendations of the Corporate

Governance Code and the Rules of the Moscow Stock Exchange on the undisputed majority of

independent directors on the Committee.

Strategy Committee’s Performance Report

The Strategy Committee was set up to prepare recommendations and proposals to the Board of

Directors, enhancing the Company’s performance and improving its long-term strategy.

In 2016, the Strategy Committee held a total of seven meetings (in person). The Committee’s

meeting agendas were compiled in line with the Committee’s action plan approved by the first

post-election meeting, and reflected the instructions of the Board of Directors.


implementation of Aeroflot Group’s Strategy;

implementation of Aeroflot Group’s marketing strategy;


audit the interim results of Aeroflot Group’s Long-Term Development Programme;

strategic partnerships with airlines;

Aeroflot Group’s IT Strategy;

enhancement of Aeroflot Group’s subsidiary airlines;

enhancement of maintenance and repair operators within Aeroflot Group;

results of PJSC Aeroflot’s Innovative Development Programme;

aircraft fleet expansion.

Changes in the membership of the Strategy Committee in 2016




from September to December 2016



Roman Pakhomov – member of the Board of Directors,

Head of the Committee

Mikhail Alekseev – member of the Board of Directors Mikhail Alekseev – member of the Board of Directors

Marlen Manasov – independent member of the Board

of Directors


Board of Directors

Dmitry Peskov – member of the Board of Directors Igor Kamenskoy – independent member of the Board of


Dmitry Saprykin – member of the Board of Directors Dmitry Peskov – member of the Board of Directors


of Directors Dmitry Saprykin – member of the Board of Directors

Yury Slyusar – member of the Board of Directors Vasiliy Sidorov – independent member of the Board of

Directors

Giorgio Callegari – member of the Management

Board, Deputy CEO for Strategy and Alliances Yury Slyusar – member of the Board of Directors

Shamil Kurmashov – member of the Management

Board, Deputy CEO for Commerce and Finance

Giorgio Callegari – member of the Management Board,

Deputy CEO for Strategy and Alliances

Shamil Kurmashov – member of the Management

Board, Deputy CEO for Commerce and Finance


3 September 2015


8 September 2016

Management Board

PJSC Aeroflot’s sole executive body, the CEO, and collective executive body, the Management

Board, are charged with running the Company’s ongoing operations. The executive bodies report

directly to the Board of Directors and the General Meeting of Shareholders. The CEO also acts

as the Chairman of the Management Board. The Board of Directors is authorised to appoint

members of the Management Board, and remove them from office before the end of their term.

The Management Board acts in compliance with PJSC Aeroflot’s Articles of Association and

Regulations on the Management Board as approved by the General Meeting of Shareholders of

PJSC Aeroflot.

In the reporting period, members of the Management Board has no transactions with

PJSC Aeroflot’s shares.

Membership of the Management Board as at 31 December 2016

Vitaly Saveliev Chairman of the Management Board, CEO

Born in 1954. Graduated from Kalinin Leningrad Polytechnic Institute and Togliatti Leningrad

Institute of Engineering and Economics. PhD in Economics.

From 1990 to 1993, CEO at the US-Soviet Union joint venture DialogInvest.

From 1993 to 1995, Chairman of the Management Board at Rossiya Bank.

From 1995 to 2001, Chairman of the Management Board at Menatep Saint Petersburg.

From 2001 to 2002, Deputy Chairman of the Management Board at Gazprom.

From 2002 to 2004, Vice-President at GROS United Company, Financial and IT Advisor to CEO

at Svyazinvest.

From 2004 to 2007, Deputy Minister of Economic Development and Trade of the Russian

Federation.

From 2007 to 2009, First Vice-President and Head of Telecom Asset Development at Sistema

Telecom, First Vice-President and Head of Telecom Assets at Sistema Financial Corporation.

Since 2009, CEO, Chairman of the Management Board at PJSC Aeroflot.


Vladimir

Antonov

First Deputy CEO for Aviation Safety

Born in 1953. Graduated from Moscow Railway Engineering Institute.

From 1977 to 1995, served in the armed forces.

From 1995 to 2011, Deputy CEO for Economic and Aviation Safety, Deputy CEO for Aviation

Safety, Deputy CEO for Aviation and Operating Safety, and First Deputy CEO for Operations at

PJSC Aeroflot.

Since 2011, First Deputy CEO for Aviation Safety at PJSC Aeroflot.


Vasily Avilov Deputy CEO for Administrative Management

Born in 1954. Graduated from Dzerzhinsky Higher Naval Engineering College.

From 1997 to 2013, Head of Administration, Director of the Department of General Affairs,

Deputy CEO – Executive Director at PJSC Aeroflot.

Since 2013, Deputy CEO for Administrative Management at PJSC Aeroflot.


Vladimir

Alexandrov

Deputy CEO for Legal and Property Matters

Born in 1984. In 2005, graduated from Kutafin Moscow State Law University; in 2016,

graduated from the Russian Presidential Academy of National Economy and Public

Administration (RANEPA).

Held senior positions at the Prosecutor General’s Office of the Russian Federation and the

Investigative Committee of the Russian Federation.

From 2013 to 2015, Deputy Head of the Legal Support Section of the Legal Department, Deputy

Director of Legal Department, Advisor to CEO for government relations.

In August 2015, he was appointed Legal Department Director at PJSC Aeroflot.

Since 1 July 2016, Deputy CEO for Legal and Property Matters at PJSC Aeroflot. Awarded a

Certificate of Gratitude from the Minister of Transport of the Russian Federation.


Kirill

Bogdanov

Deputy CEO for IT

Born in 1963. Graduated from Kalinin Leningrad Polytechnic Institute.

From 2002 to 2004, Advisor to Vice-President at United Company GROS.

From 2004 to 2007, Executive Director at RAMAX International.

From 2007 to 2009, Director of Development and Control at Telecom Assets at Sistema Financial

Corporation.

Since 2009, Deputy Head of IT at PJSC Aeroflot, Advisor to the CEO, Deputy CEO for IT.


Vadim

Zingman

Deputy CEO for Customer Service

Born in 1970. Graduated from St Petersburg University of Economics and Finance. PhD in

Economics.

From 2001 to 2008, Deputy Director of the Department for Government Regulation of Foreign

Trade at the Ministry of Economic Development and Trade of the Russian Federation.

From 2008 to 2009, Director of Government Relations at Sistema Financial Corporation.

From 2009 to 2012, Advisor to the CEO, Deputy CEO for Customer Relations and Deputy CEO

for Operations and Quality Management at PJSC Aeroflot.

Since 2012, Deputy CEO for Customer Service at PJSC Aeroflot.


Giorgio

Callegari

Deputy CEO for Strategy and Alliances

Born in 1959. Graduated from Turin Polytechnic University (Italy).

From 1986 to 1989, VP of Sales, member of the Board of Directors and the Executive Committee

at Malan Viaggi.

From 1990 to 2011, Sales Manager, Vice-President for Sales, Vice-President for Business

Development, Vice-President for Alliances, Business Development and International Relations,

Executive Vice-President for Alliances and Strategies at Alitalia.

Since 2011, Deputy CEO for Strategy and Alliances at PJSC Aeroflot.


Shamil

Kurmashov

Deputy CEO for Commerce and Finance

Born in 1978. Graduated from Moscow State Institute of International Relations (MGIMO

University). PhD in Economics.

From 2004 to 2007, Deputy CEO for Finance and Investment at Sistema Telecom.

From 2007 to 2009, Director of Investments, Deputy Head of the Finance and Investment

Division at Sistema Financial Corporation.

From 2009 to 2013, Advisor to the CEO, Deputy CEO for Finance and Investment and Deputy

CEO for Commerce and Finance at PJSC Aeroflot.

From 2013 to 2016, Deputy CEO for Finance and Network and Revenue Management at

PJSC Aeroflot.

Since 2016, Deputy CEO for Commerce and Finance at PJSC Aeroflot.


Georgy

Matveev

Director of Flight Safety Management

Born in 1953. Graduated from the Academy of Civil Aviation. PhD in Technical Science.

From 2001 to 2012, Deputy Chief Flight Safety Inspector and Deputy Director of Flight Safety

Management at PJSC Aeroflot.

Since 2012, Director of Flight Safety Management at PJSC Aeroflot.


Igor Parakhin Deputy CEO and Technical Director

Born in 1961. Graduated from Moscow Institute of Civil Aviation Engineers.

From 2001 to 2011, Head of Programme, Deputy Director of the Aviabusiness Higher

Commercial School.

Since 2011, Acting Technical Director, Technical Director, Deputy CEO and Technical Director

at PJSC Aeroflot.


Igor Chalik Deputy CEO and Commander of Flight Operations

Born in 1957. Graduated from Aktyubinsk Higher School of Civil Aviation.

From 2003 to 2008, Commander of the A320 Air Squadron at PJSC Aeroflot.

From 2008 to 2010, Commander of the A330 Air Squadron at PJSC Aeroflot.

Since 2011, Deputy CEO and Commander of Flight Operations at PJSC Aeroflot.

Recipient of the honorary title of the Honoured Pilot of the Russian Federation, the Medal of

Nesterov, and awards of government agencies.


Changes in the membership of the Management Board in 2016

As from 24 June 2016, Vladimir Alexandrov, Deputy CEO for Legal and Property Matters, was

appointed to PJSC Aeroflot’s Management Board. As from the same date, Nikolay Altukhov,

Deputy CEO for Sales and Property Management, stepped down from PJSC Aeroflot’s

Management Board.

Management Board’s Performance Report for 2016

In 2016, the Management Board of PJSC Aeroflot held a total of 35 meetings, including

5 meetings in absentia.


flight safety;

implementation of Aeroflot Group’s Strategy;


route network development, to factor in handling capacity limits at the South Terminal Complex

(STC);


review of reporting documents (annual accounting statements including PJSC Aeroflot’s income

statement for the fiscal year 2015, annual report);

opinions of PJSC Aeroflot’s auditors (under RAS and IFRS) for the fiscal year 2016;

Aeroflot Group’s operational KPIs forecast;

Aeroflot Group’s Investment Programme;

PJSC Aeroflot’s incentive programme;

outcomes of Transaero bailout;

changes in trade receivables and performance of its reduction measures;

results of the airline’s quality audit by SkyTrax and initiatives to improve PJSC Aeroflot’s

service offering;

PJSC Aeroflot’s credit and documentary credit facilities;

results of PJSC Aeroflot’s Innovative Development Programme;

Aeroflot Bonus performance;

opening and closing of representative offices;

results of the assessment of Aeroflot Group’s Net Promoter Score (based on the NPS study);

procurement at PJSC Aeroflot;

PJSC Aeroflot’s cooperation with aviation schools;

shareholder and investor relations;

charity projects for children’s homes;

sponsorship initiatives;

provision of free flights to citizens eligible for such support under the applicable laws of the

Russian Federation;

enhancement of Aeroflot Group’s IT;

roadmap for anti-corruption risk management and internal control processes.

Committees

In pursuit of recommendations and proposals aiming to boost the Company’s business

efficiency, PJSC Aeroflot set up the Committee for Finance and Investments and the Committee

for Innovative Development.

Committee for Finance and Investments

The Committee for Finance and Investments is a permanent collective advisory body of

PJSC Aeroflot. In its operation, the Committee is guided by the applicable laws of the Russian

Federation, resolutions of PJSC Aeroflot’s Board of Directors, other regulations, rules and

procedures of the Company, and the Regulations on the Committee for Finance and Investments.

The Committee is charged, among other things, with monitoring progress on the Company’s

ongoing investment projects, providing expert reviews of any such projects, passing resolutions

on suspension of investment projects, determining their efficiency assessment criteria and

drafting proposals on Aeroflot Group’s financial, economic, and marketing policies.

In 2016, the Committee for Finance and Investments held a total of 20 meetings.

Membership of the Committee for Innovative Development as at 31 December 2016

Shamil Kurmashov – Deputy CEO for Commerce and Finance, Chairman of the Committee

Vadim Zingman – Deputy CEO for Customer Service

Giorgio Callegari – Deputy CEO for Strategy and Alliances

Svetlana Arkhipova – Director of the Department for Financial Planning and Analysis

Ilya Alexandrovsky – Director of the Sales Department

Alexander Noskov – Director of the Economic Security Department

Andrey Chikhanchin – Director of the Corporate Finance Department

Evgeny Zenchenko – Director of the Corporate Strategy Department

Dmitry Galkin – Advisor to the Deputy CEO for Commerce and Finance

Andrey Polozov-

Yablonsky

– Advisor to the CEO, Director on Innovations

Committee for Innovative Development

The Committee for Innovative Development is a permanent collective advisory body of

PJSC Aeroflot’s Management Board. It was set up to provide recommendations and proposals

for the Management Board to boost the Company’s business efficiency.

In its operation, the Committee is guided by the laws of the Russian Federation, resolutions of

PJSC Aeroflot’s Board of Directors and Management Board, other regulations, rules and

procedures of the Company, and the Regulations on the Committee for Innovative Development.

The Committee is charged with reviewing innovative projects and providing assessment of their

efficiency, monitoring progress on the ongoing innovative projects, passing resolutions on

project suspension, setting out requirements for the design and quality of innovative

development materials submitted to the Management Board, and recommending projects for

implementation.

In 2016, the Committee for Innovative Development held a total of two meetings.

Membership of the Committee for Innovative Development as at 31 December 2016

Vadim Zingman – Deputy CEO for Customer Service, Chairman of the Committee

Andrey Polozov-

Yablonsky

– Advisor to the CEO, Director on Innovations, Deputy Chairman of the Committee

Sergey Krylov – Director of the IT Project Department

Alexey Korenevsky – Deputy Director for Flight Training and Training Methodology of the Flight Operations

Department

Azat Zaripov – Deputy Director of the Aviation Security Department

Dmitry Saksonov – Head of Strategic Projects Coordination at the Corporate Strategy Department

Ekaterina Kryshkina – Advisor to the Deputy CEO for Commerce and Finance

Alexander Fadeev – Advisor to the Deputy CEO and Technical Director

Remuneration for members of the Board of Directors and the management

The Company has in place a structured remuneration system for members of the governing

bodies designed to link the amount of bonus payments to the achievement of short-term targets,

and align the interests of the Company’s management and its shareholders. Short-term incentive

is provided in the form of cash bonuses, while long-term incentive implies payments based on

share capitalisation benchmarked against different indicators.

Remuneration for members of the Board of Directors

Guidelines for Board remuneration calculation and payouts are set forth in the Regulations on

Remuneration and Compensation Payments to the Members of the Board of Directors of

PJSC Aeroflot, in line with the Federal Law On Joint-Stock Companies, other applicable laws of

the Russian Federation and the Company’s internal documents. These Regulations were

approved by PJSC Aeroflot’s AGM on 27 June 2016. One of the key amendments was the

adoption of the July to June corporate year, in line with the Board of Directors’ election cycle.

The Board remuneration framework comprises fixed and variable components. The size of the

fixed component depends on involvement of members of PJSC Aeroflot’s Board of Directors in

its activities and includes the fixed base pay and additional payments for discharging extra duties

The variable remuneration component is directly linked to the Company’s market capitalisation

growth on the Moscow Exchange as benchmarked against MICEX Index and market prices of

shares issued by international carriers.

The Long-Term Incentive Programme for 1 January 2016 – 30 June 2019 was approved in 2016

to replace the previous Stock Option Plan for 2013–2015. The total pool of the long-term

incentive programme for Board members is equivalent to 0.5% of PJSC Aeroflot’s market

capitalisation growth over the lifetime of the Long-Term Incentive Programme. The 2016–2019

Long-Term Incentive Programme draws heavily on the following underlying metrics:

PJSC Aeroflot’s market capitalisation growth in the relevant year (maximum weight of 1/3),

PJSC Aeroflot’s rank in the Top 5 market capitalisation growth peer chart in the relevant year

(maximum weight of 1/3),

PJSC Aeroflot’s market capitalisation performance against MICEX Index (maximum weight of

1/3).

50% of the remuneration amount accrued for the relevant corporate year is paid out to the

members of the Board of Directors simultaneously with the principle remuneration for the

relevant year. 50% of the remuneration amount accrued for the relevant year is not paid out, but

set aside until the end of the Stock Option Plan lifetime (June 2019), added together and paid as

a lump sum upon resolution of the General Meeting of the Company’s Shareholders, subject to

the end capitalisation of at least RUB 100 billion. Calculations use the high water mark principle

for capitalisation values, i.e. if capitalisation goes below the high water mark in the current

interim period, the capitalisation growth base for the next interim period shall be the peak

capitalisation value that was reached in the past period.

Management remuneration

The remuneration system designed for the management and the other staff enables the Company

to engage and retain highly qualified professionals. Remuneration for management is comprised

of the fixed component (official salary) and the variable component (current bonuses and long-

term incentives).

Current bonuses depend on the Group-wide performance and are calculated in accordance with

the Company’s KPI-Based Employee Bonus System. The KPI-Based Employee Bonus System is

defined by the Regulations on Bonus Payments to the Managers and Specialists of

PJSC Aeroflot (approved on 2 February 2011 and amended on 22 December 2016). The

Regulations stipulate that the bonus component of the management compensation amount shall

depend on their quarterly and annual performance against the KPIs approved for the relevant

reporting period.

To provide for long-term incentives for PJSC Aeroflot’s management, the Long-Term Incentive

Programme for 1 January 2016 to 30 June 2019 was approved by the Board of Directors on

26 May 2016 and updated by resolution of the Board of Directors of PJSC Aeroflot on

2 February 2017. The Programme covered the CEO, members of the Management Board,

department heads, Chief Accountant and other employees of the Company, on the CEO’s

resolution. The total pool of the Long-Term Management Incentive Programme is equivalent to

3.0% of PJSC Aeroflot’s market capitalisation growth over the lifetime of the Long-Term

Incentive Programme. The 2016–2019 Long-Term Management Incentive Programme draws

heavily on the following underlying metrics:

PJSC Aeroflot’s market capitalisation growth in each relevant interim period;

PJSC Aeroflot’s rank in the Top 5 market capitalisation growth peer chart in each relevant

interim period;

customer satisfaction (NPS, Net Promoter Score) with PJSC Aeroflot’s offering in each relevant

interim period;

achievement of the capitalisation target following the Long-Term Incentive Programme.

Remuneration under the Programme is paid based on the same principles as for the long-term

incentive programme for members of the Board of Directors (50% of the remuneration amount is

paid out on an annual basis, and the remaining 50% are set aside until the end of the

Programme).

KPI system

The list and weights of KPIs for the CEO of PJSC Aeroflot for 2016, which form part of the

corporate KPI framework, were approved by the Board of Directors of PJSC Aeroflot on

29 October 2015 (Minutes No. 5) and were updated by the Resolutions of the Board of Directors

of PJSC Aeroflot dated 28 April 2016 (Minutes No. 15) and dated 8 September 2016

(Minutes No. 2). The 2016 KPI targets for the CEO of PJSC Aeroflot were approved by the

Board of Directors of PJSC Aeroflot on 24 December 2015 (Minutes No. 9) and updated for

2H 2016 by the Resolution of the Board of Directors of PJSC Aeroflot dated 27 October 2016

(Minutes No. 4).

From 2015 onward, the scope of the CEO’s KPI list (with KPI weights and targets) is fully in

line with the KPIs of our Long-Term Development Programme and extended to include all

members of the PJSC Aeroflot’s Management Board to provide incentives for the management

to pursue Group-wide corporate objectives and improve the Group’s overall performance. The

KPIs for other employees of PJSC Aeroflot were approved by the CEO’s Order No. 459 dated

30 December 2015 and updated for 2H 2016 by Order No. 439 dated 23 December 2016.

In pursuance of federal executive authorities’ instructions and taking into account the air

transportation market environment, in 2016, adjustments/updates were made to:

Aeroflot Group’s budget for 2016;

the list, weights and targets of the KPIs within Aeroflot Group’s Long-Term Development

Programme, and the 2016 KPIs for PJSC Aeroflot’s CEO.

Pursuant to the directives of the Russian Government, PJSC Aeroflot’s KPI system embraces

financial, economic and industry specific indicators, coupled with bonus disqualification

indicators, including:

mandatory financial and economic KPIs – Total Shareholder Return (TSR) (for Aeroflot Group)

and ROIC (for Aeroflot Group) – in line with the KPI Guidelines (Letter of the Federal Agency

for State Property Management No. OD-11/22160 dated 26 May 2014);

Overall Productivity KPI (Aeroflot Group) – in line with the Russian Government’s Directive

No. 6362p-P13 dated 24 October 2013;

Share of Supplies from Small and Medium-Sized Businesses, Efficient Energy Use, and

Environmental Friendliness KPIs were incorporated into Aeroflot’s KPI System and KPI lists for

relevant department heads – in line with the Russian Government’s Directive No. 6362p-P13

dated 24 October 2013;

Integrated Innovation Key Performance Indicator (IIKPI) (for Aeroflot Group) – in line with

Letter of the Deputy Minister of Economic Development of the Russian Federation No. 3142-

OF/D06 dated 24 February 2012 and the Russian Government’s Directive No. 1472p-P13 dated

3 March 2016;

Investment Programme Efficiency KPI (for Aeroflot Group) – in line with Directive of the

Federal Agency for State Property Management No. PF-11/35029 dated 14 August 2014;

KPI used to cancel the management’s bonus (disqualification indicator) – PJSC Aeroflot’s Flight

Safety;

CASK Reduction KPI – in line with the Russian Government’s Directive No. 2303p-P13 dated

16 April 2015 and Directive No. 4750p-P13 dated 4 July 2016;

Share of State-Subsidised Funding in Total Funding Secured KPI – in line with paragraph 2 of

Instruction of the Russian Prime Minister Dmitry Medvedev No. AD- P36-4617 dated 11 July

2015 on including the indicator showing investment capital raised in the private equity market.

The list and weights of KPIs for the CEO of PJSC Aeroflot for 2016 were approved by the

Company’s Board of Directors on 29 October 2015 (Minutes No. 5) and were updated by the

Resolutions of the Board of Directors dated 28 April 2016 (Minutes No. 15) and dated

8 September 2016 (Minutes No. 2). The 2016 KPI targets for the CEO of PJSC Aeroflot were

approved by the Board of Directors of PJSC Aeroflot on 24 December 2015 (Minutes No. 9) and

updated for 2H 2016 by the Resolution of the Board of Directors of PJSC Aeroflot dated

27 October 2016 (Minutes No. 4).

Target KPIs for PJSC Aeroflot’s CEO for 2016*

KPI* Unit

2015 2016

Reasons for inconsistencies (2016A vs 2016P)

Weight Plan Actual Performance

to plan Weight Plan Actual

Performance to

plan

Financial and economic (a total of 7 KPIs, weight of 60%)

Total Shareholder Return (TSR) % 5.0% 0.0% 68.9% 1,478.0% 10.0% 89.7% 176% 196.2%

Performance of Aeroflot Group’s shares above the

market driven by strong results exceeding investor

expectations

Return on Invested Capital

(ROIC) % 15.0% 15.7% 18.5% 117.8% 20.0% 17.3% 21.1% 122.0% Performance above target net profit

Long-Term Debt / EBITDAR – 5.0% 2.3 1.7 126.1% 5.0% 1.3 1.0 123.1% Early repayment of loans and higher operating profit

Innovative Development

Programmes’ Efficiency

renamed to

Integrated Innovation Key

Performance Indicator (IIKPI)

% 5.0% 80% 95% 118.8% 10.0% 80% 96% 119.7%

Praise by the Interdepartmental Committee for

Technological Development of the Presidium of the

Council under the Russian Federation President for high

quality development/implementation of PJSC Aeroflot’s

Innovative Development Programme

Investment Programme

Efficiency – 5.0% 3.8 8.7 228.9% 5.0% 6.05 10.22 168.9%

2017 EBITDA growth in line with the forecast due to,

among other things, high returns on the 2016 investment

projects and lower capex

CASK Reduction % N/A 5.0% 2.0% 2.0% 100.0%**

Share of State-Subsidised

Funding in Total Funding

Secured

% N/A 5.0% 0% 0% 100.0%

Industry-specific indicators, including the bonus non-payment (disqualification) indicator (a total of four KPIs, weight of 40%)

Punctuality % 15.0% 87.0% 91.4% 105.1% 5.0% 86.0% 89.2% 103.7%

Aeroflot Group’s initiatives to improve punctuality of

aircraft departures/arrivals from/to base/non-base

airports

PJSC Aeroflot’s Flight Safety % 20.0% 99.957% 99.978% 104.9% 15.0% 99.957% 99.975% 104.2% Effective flight safety management

Passenger Load Factor % 10.0% 77.1% 78.3% 101.6% 10.0% 81.1% 81.5 100.5%

Higher utilisation of aircraft fleet capacity due to

redistribution of leisure passenger flows to domestic

destinations and higher demand for domestic services

KPI* Unit

2015 2016

Reasons for inconsistencies (2016A vs 2016P)

Weight Plan Actual Performance

to plan Weight Plan Actual

Performance to

plan

Overall Productivity

million

ASK

per

person

15.0% 4.066 4.060 99.8% 10.0% 3.951*** 4.010 101.5%

Higher productivity levels across Aeroflot Group

supported by budget-controlled growth of work loads

and headcount growth optimisation

**2015 and 2016 KPIs are calculated for Aeroflot Group, except for PJSC Aeroflot’s Flight Safety KPI.

** The cost-cutting instruction of the Board of Directors of PJSC Aeroflot for 2016, dated 25 August 2016, and issued in pursuance of Russian Government Directive No. 4750p-P13

dated 4 July 2016, was deemed actually implemented by resolution of the Board of Directors of PJSC Aeroflot.

*** Overall Productivity KPI target does not provide for higher productivity due to the social commitment to take on former Transaero employees. Excluding Transaero staff, the

overall productivity growth will stand at 7%.

In 2016, the actual KPI values of PJSC Aeroflot’s CEO exceeded targets as a result of

implementation of initiatives to reduce costs and enhance overall productivity, as well as efficient

operational management.

The list and weights of KPIs for the CEO of PJSC Aeroflot were approved by the Board of

Directors of PJSC Aeroflot on 24 November 2016 (Minutes No. 9), and the KPI targets for the

CEO of PJSC Aeroflot were approved by the Board of Directors of PJSC Aeroflot on

22 December 2016 (Minutes No. 7).

Target KPIs for PJSC Aeroflot’s CEO for 2017

KPI* Weight Unit Plan

Total Shareholder Return (TSR) 10.0% % 13.5%**

Return on Invested Capital (ROIC) 20.0% % 14.9%

Long-Term Debt / EBITDAR 5.0% – 0.93

Integrated Innovation Key Performance Indicator (IIKPI) 10.0% % 80%

Investment Programme Efficiency 5.0% – 5.22

CASK 5.0% cent per

ASK 4.9***

Share of State-Subsidised Funding in Total Funding Secured 5.0% % 0%

Punctuality 5.0% % 87.0%

PJSC Aeroflot’s Flight Safety 15.0% % 99.957%

Passenger Load Factor 10.0% % 80.0%

Overall Productivity**** 10.0%

million

ASK

per person

4.235

*All KPIs calculated for Aeroflot Group except for PJSC Aeroflot’s Flight Safety.

**The target value assumes 50% of the net profit for 2016 distributed as dividends.

***The target value of 4.9 cent per ASK (the lowest value achieved by Aeroflot Group) is determined in line with

Guidelines for Cost Saving Estimates issued by Federal Agency for State Property Management (Order No. 90 dated

10 March 2016).

****The Overall Productivity target (for Aeroflot Group) is proposed to be +5% of the estimated actual value for

2016, in line with instructions issued by federal executive authorities. The Group’s approved 2017 consolidated

budget for Aeroflot Group provides for more aggressive growth in overall productivity, at about 7%.

The 2017 KPIs for PJSC Aeroflot’s CEO reflecting PJSC Aeroflot’s KPI system were amended

versus 2016 to replace the CASK Reduction KPI (for Aeroflot Group) with the CASK KPI (for

Aeroflot Group). Aeroflot Group optimised its operations to achieve the Group’s CASK target

and provide for average annual cost savings of 10% since 2011. Aeroflot Group ranks first among

peers by cost savings.

Remuneration for the Board of Directors and the Management Board in 2016

The Annual General Meeting of Shareholders held on 27 June 2016 resolved to pay members of

PJSC Aeroflot’s Board of Directors the total remuneration of RUB 44,876,254 for 2015, with

additional RUB 24,744,515 paid under the Stock Option Plan (in 2015, the remuneration

amounted to RUB 23,603,280 with no payments under the Stock Option Plan). In 2015,

PJSC Aeroflot’s market capitalisation grew by 68.9% (following the calculation method

applicable for the Plan) and ranked first among peers by growth rate. The upward trend continued

in 2016, with capitalisation growing by 172.5% – the highest growth among airlines used as

benchmarks for the incentive programme.

Remuneration for members of PJSC Aeroflot’s Board of Directors paid in 2016

Member of the Board of Directors Remuneration, RUB Remuneration under the Stock

Option Plan, RUB

Kirill Androsov 4,698,178 3,432,907

Mikhail Alekseev 3,958,785 2,492,174

Igor Kogan 3,123,482 1,429,412

Igor Kamenskoy 4,428,482 3,089,771

Marlen Manasov 3,958,785 2,492,173

Roman Pakhomov 4,453,482 3,121,579

Dmitry Peskov 3,958,785 2,492,174

Vitaly Saveliev 3,618,907 –

Dmitry Saprykin 3,808,785 –

Vasiliy Sidorov 4,249,798 2,862,430

Yury Slyusar 910,000 1,157,798

Sergey Chemezov 3,708,785 2,174,097

Total 44,876,254 24,744,515

The total remuneration accrued to members of PJSC Aeroflot’s Management Board for 2016

stood at RUB 598,825,846 (RUB 362,594,270 in 2015).

Remuneration for members of PJSC Aeroflot’s Management Board accrued in 2016

Remuneration type Amount, RUB

Salary and additional compensations 365,181,962

Bonuses 233,643,884

Total 598,825,846

Directors and Officers Liability Insurance

As part of its efforts to provide insurance protection, PJSC Aeroflot has signed an agreement for

liability insurance of the Company’s directors and officers, as well as representatives of

PJSC Aeroflot on governing bodies of its subsidiaries, providing for reimbursement for loss

caused to third parties, arising from claims filed by third parties against the insured due to their

wrongful acts committed in their management roles. A securities claim filed against the Company

also constitutes an insured event.

The amount of cover is USD 100 million per claim and in total. The insurance period is one year.

The total insurance premium is USD 99,000.

Regulation of possible conflicts of interest within PJSC Aeroflot’s governing bodies

Conflicts of interest at PJSC Aeroflot are regulated by the following documents:

Corporate Conduct Code of PJSC Aeroflot;

Procedure for reporting to the employer on personal interest that leads or may lead to a conflict of

interest;

Aeroflot Group’s Anti-Corruption Policy.

Internal Control and Audit

Aeroflot Group has in place a centralised internal audit function, headed by the Director of the

Internal Audit Department who functionally reports to the Board of Directors of PJSC Aeroflot

and to the Audit Committee of the Board of Directors.

Depending on the scale of their business and related risks, the Company’s controlled entities

arrange for internal audit to be conducted by either PJSC Aeroflot’s Internal Audit Department or

the internal audit unit or permanent internal auditor of their own. Heads of such units and internal

auditors of controlled entities functionally report to the Director of the Internal Audit Department

of PJSC Aeroflot.

The internal control systems are designed to maximise the Aeroflot Group’s transparency,

economic efficiency, and compliance with the applicable laws.

Audit Committee and its role

The Board of Directors of PJSC Aeroflot approves internal documents regulating its general

policy on risk management and internal controls and establishes principles of and approaches to

the risk management and internal control system within PJSC Aeroflot.

The Audit Committee of PJSC Aeroflot’s Board of Directors enhances supervision over financial

and business operations to optimise capex, protect shareholder interests, and ensure the growth of

PJSC Aeroflot’s assets.

Coordinating with the PJSC Aeroflot’s executive bodies, the Revision Committee and the

Internal Audit Department, the Audit Committee prepares and submits for consideration by the

Board of Directors recommendations and proposals to:

develop and provide for the implementation of the financial and business plan;

establish and provide for compliance with effective internal controls;

provide for effective and transparent governance at PJSC Aeroflot, including prevention and

termination of abuse by executive bodies and officers;

prevent, identify, and limit conditions giving rise to financial and operating risks;

provide for reliability of financial data used or disclosed by PJSC Aeroflot;

recommendations and proposals on other matters, as resolved by the Board of Directors of

PJSC Aeroflot.

Matters concerning assessment of risk management and internal controls based on the reports by

the Company’s Internal Audit Department are regularly discussed by the Audit Committee of the

Board of Directors. When conducting audits, the Internal Audit Department draws conclusions on

the performance of the risk management and internal controls for each audited entity. To further

improve risk management across key business processes within PJSC Aeroflot, the Audit

Committee of the Board of Directors also receives regular reports on the Company’s key risks.

PJSC Aeroflot has in place a practice of confidential reporting to the Board of Directors (the

Internal Audit Department), its corporate Hotline. The Hotline functions on the principles of

confidentiality and anonymity. All received reports are reviewed by the Internal Audit

Department.

Results of internal and external audit assessment by the Audit Committee for 2016

In 2016, the Audit Committee of the Company’s Board of Directors reviewed, on a quarterly

basis, the day-to-day operations of the Internal Audit Department and the results of conducted

audits. The 2016 action plan of the Internal Audit Department was approved by the Audit

Committee. The Director of the Internal Audit Department held regular meetings with the Audit

Committee. The Committee reviewed, approved, and gave a positive assessment of the Internal

Audit Department’s performance in 2016.

In 2016, the Company also performed internal assessment of its internal audit function quality,

supported by PricewaterhouseCoopers.

The Audit Committee reviews, on an annual basis, the results of external audit of

PJSC Aeroflot’s accounting (financial) statements prepared under the RAS, and, on a quarterly

basis, of the consolidated financial statements prepared under the IFRS. Opinions issued by

external auditors in 2016 received a positive assessment by the Audit Committee.

Internal Audit Department

The Internal Audit Department is established by the Resolution of the Board of Directors of

PJSC Aeroflot dated 1 July 2009 (Minutes No. 2). In its operation, the Department is guided by

the International Standards for the Professional Practice of Internal Auditing and the underlying

principles of independence, objectivity, proficiency, and professional care. The Director of the

Internal Audit Department functionally reports to the Board of Directors of PJSC Aeroflot and to

the Audit Committee of the Board of Directors.

The purpose of the Internal Audit Department is to support: economic efficiency and solid

performance of PJSC Aeroflot; achievement of financial and operational KPIs; protection of

assets; fair disclosures of the Company’s financial and operational data; compliance with the

applicable laws.

The Internal Audit Department strives to assist PJSC Aeroflot in achieving its strategic goals

through applying a holistic consistent approach to assessment and improvement of risk

management, internal control, and corporate governance processes.

In 2016, the Board of Directors of PJSC Aeroflot approved a new version of the Regulations on

the Internal Audit Department, developed together with the Audit Committee of the Board of

Directors and CJSC PricewaterhouseCoopers Audit. These Regulations are in line with the

requirements set out in the Guidelines of the Federal Agency for State Property Management, the

International Standards for the Professional Practice of Internal Auditing, the Code of Ethics for

Internal Auditors, and the Corporate Governance Code approved by the Board of Directors of the

Bank of Russia on 21 March 2014.

In the reporting period, the Internal Audit Department conducted a total of 60 audits of the

Company’s units and subsidiaries to identify potential risks and assess efficiency in

PJSC Aeroflot’s key business lines and processes. Audit findings enabled the management to

come up with proposals on further improvements in the Company’s key operations, with the

majority of them successfully implemented by the management.

The Internal Audit Department regularly reports to the Audit Committee of PJSC Aeroflot’s

Board of Directors on its progress in the implementation of the annual action plan, audits made,

and application of the Department’s recommendations.

Revision Committee

The Revision Committee supervises PJSC Aeroflot’s financial and business operations to provide

reasonable assurances of the Company’s business fully meeting the interests of its shareholders

and requirements set forth in the applicable laws of the Russian Federation. In its operation, the

Revision Committee is guided by the PJSC Aeroflot’s Articles of Association and the

Regulations on the Revision Committee.

As prescribed by the respective Regulations, the Revision Committee checked for accuracy the

information contained in the RAS-based annual financial statements for 2016, including the

Income Statement and other documents submitted to the General Meeting of Shareholders for

review. The Committee benchmarked the metrics of the Company’s financial and business

operations in 2012–2016 and their compliance with the applicable laws in 2016.

Based on these audits, the Revision Committee prepared and approved a relevant report

containing the balance sheet and financial performance assessment results. The Committee’s

report reflects changes in the balance sheet structure and key change drivers, assessing a wide

range of the Company’s financial and business operations, including risk management and

internal controls, and compliance. The conducted audits and checks enabled the Committee to

provide recommendations meant to improve the Company’s performance and thereby increase

earnings and cut costs.

In its report, the Revision Committee passed a positive opinion on the accuracy of the Company’s

financial statements citing no material grounds to disprove the information provided in the

Balance Sheet and Income Statement of PJSC Aeroflot as at 31 December 2016. The report also

provides the Committee’s recommendations on the Company’s financial and business

performance.

The General Meeting of Shareholders of 27 June 2016 (Minutes No. 38 dated 30 June 2015)

elected members of PJSC Aeroflot’s Revision Committee as follows:

Igor Belikov – Head of the Russian Institute of Directors;

Marina Mikhina – Advisor to the Head of the Federal Agency for State Property Management;

Ekaterina Nikitina – Advisor to the President of Oil Transporting Joint-Stock Company

Transneft;

Sergey Ubugunov – Head of Division at the Ministry of Transport of the Russian Federation;

Vasily Shipilov – Deputy Head of Division at the Ministry of Economic Development of the

Russian Federation.

The General Meeting of Shareholders also resolved to pay members of the Revision Committee

the total remuneration of RUB 2,441,574.

Remuneration for members of PJSC Aeroflot’s Revision Committee in 2016

Member of the Revision Committee Remuneration, RUB

Igor Belikov 912,984

Marina Mikhina 115,638

Ekaterina Nikitina 706,476

Alexei Shchepin 706,476

Pavel Fradkov –

Total 2,441,574

External audit

Each year, PJSC Aeroflot engages external auditors to conduct independent assessment of its

accounting (financial) statements. External auditors are engaged through public tenders which

ensure unbiased selection of the successful bidder based on auditing experience, the proposed

audit scope and timeline, and the track record in the Company’s industry. The audit firm, which

won the public tender for conducting annual audit of the Company’s accounting (financial)

statements, is recommended by the Board of Directors for approval by the annual General

Meeting of Shareholders in accordance with the applicable laws.

The annual General Meeting of Shareholders approved AO BDO Unicon (Minutes No. 38 dated

30 June 2016) as the Company’s external auditors to provide independent review of

PJSC Aeroflot’s 2016 accounting statements prepared under the Russian Accounting Standards

(RAS).

The total fees paid to AO BDO Unicon for its audit and non-audit services in 2016 amounted to

RUB 8,853 thousand (including VAT); in 2016, AO BDO Unicon also received payment of

RUB 2,625 thousand for non-audit services provided in 2015. The key scope of services rendered

under the 2016 contract included audit of interim and annual statements, development of

regulations, preparation of reporting recommendations, and tax advisory services.

The AGM approved JSC PricewaterhouseCoopers Audit (Minutes No. 38 dated 30 June 2016) as

the auditor of the Company’s consolidated financial statements for 2016 prepared under the

International Financial Reporting Standards (IFRS).

The total fees paid to PricewaterhouseCoopers International Limited for audit, audit-related, and

other services for 2016 amounted to RUB 93,518 thousand (excluding VAT). The key scope of

services rendered under the 2016 contract included general review of the IFRS interim and

condensed consolidated financial statements for 6M and 9M 2016, audit of the IFRS consolidated

financial statements for 2016, services on developing the segmentation of PJSC Aeroflot target

customers, and services on standardisation and automation of the Company’s business processes.

Anti-Corruption Policy

Aeroflot Group openly states its rejection of unfair and illegal business practices and takes

additional voluntary anticorruption commitments recommended by international and Russian

laws.

Aeroflot is currently working on the implementation of corporate anti-corruption programmes.

The Company operates on the basis of public anti-corruption principles and measures, transparent

and open procurement processes, and rejection of illicit benefits, creates effective feedback

channels, and fights corruption by sharing information. In 2015, PJSC Aeroflot signed up to the

Anti-Corruption Charter of the Russian Business.

On 21 December 2015, the Company’s Board of Directors (Minutes No. 8) approved

Aeroflot Group’s Anti-Corruption Policy designed to create a uniform approach to adhering to

Federal Law No. 273-FZ On Countering Corruption dated 25 December 2008, which provides for

development and adoption of measures to prevent and counter corruption.

PJSC Aeroflot has in place a procedure for reporting on corrupt practices or conflicts of interest.

The Company also has a roadmap for anti-corruption risk management and internal control

processes at PJSC Aeroflot, approved by its Board of Directors. We are also working to integrate

the Guidelines on anti-corruption risk management and internal controls in partially state-owned

joint-stock companies, approved by Order of the Federal Agency for State Property Management

No. 80 dated 2 March 2016.

From August to September 2016, the Internal Audit Department conducted audit (assessment) of

the performance of the Company’s anti-corruption risk management and internal controls,

followed by development and implementation of measures to further enhance these processes.

As part of the effort to integrate the Guidelines on anti-corruption risk management and internal

controls in partially state-owned joint-stock companies, approved by Order of the Federal Agency

for State Property Management No. 80 dated 2 March 2016, the Company introduced the role of

Deputy Director of the Economic Security Department responsible for compliance management.

In 2016, we developed and introduced a number of anti-corruption executive documents and

regulations, as well as updated the existing regulations, in particular:

updated the Corporate Conduct Code of PJSC Aeroflot;

developed the procedure for reporting by PJSC Aeroflot’s employees on gifts received at

hospitality events, during business trips, and at other formal events attended by them as part of

their roles or duties, handing such gifts over, evaluating, disposing of (purchasing), and crediting

the resulting proceeds from disposal (purchase);

set up a committee to receive and evaluate gifts given to PJSC Aeroflot’s employees;

developed a standard Anti-Corruption Clause to be incorporated into contracts and agreements

with PJSC Aeroflot’s counterparties, and introduced its application procedure.

PJSC Aeroflot set up a dedicated incident reporting channel – [email protected], which is

described on the Company’s website. The Company guarantees confidentiality when receiving

and reviewing incident reports and no negative consequences for individuals who raised their

concerns in good faith.

Information Disclosure

To enhance its corporate transparency and equity story, the Company strives to ensure timely

disclosure of complete and accurate material information on its operations. The Company is

guided in its information disclosure by requirements and recommendations of federal laws, the

Bank of Russia, Russian and foreign trading hubs where the Company’s securities are listed, as

well as corporate documents such as the Regulations on the Corporate Information Policy and the

Regulations on Providing Access to Insider Information.

The main objectives of PJSC Aeroflot’s corporate information policy are to:

ensure compliance with the Russian law and regulatory requirements of the securities market;

mailto:[email protected]

enhance information transparency and confidence in communications with the Company’s

shareholders, security holders, investors, creditors, and other stakeholders, and ensure protection

of their rights and their legitimate interests;

focus on fully meeting the demand of shareholders, investors, professional security traders, and

other stakeholders for fair disclosures of the corporate and business information;

secure shareholders’ rights to receive material information required to exercise their corporate

governance rights;

maintain professional and trust-based relationships of the Company with mass media providing

for free information sharing without prejudice to the rights and legitimate interests of

shareholders, investors, and other parties;

protect insider information.

Information on PJSC Aeroflot is promptly communicated to the widest possible audience through

publication of such messages, press and news releases in the news feed updated in real time on

PJSC Aeroflot’s disclosure page (http://disclosure.skrin.ru/disclosure/7712040126), and in the

section of PJSC Aeroflot’s official website for shareholders and investors (http://ir.aeroflot.ru).

For more details on information disclosure see the Investor Relations section.

6.2. Risk Management

Risk Management System

Aeroflot Group’s risk management policy implies building a comprehensive system that helps us

promptly identify risks, assess their materiality, and take measures to minimise both the

likelihood of risks being realised and losses they can lead to.

In 2015, PJSC Aeroflot’s Board of Directors approved the Regulations on Aeroflot Group’s Risk

Management System. The document lays down the fundamentals of a unified risk assessment and

management methodology: goals, tasks, principles of organisation and operation of the corporate

risk management system (CRMS), and approaches to the distribution of rights, obligations and

responsibilities of participants of the risk management system at PJSC Aeroflot and its

subsidiaries.

Risk management is applied across all management levels and functional and project areas. The

respective functions are distributed among the Board of Directors, the Audit Committee of the

Board of Directors, the Management Board, and business units of PJSC Aeroflot. A standalone

unit (Risk Management Office) has been set up in the Company to:

generally coordinate risk management processes;

develop guidelines to govern risk management processes;

arrange personnel training in risk management and internal control;

review the risk portfolio and develop proposals on response strategy and reallocation of resources

to manage respective risks;

prepare consolidated risks reports;

perform day-to-day monitoring of the risk management process in the Company’s business units

and in its controlled entities, as prescribed;

prepare information and inform the Board of Directors and executive bodies as to the efficiency

of the risk management process.

In 2016, PJSC Aeroflot’s Board of Directors approved Aeroflot Group’s Risk Register and Risk

Map. PJSC Aeroflot’s business units made comprehensive efforts to identify and assess risks and

developed a draft Risk Management Standard implementing the concept of a unified risk

management and internal control methodology.

http://disclosure.skrin.ru/disclosure/7712040126

Control over PJSC Aeroflot’s financial and business activities is exercised by the Audit

Committee of the Board of Directors, Revision Committee, Internal Audit Department, Risk

Management Office, Financial Risk Management Office of the Corporate Finance Department.

An independent auditor is engaged to audit PJSC Aeroflot’s accounting statements prepared

under the Russian Accounting Standards (RAS) and the International Financial Reporting

Standards (IFRS).

Officers responsible for interaction with PJSC Aeroflot on the implementation of the corporate

risk management system have been designated in subsidiaries, with subsidiaries taking measures

to identify and assess risks.

Risk Management Flow Chart

General Meeting of Shareholders tier

- making decisions on matters of the General Meeting of Shareholders.

Board of Directors tier

- determining key parameters of the CRMS (goals, tasks, operating principles, architecture, risk

appetite, etc.);

- managing risks within the authority of the Board of Directors;

- making decisions on providing necessary resources to CRMS participants;

- assessing CRMS performance;

- reviewing the risk map.

Management tier

- operational management and monitoring of CRMS;

Deputy CEO for Commerce and

Finance

General Meeting of

Shareholders

Board of Directors

CEO

Audit Committee of the Board of Directors

Management Board

Management Board

Risk Management

Office Property Management Department

Internal Audit Department PJSC Aeroflot’s Subsidiaries

Business Units

Executive management

(Deputy CEOs)

General Meeting of Shareholders tier

Board of Directors tier

Management tier

Line

manageme

nt tier

- making decisions on management of risks within the authority of CRMS participants at - the

executive management level;

- making decisions on allocation of resources among CRMS participants;

- making decisions on identifying instruments and parameters for financial risk hedges.

Line management tier:

- executing, following up, and continuously improving risk management procedures;

- making decisions on management of risks within the authority of line management.

To further improve risk management across key business processes within Aeroflot Group, the

CEO, the Audit Committee, and the Board of Directors regularly receive reports on the

Company’s key risks, including a report on the actual realisation of financial risks (market and

credit risks), submitted by the Audit Committee on a monthly basis. In addition, at least once a

month the Management Board receives a report on the steps taken to mitigate identified risks

relating to flight safety, based on the results of the implementation of the flight safety

management system.

First Deputy CEO for Aviation Safety also receives a quarterly review of the results of

monitoring and assessment of potential unlawful interference in the Company’s operations

across the route network, and the risk matrix for the airline’s network for the next quarter. This

information is also presented to members of the Management Board who have authorised

access to confidential information.

Risk Management Structure

Risks and Risk Management Measures No. Risk Description (rationale) Measures

Financial risks

1

Currency and

commodity price

risk

Currency risk is the risk of incurring

losses from potential adverse

fluctuations of exchange rates.

Commodity price risk is the risk of

incurring losses from potential adverse

changes in prices of commodities

purchased.

Aeroflot Group has a policy aimed at balancing

receivables and liabilities across each currency.

In light of the limits of operational (or natural)

hedging, we consider financial hedging options:

to balance out the income structure and the cost

structure we may use derivatives on oil and on

FX rates.

See below a detailed overview of the impact the

realised risk may have on the Group.

Risk identification

• Definitions and descriptions of risk elements (including sources, events, causes, and implications).

Risk assessment

• Analysing risk, its implications, and forms of impact on achievement of Aeroflot Group’s goals.

Development, implementation, and follow-up of risk management

• Developing, implementing, and following up risk management measures to achieve the goals of the Group and the risk management system, and linking risks to applicable risk appetite levels.

Monitoring

• Supervising the identification, assessment, implementation, and follow-up of risk management activities.

No. Risk Description (rationale) Measures

2 Interest rate risk Risk of incurring losses from potential

fluctuations in market interest rates.

We regularly analyze and implement, as

necessary, measures to hedge interest rate risk.

See below an overview of the impact the

realised risk may have on the Group.

3 Credit risk

Risk of incurring losses from a

potential failure by a counterparty to

meet its contractual obligations to

Aeroflot Group companies.

A systemic approach including:

internal credit ratings assigned to agents

marketing passenger flights in Russia;

financial coverage calculated for sales of

passenger and cargo flights;

credit risk limits assigned to credit institutions.

4 Liquidity risk

Risk of incurring losses from inability

of the company to fully meet its

obligations as they fall due.

To mitigate liquidity risk, finance units

carefully plan cash inflows and outflows to

identify and promptly eliminate potential gaps

by raising short-term loans from credit

institutions, analyse and follow up the execution

of the Cash Flow Budget, monitor identification

of foreign exchange proceeds, monitor

compliance with payment deadlines, etc.

5 Tax risks

Risks of incurring losses from possible

misinterpretation of laws with respect

to financial and business activities

resulting in financial uncertainties of

such activities after tax.

To mitigate the implications and/or the

likelihood of these risks being realised, changes

in Russian tax laws are monitored, tax systems

in foreign jurisdictions and agreements signed

by the companies are reviewed, etc.

6 Capital markets

access risks

Risks of incurring losses from the

Group’s inability to raise debt for its

financial and business activities on

acceptable terms.


likelihood of these risks being realised, the

market situation is monitored, a competitive

environment for credit institutions is set up, and

measures to enhance the Group’s equity story

and upgrade and/or maintain our credit rating

are taken.

7 Other financial

risks

Other risks that may affect financial

performance.



market environment is analysed, the terms of

service offered by financial institutions are

monitored, payments for outstanding invoices

are followed up, etc.

Business risks

8 Strategic risks

Risks of incurring losses from errors

(flaws) made when making decisions

on the Group’s business and growth

strategy.



market situation is monitored, market players

and analysts are consulted, judgements and

opinions by leading global experts are used,

necessity to upgrade the fleet is analysed, and

specialised business units are involved in

strategic planning.

9 Route network

planning risks

Risks of incurring losses from wrong

decisions made when planning the

route network.

To mitigate this risk such methods as requesting

slots in advance when interacting with airports,

providing standby aircraft, forecasting

constraints, monitoring flight loads and the

market situation are applied.


10 Service quality

risks

Risks of incurring losses from

potential refusal by consumers to buy

goods or services of the Group’s

companies as a result of products and

services offered by the companies

failing to meet the quality

requirements of consumers.


likelihood of these risks being realised, a

process to obtain feedback from customers

through a number of channels and ensure

timely, full consideration of all incoming

communications and complaints has been put in

place. The demand for services offered by

Aeroflot Group is also tracked, and measures to

enhance service quality, improve consumer

loyalty and experience, and monitor employee

compliance with regulations are taken.

11 Reputational

risks

Risks that an organisation would incur

losses as a result of negative

perceptions of the organisation’s

image by customers, counterparties,

shareholders (participants), business

partners, regulators, and others.


likelihood of these risks being realised,

procedures to monitor compliance with process

flows and regulations are set up; the

information environment around

Aeroflot Group is continuously monitored and

analysed; and communications with NGOs are

maintained.

Operational risks (core business)

12 Aviation security

risks

Risks of incurring losses from

unlawful interference with aviation

activities.



situation is monitored and analysed and

remedial measures to ensure safety at the base

airport and destination airports are taken,

airports are audited on a regular basis, the level

of aviation security at destination airports and

compliance with regulations are monitored,

independent experts are engaged, and the state

of external and internal access control systems

is monitored on a 24/7 basis.

13 Flight safety

risks

Forecast likelihood and severity of

implications of one or several threats

being realised with respect to: aviation

activities related to aircraft operation

or directly supporting such operation

(flight and ground, commercial and

technical).


likelihood of these risks being realised, aircraft

condition, aircraft maintenance, and the

operation of the corporate healthcare unit in

terms of medical examination of flight crew are

monitored, medical equipment is replaced;

operations and operating processes are

continuously monitored.

14

Other

operational risks

(core and non-

core business)

Operational risks (core business) are

risks of losses that are explicitly due

and directly related to air

transportation of passengers, baggage,

cargoes, and mail.

Operational risks (non-core business)

are risks of losses that are due, but not

directly related, to air transportation of

passengers, baggage, cargoes, and

mail.


likelihood of these risks being realised, aircraft

maintenance processes are monitored and

coordinated in line with existing process flows

for pre-flight management by the Group’s

business units and third parties, existing

technologies are improved, as well as processes

for personnel selection, training, and provision

with advanced equipment and special

machinery; other necessary procedures are put

in place. Key operational risks of the Group are

insured.

Operational risks of support activities and other risks


15 IT risks

Risks of incurring losses from the use

of information technologies by the

company.


likelihood of these risks being realised, relations

with IT vendors and developers have been

established, channel redundancy and data

backup procedures are implemented, skilled

personnel is recruited and trained, and the

causes of IT failures are investigated.

16 HR risks

A group of risks that arise from, or

affect, the Group’s personnel (or an

individual employee), including the

lack of required/appropriate number of

employees as determined based on the

current and forward-looking business

plans and existing business processes.

HR risks may be viewed as any action

or omission by personnel (human

resources).


likelihood of these risks being realised, an

effective recruitment process has been put in

place, training and professional development

courses for employees are organised. Also, staff

pay levels are monitored in order to remain in

line with the market, and a range of social

benefits and guarantees is offered to employees.


likelihood of corruption-related HR risks being

realised, compliance with anti-corruption

procedures and their conformity to anti-

corruption (corruption prevention) laws are

monitored, and safe, confidential and easy-to-

use whistle-blowing procedure to report

violations of the law or internal procedures has

been put in place.

17 Legal risks

Risks of incurring losses from failure

to comply with laws; non-conformity

of internal local regulations to laws;

delays in bringing local regulations in

compliance with laws; default on

agreements; risks connected with

inconsistency or ambiguity of

legislation or changes in laws that may

adversely affect financial and business

activities of Aeroflot Group.


likelihood of these risks being realised, a system

for timely communication of legislative changes

to the Group’s business units has been put in

place, and contracts are reviewed for

compliance with applicable legislative

requirements.

18 Process risks

Risks of incurring losses from errors

in internal processes of

Aeroflot Group.


likelihood of these risks being realised, business

processes are analysed and improved,

compliance with regulatory requirements is

monitored, and personnel is provided with

training.

19

Risks of quality

of purchased

spare parts,

units,

components, and

materials

Risks of losses due to quality and

authenticity (originality) of spare parts

and units purchased by

Aeroflot Group, as well as

components and materials to support

its core business.


likelihood of these risks being realised, quality

of supplies and suppliers’ operations is

monitored and analysed, and procurement and

supplier selection procedures are improved.

20

Economic and

information

security risks

Risks of losses related to changes in

the corporate internal and external

environment that may lead to the

relevant item losing its economic

value.


likelihood of these risks being realised, an

effective system to monitor, identify, localise

and prevent threats and vulnerabilities has been

put in place, and steps are taken on an ongoing

basis to monitor employee compliance with

economic and information security

requirements, and to identify and prevent

offences.


21

Legal risks of

corporate

executive bodies

Risks of losses related to potential

civil or administrative prosecution of

individuals that act as sole executive

bodies or are members of collective

executive bodies for action or

omission committed by them when

managing the Company.

Aeroflot Group has launched a number of

insurance programmes covering a broad range

of operational risks of support operations,

including motor insurance, comprehensive civil

liability insurance, hazardous industrial

facilities insurance, liability insurance for

temporary storage owners, liability insurance

for the Board of Directors and the Management

Board, and property insurance.

22

Risks of impact

by external

(uncontrollable)

factors

Risks of losses that have external

(beyond control of the company)

causes and are inherent to any type of

activities (natural risks (natural

hazards), risks of man-made disasters,

etc.).


likelihood of these risks being realised,

necessary response measures, including flight

suspension, route changes, extra measures to

increase flight safety and to ensure aviation

security are taken, and sanitary and

epidemiological control is enhanced.

23 Investment

(project) risks

Risks of incurring potential

unexpected losses from investment

uncertainties.


likelihood of these risks being realised, a due

diligence procedure has been set up, progress of

project implementation is monitored, results are

assessed, budget performance is monitored, etc.

24 Occupational

safety risks

Risks of incurring losses from factors

related to the Group’s financial and

business activities which may damage

the health and life of employees at

workplaces.


likelihood of these risks being realised, working

conditions are improved and environmental

management guidelines have been drafted in

line with the requirements of ISO 14000 and

approved. The fleet is upgraded by adding last

generation aircraft that offer enhanced fuel

efficiency and lower harmful emissions,

requirements of Directive 2008/101/EC are

implemented, and other measures are taken.

25 Other

operational risks Other operational risks.



operation of systems is monitored, measures to

enhance efficiency and control performance are

taken, relations with aviation authorities are

maintained, and the reporting system is

improved.

Impact of Key Financial Risks Realised in 2016

Aeroflot Group’s key financial risks depend on the market environment and are primarily

represented by currency, price, and interest rate components. Factors that influence the

Company’s operations comprise currency exchange rates (EUR/RUB, USD/RUB, EUR/USD),

fuel prices, and interest rates (mainly LIBOR).

Effect of changes in FX rates and other macroeconomic factors on EBITDA of Aeroflot Group, RUB million

Эффект на выручку Effect on revenue

Курсовой эффект FX effect

Эффект на расходы Effect on costs

EBITDA 12M2015 EBITDA 12M 2015

Фактор объема Volume factor

Прочие факторы Other factors

Ценовой фактор Price factor

Курсовой эффект на выручку FX effect on revenue

Курсовой эффект на расходы FX effect on costs

Расходы на топливо* Fuel costs*

Расходы на персонал* Staff costs*

Расходы на обслуживание пассажиров и

ВС в аэропортах и на трассе*

Passenger services and aircraft servicing

costs in airports and in-flight*

Расходы по операционной аренде* Operating lease costs*

Техническое обслуживание и ремонт* Maintenance and repair*

Административные и маркетинговые

расходы*

Administrative and marketing costs*

Прочие расходы* Other costs*

EBITDA 12M2016 EBITDA 12M 2016

Единоразовые эффекты** One-off effects**

Скорректированная EBITDA 12M2016 Adjusted EBITDA 12M 2016

Significant changes in the above risk factors had a major impact on the Group’s performance in

2016. This was mainly due to sharp changes in currency exchange rates and fuel prices, as well as

highly volatile foreign exchange and commodity markets. The market risk management system

primarily aims to minimise the Group’s exposure to the above factors.

In particular, in 2016, the Russian rouble appreciated against the US dollar by 15.1% y-o-y (as at

31 December). Growth against the euro was even stronger, with the rouble gaining 17.9% over

the same period. The euro also depreciated by 3.2% against the US dollar. The latter trend has

negative implications for the Group, as its US dollar-denominated costs outpace the euro-

denominated revenue.

Global oil prices grew strongly in 2016, with the price of Brent crude going up 52.2%. The

negative impact of these changes on fuel prices in rouble terms was offset by the positive trend in

the rouble exchange rate.

Currency and Price Risks

Aeroflot Group’s exposure to currency risk results from the vast share of the Company’s income

and expenses being affected by changes in the EUR/RUB and USD/RUB exchange rates.

The Group receives revenue from ticket sales, and tickets for most international flights are priced

in euros;

costs of fuel, lease payments, and maintenance (key foreign currency expenses) are denominated

in USD and EUR.

Динамика курсов EUR/RUB,

USD/RUB

EUR/RUB and USD/RUB

exchange rates

Янв 2016 Jan 2016

Фев 2016 Feb 2016

Мар 2016 Mar 2016

Апр 2016 Apr 2016

Май 2016 May 2016

Июн 2016 Jun 2016

Июл 2016 Jul 2016

Авг 2016 Aug 2016

Сен 2016 Sep 2016

Окт 2016 Oct 2016

Ноя 2016 Nov 2016

Дек 2016 Dec 2016

Источник: Bloomberg. Source: Bloomberg.

Our currency risk management primarily focuses on reducing the Group’s exposure to currency

risk factors. Aeroflot Group pursues a policy of balancing proceeds and liabilities in each

currency and also uses currency hedges. In 2016, just one cross-currency hedge was in place;

however, it had a zero financial effect at the end of the year due to market conditions. On top of

that, Aeroflot Group is exposed to currency risk from revaluation of assets and liabilities in USD

and EUR. The Group does not hedge this risk, as it does not affect its actual cash flows.

Динамика BRENT и

USD/RUB

Brent crude price and

USD/RUB rate Янв 2016 Jan 2016

Фев 2016 Feb 2016

Мар 2016 Mar 2016

Апр 2016 Apr 2016

Май 2016 May 2016

Июн 2016 Jun 2016

Июл 2016 Jul 2016

Авг 2016 Aug 2016

Сен 2016 Sep 2016

Окт 2016 Oct 2016

Ноя 2016 Nov 2016

Дек 2016 Dec 2016

Источник: Bloomberg. Source: Bloomberg.

Aeroflot Group’s price risk arises from fuel purchase contracts, as the contractual pricing formula

is linked to global oil prices. The Group traditionally uses hedging instruments to manage price

risks. In 2016, no such transactions were executed, and no risks for 2017 were hedged as at

31 December 2016. In 2017, risks may be hedged during the year based on regular risk

assessment and testing of potential hedges using the Financial Hedging Methodology.

Interest Rate Risk

The Group’s exposure to interest rate risk results from changes in interest rates in the money

market, which affects the borrowing costs of the Group. Specifically, costs under lease

agreements of Aeroflot Group are linked to USD LIBOR 6M and 3M market interest rates. In

2016, the former rate went up from 0.6117% to 0.9979%, while the latter increased from

0.8423% to 1.3177% y-o-y (as at 31 December).

Динамика ставок Libor 6m/3m Libor 6M/3M rates Источник: Bloomberg. Source: Bloomberg.

Янв 2016 Jan 2016

Фев 2016 Feb 2016

Мар 2016 Mar 2016

Апр 2016 Apr 2016

Май 2016 May 2016

Июн 2016 Jun 2016

Июл 2016 Jul 2016

Авг 2016 Aug 2016

Сен 2016 Sep 2016

Окт 2016 Oct 2016

Ноя 2016 Nov 2016

Дек 2016 Dec 2016

Interest rate swaps are a common instrument to mitigate interest rate risk. According to a hedging

report prepared by the Group’s advisor, this risk factor has a relatively low materiality for the

Group, and converting the floating rates into fixed is not considered at the moment.

Insurance against Operational Risks

Aeroflot Group uses insurance as an effective tool to manage risks. Aeroflot Group’s underlying

approach is to take out, whenever practically possible, full coverage for all types of insured risks.

The Group’s key operational risks are insured, with coverage for aviation risks, such as aircraft

destruction, disappearance or damage, and risks of liability related to the property and health of

third parties to whom the Company provides transportation services, accounting for 65% of the

total insurance costs.

The Group also uses various insurance programmes covering a wide range of non-aviation

operational risks of support operations, including motor insurance (compulsory motor third party

liability, motor hull insurance), comprehensive civil liability insurance, and hazardous industrial

facilities insurance.

In 2016, all insurance contracts were renewed as scheduled. Subsidiary airlines of PJSC Aeroflot

were included in consolidated reinsurance coverage, which helped reduce the insurance rates.

Stabilisation of the global aviation insurance market has also contributed to the rate reduction.

Insurance rates declined on average by 20%. Thus, despite the growing fleet value, the overall

aviation risk insurance premium decreased versus the previous insurance period.

Outlook and Plans for 2017

Risk management development plans include improvements to the corporate risk management

system both for individual and unit risks, as well as across Aeroflot Group in general.

In February 2017, PJSC Aeroflot’s CEO approved the schedule of actions to improve

CRMS performance in 2017, comprising the following actions:

approving and adopting Aeroflot Group’s Risk Management Standard implementing the concept

of a unified risk management methodology;

training the Company’s and subsidiaries’ staff in risk management and internal control;

updating the risk register and risk map, including analysis of identified risks.

6.3. Investor Relations, Equity and Debt

Share Capital

PJSC Aeroflot’s charter capital as at 31 December 2016 was RUB 1,110,616,299, consisting of

1,110,616,299 ordinary registered uncertificated shares with a par value of RUB 1 each. The

Company did not issue preferred shares.

State registration numbers of PJSC Aeroflot ordinary share issues are 73-1 p-5142 (dated 22 June

1995) and 1-02-00010-A (dated 1 February 1999). The issues were merged by Decree No. 04-

168/r of the Federal Securities Commission dated 23 January 2004, following which the issues of

PJSC Aeroflot ordinary shares were assigned state registration number 1-01-00010-A, dated

23 January 2004.

In addition to outstanding shares, the Company has the right to issue a further 250 million

ordinary registered shares (authorised shares). No additional shares were issued in 2016.

The total number of PJSC Aeroflot’s shareholders as at 31 December 2016 was 11,377, compared

to 10,534 as at 31 December 2015, comprising mostly individuals.

PJSC Aeroflot’s register of shareholders is kept by JSC Independent Registrar Company (License

No. 045-13954-000001, issued by the Bank of Russia). The register holder’s details are provided

in the Contacts section at the end of this Annual Report.

Физические лица Individuals

Институциональные инвесторы Institutional investors

Квазиказначейские акции Phantom shares

Менеджмент Management

ГК «Ростех» Rostec Corporation

Российская Федерация Russian Federation

Note. Free-float represents shares not owned by the state or stated-owned companies, and not directly owned the

Company, the Group’s subsidiaries or the Company management.

Российская Федерация

51,2%

ГК «Ростех»

3,5%Менеджмент

0,1%

Квазиказначейские

акции

4,8%

Институциональные

инвесторы

34,8%

Физические лица

5,6%

Акции в свободном

обращении

40,3%

Free float –

40.3%

Information on the key shareholders of PJSC Aeroflot

Holder Status*

As at

31 December 2015

As at

31 December 2016 Change of

stake

in share

capital, p.p. Number of

shares

Stake in

share capital,

%

Number of

shares

Stake

in share

capital, %

Legal entities 1,041,161,081 93.75 1,048,923,212 94.45 +0.70

including:

Russian Federation

(represented by the

Federal Agency for

State Property

Management)

O 568,335,339 51.17 568,335,339 51.17 –

CJSC National

Settlement

Depository

N 379,700,230 34.19 387,462,361 34.89 +0.70

LLC Aeroflot-

Finance** O 53,716,189 4.84 53,716,189 4.84 –

LLC RT-Business

Development O 16,720,724 1.51 16,720,724 1.51 –

LLC Aviacapital-

Service*** O 22,688,599 2.04 22,688,599 2.04 –

Individuals**** O 69,455,218 6.25 61,693,087 5.55 (0.70)

* O means “owner”, N means “nominee”.

** LLC Aeroflot-Finance’s stake includes the stake held by nominees, with the number of phantom shares unchanged

since 2014.

*** LLC Aeroflot-Finance’s stake includes the stake held by nominees

**** Including the management and members of the Board of Directors.

Shares

PJSC Aeroflot shares and depositary receipts are traded on the stock market. The Company’s

ordinary shares are traded on the Russian market, and global depositary receipts (GDRs) and

American depositary receipts (ADRs) are traded on foreign markets.

Shares of PJSC Aeroflot are traded on the Moscow Exchange, where as at 31 December 2016

they were included in the Level 1 Quotation List (AFLT: MOEX). Securities transactions are

subject to the T+2 trading mode. PJSC Aeroflot shares are included in the main Russian stock

indexes: MICEX Index, MICEX BMI (broad market), MICEX TRN (transport companies), and

RTSI.

Aeroflot share price performance vs MICEX

Index, 2016

Aeroflot share price performance vs Bloomberg

Airlines Index, 2016

Январь January

Февраль February

Март March

Апрель April

Май May

Июнь June

Июль July

Август August

Сентябрь September

Октябрь October

Ноябрь November

Декабрь December

Аэрофлот Aeroflot

Индекс ММВБ MICEX Index

PJSC Aeroflot share price and trading volumes, 2016

Average daily trading volumes on the

Moscow Exchange

Note. The average daily trading volume was

calculated based on the closing price (historical

data were re-calculated retrospectively based on

the closing prices of a specific period)

172,5%

26,8%

Дек

абр

ь

Ян

вар

ь

Фев

рал

ь

Мар

т

Ап

рел

ь

Май

Ию

нь

Ию

ль

Авгу

ст

Сен

тяб

рь

Октя

бр

ь

Но

яб

рь

Дек

абр

ь

Аэрофлот Индекс ММВБ

172,5%

-8,7%

-26,5%

Дек

абр

ь

Ян

вар

ь

Фев

рал

ь

Мар

т

Ап

рел

ь

Май

Ию

нь

Ию

ль

Авгу

ст

Сен

тяб

рь

Октя

бр

ь

Но

яб

рь

Дек

абр

ь

Аэрофлот

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

0,0

100,0

200,0

300,0

400,0

500,0

600,0

700,0

Объем торгов, млн руб. Аэрофлот, руб.

1 527 2 235

5 079 4 911 4 193

70

130

264 209

383

2012 2013 2014 2015 2016

Среднедневной объем, тыс. шт. Среднедневной объем, млн руб.

Объем торгов, млн руб. Trading volume, RUB million

Аэрофлот, руб. Aeroflot, RUB

Среднедневной объем, тыс. шт. ADTV, thousand shares

Среднедневной объем, млн руб. ADTV, RUB million

Январь January

Февраль February

Март March

Апрель April

Май May

Июнь June

Июль July

Август August

Сентябрь September

Октябрь October

Ноябрь November

Декабрь December

Aeroflot share price highs and lows, RUB

Price per Aeroflot share

2012 2013 2014 2015 2016

First trading day, RUB 50.9 46.2 83.2 33.2 56.2

High, RUB 55.5 85.1 88.0 61.0 158.4

Low, RUB 38.8 46.2 29.9 32.5 50.4

Last trading day, RUB 44.9 83.8 32.2 56.1 152.9

As at 31 December 2016, the Company’s market capitalisation was RUB 169.8 billion, up

172.5% y-o-y.

In the year to date, PJSC Aeroflot share price has been outperforming both Russia’s Micex Index

and the global market’s Bloomberg Airlines Index. The spectacular growth in Aeroflot’s market

cap was fuelled mostly by strong 1H and 9M performance driven by solid operational results and

the rouble’s appreciation against major global currencies.

Despite local currency appreciation in emerging markets (particularly, the Brazilian real and the

South African rand), which bolstered the share prices of airlines in a number of emerging

markets, some markets have remained volatile, which put the emerging markets’ airlines on a

downward trajectory. Moreover, the share prices of European airlines came under additional

pressure from the Brexit process, dramatic developments in a number of European cities, and

strike actions by staff in certain airlines.

50,9 46,2

83,2

33,2

56,2

44,9

83,8

32,2

56,1

152,9

2012 2013 2014 2015 2016

Analyst recommendations

Date Recommendations

Bloomberg

consensus forecast,

RUB

Target price

range, RUB

Number of

analysts

31 Dec

2016

158.0 121.0–184.0 12

31 Dec

2015

66.9 26.4–81.0 13

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GDR and ADR Programmes

Outside Russia, PJSC Aeroflot shares are traded as global depositary receipts (GDRs) at the over-

the-counter section of the Frankfurt Stock Exchange and as American depositary receipts (ADRs)

on the US over-the-counter market. One GDR/ADR represents 5 ordinary shares. Deutsche Bank

Trust Company Americas acts as the depository bank, and LLC Deutsche Bank is the custodian.

A total of 14,430,910 shares were converted into GDRs as at 31 December 2016, representing

1.3% of the charter capital. As at 31 December 2016, the price of one depositary receipt stood at

EUR 11.6, up 240.2% during the year.

PJSC Aeroflot GDR programme

Programme type Sponsored Level-1 GDRs under Regulation S and Rule 144A

Ratio (shares: GDR) 5:1

Ticker AETG

ISIN US69343R1014, US69343R2004

PJSC Aeroflot Level-1 ADR programme

Programme type Sponsored Level-1 ADRs

Ratio (shares: ADR) 5:1

Ticker AERZY

ISIN US69343R3093

Corporate Bonds

In 2016, PJSC Aeroflot fully repaid its BO-03 exchange-traded bond, traded on the Moscow

Exchange. A total of 5,000,000 bonds were repaid on 31 March 2016.

Coupon on PJSC Aeroflot’s bonds in the reporting year was paid in full and in due time:

31 March 2016: BO-03 bond payments of RUB 206,950,000 for the sixth coupon period.

No new debt was issued in 2016.

Credit Ratings

PJSC Aeroflot has a credit rating from Fitch Ratings. In March 2016, the rating agency affirmed

the Company’s local and foreign currency long-term issuer default rating at “B+”, outlook Stable.

75% 17% 8%

62% 23% 15%

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Dividend Policy

Dividend Policy is a key element of the corporate governance framework and a key measure of a

company’s performance in upholding the rights of its investors.

PJSC Aeroflot has in place the Regulations on the Dividend Policy, which seek to maximise the

transparency of procedures used to determine the amount of dividends and pay them out to the

benefit of shareholders and investors. The Regulations determine the approach used by the Board

of Directors to make recommendations for the General Meeting of Shareholders on profit

distribution, including dividend payout.

The key principles of PJSC Aeroflot’s dividend policy are as follows:

Aeroflot Group’s consolidated net profit under the International Financial Reporting Standards

(IFRS) forms the base for calculating dividends.

The amount of dividend is calculated using a tailored system of ratio indicators which factors in

the results of the reporting year, Aeroflot Group’s debt ratio and mid-term financial plan.

The target level of dividend pay-outs is set at 25% of Aeroflot Group’s IFRS net profit.

The Annual General Meeting of Shareholders held on 27 June 2016 resolved not to declare or pay

out dividends on PJSC Aeroflot shares for the fiscal year 2015.

PJSC Aeroflot’s dividend history

2011 2012 2013 2014 2015

Dividend per share, RUB 1.81 1.16 2.50 – –

Total dividends,

RUB thousand 2,000,018 1,292,313 2,774,195 – –

Total amount actually paid,

RUB thousand 1,999,927 1,292,149 2,773,621 – –

Dividend payout ratio, % 19.2 26.0 25.0 – –

Accounting standards used to

calculate the net profit RAS RAS RAS IFRS IFRS

Form and other terms of

payment for declared

dividends

In cash In cash In cash – –

Investor Relations

The Company is particularly focused on relations with both existing and prospective investors. In

its interactions with investors, PJSC Aeroflot is committed to providing objective, reliable and

consistent information about its activities and complies with current disclosure standards, seeking

to increase information transparency as much as practically possible.

The Company maintains a continued dialogue with shareholders and investors to ensure that

securities market participants get complete information about its activities. The Company timely

discloses material information on its operations as press releases and material facts via authorised

disclosure platforms in full compliance with Russian laws. The Company regularly discloses

information in its IFRS and RAS financial statements, and in its investor presentations.

PJSC Aeroflot targets investors via the following channels:

Conference calls with the Company’s management for investors.

Regular meetings with investors and shareholders.

Participation in all major conferences hosted by brokerage houses.

Site visits to the Company’s facilities.

Dedicated events for investors and shareholders, with presentations by the Company’s

management (Capital Markets Days).

In October 2016, the Company hosted its annual Capital Markets Day, with presentations given

by the Company’s top management. The event was attended by over 60 investors, with 30 more

investors linked up via a video webcast, specifically set up for those who could not attend in

person.

Presentations by the management were followed by site visits: a tour of PJSC Aeroflot’s Flight

Crew Training Centre at Sheremetyevo airport and maintenance hangars where aircraft are

serviced, as well as visits to the Hub Control Centre and Operational Control Centre, the units

responsible for direct support of the Company’s operations.

Meetings with PJSC Aeroflot’s investors,

shareholders, and other stakeholders

Geography of investment funds with

shareholdings in PJSC Aeroflot, 2016

Азия Asia

Россия Russia

Ближний Восток Middle East

США и Канада US and Canada

Европа Europe

Великобритания UK

In 2016, the Company’s investor relations were recognised by a number of awards.

Investor Relations

Aeroflot’s IR team received Grand Prix for Best Overall Investor Relations, Small Cap, from

IR Magazine Russia & CIS and for the third year in a row was named the best in the transport

sector. Aeroflot’s IR team was also placed high in the overall rankings for Russian IR teams and

rankings of the European IR teams in the transport sector, compiled by Extel based on the

independent 2016 Russia Investor Relations Survey.

Annual Report and IR website awards

Aeroflot’s Annual Report 2015 was named the winner in the Best Annual Report in the

Consumer Sector category and received an award in the Best Annual Report of the Company

with the Market Capitalisation of RUB 40 Billion to RUB 200 Billion category of the Annual

Report Competition hosted by the Moscow Exchange.

166 205

296

2014 2015 2016

Россия

25,6%

Азия

1,6%

Великоб

ритания

26,8%

Европа

29,3%

США и

Канада

15,9%

Ближний

Восток

0,8%

Aeroflot’s Annual Report 2015 also received the highest award, a platinum medal award, in the

Transportation & Logistics Industry category and placed in the top 10 of the best annual reports

by Russian companies at the 2015 Vision Awards, hosted by the League of American

Communications Professionals (LACP).

Aeroflot’s IR website was announced the winner of the Investor Relations Standard of Excellence

award at the WebAwards 2016 Competition hosted by the Web Marketing Association, and was

also named the best corporate IR website in the transport sector in the corporate IR website

competition held by Russia’s Financial Communications and Investor Relations Alliance (ARFI).

Aeroflot was shortlisted for the Best Use of Digital Communications – International award

(IR website, top 3) and the Best Annual Report – International award (top 3) in the IR Society

2016 Best Practice Awards (UK).

APPENDIXES

7.1. IFRS Consolidated Financial Statements

PJSC AEROFLOT

Statement of management’s responsibilities for the preparation

and approval of the Consolidated Financial Statements

as at and for the year ended 31 December 2016

The following statement, which should be read in conjunction with the independent auditor’s

responsibilities, as stated in the independent auditor’s report set out below, is intended to distinguish

between the respective responsibilities of management and the independent auditors in relation to the

Consolidated Financial Statements of Public Joint Stock Company Aeroflot - Russian Airlines and its

subsidiaries (the "Group").

Management is responsible for the preparation of Consolidated Financial Statements that present fairly

the consolidated financial position of the Group as at 31 December 2016, and the financial results of its

operations, cash flows and changes in equity for the year then ended, in compliance with International

Financial Reporting Standards (“IFRS”).

In preparing the consolidated financial statements, management is responsible for:

selecting suitable accounting principles and applying them consistently;

making judgements and estimates that are reasonable and prudent;

stating whether International Financial Reporting Standards (IFRS) have been complied with, subject

to any material departures that are properly disclosed and explained in the notes to Consolidated

Financial Statements; and

preparing the Consolidated Financial Statements on a going concern basis, unless it is inappropriate to

presume that the Group will continue in business for the foreseeable future.

Management is also responsible for:

designing, implementing and maintaining an effective system of internal controls, throughout the

Group;

maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial

position of the Group, and the financial results of its operations and cash flows and which enable them

to ensure that the Consolidated Financial Statements of the Group are prepared in accordance with

IFRS;

maintaining statutory accounting records in compliance with local legislation and accounting standards

in the relevant jurisdictions in which the Group operates;

taking such steps as are reasonably available to them to safeguard the Group’s assets; and

preventing and detecting fraud and other irregularities.

The Consolidated Financial Statements of the Group as at and for the year ended 31 December 2016

(set out on pages 1-72) were approved on 28 February 2017 and signed on behalf of management by:

_________________________________ __________________________________

V.G. Saveliev Sh.R. Kurmashov

General Director Deputy General Director

for Commerce and Finance

PJSC AEROFLOT

Consolidated Statement of Profit and Loss

for the year ended 31 December 2016

(All amounts in millions of Russian Roubles, unless otherwise stated)

1

Note 2016 2015

Traffic revenue 5 433,966 359,205

Other revenue 6 61,914 55,968

Revenue 495,880 415,173

Operating costs, excluding staff costs and depreciation

and amortisation 7 (354,022) (304,214)

Staff costs 8 (64,682) (55,619)

Depreciation and amortisation 19, 22 (13,395) (13,306)

Other operating (expenses)/income, net 9 (527) 2,073

Operating costs (432,626) (371,066)

Operating profit 63,254 44,107

Loss from sale and impairment of investments, net 16 (2,935) (9,159)

Finance income 10 19,802 15,811

Finance costs 10 (9,443) (28,556)

Realised hedging result 10 (12,310) (23,746)

Share of results of associates 12 (17)

Result from disposal of subsidiaries 21 (5,099) -

Profit/(loss) before income tax 53,281 (1,560)

Income tax expense 11 (14,455) (4,934)

PROFIT/(LOSS) FOR THE YEAR 38,826 (6,494)

Profit/(loss) for the year attributable to:

Shareholders of the Company 37,443 (5,829)

Non-controlling interest 1,383 (665)

PROFIT/(LOSS) FOR THE YEAR 38,826 (6,494)

Profit/(loss) per share – basic and diluted (in Roubles per

share) 35.4 (5.5)

Weighted average number of shares outstanding

(millions) 1,056.9 1,056.9

Approved on 28 February 2017 and signed on behalf of management

_________________________________ __________________________________

V.G. Saveliev Sh.R. Kurmashov

General Director Deputy General Director

for Commerce and Finance

The consolidated statement of profit and loss should be read in conjunction with the notes set out on pages 7 to 72

which are forming part of the consolidated financial statements

PJSC AEROFLOT

Consolidated Statement of Comprehensive Income



2

Note 2016 2015

Profit/(loss) for the year

38,826 (6,494)

Other comprehensive income/(loss):

Items that may be reclassified subsequently to profit or loss:

Profit from the change in fair value of hedging derivative financial

instruments 24 4,485 12,810

Effect from hedging revenue with foreign currency liabilities 28 33,773 (32,911)

Deferred tax related to the effect on cash flow hedging instruments recognized in other comprehensive income 11 (7,725) 4,038

Other comprehensive income/(loss) for the year 30,533 (16,063)

TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR 69,359 (22,557)

Total comprehensive income/(loss) attributable to:

Shareholders of the Company 67,976 (21,892)

Non-controlling interest 1,383 (665)

TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR 69,359 (22,557)

The consolidated statement of comprehensive income should be read in conjunction with the notes set out on pages

7 to 72 which are forming part of the consolidated financial statements

PJSC AEROFLOT

Consolidated Statement of Financial Position



Note

31 December

2016

31 December

2015

ASSETS

Current assets

Cash and cash equivalents 12 31,476 30,693

Short-term financial investments 16 6,319 5,917

Accounts receivable and prepayments 14 78,172 76,317

Current income tax prepayment 2,679 2,489

Aircraft lease security deposits 13 320 2,658

Expendable spare parts and inventories 15 10,040 7,447

Derivative financial instruments 24 - 53 Assets classified as held for sale 20 1,140 7,732 -

Total current assets 130,146 133,306

Non-current assets Deferred tax assets 11 12,252 21,632

Investments in associates 98 109

Long-term financial investments 16 3,306 6,118

Aircraft lease security deposits 13 2,181 2,132

Other non-current assets 17 10,112 2,762

Prepayments for aircraft 18 27,830 35,291

Property, plant and equipment 19 104,897 104,494

Intangible assets 22 1,825 2,690

Goodwill 23 6,660 6,660

Total non-current assets 169,161 181,888

TOTAL ASSETS 299,307 315,194

LIABILITIES AND EQUITY

Current liabilities Derivative financial instruments 24 - 4,853

Accounts payable and accrued liabilities 25 49,868 54,751

Unearned traffic revenue 39,044 28,691

Deferred revenue related to the frequent flyer programme 26 1,607 1,307

Provisions for liabilities 27 5,304 7,519

Finance lease liabilities 28 15,593 19,504

Short-term loans and borrowings and current portion of long-term loans

and borrowings 29 9,309 54,085

Liabilities related to assets, classified as held for sale 20 - 7,371 -

Total current liabilities 120,725 178,081

Non-current liabilities Long-term loans and borrowings 29 11,058 14,375

Finance lease liabilities 28 107,143 145,020

Provisions for liabilities 27 10,791 6,917

Deferred tax liabilities 11 39 170

Deferred revenue related to the frequent flyer programme 26 3,623 2,941

Other non-current liabilities 30 5,159 3,810

Total non-current liabilities 137,813 173,233

TOTAL LIABILITIES 258,538 351,314

Equity Share capital 32 1,359 1,359

Treasury shares reserve (3,571) (3,571)

Accumulated profit on disposal of treasury shares 1,659 1,659

Investment revaluation reserve (5) (5)

Hedge reserve 24, 28 (34,187) (64,720)

Retained earnings 77,198 39,755

Equity attributable to shareholders of the Company 42,453 (25,523)

Non-controlling interest (1,684) (10,597)

TOTAL EQUITY 40,769 (36,120)

TOTAL LIABILITIES AND EQUITY 299,307 315,194

The consolidated statement of financial position should be read in conjunction with the notes set out on pages 7 to 72


PJSC AEROFLOT

Consolidated Statement of Cash Flows



Note 2016 2015

Cash flows from operating activities:


Adjustments for:

Depreciation and amortisation 19, 22 13,395 13,306

Change in impairment provision for accounts receivable and

prepayments 9 2,217 6,449

Loss on doubtful accounts write-off 9 4 246

Change in impairment provision for obsolete expendable spare parts and

inventory 216 276

Change in provision for impairment of property, plant and equipment 19 (36) 400

Loss on disposal of property, plant and equipment 885 272

Loss on disposal of subsidiaries 21 5,099 -

Accrual of provision for impairment of investments 2,935 9,159

Loss/(gain) on change in the fair value of derivative financial

instruments 10 53 (11,885)

Realised hedging result 10 12,310 23,746

Change in provisions for liabilities 27 6,628 4,433

Interest expense 10 8,907 7,737

Foreign exchange (gain)/loss 10 (15,597) 849

Gain on recovery of VAT 9 - (8,021)

Other operating income, net (2,148) (816)

Other finance expenses/(income), net 447 (36)

Gain on disposal of assets classified as held for sale 9 (2,784) -

Loss on derivative financial instruments, net 10 - 19,803

Dividend income (29) (89)

Total operating cash flows before working capital changes 85,783 64,269

Change in accounts receivable and prepayments (6,915) (2,251)

Change in expendable spare parts and inventories (2,809) (1,216)

Change in accounts payable and accrued liabilities 13,387 14,705

Total operating cash flows after working capital changes 89,446 75,507

Change in restricted cash 12 20 18

Income tax paid (13,943) (6,041)

Income tax refunded 1,189 180

Net cash flows from operating activities 76,712 69,664

The consolidated statement of cash flows should be read in conjunction with the notes set out on pages 7 to 72


PJSC AEROFLOT

Consolidated Statement of Cash Flows



Note 2016 2015

Cash flows from investing activities:

Deposits placement (10,435) (11,741)

Deposits return 9,840 6,375

Proceeds from sale of investments - 30

Purchases of investments and loans issued - (8,652)

Proceeds from sale of subsidiary 9 -

Proceeds from sale of property, plant and equipment 84 603

Purchases of property, plant and equipment and intangible assets 19,22 (10,222) (9,196)

Proceeds from sale of assets, classified as held for sale 6,471 -

Dividends received 62 74

Prepayments for aircraft 18 (18,806) (22,708)

Return of prepayments for aircraft 18 29,362 7,828

Payment of operating lease security deposits 13 (2,504) (1,995)

Return of operating lease security deposits 13 3,405 612

Net cash flows from/(used in) investing activities 7,266 (38,770)

Cash flows from financing activities:

Proceeds from loans and borrowings 29 30,885 73,331

Repayment of loans and borrowings 29 (72,991) (36,267)

Repayment of the principal element of finance lease liabilities 28 (27,024) (19,455)

Interest paid (6,954) (5,914)

Dividends paid (49) (88)

Payments for settlement of derivative financial instruments, net 24 (4,362) (39,682)

Net cash used in financing activities (80,495) (28,075)

Effect of exchange rate fluctuations on cash and cash equivalents (2,700) 1,327

Net increase in cash and cash equivalents 783 4,146

Cash and cash equivalents at the beginning of the year 12 30,693 26,547

Cash and cash equivalents at the end of the year 12 31,476 30,693

Non-cash transactions as part of the investing activities:

Property, plant and equipment acquired under finance leases 2,170 1,781

The consolidated statement of cash flows should be read in conjunction with the notes set out on pages 7 to 72


PJSC AEROFLOT

Consolidated Statement of Changes in Equity



Equity attributable to shareholders of the Company

Note

Share

capital

Accumulated profit on

disposal of treasury

shares less treasury

shares reserve

Investment

revaluation

reserve

Hedge

reserve

Retained

earnings Total

Non-controlling

interest

Total

equity

1 January 2015 1,359 (1,912) (5) (48,657) 45,584 (3,631) (9,874) (13,505)

Loss for the year - - - - (5,829) (5,829) (665) (6,494)

Loss from the change in fair value

of derivative financial instruments

net of related deferred tax 24,28 - - - (16,063) - (16,063) - (16,063)

Total other comprehensive loss - - - - - (16,063) - (16,063)

Total comprehensive loss - - - - - (21,892) (665) (22,557)

Dividends declared - - - - - - (58) (58)

31 December 2015 1,359 (1,912) (5) (64,720) 39,755 (25,523) (10,597) (36,120)

1 January 2016 1,359 (1,912) (5) (64,720) 39,755 (25,523) (10,597) (36,120)

Profit for the year - - - - 37,443 37,443 1,383 38,826

Profit from the change in fair value of derivative financial

instruments and the effect from

hedging, net of deferred tax 24,28 - - - 30,533 - 30,533 - 30,533

Total other comprehensive

income - - - - - 30,533 - 30,533

Total comprehensive income - - - - - 67,976 1,383 69,359

Disposal of subsidiary 21 - - - 7,579 7,579

Dividends declared - - - - - - (49) (49)

31 December 2016 1,359 (1,912) (5) (34,187) 77,198 42,453 (1,684) 40,769

The consolidated statement of changes in equity should be read in conjunction with the notes set out on pages 7 to 72 which are forming part of the consolidated financial statements

PJSC AEROFLOT

Notes to the Consolidated Financial Statements



NATURE OF THE BUSINESS

Aeroflot-Russian Airlines (the “Company” or “Aeroflot”) was formed as an open joint stock company in accordance with a Russian Federation Government decree issued in 1992 (hereinafter, the “1992 Decree”). The 1992 Decree conferred all the rights and obligations of Aeroflot-Soviet Airlines and its structural units upon the Company, including inter-governmental bilateral agreements and agreements signed with foreign airlines and civil aviation enterprises. Under Russian Federation Presidential Decree No. 1009 of 4 August 2004, the Company was included in the official List of Strategic Entities and Strategic Joint Stock Companies.

On 1 July 2015, Open Joint Stock Company Aeroflot-Russian Airlines changed its official corporate name to Public Joint Stock Company Aeroflot-Russian Airlines (PJSC Aeroflot) in compliance with legislative changes.

The Company’s principal activities are the provision of passenger and cargo air transportation services, both domestically and internationally, and other aviation services from Moscow Sheremetyevo Airport. The Company and its subsidiaries (the “Group”) are also involved in airline catering and hotel operations. Associated entities mainly comprise aviation security services and other ancillary services.

During the year the Group disposed of ОJSC Vladivostok Avia and СJSC Aeroflot-Cargo as a result of their liquidation in May and September 2016, respectively (Note 21).

As at 31 December 2016 and 2015, the Government of the Russian Federation (the “RF”), as represented by the Federal Agency for Management of State Property, owned a 51.17% stake in the Company. The Company’s headquarters are located at 10 Arbat Street, Moscow, 119002, RF.

The principal subsidiaries are:

Company name Registered address Principal activity 31 December 2016 31 December 2015

JSC Rossiya airlines

(“AK Rossiya”) St. Petersburg, RF Airline

75% minus one

share

75% minus one

share

LLC Pobeda Airlines

(“Pobeda”) Moscow, RF Airline 100.00% 100.00%

JSC Aurora Airlines

(“AK Aurora”) Yuzhno-Sakhalinsk, RF Airline 51.00% 51.00%

LLC Aeroflot-Finance

(“Aeroflot-Finance”) Moscow, RF Finance services 100.00% 100.00%

CJSC Aeromar Moscow Region, RF Catering 51.00% 51.00%

JSC Sherotel Moscow Region, RF Hotel 100.00% 100.00%

LLC A-Technics Moscow, RF Technical

maintenance 100.00% 100.00%

JSC Orenburg airlines

(“Orenair”) Orenburg, RF Airline 100.00% 100.00%

JSC Donavia

(“Donavia”)

Rostov-on-Don,

RF Airline 100.00% 100.00%

OJSC Vladivostok Avia

(“Vladavia”) Primorsk Region, RF Airline - 26.60%

CJSC Aeroflot-Cargo Moscow, RF Cargo transportation

services - 100.00%

NATURE OF THE BUSINESS (CONTINUED)

The Group’s major associate is:

Company name

Registered address

Principal activity

31 December 2016

31 December 2015

JSC AeroMASH–AB

(“AeroMASH–AB”)

Moscow Region,

RF

Aviation

security 45.00% 45.00%

NATURE OF THE BUSINESS (CONTINUED)

The table below provides information on the Group’s aircraft fleet as at 31 December 2016 (number of aircraft):

TYPE OF AIRCRAFT OWNERSHIP PSJC AEROFLOT JSC AK ROSSIYA JSC AK AURORA LLC POBEDA

GROUP

TOTAL

An-24 Owned - - 1 - 1

DHC 8-Q300 Owned - - 1 - 1

DHC 8-Q402 Owned - - 5 - 5

Total owned aircraft - - 7 - 7

Airbus A319 Finance lease - 9 - - 9

Airbus A321 Finance lease 15 - - - 15

Airbus A330 Finance lease 8 - - - 8

Boeing B777 Finance lease 10 - - - 10

An-148 Finance lease - 6 - - 6

Total aircraft under finance leases 33 15 - - 48

SSJ 100 Operating lease 30 - - - 30

Airbus A319 Operating lease - 17 10 - 27

Airbus A320 Operating lease 70 5 - - 75

Airbus A321 Operating lease 17 - - - 17

Airbus A330 Operating lease 14 - - - 14

Boeing B737 Operating lease 20 17 - 12 49

Boeing B747 Operating lease - 7 - - 7

Boeing B777 Operating lease 5 6 - - 11

DHC 8-Q200 Operating lease - - 2 - 2

DHC 8-Q300 Operating lease - - 3 - 3

DHC 6-400 Operating lease - - 2 - 2

Total aircraft under operating leases 156 52 17 12 237

Total fleet 189 67 24 12 292

As at 31 December 2016, 2 An-148 aircraft were under maintenance for delivery to sub-lessees, 3 An-148 aircraft and one An-24 aircraft were leased out, one

An-148 aircraft was not operating and will not be leased out, 2 DHC 8-Q402 aircraft were undergoing pre-operating maintenance and one B-737 aircraft was not

operating due to maintenance for delivery to leasing company.

BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES

Basis of presentation

The consolidated financial statements of the Group have been prepared in accordance with International

Financial Reporting Standards (“IFRS”) and in accordance with the Federal Law No. 208 – FZ “On

consolidated financial reporting” dated 27 July 2010. The consolidated financial statements are presented

in millions of Russian Roubles (“RUB million”), except where specifically noted otherwise.

These consolidated financial statements have been prepared on the historical cost convention except for

financial instruments which are initially recognised at fair value, financial assets available for sale and

financial instruments measured at fair value through profit or loss, as well as derivative financial instruments

to which specific hedge accounting rules are applicable. The principal accounting policies applied in the

preparation of these consolidated financial statements are set out below. These policies have been

consistently applied to all the periods presented in these consolidated financial statements, unless otherwise

stated.

All significant subsidiaries directly or indirectly controlled by the Group are included in these consolidated

financial statements. A list of the Group’s principal subsidiaries is set out in Note 1.

Going concern

Management prepared these consolidated financial statements on a going concern basis. In making this

judgement management considered the Group’s financial position, current intentions, profitability of

operations and access to financial resources, and analysed the impact of the situation in the financial

markets on the operations of the Group.

Functional and presentation currency

The functional currency of the Company and its subsidiaries is the Russian Rouble (“RUB” or “rouble”), the

presentation currency of the Group’s consolidated financial statements is the Russian Rouble as well.

Consolidation

Subsidiaries represent investees, including structured entities, which the Group controls, as the Group:

has the powers to control significant operations which has a considerable impact on the investee’s income,

runs the risks related to variable income from its involvement with investee or is entitled to such income,

and

is able to use its powers with regard to the investee in order to influence the amount of its income.

The existence and effect of substantive rights, including substantive potential voting rights, are considered

when assessing whether the Group has power over another entity. For a right to be substantive, the holder

must have practical ability to exercise that right when decisions about the direction of the relevant

activities of the investee need to be made. The Group may have power over an investee even when it holds

less than majority of voting power in an investee. In such a case, the

2. BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES (CONTINUED)

Consolidation (continued)

Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote

holders to determine if it has de-facto power over the investee.

Protective rights of other investors, such as those that relate to fundamental changes of investee’s activities

or apply only in exceptional circumstances, do not prevent the Group from controlling an investee.

Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date)

and are deconsolidated from the date on which control ceases.

Subsidiaries are included in the consolidated financial statements at the acquisition method. Identifiable

assets acquired and liabilities and contingent liabilities received in a business combination are measured at

their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.

Goodwill is measured through the deduction of net assets of the acquired entity from the total of the

following amounts: consideration transferred for the acquired entity, non-controlling share in the acquiree

and fair value of the existing equity interest in the acquiree held immediately by the Group before the

acquisition date. Any negative amount (“negative goodwill”) is recognised in profit or loss, after

management reassesses whether it identified all the assets acquired and all liabilities and contingent

liabilities assumed and reviews appropriateness of their measurement.

The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity

instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from

contingent consideration arrangements but excludes acquisition related costs such as advisory, legal,

valuation and similar professional services. Transaction costs related to the acquisition and incurred for

issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of

the business combination are deducted from the carrying amount of the debt and all other transaction costs

associated with the acquisition are expensed.

The Group measures non-controlling interest that represents the ownership interest and entitles the holder

to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis, either

at:

а) fair value, or

b) in proportion to the non-controlling share in the net assets of the acquiree.

Intercompany transactions, balances and unrealised gains on transactions between group companies are

eliminated. Unrealised losses are also eliminated, unless the cost cannot be recovered. The Company and

its subsidiaries use uniform accounting policies consistent with the Group’s policies.

Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to

interests which are not owned, directly or indirectly, by the Company. Non-controlling interest forms a

separate component of the Group’s equity.



Purchases of non-controlling interests

The Group applies the economic entity model to account for transactions with owners of non-controlling

interest. Any difference between the purchase consideration and the carrying amount of non-controlling

interest acquired is recorded as a capital transaction directly in equity. The Group recognises the

difference between sales consideration and carrying amount of non-controlling interest sold as a capital

transaction in the consolidated statement of changes in equity.

Investments in associates

Associates are entities over which the Group has significant influence (directly or indirectly), but not

control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights.

Investments in associates are accounted for using the equity method of accounting and are initially

recognised at cost. The carrying amount of associates includes goodwill identified on acquisition less

accumulated impairment losses, if any. Dividends received from associates reduce the carrying value of

the investment in associates. Other post-acquisition changes in the Group’s share of net assets of an

associate are recognised as follows:

the Group’s share of profits or losses of associates is included in the consolidated statement of profit and

loss for the year as a share of financial results of equity accounted investments,

the Group’s share in other comprehensive income is recorded as a separate line item in other

comprehensive income,

all other changes in the Group’s share of the carrying value of net assets of the associates are recorded in

the consolidated statement of profit and loss within the share of financial results of equity accounted

investments.

However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate,

including any other unsecured receivables, the Group does not recognise further losses, unless it has

incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the

Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides

evidence of an impairment of the associate’s assets.

Disposals of subsidiaries or associates

When the Group ceases to have control or significant influence, any retained interest in the entity is

remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value

is the initial carrying amount for the purposes of subsequent accounting for the retained interest in an

associate or financial asset. In addition, any amounts previously recognised in other comprehensive

income in respect of that entity, are accounted for as if the Group had directly disposed of the related

assets or liabilities. This may mean that amounts previously recognised in other comprehensive income

are recycled to profit or loss.

If the ownership interest in an associate is reduced but significant influence is retained, only a

proportionate share of the amounts previously recognised in other comprehensive income is reclassified to

profit or loss where appropriate.



Goodwill

Goodwill is carried at cost less accumulated impairment losses, if any. The Group performs goodwill

impairment testing at least on an annual basis and whenever there are indications that goodwill may be

impaired. The carrying value of goodwill is compared to the recoverable amount, which is the higher of

value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an

expense and is not subsequently reversed. Goodwill is allocated to the cash generating units (namely, the

Group’s subsidiaries or business units). These units represent the lowest level at which the Group monitors

goodwill and are not larger than an operating segment.

Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been

allocated include the carrying amount of goodwill associated with the disposed operation, generally

measured on the basis of the relative values of the disposed operation and the portion of the cash-

generating unit which is retained.

Foreign currency translation

Monetary assets and liabilities denominated in foreign currency are translated into each entity’s functional

currency at the official exchange rate of the Central Bank of the Russian Federation (“CBRF”) at the

respective end of the reporting period. Transactions in foreign currencies are recorded at the rates of

exchange prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the

settlement of transactions in foreign currency and from the translation of monetary assets and liabilities

denominated in foreign currency into each entity’s functional currency at year-end official exchange rates

of the CBRF are recognised in the consolidated statement of profit and loss for the year within finance

income or costs except for foreign exchange differences arising on translation of hedge financial

instruments. Foreign exchange differences on hedge instruments are recognised in other comprehensive

income.

Translation at year-end rates does not apply to non-monetary items in the consolidated statement of

financial position that are measured at historical cost. Non-monetary items measured at fair value in a

foreign currency, including equity investments, are translated using the exchange rates at the date when

the fair value was determined. Effects of exchange rate changes on non-monetary items measured at fair

value in a foreign currency are recorded as part of the fair value gain or loss.

The table below presents the US dollar (USD) / Russian rouble (RUB) and euro (EUR) / RUB exchange

rates that were used for translating transaction amounts and monetary assets and liabilities into foreign

currencies: Official exchange rates

RUB / USD 1.00 RUB / EUR 1.00

Average rate for 2016 67.03 74.23

31 December 2016 60.66 63.81

Average rate for 2015 60.96 67.78

31 December 2015 72.88 79.70



Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts

receivable for goods and services provided in the normal course of business, net of sales related taxes.

Passenger revenue: Ticket sales are reported as traffic revenue when the transportation service has been

provided. The value of tickets sold and still valid but not used by the reporting date is reported in the

Group’s consolidated statement of financial position in a separate line item (unearned traffic revenue)

within current liabilities. This item is reduced either when the Group completes the transportation service

or when the passenger requests a refund. Sales representing the value of tickets that have been issued, but

which will never be used, are recognised as traffic revenue at the reporting date based on an analysis of

historical patterns of actual income from unused tickets. Commissions, which are payable to the sales

agents are recognised as sales and marketing expenses within operating costs in the consolidated statement

of profit and loss in the period of ticket sale by agents.

Passenger revenue includes revenue from code-share agreements with certain other airlines as per which the

Group and other airlines sell seats for each other’s flights (“code-share agreements”). Revenue from the sale

of code-share seats on other airlines is recorded at the moment of the transportation service provision and is

accounted for net in Group’s passenger revenue in the consolidated statement of profit and loss. Revenue

from the sale of code-share seats on Group’s flights by other airlines are recorded at the moment of the

transportation service provision and is fully accounted for in the Group’s traffic revenue in the consolidated

statement of profit and loss.

Cargo revenue: The Group’s cargo transport services are recognised as revenue when the air

transportation is provided. The value of cargo transport services sold but not yet provided is reported in

the Group’s consolidated statement of financial position in a separate line item (unearned traffic revenue)

within current liabilities.

Catering: Revenue is recognised when meal packages are delivered to the aircraft, as this is the date when

the risks and rewards of ownership are transferred to customers.

Other revenue: Revenue from bilateral airline agreements is recognised when earned with reference to the

terms of each agreement. Hotel accommodation revenue is recognised when the services are provided.

Revenues from sales of goods are recognised at the point of transfer of risks and rewards of ownership of

the goods, normally when the goods are shipped to the customer. If the Group agrees to transport goods to

a specified location, revenue is recognised when the goods are passed to the customer at the destination

point. Revenues from sale of services are recognised in the period in which the services were rendered.

Segment information

The Group determines and presents operating segments based on the information that internally is

provided to the General Director of the Group, who is the Group's chief operating decision maker.

Segments whose revenue, financial result or assets are not less than ten percent or more of all the

segments are reported separately.



Intangible assets

The Group’s intangible assets other than goodwill have definite useful lives and primarily include

capitalised computer software with the useful life of 5 years. Intangible assets are amortised using the

straight-line method over their useful lives. Acquired licenses for computer software are capitalised on the

basis of the costs incurred to acquire and bring them to use. If impaired, the carrying amount of intangible

assets is written down to the higher of value in use and fair value less costs of disposal.

Property, plant and equipment

Property, plant and equipment are reported at cost, less accumulated depreciation and impairment losses

(where appropriate). Depreciation is calculated in order to allocate the cost (less estimated residual value

where applicable) over the remaining useful lives of the assets.

Fleet

Owned aircraft and engines: Owned fleet consists of foreign-made aircraft, engines are both Russian and

foreign-made. The full list of aircraft is presented in Note 1.

Finance leased aircraft and engines: Where assets are financed through finance leases, under which

substantially all the risks and rewards of ownership are transferred to the Group, the assets are treated as if

they had been purchased outright.

Capitalised costs on regular maintenance works and repairs of aircraft operated under finance lease:

Expenditure incurred on modernisation and improvements projects that are significant in size (mainly

aircraft modifications involving installation of replacement parts) are capitalised. The carrying amount of

those parts that are replaced is derecognised from the Group’s consolidated statement of financial position

and included in operating costs in the Group’s consolidated statement of profit and loss. Capitalised costs of

aircraft checks and major modernisation and improvements projects are depreciated on a straight-line basis

to the projected date of the next check or based on estimates of their useful lives. Ordinary repair and

maintenance costs of aircraft are expensed as incurred and included in operating costs (aircraft maintenance)

in the Group’s consolidated statement of profit and loss.

Depreciation of fleet: The Group depreciates fleet assets owned or held under finance leases on a straight-

line basis to the end of their estimated useful life or lease term, if it is shorter. The airframe, engines and

interior of aircraft are depreciated separately over their respective estimated useful lives.

The Group’s fleet and other property, plant and equipment have the following useful lives:

Airframes of aircraft 20-32 years

Engines 8-10 years

Interiors 5 years

Buildings 15-50 years

Facilities and transport vehicles 3-5 years

Other non-current assets 1-5 years

Capitalised leasehold improvements: Capitalised costs that relate to the rented fleet are depreciated over the

shorter of: their useful lives and the lease term.



Property, plant and equipment (continued)

Land, buildings and other plant and equipment

Property, plant and equipment is stated at the historical US Dollar cost recalculated at the exchange rate on

1 January 2007, the date of the change of the functional currency of the Company and its major

subsidiaries from the US Dollar to the Russian Rouble or at the historical cost if property, plant and

equipment was acquired after specified date. Depreciation is accrued based on the straight-line method on

all property, plant and equipment based upon their expected useful lives or, in the case of leasehold

properties, over the duration of the leases or useful life if it is shorter. The useful lives of the Group’s

property, plant and equipment range from 1 to 50 years. Land is not depreciated.

Construction in progress

Construction in progress represents costs related to construction of property, plant and equipment,

including corresponding variable out-of-pocket expenses directly attributable to the cost of construction,

as well the acquisition cost of other assets that require assembly or any other preparation. The carrying

value of construction in progress is regularly analysed for the potential accrual of the impairment

provision.

Gain or loss on disposal of property, plant and equipment

The gain or loss arising on the disposal of an asset is determined as the difference between the sales

proceeds and the carrying amount of the asset and is recognised in the Group’s consolidated statement of

profit and loss within operating costs.

Finance lease

Where the Group is a lessee in a lease which transferred substantially all the risks and rewards incidental to

ownership to the Group, the assets leased are capitalised in property, plant and equipment at the

commencement of the lease at the lower of: the fair value of the leased assets and the present value of the

minimum lease payments.

Each lease payment is allocated between the outstanding liability and finance charges so as to achieve a

constant rate on the finance balance outstanding. Corresponding lease liabilities net of future interest

expenses are recorded as a separate line item (finance lease liabilities) within current and non-current

liabilities in the Group’s consolidated statement of financial position. Interest expenses within lease

payments are charged to profit or loss over the lease terms using the effective interest method. The assets

acquired under finance leases are depreciated over their useful life or the shorter lease term, if the Group is

not reasonably certain that it will obtain ownership by the end of the lease term.

Customs duties, legal fees and other initial direct costs increase the total amount recorded in assets in the

Group’s consolidated statement of financial position. The interest component of lease payments included in

financial costs in the Group’s consolidated statement of profit and loss.



Non-current assets classified as held for sale

Non-current assets and disposal groups (which may include both non-current and current assets) are

classified in the consolidated statement of financial position as ‘non-current assets held for sale’ if their

carrying amount will be recovered principally through a sale transaction (including loss of control of a

subsidiary holding the assets) within twelve months after the reporting period. Assets are reclassified

when all of the following conditions are met: (a) the assets are available for immediate sale in their present

condition; (b) the Group’s management approved and initiated an active programme to locate a buyer; (c)

the assets are actively marketed for sale at a reasonable price; (d) the sale is expected within one year; and

(e) it is unlikely that significant changes to the plan to sell will be made or that the plan will be withdrawn.

Non-current assets or disposal groups classified as held for sale in the current period’s consolidated

statement of financial position are not reclassified or re-presented in the comparative consolidated

statement of financial position to reflect the classification at the end of the current period.

A disposal group is a group of assets (current or non-current) to be disposed of, by sale or otherwise,

together as a group in a single transaction, and liabilities directly associated with those assets that will be

transferred in the transaction. Goodwill is included if the disposal group includes an operation within a

cash-generating unit to which goodwill has been allocated on acquisition. Non-current assets are assets

that include amounts expected to be recovered or collected more than twelve months after the reporting

period. If reclassification is required, both the current and non-current portions of an asset are reclassified.

Held for sale disposal groups as a whole are measured at the lower of their carrying amount and fair value

less costs to sell. Held for sale property, plant and equipment are not depreciated or amortised.

Liabilities directly associated with the disposal group that will be transferred in the disposal transaction

are reclassified and presented separately in the consolidated statement of financial position.

Capitalisation of borrowing costs

Borrowing costs including interest accrued, foreign exchange difference and other costs directly

attributable to the acquisition, construction or production of assets that are not carried at fair value and that

necessarily take a substantial time to get ready for intended use or sale (the "qualifying assets") are

capitalised as part of the costs of those assets, if the commencement date for capitalisation is on or after 1

January 2009. The Group considers prepayments for aircraft as the qualifying asset with regard to which

borrowing costs are capitalised.

The capitalisation starts when the Group:

(а) bears expenses related to the qualifying asset;

(b) bears borrowing costs; and

(c) takes measures to get the asset ready for intended use or sale.

Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their

use or sale.

The Group capitalises borrowing costs related to capital expenditure made on qualifying assets.



Capitalisation of borrowing costs (continued)

Borrowing costs capitalised are calculated at the Group’s average funding cost (the weighted average

interest cost is applied to the expenditures on the qualifying assets), except to the extent that funds are

borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing

costs incurred less any investment income on the temporary investment of those borrowings are

capitalised.

Impairment of property, plant and equipment

At each reporting date the management reviews its property, plant and equipment to determine whether there is any indication of impairment of those assets. If any such indication exists, the recoverable amount of the asset is estimated by management as the higher of: an asset’s fair value less costs of disposal and its value in use. The carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recorded within operating costs in the Group’s consolidated statement of profit and loss for the year. An impairment loss recognised for an asset in prior years is reversed where appropriate if there has been a change in the estimates used to determine the asset’s value in use or fair value less of disposal to sell.

Operating leases

Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss for the year on a straight-line basis over the lease term. The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.

Related direct expenses including custom duties for imported leased aircraft are recognised within non-current assets at the time of the aircraft transfer and amortised using a straight-line method over the term of lease agreement. Amortisation charges are recognised within operating costs. In compliance with the customs legislation of the Russian Federation, the Group pays customs duties in instalments, and therefore customs duties payment obligations are initially recognised at amortised cost.

The operating lease agreements include requirements to perform regular repairs and maintenance works during the lease term. Accordingly, the Group accrues a provision in the amount of discounted expenses needed to perform regular repairs and maintenance works. The estimated expenses are based on the most reliable data available at the time of such estimation. The provisions of the operating lease agreements, age and condition of the aircraft and engines, market value of fixtures, key parts and components subject to replacement and the cost of required work are taken into account. The provision is recorded at the discounted value.

The costs of regular repairs and maintenance works performed for aircraft held under finance lease are capitalized and amortized over the shorter of (i) the scheduled usage period to the next major inspection event or (ii) the remaining life of the asset or (iii) remaining lease term.

Aircraft lease security deposits

Aircraft lease security deposits represent amounts paid to the lessors of aircraft in accordance with the provisions of operating lease agreements. These security deposits are returned to the Group at the end of the lease period. Security deposits related to lease agreements are presented separately in the consolidated statement of financial position (aircraft lease security deposits) and recorded at amortised cost.



Classification of financial assets

Financial assets have the following categories: а) loans and receivables, b) financial assets available for

sale, and c) financial assets measured at fair value through profit or loss, which are recognised in this

category from the date of the initial recognition.

Loans and receivables are unquoted on active market non-derivative financial assets with fixed or

determinable payments other than those that the Group intends to sell in the near term.

Derivative financial instruments, including currency and interest rate options, fuel options, and currency

and interest rate swaps are carried at their fair value. All derivative instruments are carried as assets when

fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivative

instruments are included in profit or loss for the year, except for instruments subject to special hedge

accounting rules, whose fair value changes are recorded in other comprehensive income.

All other financial assets are included in the available-for-sale category, which includes investment

securities which the Group intends to hold for an indefinite period of time and which may be sold in

response to needs for liquidity or changes in interest rates, exchange rates or equity prices.

Classification of financial liabilities

Financial liabilities have the following measurement categories: a) held for trading, which also includes

financial derivatives, and (b) other financial liabilities. Liabilities held for trading are carried at fair value

with changes in value recognised in profit or loss for the year (as finance income or finance costs) in the

period in which they arise. Other financial liabilities are carried at amortised cost.

Financial instruments – key measurement terms

Depending on their classification, financial instruments are carried at fair value, cost or amortised cost, as

described below.

Fair value – is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date. The best evidence of fair value is price

in an active market. An active market is one in which transactions for the asset or liability take place with

sufficient frequency and volume to provide pricing information on an ongoing basis.

Fair value of financial instruments traded in an active market is measured as the product of the quoted

price for the individual asset or liability and the quantity held by the entity.

A portfolio of financial derivatives or other financial assets and liabilities that are not traded in an active

market is measured at the fair value of a group of financial assets and financial liabilities on the basis of

the price that would be received to sell a net long position (i.e. an asset) for a particular risk exposure or

paid to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction

between market participants at the measurement date. This is applicable for assets



Financial instruments – key measurement terms (continued)

carried at fair value on a recurring basis if: (a) the Group manages the group of financial assets and

financial liabilities on the basis of the Company’s net exposure to a particular market risk (or risks) or to

the credit risk of a particular counterparty in accordance with the Group’s documented risk management

or investment strategy; (b) the Group provides information on that basis about the group of assets and

liabilities to the entity’s key management personnel; and (c) the market risks, including duration of the

Group’s exposure to a particular market risk (or risks) arising from the financial assets and financial

liabilities is substantially the same.

Valuation techniques such as discounted cash flow models or models based on recent arm’s length

transactions or consideration of financial data of the investees are used to measure fair value of certain

financial instruments for which external market pricing information is not available.

Financial instrument measured at fair value are analysed by levels of the fair value hierarchy as follows:

level 1 are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities,

level 2 measurements are valuations techniques with all material inputs observable for the asset or

liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and

level 3 measurements, which are valuations not based on solely observable market data (that is, the

measurement requires significant unobservable inputs).

Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the

reporting period.

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to

acquire an asset at the time of its acquisition and includes transaction costs. Measurement at cost is only

applicable to investments in equity instruments that do not have a quoted market price and whose fair

value cannot be reliably measured and derivatives that are linked to, and must be settled by, delivery of

such unquoted equity instruments.

Amortised cost is the amount at which the financial instrument was recognised at initial recognition less

any principal repayments, minus or plus accrued interest, and for financial assets - less any write-down

(direct or through the valuation provision account) for incurred impairment losses. Accrued interest

includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to

maturity amount using the effective interest method. Accrued interest income and accrued interest

expense, including both accrued coupon and amortised discount or premium (including fees deferred at

origination, if any), are not presented separately and are included in the carrying values of related items in

the consolidated statement of financial position.

The effective interest method is a method of allocating interest income or interest expense over the relevant

period so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts

(excluding future credit losses) through the expected life of the financial instrument or a shorter period, if

appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts

cash flows of variable interest instruments to the next interest



Financial instruments – key measurement terms (continued)

repricing date, except for the premium or discount which reflects the credit spread over the floating rate

specified in the instrument, or other variables that are not reset to market rates. Such premiums or

discounts are amortised over the whole expected life of the instrument. The present value calculation

includes all fees paid or received between parties to the contract that are an integral part of the effective

interest rate.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of

a financial instrument. An incremental cost is one that would not have been incurred if the transaction had

not taken place. Transaction costs include fees and commissions paid to agents and advisors, levies by

regulatory agencies and securities exchanges, and transfer taxes and duties imposed on property transfer.

Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or

holding costs.

Initial recognition of financial instruments

Derivative financial instruments, including financial instruments subject to special hedge accounting rules,

are initially recognised at fair value. All other financial instruments are initially recorded at fair value plus

transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss

on initial recognition is only recorded if there is a difference between fair value and transaction price

which can be evidenced by other observable current market transactions in the same instrument or by a

valuation technique whose inputs include only data from observable markets.

All purchases and sales of financial assets that require delivery within the time frame established by

regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is

the date on which the Group commits to deliver a financial asset. All other purchases are recognised when

the Company/Group becomes a party to the contractual provisions of the instrument.

Derecognition of financial assets and liabilities

The Group derecognises financial assets when:

(а) the assets are redeemed or the rights to cash flows from the assets expired, or

(b) the Group has transferred the rights to the cash flows from financial assets or entered into a transfer

agreement, while:

(i) also transferring all substantial risks and rewards of ownership of the assets, or

(ii) neither transferring nor retaining all substantial risks and rewards of ownership but losing control

over such assets.

Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to

an unrelated third party without needing to impose additional restrictions on the sale.

The Group removes a financial liability (or a part of a financial liability) from its consolidated statement

of financial position when, and only when, it is extinguished - i.e. when the obligation specified in the

contract is discharged or cancelled or expires. The difference between the carrying amount of a financial

liability (or part of a financial liability) extinguished or transferred to another party and the consideration

paid, including any non-cash assets transferred or liabilities assumed, is be recognised in profit or loss.



Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position

only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to

either settle on a net basis, or to realise the asset and settle the liability simultaneously. Such a right of set

off (a) must not be contingent on a future event and (b) must be legally enforceable in all of the following

circumstances: (i) in the normal course of business, (ii) in the event of default and (iii) in the event of

insolvency or bankruptcy.

Financial instruments and hedge accounting

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The group designates certain derivatives as hedges for a highly probable forecast transaction (cash flow hedge).

The group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative instruments used for hedging purposes are disclosed in note 24. The fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in hedging reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated statement of profit and loss as a separate line below operating result of the Group.

Amounts accumulated in equity are reclassified to profit or loss (as profit or loss from financing activities) in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the consolidated income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated statement of profit and loss within gains and losses from financing activities as a separate line.

Hedging result in the consolidated statement of profit and loss is composed of change in fair value of hedging derivatives (use of hedging results) and the reverse effect on hedging risks impact of relevant hedging transactions recognized in operating activity.



Available-for-sale investments

Available for sale investments are carried at fair value. Interest income on available-for-sale debt

securities is calculated using the effective interest method and recognised in profit or loss for the year as

finance income. Dividends on available-for-sale equity instruments are recognised in profit or loss for the

year as finance income when the Group’s right to receive payment is established and it is probable that the

dividends will be collected. All other elements of changes in the fair value are recognised in other

comprehensive income until the investment is derecognised or impaired at which time the cumulative gain

or loss is reclassified from other comprehensive income to finance income in profit or loss for the year.

Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more

events (“loss events”) that occurred after the initial recognition of available-for-sale investments.

A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that

it is impaired. The cumulative impairment loss – measured as the difference between the acquisition cost

and the current fair value, less any impairment loss on that asset previously recognised in profit or loss – is

reclassified from other comprehensive income to finance costs in profit or loss for the year.

Impairment losses on equity instruments are not reversed and any subsequent gains are recognised in other

comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as

available for sale increases and the increase can be objectively related to an event occurring after the

impairment loss was recognised in profit or loss, the impairment loss is reversed through current period’s

profit or loss.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, and short-term highly liquid

investments (including bank deposits) with contractual maturities of ninety days or less, earning interest

income. Cash and cash equivalents are carried at amortised cost using the effective interest method.

Restricted balances are excluded from cash and cash equivalents for the purposes of the consolidated

statement of cash flows. Balances restricted from being exchanged or used to settle a liability for at least

twelve months after the reporting period are included in other non-current assets in the Group’s consolidated

statement of financial position.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not

quoted in an active market. Loans and receivables are individually recognised at fair value, and are

subsequently measured at amortised cost using the effective interest rate method. Doubtful accounts

receivable balances are assessed individually and any impairment losses are included in other operating

costs in the Group’s consolidated statement of profit and loss.

2.BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING


Impairment of financial assets carried at amortised cost

Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss

events”) that occurred after the initial recognition of the financial asset and which have an impact on the

amount or timing of the estimated future cash flows of the financial asset or group of financial assets that

can be reliably estimated. The primary factors that the Group considers in determining whether a financial

asset is impaired are its overdue status and realisability of related collateral, if any.

Impairment losses are always recognised through an allowance account to write down the asset’s carrying

amount to the present value of expected cash flows (which exclude future credit losses that have not been

incurred) discounted at the original effective interest rate of the asset. The calculation of the present value

of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result

from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognised (such as an improvement in the

debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance

account through profit or loss for the year.

Uncollectible assets are written off against the related impairment loss provision after all the necessary

procedures to recover the asset have been completed and the amount of the loss has been determined.

Subsequent recoveries of amounts previously written off are credited to impairment loss account within

the profit or loss for the year.

If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified

because of financial difficulties of the counterparty, impairment is measured using the original effective

interest rate before the modification of terms. The renegotiated asset is then derecognised and a new asset

is recognised at its fair value only if the risks and rewards of the asset substantially changed. This is

normally evidenced by a substantial difference between the present values of the original cash flows and

the new expected cash flows.

Prepayments

In these consolidated financial statements, prepayments are carried at cost less provision for impairment.

A prepayment is classified as non-current when the goods or services relating to the prepayment are

expected to be obtained after one year, or when the prepayment relates to an asset which will itself be

classified as non-current upon initial recognition. Prepayments to acquire assets are included to the

carrying amount of the asset once the Group has obtained control of the asset and it is probable that future

economic benefits associated with the asset will flow to the Group. Other prepayments are written off to

profit or loss when the services relating to the prepayments are received. If there is an indication that the

assets, goods or services relating to a prepayment will not be received, the carrying value of the

prepayment is written down accordingly and a corresponding impairment loss is recognised in the Group’s

consolidated statement of profit and loss for the year.



Trade and other payables

Trade payables are accrued when the counterparty performs its obligations under the contract and are

carried at amortised cost using the effective interest method.

Loans and borrowings

Loans and borrowings are initially recognised at fair value and subsequently measured at amortised cost

using the effective interest method.

Short-term loans and borrowings comprise:

interest bearing loans and borrowings with a term shorter than one year;

current portion of long-term loans and borrowings.

Long-term loans and borrowings include liabilities with the maturity exceeding one year.

Expendable spare parts and inventories

Inventories, including aircraft expendable spare parts, are valued at cost or net realisable value, whichever

is lower. The costs are determined as the actual acquisition cost of spare parts for aircraft maintenance and

as the cost of other inventories on the first-in, first- out (“FIFO”) basis. The Group writes off the full

amount of obsolete inventories which the Group does not plan to continue using in its operations.

Value added taxes

Value added tax (“VAT”) related to sales of goods or provision of services is recorded as a liability to the

tax authorities on an accruals basis. Domestic flights in general are subject to VAT at 10% (before 1 July

2015 – 18%) and international flights are subject to VAT at 0%. Input VAT invoiced by domestic

suppliers as well as VAT paid in respect of imported leased aircraft and spare parts may be recovered,

subject to certain restrictions, against output VAT. The recovery of input VAT is typically delayed by up

to six months and sometimes longer due to compulsory tax audit requirements and other administrative

matters. Input VAT claimed for recovery as at the date of the consolidated statement of financial position

is presented net of the output VAT liability. Recoverable input VAT that is not claimed for recovery in the

current period is recorded in the consolidated statement of financial position as VAT receivable. VAT

receivable that is not expected to be recovered within the twelve months from the reporting date is

classified as a non-current asset. Where provision has been made for uncollectible receivables, the bad

debt expense is recorded at the gross amount of the account receivable, including VAT.



Frequent flyer programme

Since 1999 the Group operates a frequent flyer programme referred to as Aeroflot-Bonus. Subject to the

programme’s terms and conditions, the miles earned entitle members to a number of benefits such as free

flights, flight class upgrades and redeem miles for special awards from programme partners. In accordance

with IFRIC 13 Customer Loyalty Programmes, accumulated but as yet unused bonus miles are deferred

using the deferred revenue method to the extent that they are likely to be used. The fair value of miles

accumulated on the Group’s own flights is recognised under current and non-current deferred revenue

related to frequent flyer programme (Note 26) within current and non-current liabilities, respectively, in the

Group’s consolidated statement of financial position. The fair value of miles accumulated by Aeroflot-Bonus

participants for using services provided by the partners of the programme, as well as the fair value of promo

miles, is recognised as other current and non-current liabilities related to frequent flyer programme (Notes 25

and 30) in accounts payable, accrued liabilities and other non-current liabilities, respectively, in the Group’s

consolidated statement of financial position. Revenue is recognised upon the provision of services to

Aeroflot-Bonus members.

Employee benefits

Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid

annual leave and sick leave, bonuses, and non-monetary benefits (such as health services and etc.) are

accrued in the year in which the associated services are rendered by the employees of the Group.

Provisions for liabilities

Provisions for liabilities are recognised if, and only if, the Group has a present obligation (legal or

constructive) as a result of a past event, and it is probable (i.e. more likely than not) that an outflow of

resources embodying economic benefits will be required to settle the obligation, and a reliable estimate

can be made of the amount of the obligation. Provisions are reviewed at each reporting date and adjusted

to reflect the current best estimate (Note 27). Where the effect of the time value of money is significant,

the amount of a provision is stated at the present value of the expenditures required to settle the obligation.

Income tax

Income taxes have been provided for in the consolidated financial statements in accordance with

legislation using tax rates and legislative regulations enacted or substantively enacted at the end of the

reporting period. Income tax expense/benefit comprises current and deferred tax and is recognised in the

consolidated statement of profit and loss for the year, unless it should be recorded within other

comprehensive income or directly in equity since it relates to transactions which are also recognised

within other comprehensive income or directly in equity in this or any other period.

Current tax is the amount expected to be paid to or recovered from budget in respect of taxable profits or

losses for the current and prior periods. Taxable profits or losses are based on estimates if the consolidated

financial statements are authorised prior to filing relevant tax returns. Other tax expenses, except from the

income tax, are recorded within other operating costs in the Group’s consolidated statement of profit and

loss.

2.BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income tax (continued)

Deferred income tax is provided using the balance sheet liability method for tax losses carried forward and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for consolidated financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences arising on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill, and subsequently for goodwill which is not deductible for tax purposes. Deferred tax assets and liabilities are measured at tax rates enacted or substantively enacted at the end of the reporting period which are expected to apply to the period when the temporary differences will reverse or the tax losses carried forward will be utilised.

Deferred tax assets for deductible temporary differences and tax losses carried forward are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities are netted only within the individual companies of the Group.

The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains upon their disposal. The Group does not recognise deferred tax liabilities on such temporary differences except to the extent that Management expects the temporary differences to reverse in the foreseeable future.

Uncertain income tax positions

The Group’s uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than income tax are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period.

Pensions

The Group makes certain payments to employees on retirement. These obligations represent obligations under a defined benefit pension plan. For such plans the pension accounting costs are assessed using the projected unit credit method. Under this method the cost of providing pensions is charged to the consolidated statement of profit and loss in order to spread the regular cost over the service lives of employees. Actuarial gains and losses are recognised in other comprehensive income immediately. The pension liability for non-retired employees is calculated based on a minimum annual pension payment and do not include increases, if any, to be made by management in the future. Where such post-employment employee benefits fall due more than twelve months after the reporting date they are discounted using a discount rate determined by reference to the government bond yields at the reporting date.

2.BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Pensions (continued)

The Group also participates in a defined contribution plan, under which the Group has committed to making

additional contributions as a percentage (20% in 2016) of the contribution made by employees choosing to

participate in the plan. Contributions made by the Group on defined contribution plans are charged to

expenses when incurred. Contributions are also made to the Government Pension fund at the statutory rates

in force during the year. Such contributions are expensed as incurred.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or

options are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of

consideration received over the par value of shares issued is recorded as share premium in equity.

Share-based compensation

The title to future equity compensations (shares or share options) to employees for the provided services is

measured at fair value of these instruments at the date of the transfer and is recognised as an employee

expense, with a corresponding increase in equity, over the period that the employees unconditionally become

entitled to these awards.

The amount recognised as an expense is adjusted to reflect the number of awards for which the related

service and non-market vesting conditions are expected to be met, such that the amount ultimately

recognised as an expense is based on the number of awards that meet the related service and non-market

performance conditions at the vesting date. The effect of revisiting initial estimates, if any, is recognised in

profit or loss with a corresponding adjustment to equity.

Services, including employee services received in exchange for cash-settled share-based payments, are

recognised at the fair value of the liability incurred and are expensed when consumed or capitalised as assets,

which are depreciated or amortised. The liability is re-measured at each balance sheet date to its fair value,

with all changes recognised immediately in profit or loss.

Treasury shares purchased

Where the Company or its subsidiaries purchase the Company’s equity instruments, the consideration paid,

including any directly attributable incremental costs, net of income taxes, is deducted from equity

attributable to the Company’s owners until the equity instruments are cancelled, reissued or disposed of. The

Company’s shares, which are held as treasury stock or belong to the Company’s subsidiaries, are reflected as

a reduction of the Group’s equity.

The sale or re-issue of such shares does not impact net profit for the current year and is recognised as a

change in the shareholders’ equity of the Group. Where such shares are subsequently sold or reissued, any

consideration received, net of any directly attributable incremental transaction costs and the related income

tax effects, is included in equity attributable to the Company’s shareholders.

Dividend distributions and payments by the Company are recorded net of the dividends related to treasury

shares.



Dividends

Dividends are recorded as a liability and deducted from equity in the period in which they are declared and

approved by the shareholders in the General Shareholders’ Meeting.

Earnings/loss per share

Earnings per share are determined by dividing the profit or loss attributable to the Company’s shareholders

by the weighted average number of participating shares outstanding during the reporting year. The

calculation of diluted earnings per share includes shares planned to be used in the option programme when

the average market price of ordinary shares for the period exceeds the exercise price of the options.

3.CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING

ACCOUNTING POLICIES

The Group makes estimates and assumptions that affect the amounts recognised in the consolidated financial

statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and

judgements are continually evaluated and are based on management’s experience and other factors,

including expectations of future events that are believed to be reasonable under the circumstances.

Management also makes certain judgements, apart from those involving estimations, in the process of

applying the accounting policies. Judgements that have the most significant effect on the amounts recognised

in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying

amount of assets and liabilities within the next financial year include:

Useful lives and residual value of property, plant and equipment

The assessment of the useful lives of property, plant and equipment and their residual value are matters of

management judgement based on the use of similar assets in prior periods. To determine the useful lives

and residual value of property, plant and equipment, management considers the following factors: nature

of the expected use, estimated technical obsolescence and physical wear. A change in each of the above

conditions or estimates may require the adjustment of future depreciation expenses.

Value of tickets which were sold, but will not be used

Sales representing the value of tickets that have been issued, but which will never be used, are recognised

as traffic revenue at the reporting date based on an analysis of historical income from unused tickets. The

assessment of the probability that the tickets will not be used is a matter of management judgement. A

change in these estimates may require the adjustment to the revenue amount in the consolidated statement

of profit and loss (Note 5) and to the unearned traffic revenue in the consolidated statement of financial

position.

3.CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING

ACCOUNTING POLICIES (CONTINUED)

Frequent flyer programme

At the reporting date, the Group estimates and recognises the liability pertaining to air miles earned by

Aeroflot Bonus programme (Note 2) members. The estimate has been made based on the statistical

information available to the Group and reflects the expected air mile utilisation pattern after the reporting

date multiplied by their assessed fair value. The assessment of the fair value of a bonus mile, as well as the

management’s expectations regarding the amount of miles to be used by Aeroflot Bonus members, are a

matter of management judgement. A change in these estimates may require the adjustment of deferred

revenue, other current and non-current liabilities related to frequent flyer programme in the consolidated

statement of financial position (Note 26) and adjustment to revenue in the consolidated statement of profit

and loss (Note 5).

Compliance with tax legislation

Compliance with tax legislation, particularly in the Russian Federation, is subject to a significant degree of

interpretation and can be routinely challenged by the tax authorities. The management records a provision in

respect of its best estimate of likely additional tax payments and related penalties which may be payable if

the Group’s tax compliance is challenged by the relevant tax authorities (Note 41).

Classification of a lease agreement as operating and finance lease

Management applies professional judgement with regard to the classification of aircraft lease agreements

as operating and finance lease agreements in order to determine whether all significant risks and rewards

related to the ownership of an asset are transferred to the Group in accordance with the agreement and

which risks and rewards are significant. A change in these estimates may require a different approach to

aircraft accounting.

Estimated impairment of goodwill

The Group tests goodwill for impairment at least annually. The recoverable amount of each cash generating

unit was determined based on value-in-use calculations. These calculations require the use of estimates as

further detailed in Note 23.

Deferred tax asset recognition

The recognised deferred tax asset represents income taxes recoverable through future deductions from

income tax expense and is recorded in the consolidated statement of financial position. Deferred income tax

assets are recognised to the extent that realisation of the related tax benefit is probable. The future taxable

profits and the amount of tax benefits that are probable in the future are based on the medium term business

plan prepared by management and extrapolated results thereafter. The business plan is based on management

expectations that are believed to be reasonable under the circumstances.

4.ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS

New standards and interpretations effective from 1 January 2016

The following amended standards became effective from 1 January 2016, but did not have any material

impact on the Group.

IFRS 14, Regulatory deferral accounts (issued in January 2014 and effective for annual periods


(CONTINUED)

beginning on or after 1 January 2016).

Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 (issued on 6

May 2014 and effective for the periods beginning on or after 1 January 2016).

Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and

IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016).

Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12 August 2014

and effective for annual periods beginning 1 January 2016).

Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods

beginning on or after 1 January 2016).

Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on

or after 1 January 2016).

Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS

28 (issued in December 2014 and effective for annual periods on or after 1 January 2016).

New Accounting standards and Pronouncements

Certain new standards and interpretations have been issued that are mandatory for the annual periods

beginning on or after 1 January 2017 or later, and which the Group has not early adopted:

IFRS 9 “Financial Instruments: Classification and Measurement” (issued in July 2014 and effective for

annual periods beginning on or after 1 January 2018). The Group is currently assessing the impact of the

new standard on its financial statements;

IFRS 15 “Revenue from contracts with customers” (issued on 28 May 2014, effective for annual periods

beginning on or after 1 January 2018). The Group is currently assessing the impact of the new standard on

its financial statements;

IFRS 16 “Leases” (issued on 13 January 2016 and effective for annual periods beginning on or after 1

January 2019). The standard was not approved for use in RF, the Group is currently assessing the impact

of the new standard on its financial statements;

Disclosure Initiative - Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods

beginning on or after 1 January 2017). The Group is currently assessing the impact of the amendment on

its financial statements;

Amendments to IAS 15 “Revenue from contracts with customers” (issued on 12 April and effective for

annual periods beginning on or after 1 January 2018). The Group is currently assessing the impact of the

new standard on its financial statements;

The following other new pronouncements are not expected to have any material impact on the Group

when adopted:

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to

IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after

the date of approval by IASB);


(CONTINUED)

Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 (issued on 19

January 2016 and effective for annual periods beginning on or after 1 January 2017).

Amendments to IFRS 2 "Share-based payments" (issued on 20 June 2016 and effective for annual

periods on or after 1 January 2018);

IFRS 9 “Financial Instruments” and IFRS 4 “Insurance contracts” - Amendments to IFRS 4 (issued

on 12 September 2016 and effective depending on the chosen approach: for annual periods on or after 1

January 2018 (organizations that have chosen deferral approach) and for annual periods since the

organization has first begun to apply IFRS 9 (organizations that have chosen overlay approach).

Annual Improvements to IFRSs 2014-2016 cycle (issued on 8 December 2016 and effective for annual

periods beginning on or after 1 January 2017 for amendments to IFRS 12, and on or after 1 January 2018

for amendments to IFRS 1 and IAS 28).

IFRIC 22 - Foreign Currency Transactions and Advance Consideration (issued on 8 December 2016

and effective for annual periods beginning on or after 1 January 2018).

Transfers of Investment Property - Amendments to IAS 40 (issued on 8 December 2016 and effective for

annual periods beginning on or after 1 January 2018).

5.TRAFFIC REVENUE

2016 2015

Scheduled passenger flights 403,760 343,428

Charter passenger flights 17,617 6,146

Cargo flights 12,589 9,631

Total traffic revenue 433,966 359,205

6.OTHER REVENUE

2016 2015

Airline agreements revenue 35,923 31,596

Revenue from partners under the frequent flyer programme 11,846 10,275

Refuelling services 2,515 2,535

In-flight catering services 1,429 1,434

Sales of duty free goods 1,349 1,162

Ground handling and maintenance 1,382 1,118

Hotel revenue 491 463

Other revenue 6,979 7,385

Total other revenue 61,914 55,968

7.OPERATING COSTS LESS STAFF COSTS AND DEPRECIATION AND

AMORTISATION

2016 2015

Aircraft and traffic servicing 70,908 63,408

Operating lease expenses 59,563 44,415

Aircraft maintenance 38,236 32,042

Sales and marketing expenses 13,887 13,568

Communication expenses 14,697 12,890

Administration and general expenses 16,407 12,516

Passenger services 16,319 11,778

Expenses for in-flight catering 8,714 7,766

Insurance expenses 2,059 1,941

Custom duties 1,355 1,290

Cost of duty-free goods sold 732 599

Other expenses 9,563 7,619

Operating costs less aircraft fuel, staff costs and depreciation and

amortisation 252,440 209,832

Aircraft fuel 101,582 94,382

Total operating costs less staff costs and depreciation and

amortisation 354,022 304,214

8.STAFF COSTS

2016 2015

Wages and salaries 50,885 44,001

Pension costs 10,577 8,829

Social security costs 3,220 2,789

Total staff costs 64,682 55,619

Pension costs include:

compulsory payments to the RF Pension Fund;

contributions to a non-governmental pension fund under a defined contribution pension plan under which

the Group makes additional pension contributions as a fixed percentage (20% for 12 months of 2016; 20%

for 12 months of 2015) of the transfers made personally by employees participating in the programme; and

an increase in the net present value of the future benefits which the Group expects to pay to its employees

upon their retirement under defined benefit pension plans.

2016 2015

Payments to the RF Pension Fund 10,574 8,843

Defined benefit pension plan 3 (14)

Total pension costs 10,577 8,829

9.OTHER OPERATING EXPENSES AND INCOME, NET

2016 2015

Reimbursement of fuel excise tax 5,972 4,658

Gain on disposal of assets classified as held for sale 2,784 -

Fines and penalties received from suppliers 753 614

Insurance compensation received 297 513

Gain on accounts payable write-off 34 164

Charge of impairment provision for doubtful accounts receivable

(Note 14) (2,217) (6,449)

Accrual of provision for Group liabilities (Note 27) (6,628) (4,433)

Loss on fixed assets disposal and impairment on fixed assets (849) (672)

Loss on accounts receivable write-off (4) (246)

Other expenses and income, net (669) (97)

Reversal of VAT recoverable - 8,021

Total other operating (expenses)/income, net (527) 2,073

10.FINANCE INCOME AND COSTS

2016 2015

Finance income:

Gain on change in fair value of derivative financial instruments not

subject to hedge accounting (Note 24) - 11,885

Interest income on deposits and security deposits 4,169 3,723

Gain on foreign exchange, net 15,597 -

Other finance income 36 203

Total finance income 19,802 15,811

2016 2015

Finance costs:

Realised loss on derivative financial instruments not subject to

hedge accounting (Note 24) - (19,803)

Interest expense (8,907) (7,737)

Foreign exchange loss, net - (849)

Loss on change in fair value of derivative financial

instruments not subject to hedge accounting (Note 24) (53) -

Other finance costs (483) (167)

Total finance costs (9,443) (28,556)

2016 2015

Realised hedging result:

Realised loss on hedging derivative instruments (Note 24) (3,994) (18,654)

Ineffective portion of fuel hedging (Note 24) - 1,187

Effect of revenue hedging with liabilities in foreign

currency (Note 28) (8,316) (6,279)

Total hedging result (12,310) (23,746)

11.INCOME TAX

2016 2015

Current income tax charge for the year 12,931 3,951

Deferred income tax expense 1,524 983

Total income tax expense 14,455 4,934

Reconciliation of the income tax estimated based on the applicable tax rate to the income tax is presented

below:

2016 2015


Tax rate applicable in accordance with Russian legislation 20% 20%

Income tax at tax rate in accordance with Russian legislation (10,656) 312

Tax effect of items which are not deductible or assessable for taxation

purposes:

Non-taxable income 1,076 1,790

Non-deductible expenses (5,042) (5,295)

Unrecognised current year tax losses (1,514) (587)

Recognition of previously unrecognised tax losses 1,263 490

Prior years income tax adjustments 418 (1,644)

Total income tax (14,455) (4,934)

11. INCOME TAX (CONTINUED)

31

December

2016

Changes for

the year

31

December

2015

Changes for

the year

31 December

2014

Tax effect of temporary

differences:

Tax losses carried forward 143 70 73 (944) 1,017

Long-term financial investments 259 58 201 176 25

Accounts receivable 13 (570) 583 716 (133)

Property, plant and equipment and

finance lease liabilities 8,444 (7,694) 16,138 6,205 9,933

Accounts payable 4,894 882 4,012 1,803 2,209

Derivative financial instruments - (960) 960 (5,157) 6,117

Deferred tax assets before tax

set off 13,753 21,967 19,168

Tax set off (1,501) (335) (628)

Deferred tax assets after tax set

off 12,252 21,632 18,540

Property, plant and equipment (39) 78 (117) (25) (92)

Customs duties related to the

imported aircraft under operating

leases (211) 124 (335) 126 (461)

Long-term financial investments (25) (15) (10) 5 (15)

Accounts receivable (1,240) (1,239) (1) 163 (164)

Accounts payable (25) 17 (42) (13) (29)

Deferred tax liabilities before

tax set off (1,540) (505) (761) Tax set off 1,501 335 628

Deferred tax liabilities after tax

set off (39) (170) (133)

Movements for the year, net (9,249) 3,055

Deferred tax expense/(income)

recognised directly in other

comprehensive income 7,725

(4,038)

Deferred income tax expense

for the year (1,524)

(983)

11.INCOME TAX (CONTINUED)

As at 31 December 2016 the Group recognised deferred tax assets from tax losses of subsidiaries in the

amount of RUB 143 million.

In the reporting period, the Group did not recognise deferred tax assets from tax losses of its subsidiaries

in the amount of RUB 1,514 million (as at 31 December 2015: RUB 587 million ), as Group’s

management doesn’t expect that taxable profit will be available against which the deductible temporary

difference, related to received tax losses, can be utilized.

Starting from 1 January 2017, the limitation on carry-forward of losses for a 10-year period will be

revoked in principle (which means that losses incurred since 2007 will be carried forward until fully

recognised). Limitations for the recognition of losses carried forward for the period from 2017 to 2020

have been also introduced. In accordance with the new rules, the amount of recognized loss carry forwards

can’t exceed 50% of the tax base of relevant year. These changes will not have material impact for the

Group's consolidated financial statements.

12.CASH AND CASH EQUIVALENTS

31 December

2016

31 December

2016

Bank deposits denominated in roubles with maturity of less than 90 days 23,444 17,205

Cash on hand and bank accounts denominated in roubles 4,639 8,517

Cash on hand and bank accounts denominated in US Dollars 2,293 2,167

Cash on hand and bank accounts denominated in other currencies 418 1,793

Cash on hand and bank accounts denominated in Euro 317 449

Cash in transit 365 562

Total cash and cash equivalents 31,476 30,693

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets are disclosed in

Note 36. More than 35% of the Group’s funds are held in 2 highly reliable state-controlled Russian banks

– PJSC VTB Bank with long-term credit rating BB+ from S&P rating agency and PJSC Sberbank

(hereinafter “Sberbank RF”) with long-term credit rating BBB- from Fitch Ratings agency as at

31 December 2016 (as at 31 December 2015 Group’s funds were held in “Sberbank RF” with long-term

credit rating BBB from Fitch Ratings agency).

As at 31 December 2016 the Group had restricted cash of RUB 148 million (31 December 2015: RUB 168

million) recorded within other non-current assets in the Group’s consolidated statement of financial

position.

13.AIRCRAFT LEASE SECURITY DEPOSITS

A security deposit is held with the lessor to secure the lessee’s fulfilment of its obligations in full, on a

timely basis and in good faith. The security deposit is transferred to the lessor by instalments or in a single

instalment. The security deposit is usually equal to three monthly lease payments. The lessee has the right

to replace the security deposit, in full or in part, with a letter of credit. The security deposit can be offset

against the last lease payment or any payment if there is any non-fulfilment of obligations by the lessee.

The security deposit is returned subsequent to the lease agreement’s termination/cancellation or return of

the aircraft immediately after the date of lease termination and fulfilment by the lessee of its obligations.

The security deposits under aircraft lease agreements are recorded at amortised cost using an average

market yield from 1.9% to 12.6% p.a. in 2016 (2015: from 3.7% to 13.5% p.a.).

13. AIRCRAFT LEASE SECURITY DEPOSITS (CONTINUED)

Aircraft lease

security

deposits

1 January 2015 2,431

Payment of security deposits 1,995

Amortisation charge for the year 346

Repaid of security deposits during the year (696)

Foreign exchange difference 973

Deposits write-off (216)

Reclassification to assets, classified as held for sale (43)

31 December 2015 4,790

Payment of security deposits 2,504

Amortisation charge for the year 380

Repaid of security deposits during the year (3,405)

Set off against accounts payable (983)

Foreign exchange difference (886)

Reclassification to assets, classified as held for sale 20

Other 81

31 December 2016 2,501

31 December

2016

31 December

2015

Current portion of security deposits 320 2,658

Non-current portion of security deposits 2,181 2,132

Total aircraft lease security deposits 2,501 4,790

Analysis of aircraft lease security deposits by their credit quality is presented below:

31 December

2016

31 December

2015

Major international lease companies 2,477 4,766

Russian lease companies 24 24

Total aircraft lease security deposits 2,501 4,790

14.ACCOUNTS RECEIVABLE AND PREPAYMENTS

31 December

2016

31 December

2015

Trade accounts receivable 31,329 34,275

Other financial receivables 8,517 8,056

Less: impairment provision (12,342) (10,609)

Total financial receivables 27,504 31,722

Prepayments to suppliers 10,504 8,784

VAT and other taxes recoverable 10,905 17,225

Prepayments for delivery of aircraft 26,341 16,734

Deferred customs duties related to the imported aircraft under

operating leases, current portion 579 705

Other receivables 2,339 1,147

Accounts receivable and prepayments 78,172 76,317

As at 31 December 2016 the Group recognised impairment provision for financial receivables from OJSC

Transaero Airlines for passengers transportation, refuelling services, ground handling, aircraft and traffic

servicing of RUB 7,286 million (31 December 2015: RUB 6,403 million).

Accounts receivable and prepayments include prepayments for acquisition of aircraft to be delivered

within 12 months after the reporting date. Change on the prepayments for aircraft line item are due to the

approaching aircraft delivery dates as well as the refund of prepayments related to the delivery of aircraft

in the current period.

Deferred customs duties of RUB 579 million as at 31 December 2016 (31 December 2015: RUB 705

million) relate to the current portion of paid customs duties related to imported aircraft under operating

leases. These customs duties are recognised within operating costs in the Group’s consolidated statement

of profit and loss over the term of the operating lease. The non-current portion of the deferred customs

duties is disclosed in Note 17.

Financial receivables are analysed by currencies in Note 36.

As at 31 December 2016 and 31 December 2015, sufficient impairment provision was made against

accounts receivable and prepayments.

As at 31 December 2016 and 31 December 2015, the current part of prepayments for aircraft include

advance payments for the acquisition of the following aircraft:

31 December 2016 31 December 2015

Expected lease

type Type of aircraft

Number of

aircraft,

units

Expected

delivery date

Number of

aircraft,

units

Expected

delivery date

Undetermined Boeing B-787 22 2017 2 2016

Operating lease Boeing В-777 1 2017 2 2016

Operating lease Airbus A-320 11 2017 9 2016

Operating lease Airbus A-321 8 2017 7 2016

14. ACCOUNTS RECEIVABLE AND PREPAYMENTS (CONTINUED)

At the extraordinary meeting of shareholders of PJSC Aeroflot in December 2016 the transaction on

assignment of rights in respect of the purchase of 22 Boeing B787 aircraft was approved. As at

31 December 2016 the deal was in negotiation process.

The movements in impairment provision for accounts receivable and prepayments are as follows:

Impairment

provision

1 January 2015 4,532

Increase in impairment provision 7,471

Provision used (344)

Provision released (1,022)

Disposal of the subsidiaries (28)

31 December 2015 10,609

Increase in impairment provision 4,040

Provision used (484)

Provision released (1,823)

31 December 2016 12,342

Financial receivables are analysed by credit quality in Note 36.

15.EXPENDABLE SPARE PARTS AND INVENTORIES

31 December

2016 31 December

2015

Expendable spare parts 7,633 5,757 Fuel 855 341 Other inventories 2,720 2,301

Total expendable spare parts and inventories, gross 11,208 8,399 Less: written-off obsolete expendable spare parts and inventories (1,168) (952)

Total expendable spare parts and inventories 10,040 7,447

16.FINANCIAL INVESTMENTS

31 December

2016 31 December

2015

Available-for-sale investments: Available-for-sale securities 3,252 6,062 SITA Investment Certificates 52 56

Total available-for-sale investments 3,304 6,118

Other long-term investments Other 2 -

Total long-term financial investments 3,306 6,118

Available-for-sale securities are mainly represented by the initial cost of the Group’s investment in JSC MASH, a state-related company engaged in servicing of aircraft, passengers and handling cargo of Russian and foreign airlines, and providing non-aviation services to entities operating in Sheremetyevo airport and adjacent area.

16.FINANCIAL INVESTMENTS (CONTINUED)

The RF, as represented by the Federal Agency for Management of State Property owns over 80% of the

entity’s shares (Note 38).

Due to the market quotes absence the Group's investments in JSC MASH are measured at historical cost less accumulated impairment losses. As a result of the update of macroeconomic and financial indicators, the Group revised the recoverable amount of its long-term financial investment in JSC MASH and recognised an impairment loss in the amount of RUB 2,810 million during 2016.

The following factors had the most significant impact on the assessment of recoverable amount of this investment:

(а) the weighted average cost of capital was revised from 12.0% to 16.7% based on public capital markets data, data about peer companies and the actual cost of capital of JSC MASH determined based on the effective rate in financial statements;

(b) update of forecasts for macro assumptions based on an Economist Intelligence Unit forecast;

(с) update of passenger traffic growth rates based on the independent Airbus Global Market Forecast 2016-2035; passenger traffic growth rates decreased on average by 0.3 percentage points (pp).

The Group performed a sensitivity analysis of key assumptions used in the financial model of JSC MASH.

An increase in the weighted average cost of capital for JSC MASH by 2.5 pp results in an impairment of investments by RUB 3,929 million. Decrease in the weighted average cost of capital for JSC MASH by 2.5 pp results in an impairment of investments by RUB 1,159 million.

An increase in passenger traffic growth rates by 1 pp results in an impairment of investments by RUB 1,323 million. A decrease in passenger traffic growth rates by 1 pp results in an impairment of investments by RUB 4,129 million.

As at 31 December 2016 the investments in JSC MASH are recognised in the consolidated statement of financial position at their initial cost of RUB 3,203 million (31 December 2015: RUB 6,013 million).

31 December

2016 31 December

2015

Other short-term financial investments: Loans issued and promissory notes of third parties 9,458 9,335 Deposits placed in banks for more than 90 days 6,319 5,917 Other short-term investments 5 5

Total other short-term financial investments (before impairment provision) 15,782 15,257

Less: provision for impairment of short-term financial investments (9,463) (9,340)

Total short-term financial investments 6,319 5,917

The provision for impairment is related primarily to provision for impairment of loans granted by Group companies to OJSC Transaero Airlines recognized during 2015.

As at 31 December 2016, deposits with maturity for more than 90 days are placed in the largest Russian commercial banks with long-term credit rating not lower than B1 according to Moody’s credit rating agency.

17.OTHER NON-CURRENT ASSETS

31 December

2016

31 December

2015

Deferred customs duties related to the imported aircraft under

operating leases, non-current portion 559 1,119

Prepaid expenses for operating lease transactions 5,697 -

Other non-current assets 3,856 1,643

Total other non-current assets 10,112 2,762

During 2016, the Group has made RUB 5,697 million payments for 14 aircraft as part of the initial

payments under the operating lease agreements that have been recognized as other non-current assets as at

31 December 2016. The carrying value of these non-current assets should be allocated to operating lease

expenses over the term of the operating lease agreements.

18.PREPAYMENTS FOR AIRCRAFT

As at 31 December 2016 and 31 December 2015 non-current portion of prepayments for aircraft were

RUB 27,830 million and RUB 35,291 million, respectively. Change of non-current portion of

prepayments is due to approaching the contractual period of delivery and payment of new non-current

prepayments to suppliers.

Prepayments for aircraft with a delivery date less than 12 months to reporting date are disclosed inside of

accounts receivable (Note 14).

As at 31 December 2016 and 31 December 2015 non-current prepayments include advance payments for

the acquisition of the following aircraft:


Expected lease

type Aircraft type

Number of

aircraft,

units

Expected

delivery

date

Number of

aircraft,

units

Expected

delivery date

Undetermined Boeing B787 - - 20 2017-2019

Operating lease Airbus А350 22 2018-2023 22 2018-2023

Operating lease Boeing В777 - - 1 2017

Operating lease Airbus A320 10 2018 21 2017-2018

Undetermined Airbus A321 4 2018 12 2017-2018

19.PROPERTY, PLANT AND EQUIPMENT

Owned

aircraft and

engines

Leased aircraft

and engines

Land and

buildings

Transport,

equipment and

other assets

Construction

in progress Total

Cost

1 January 2015 6,930 126,724 11,718 16,939 1,519 163,830

Additions (i) 1,588 - 78 3,895 3,389 8,950

Capitalised expenditures - 991 - - 816 1,807

Disposals (4,075) (477) (1,422) (977) 4 (6,947)

Transfers to assets,

classified as held for sale

(note 20) (33) (20,601) - (3) - (20,637)

Transfers 84 140 71 562 (857) -

31 December 2015 4,494 106,777 10,445 20,416 4,871 147,003

Additions (ii) 2,134 32 26 3,603 4,138 9,933

Capitalised expenditures - 1,810 - - 632 2,442

Disposals (988) - (392) (1,141) (3) (2,524)

Transfers from assets,


(note 20) - 3,613 - - - 3,613



(note 20) - (366) - - (223) (589)

Transfers (iii) 2,507 1,076 52 1,059 (4,694) -

31 December 2016 8,147 112,942 10,131 23,937 4,721 159,878

Accumulated

depreciation

1 January 2015 (4,110) (30,469) (4,627) (8,507) (73) (47,786)

Charge for the year (614) (9,259) (406) (2,132) - (12,411)

(Accrual)/release of

impairment provision 131 - (567) 36 - (400)

Disposals 3,666 477 842 768 - 5,753

18 12,317 - - - 12,335

31 December 2015 (909) (26,934) (4,758) (9,835) (73) (42,509)

Charge for the year/ (762) (8,761) (355) (2,569) - (12,447)

release of impairment

provision 25 - - 11 - 36

Disposals 135 - 143 722 - 1,000

Transfers from assets,

classified as held for

sale (note 20) - (1,338) - - - (1,338)


classified as held for

sale (note 20) - 277 - - - 277

31 December 2016 (1,511) (36,756) (4,970) (11,671) (73) (54,981)

Carrying amount

31 December 2015 3,585 79,843 5,687 10,581 4,798 104,494

31 December 2016 6,636 76,186 5,161 12,266 4,648 104,897

During 2015, additions mainly related to the purchase of 3 DHC-8 aircraft being under pre-operating maintenance.

During 2016, additions mainly related to the purchase of 2 DHC-8 aircraft for JCS Aurora and purchase of

equipment under finance leases.

During 2016, transfers primarily related to 3 DHC-8 aircraft.

19.PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Capitalised borrowing costs for 12 months 2016 amounted to RUB 632 million (2015: RUB 976 million).

Capitalisation rate of interest expenses for the period was 3.2% p.a. (2015: 3.2% p.a.).

As at 31 December 2016 there were no property and land (including tenancy) (31 December 2015: RUB

711 million), which were pledged to third and related parties as a security for the Group’s loans and

borrowings (Note 29).

As at 31 December 2016 the cost of fully depreciated property, plant and equipment was

RUB 6,990 million (31 December 2015: RUB 8,170 million).

20.ASSETS CLASSIFIED AS HELD FOR SALE

By decision of the Group’s management, as at 31 December 2016, 2 Airbus A321 operated under finance

lease agreements were targeted for disposal, therefore at the end of the reporting period these assets and

related liabilities were classified as held for sale.

As at 31 December 2016 the amount of net assets held for sale amounted to RUB 1,140 million.

Initial cost of

fixed assets

Accumulated

depreciation

Aircraft lease

security deposits

Total

assets

Total

liabilities

1 January 2016 18,539 (10,850) 43 7,732 (7,371)

Additions 589 (277) - 312 -

Disposals (12,466) 7,880 (2) (4,588) 4,702

Transfers to PP&E (3,613) 1,338 (41) (2,316) 2,669

31 December 2016 3,049 (1,909) - 1,140 -

Initial cost of

fixed assets

Accumulated

depreciation

Aircraft lease

security deposits

Total

assets

Total

liabilities

1 January 2015 - - - - -

Additions 20,637 (12,335) 43 8,345 (7,517)

Disposals (2,098) 1,485 - (613) 146

31 December 2015 18,539 (10,850) 43 7,732 (7,371)

As at 31 December 2016, 2 aircraft of type An-148 were leased out, 4 aircraft of type An-148 were under

maintenance for delivery to sub-lessees, therefore these aircraft were reclassified from assets held for sale

to property, plant and equipment (Note 19).

During 12 months 2016, 2 Airbus A319 aircraft, 1 Airbus A320 and 6 Airbus A321 were disposed. Profit

from disposal amounted to RUB 2,784 million.

By decision of the Group’s management, as at 31 December 2015 some of the aircraft operated under

finance lease agreements were taken out of service and were undergoing redelivery maintenance.

21.DISPOSAL OF SUBSIDIARIES

On 17 May 2016, the Group disposed of ОJSC Vladivostok Avia as a result of liquidation. A loss from the

disposal in the amount of RUB 5,726 million was recognised in profit and loss for 12 months of 2016.

OJSC Vladivostok Avia did not conduct any significant operating activities in 2016.

21.DISPOSAL OF SUBSIDIARIES (CONTINUED)

On 14 July 2016, the Group sold ALT Rejsebureau A/S. A loss from the sale in the amount of

RUB 12 million was recognised in profit and loss for 12 months of 2016.

On 6 September 2016, the Group disposed of СJSC Aeroflot-Cargo as a result of liquidation. A profit

from the disposal in the amount of RUB 639 million was recognised in profit and loss for 12 months 2016.

СJSC Aeroflot-Cargo did not conduct any significant operating activities in 2016.

Profit/loss on disposal of subsidiaries СJSC Aeroflot-Cargo and ОJSC Vladivostok Avia includes the

following components:

СJSC

Aeroflot-Cargo

ОJSC

Vladivostok

Avia

Negative net assets of disposed company 5,219 10,236

Non-controlling interest share in negative net assets - 7,579

Group's share in negative net assets of disposed company 5,219 2,747

Intragroup liabilities, including:

Accounts payable from disposed subsidiary to the Group (4,483) (7,028)

Loan issued by the Group to disposed subsidiary (97) (1,445)

Profit/(loss) from disposal of subsidiaries 639 (5,726)

22.INTANGIBLE ASSETS

Software Licences

Investments in

software and

R&D

Trademark

and client

base

Other

Total

Cost

1 January 2015 2,266 134 1,184 1,686

2

5,272 Additions 785 - 49 - 37 871 Disposals (25) - (32) - - (57)

31 December 2015 3,026 134 1,201 1,686 39 6,086

Additions 131 - 133 - 3 267 Disposals (317) - (142) (56) (6) (521)

31 December 2016 2,840 134 1,192 1,630 36 5,832

Accumulated amortisation

1 January 2015 (1,572) (89) - (848)

(1)

(2,510) Charge for the year (762) - - (133) - (895) Disposals 9 - - - - 9

31 December 2015 (2,325) (89) - (981) (1) (3,396)

Charge for the year (714) - - (229) (5) (948) Disposals 260 - - 71 6 337

31 December 2016 (2,779) (89) - (1,139) - (4,007)

Carrying amount

31 December 2015 701 45 1,201 705 38 2,690

31 December 2016 61 45 1,192 491 36 1,825

http://www.multitran.ru/c/m.exe?t=146333_1_2&s1=%E7%E0%E4%EE%EB%E6%E5%ED%ED%EE%F1%F2%FC

23.GOODWILL

For the purposes of impairment testing, goodwill is allocated between the cash generating units (the

“CGUs”), i.e. the Group subsidiaries that represent the lowest level within the Group at which the

goodwill is monitored for internal management purposes and are not larger than an operating segment of

the Group.

On 1 October 2015, the Board of Directors has made a decision to setup the united company AK

“Rossiya”. As at 31 December 2015, the goodwill impairment test was based on the following business-

units: business-unit “Sever” (head office in Saint-Petesburg, based on “AK “Rossiya”), business-unit

“Moskva” (branch in Moscow, based on “Orenair”), business-unit “Yug” (branch in Rostov-on-Don,

based on OJSC “Donavia”), and business-unit “Charter” (based on Transaero’s fleet and on a part of

Orenair’s fleet). The total carrying amount of AK Rossiya’s goodwill was attributed to business-unit

“Sever”, the carrying amount of Orenair’s goodwill was reallocated among business-units “Sever” and

“Moskva”.

The aggregate carrying amount of goodwill, allocated to the Group entities as at 31 December 2015 is

presented in the table below:

CGU name 31 December 2015

Business-unit “Sever” 5,657

Business-unit “Moskva” 845

AK Aurora 158

Total 6,660

As part of the impairment test of goodwill as at 31 December 2016, the carrying value of business-units’

“Sever” and “Moskva” goodwill business was allocated to United “AK “Rossiya”.

During 2016 there was a transition to the Group's new operating structure that includes the transfer of all

assets belonging to the business-units “Sever”, “Moskva”, “Yug”, “Charter” into United “AK “Rossiya”.

Due to the completion of junction of all business-units into a single structure the United “AK “Rossiya” is

considered as a single GGU the goodwill has been allocated to.

The aggregate carrying amount of goodwill, allocated to the Groups’ business-units as at 31 December

2016 is presented in the table below:

CGU name 31 December 2016

AK Rossiya 6,502

AK Aurora 158

Total 6,660

The recoverable value of CGU was calculated on the basis of value in use, which was determined by

discounting the future cash flows to be generated as a result of the entity's operations.

Key assumptions against which the recoverable amounts are estimated concerned the discount rate, the

rate of return and the terminal growth rate for the calculation of the terminal value.

AK Rossiya

The discount rate is based on weighted average cost of capital (WACC) and amounts to 15.8% p.a.

(31 December 2015: 14.5% p.a. for 2015) for the forecaster period.

23.GOODWILL (CONTINUED)

The growth rate for the terminal value calculation was set at the level of Russia's GDP long-term growth

rate of 1.5% p.a. (2015: 1.5% p.a.).

The budget for 2017 of “AK Rossiya” was adopted as a basis to forecasting the cash flows.

The Group's management has performed a sensitivity analysis of the goodwill impairment test results to

changes in yields as the most sensitive indicator. In case of decrease of this rate by 11% even though all

other variables held constant, the Group would recognised an impairment of CGU’s goodwill in the full

amount.

24.DERIVATIVE FINANCIAL INSTRUMENTS

The Group analyses and assesses the fair value of derivative financial instruments on a regular basis for

the purposes of consolidated financial statements or when so requested by management. Changes in the

fair value of derivative financial instruments are determined using Levels 2 and 3 inputs:

Derivative financial

instruments

2016 2015

1 January (4,800) (30,586) Level 3 derivative financial instruments that are not subject to special hedge accounting rules Change in fair value for the period (53) (7,918) Settlements during the period (Note 10) - 19,803 Level 3 derivative financial instruments that are subject to special hedge accounting rules Change in fair value for the period - (4,703) Additions for the period - Settlements during the period (Note 10) - 18,654 Level 2 derivative financial instruments that are subject to special hedge accounting rules Change in fair value for the period 859 (50) Settlements during the period (Note 10) 3,994 -

31 December - (4,800) Representing: Assets - 53 Liabilities - (4,853)

31 December - (4,800)

For risk management purposes the Group uses the following derivative financial instruments:

(а) Cross-currency interest rate swaps with a fixed interest rate

In early 2016, the Group closed cross-currency interest rate swap agreements upon their maturity. For

these instruments, the Group applied a cash flow hedge accounting model according to

IAS 39, “Financial Instruments: Recognition and Measurement”.

Until the expiration, the Group recognised a profit of RUB 491 million from revaluation of these derivative financial instruments within other comprehensive income together with a corresponding deferred income tax of RUB 98 million. As a result of the termination of this transaction, accumulated loss of RUB 3,994 million was recognised within hedging results.

24.DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

During 12 months 2015, a profit of RUB 47 million from the change in fair value of similar financial

instruments was recognised in other comprehensive income together with a corresponding deferred

income tax of RUB 10 million.

(b) Fuel options

During 12 months 2016, the Group did not conclude any new fuel option agreements. As at 31 December

2015, all previously concluded fuel option agreements had matured and were closed.

For 12 months 2015, the increase in fair value of fuel options amounted to RUB 10,542 million and was

reported as a part of profit or loss. Gains from changes in the fair value of option agreements to which hedge

accounting was applied for 12 months 2015 amounted to RUB 12,763 million and were reported in other

comprehensive income together with corresponding deferred tax of RUB 2,552 million.

The ineffective part of RUB 1,187 million was recognised within profit or loss. For 12 months 2015, realised

losses on fuel options amounting to RUB 18,654 million was recognised in profit and loss.

(c) Currency options

As at 31 December 2016, all currency option agreements were matured. As at 31 December 2015 there

was one currency option contract with a fair value of RUB 53 million. Hedge accounting was not applied

to this financial instrument.

During 12 months 2016, a loss on the change in fair value of currency option transactions amounting to

RUB 53 million was recognised in profit or loss (12 months 2015: profit of RUB 1,343 million). For the

year ended 31 December 2015, the loss on the currency and fuel options to which hedge accounting is not

applied was RUB 19,803 million.

Valuation principles for currency and fuel options

Valuation of future fuel and currency options cash flows are carried as assets when their fair value is

positive and as liabilities when their fair value is negative. Changes in the fair value of derivative financial

instruments are included in profit or loss for the reporting period if hedge accounting is not applied.

If hedge accounting is applied, the effective portion is accounted within hedge reserve with subsequent

reclassification to profit or loss in the same periods when the hedged item affects profit or loss.

Level 3 market inputs were used to assess the fair value of the instrument and the Monte-Carlo method

was applied. The following inputs were used to assess the fair value of the options:

spot price for basic asset oil available in information systems as at the valuation date;

forecast price for Brent crude oil or forecasting exchange rate determined based on data provided by

analysts for the term of the option;

volatility calculated based on historical closing prices for the underlying asset; and

the relevant currency market rate (MosPrime LIBOR, EURIBOR, etc.).

25.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


Accounts payable 23,659 29,466

Other financial payables 6,972 9,327

Total financial payables 30,631 38,793

Staff related liabilities 11,929 8,378

VAT payable on imported leased aircraft - 265

Advances received (other than unearned traffic revenue) 1,147 1,502

Other taxes payable 2,865 2,667

Other current liabilities related to the frequent flyer programme

(Note 26) 2,518

2,572

Income tax payable - 30

Other payables 778 544

Total accounts payable and accrued liabilities 49,868 54,751

As at 31 December 2016, staff related liabilities primarily include salaries payable, as well as social

contribution liabilities of RUB 9,106 million (31 December 2015: RUB 5,596 million) and the unused

vacation accrual of RUB 2,750 million (31 December 2015: RUB 2,696 million).

Financial payables are analysed by currency in Note 36.

26.DEFERRED REVENUE AND OTHER LIABILITIES RELATED TO THE

FREQUENT FLYER PROGRAMME

Deferred revenue and other liabilities related to the frequent flyer programme (Aeroflot Bonus

programme) as at 31 December 2016 and 31 December 2015 represented the number of bonus miles

earned when flying on the Group flights, but unused by the Aeroflot Bonus programme members and the

number of promo-miles and bonus miles earned by programme members for using programme partners’

services, respectively; they are estimated at fair value. Deferred revenue and other accrued liabilities

related to the frequent flyer programme also include liabilities under the Company’s discount programme

as at 31 December 2015, which represent the fair value of coupons for a discount on the repeated purchase

of tickets at Aeroflot’s web-site. There were no liabilities related to coupons for a discount on the purchase

of tickets as at 31 December 2016.

31 December

2016

31 December

2015

Deferred revenue related to the frequent flyer programme, current 1,607 1,307

Deferred revenue related to the frequent flyer programme, non-current 3,623 2,941

Other current liabilities related to the frequent flyer programme (Note 25) 2,518 2,572

Other non-current liabilities related to the frequent flyer programme (Note

30) 2,580 2,779

Total deferred revenue and other liabilities related to the frequent flyer

programme 10,328 9,599

27.PROVISIONS FOR LIABILITIES

Litigations Tax risks

Regular

repairs and

maintenance

works Total

provisions

1 January 2015 1,372 - 5,822 7,194

Charge of provision for the year 2,438 53 3,117 5,608

Use of provision for the year (169) - - (169)

Release of provision for the year (49) - (1,126) (1,175)

Unwinding of the discount - - 777 777

Loss on foreign exchange, net 70 - 2,241 2,311

Other changes - - (110) (110)

31 December 2015 3,662 53 10,721 14,436

Charge the provision for the year 2,291 57 6,150 8,498

Use of provision for the year (1,615) (53) (1,757) (3,425)

(981) - (889) (1,870)

Unwinding of discounting - - 1,562 1,562

Gain on foreign exchange , net (286) - (2,277) (2,563)

Other changes (543) - - (543)

31 December 2016 2,528 57 13,510 16,095

31 December

2016 31 December

2015

Current liabilities 5,304 7,519

Non-current liabilities 10,791 6,917

Total provisions 16,095 14,436

Litigations

The Group is a defendant in legal claims of a different nature. Provisions for liabilities represent

management’s best estimate of probable losses on existing and potential lawsuits (Note 41).

Tax risks

The Group makes a provision for contingent liabilities, including fines and penalties based on the best

management’s estimate of the amount of additional taxes that may be required to be paid (Note 41).

Regular repairs and maintenance works

As at 31 December 2016, the Group made a provision of RUB 13,510 million (31 December 2015: RUB

10,721 million) for regular repairs and maintenance works of aircraft used under operating lease terms.

28.FINANCE LEASE LIABILITIES

The Group leases aircraft from third and related parties under finance lease agreements (Note 38). The list

of aircraft that the Group have operated under finance lease agreements as at 31 December 2016 is

disclosed in Note 1.

31 December

2016

31 December

2015

Total outstanding payments on finance lease contracts 137,395 184,730

Future finance lease interest expense (14,659) (20,206)

Total finance lease liabilities 122,736 164,524

Including:

Current finance lease liabilities 15,593 19,504

Non-current finance lease liabilities 107,143 145,020

Total finance lease liabilities 122,736 164,524


Due for repayment: Principal

Future

interest

expense

Total

payments Principal

Future

interest

expense

Total

payments

On demand or within 1 year 15,593 3,662 19,255 19,504 4,337 23,841

Later than 1 year and not

later than 5 years 65,792 8,912 74,704 78,536 11,927 90,463

Later than 5 years 41,351 2,085 43,436 66,484 3,942 70,426

Total 122,736 14,659 137,395 164,524 20,206 184,730

As at 31 December 2016 interest payable amounted to RUB 80 million (31 December 2015: RUB 424

million) was included in accounts payable and accrued liabilities.

The effective interest rate for finance lease during 2016 was 2.9% p.a. (in 2015: 2.8% p.a.). Fair value of

finance lease liabilities approximate their carrying value.

The Group hedges foreign currency risk arising on a portion of the future revenue stream denominated in

US dollars with the finance lease liabilities denominated in the same currency. The Group applies cash

flow hedge accounting model to this hedging relationship, in accordance with IAS 39. As at 31 December

2016, finance lease liabilities including those related to assets, classified as held for sale in the amount of

RUB 116,219 million denominated in US dollars were designated as a hedging instrument for highly

probable revenue forecasted for the period of 2016 – 2026 in the same amount. The Group expects that

this hedging relationship will be highly effective since the future cash outflows on the finance lease

liabilities match the future cash inflows on the revenue being hedged. At 31 December 2016, accumulated

foreign currency loss of RUB 42,734 million (before deferred income tax) on the finance lease liabilities,

representing an effective portion of the hedge, was recognised in the hedge reserve in the equity (31

December 2015: RUB 76,507 million). The loss reclassified from the hedging reserve to profit or loss in

2016 was RUB 8,316 million (in 2015: RUB 6,279 million) (Note 10).

In 2016 interest expense on finance leases was RUB 4,070 million (2015: RUB 4,076 million).

Leased aircraft and engines with the carrying amount disclosed in Note 19 are effectively pledged for

finance lease liabilities as the rights to the leased asset revert to the lessor in the event of default.

29.LOANS AND BORROWINGS

31 December

2016

31 December

2015

Short-term bank loans, bonds and other borrowings:

Short-term bank loans in euro 4,478 - Short-term loans in Russian roubles 113 - Short-term loans in US dollars - 31,550

Current portion of loans and borrowings in Russian roubles 4,718 3,190 Current portion of long-term loans in US dollars - 14,242 Current portion of bonds in Russian roubles - 5,103

Total short-term loans and borrowings 9,309 54,085

Long-term bank loans, bonds and other borrowings:

Long-term loans in Russian roubles 12,581 17,565 Long-term loans and borrowings in US dollars 395 14,242 Long-term bonds in Russian roubles 2,800 5,103 Less: Current portion of long-term bank loans in Russian roubles (4,718) (3,190) Current portion of loans and borrowings in US dollars - (14,242) Current portion of bonds in Russian roubles - (5,103)

Total long-term loans and borrowings 11,058 14,375

Main changes in loans and borrowings during the reporting period:

The Group has opened a long-term non-revolving credit line with PJSC “Sberbank” (floating interest rate) in the amount of RUB 12,581 million. As at 31 December 2016 the outstanding amount including interest accrued was RUB 12,694 million. As at 31 December 2015 the outstanding amount was RUB 12,581 million. The loan is unsecured and issued for the period up to December 2018.

The Group has opened a credit line with PJSC Sovcombank (floating interest rate) in the amount of USD 6,000 million, which can be obtained in Roubles, Euro or US Dollar. As at 31 December 2016, the outstanding amount was RUB 2,800 million (as at 31 December 2015 the outstanding amount was null). The loan is unsecured and issued for the period up to November 2021.

The Group has opened a credit line with PJSC Bank VTB (floating interest rate) in the amount of USD 250 million, which can be obtained in Roubles, Euro or US Dollar. As at 31 December 2016 the outstanding amount of the loan was EUR 70 million, which is equal to RUB 4,478 million including interest (as at 31 December 2015 the outstanding amount was RUB 3,657 million). The credit line is unsecured and issued for the period up to October 2018.

The Group has opened a line of credit with JSC Alfa-Bank in the amount of RUB 4,100 million, which can be obtained in Roubles, Euro or US Dollar. As at 31 December 2016 the outstanding amount of the loan was null. The credit line is unsecured and issued for the period up to January 2020.

29.LOANS AND BORROWINGS (CONTINUED)

Main changes in loans and borrowings during reporting period (continued)

The Group has opened long-term revolving line of credit with PJSC AKB Sviaz-Bank in the amount of RUB 9,500 million, which can be obtained in Roubles, Euro or US Dollar. As at 31 December 2015 the outstanding amount was USD 129 million, which was equal to RUB 9,386 million. The loan was unsecured. As аt 31 December 2016, the loan was repaid in full.

The Group has received a loan from PJSC Moscow Credit Bank in the amount of USD 100 million. As at 31 December 2015 the outstanding amount was USD 100 million, which was equal to RUB 7,304 million (including interest accrued). The loan was unsecured and issued for the period up to December 2016. As аt 31 December 2016 the loan was repaid in full.

The Group has received unsecured loan from PJSC Rosbank in the amount of USD 60 million, which can be obtained in Roubles, US Dollar or Euro. As at 31 December 2015 the outstanding amount was RUB 4,378 million (including interest accrued). As аt 31 December 2016 the loan was repaid in full.

The Group has opened a credit line with PJSC Sovcombank in the amount of USD 100 million. As at 31 December 2015 the outstanding amount was RUB 7,288 million. The loan is unsecured and issued for the period up to October 2016. As аt 31 December 2016, the loan was repaid in full.

The Group has opened a credit line with Bank VTB (Austria) in the amount of USD 150 million. As at 31 December 2015 the outstanding amount including interest was RUB 10,996 million. The loan is unsecured and issued for the period up to October 2016. As аt 31 December 2016, the loan was repaid in full.

As at 31 December 2016 there were no secured loans or borrowings. As at 31 December 2015 bank loans in the amount of RUB 1,940 million were secured by property, land (Note 19).

As at 31 December 2016 and 31 December 2015, the fair values of loans and borrowings were not materially different from their carrying amounts.

Bond issue

As at 31 December 2015 the Group had bonds issued (BO-03 series) with notional amount of RUB 5,000 million and interest coupon rate of 8.3% p.a. and issued for the period up to March 2016. As at 31 December 2015 effective yield to maturity for these bonds was 10.99% p.a. As аt 31 December 2016, the bonds were repaid in full.

Undrawn facilities

As at 31 December 2016 the Group was able to raise RUB 89,247 million in cash (31 December 2015: RUB 36,840 million) available under existing credit lines granted to the Group by various lending institutions.

30.OTHER NON-CURRENT LIABILITIES

31 December

2016

31 December

2015

Other non-current liabilities related to the frequent flyer programme

(Note 26) 2,580 2,779

Defined benefit pension obligation, non-current portion 805 745

Other non-current liabilities 1,774 286

Total other non-current liabilities 5,159 3,810

31.NON-CONTROLLING INTEREST

The following table provides information about the subsidiary – AK Rossiya with non-controlling interest

that is material to the Group:

2016 2015

Portion of non-controlling interest’s voting rights held 25% plus 1

share

25% plus 1

share

Profit/(loss) attributable to non-controlling interest for the year 948 (828)

Accumulated losses attributable to non-controlling interests in

subsidiary (3,689)

(4,637)

The summarised financial information of AK Rossiya is presented below:

31 December

2016

31 December

2015

Current assets 12,589 6,843 Non-current assets 13,149 9,363 Current liabilities 17,442 15,298 Non-current liabilities 23,051 19,454

2016 2015

Revenue 73,193 38,771 Profit/(loss) for the year 3,790 (3,312) Comprehensive income/(expense) for the year 3,790 (3,312)

As at 31 December 2016 and 2015 there are no significant restrictions in getting access to the subsidiary’s

assets or using them for settling the subsidiary’s obligations.

32.SHARE CAPITAL

As at 31 December 2016 and 31 December 2015 share capital was equal to RUB 1,359 million.

Number of ordinary

shares authorised and

issued (shares)

Number of

treasury shares

(shares)

Number of ordinary

shares outstanding

(shares)

31 December 2015 1,110,616,299 (53,716,189) 1,056,900,110 31 December 2016 1,110,616,299 (53,716,189) 1,056,900,110

All issued shares are fully paid. The total number of unissued ordinary shares is 250,000,000 shares (31 December 2015: 250,000,000 shares) with a par value of RUB 1 per share (31 December 2015: RUB 1 per share).

As at 31 December 2016 and 31 December 2015, treasury shares in amount of 53,716,189 shares were

held by subsidiary of the Group LLC Aeroflot Finance.

These ordinary shares carry voting rights in the same proportion as other ordinary shares. Voting rights of ordinary shares of the Company held by the Group’s entities are effectively controlled by management of the Group.

The Company’s shares are listed on the Moscow Exchange; as at 31 December 2016 and 31 December 2015, they were traded at RUB 152.96 per share and RUB 56.10 per share, respectively.

The Company launched Global Depositary Receipts (GDRs) programme in December 2000. From January 2014 one GDR equates 5 ordinary shares. As at 31 December 2016 and 31 December 2015 the GDRs were traded on the Frankfurt stock exchange at EUR 11.6 per GDR and EUR 3.41 per GDR, respectively.

33.DIVIDENDS

At the annual shareholders’ meeting held on 27 June 2016 it was resolved not to declare and pay dividends

for 2015.

At the annual shareholders’ meeting held on 22 June 2015 it was resolved not to declare and pay dividends

for 2014.

34.OPERATING SEGMENTS

The Group has a number of operating segments, but none of them, except for “Passenger Traffic”, meet

the quantitative threshold for determining reportable segment. Flight routes information was aggregated in

“Passenger Traffic” segment as passenger flight services on different routes have similar economic

characteristics and meet aggregation criteria.

The passenger traffic operational performance is measured based on internal management reports which

are reviewed by the Group’s General Director. Passenger traffic revenue by flight routes is allocated based

on the geographic destinations of flights. Passenger traffic revenue by flight routes is used to measure

performance as the Group believes that such information is the most material in evaluating the results.

Segment information is presented based on financial information prepared in accordance with IFRS. Sales

between segments are carried out on an arm’s length basis and eliminated for consolidation.

Group assets are located mainly in Russian Federation.

34. OPERATING SEGMENTS (CONTINUED)

Passenger

traffic Other

Inter-segment sales

elimination Total Group

2016

External sales 492,455 3,425 - 495,880

Inter-segment sales - 15,953 (15,953) -

Total revenue 492,455 19,378 (15,953) 495,880

Operating profit 62,207 980 67 63,254

Loss from sale and impairment

of investments, net (2 935)

Finance income 19,802

Finance costs (9,443)

Hedging result (12,310)

Share in financial results of associated

companies 12

Result from disposal of subsidiaries (5,099)

Profit before income tax 53,281

Income tax (14,455)

Net profit for the year 38,826

31 December 2016

Segment assets* 288,553 9,221 (13,495) 284,279

Investments in associates - 98 - 98

Unallocated assets 14,930

Total assets 299,307

Segment liabilities* 257,270 5,647 (4,419) 258,498

Unallocated liabilities 40

Total liabilities 258,538

2016

Capital expenditures and purchase of

PP&E (Note 19) 11,823 552 - 12,375

Depreciation (Notes 19) 12,109 338 - 12,447

* Segments’ assets and liabilities include assets classified as held for sale and liabilities related to assets

held for sale (Note 20).

34. OPERATING SEGMENTS (CONTINUED)

Passenger

traffic Other

Inter-segment

sales elimination Total Group

2015

External sales 412,174 2,999 - 415,173

Inter-segment sales - 13,588 (13,588) -

Total revenue 412,174 16,587 (13,588) 415,173

Operating profit 42,953 1,196 (42) 44,107

Loss on sale and impairment of

investments, net (9,159)

Finance income 15,811

Finance costs (28,556)

Hedging result (23,746)

Share of results of associates (17)

Loss before income tax (1,560)

Income tax (4,934)

Loss for the year (6,494)

31 December 2015

Segment assets* 295,141 9,523 (13,698) 290,966

Investments in associates - 109 - 109

Unallocated assets 24,119

Total assets 315,194

Segment liabilities* 351,056 5,269 (5,211) 351,114

Unallocated liabilities 200

Total liabilities 351,314

2015

Capital expenditures and purchase of

PP&E (Note 19) 10,349 408 - 10,757

Depreciation (Note 19) 12,127 284 - 12,411

* Segments’ assets and liabilities include assets classified as held for sale and liabilities related to assets

held for sale (Note 20).

Expenses of the Group mainly relate to scheduled passenger flights services.

34.OPERATING SEGMENTS (CONTINUED)

2016 2015

Scheduled passenger revenue:

International flights from the RF to:

CIS 10,446 10,098

Europe 53,244 42,563

Middle East and Africa 9,772 8,992

Asia 32,923 26,651

North America 13,144 9,934

Total scheduled passenger revenue from flights from the RF 119,529 98,238

International flights to the RF from:

CIS 10,835 9,480

Europe 53,355 42,615

Middle East and Africa 9,665 9,366

Asia 30,695 28,289

North America 13,245 9,907

Total scheduled passenger revenue from flights to the RF 117,795 99,657

Domestic scheduled passengers flights 166,227 145,378

Other international scheduled passengers flights 209 155

Total scheduled passenger traffic revenue 403,760 343,428

35.PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT

CATEGORY

Financial assets and liabilities are classified by measurement categories as at 31 December 2016 as

follows:

Assets Note

Loans and

receivables

Available-for-sale

financial assets

Assets at fair

value through

profit or loss Total

Cash and cash

equivalents 12 31,476 - - 31,476

Short-term financial

investments 6,318 1 - 6,319

Financial receivables 14 27,504 - - 27,504

Aircraft lease security

deposits 13 2,501 - - 2,501


instruments 16 - 3,306 - 3,306

Other non-current assets 148 - - 148

Total financial assets 67,947 3,307 - 71,254

Note

Liabilities at fair

value through

profit or loss


instruments (hedging)

Other financial

liabilities Total

Financial payables 25 - - 30,631 30,631

Finance lease liabilities 28 - - 122,736 122,736

Loans and borrowings 29 - - 20,367 20,367

Total financial

liabilities - -

173,734 173,734

35.PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT

CATEGORY (CONTINUED)

Financial assets and liabilities are classified by measurement categories as at 31 December 2015 as

follows:

Note

Loans and

receivables

Available-for-sale

financial assets

Assets at fair

value

through

profit or loss Total


12 30,693 - - 30,693

Short-term financial

investments

5,916 1 - 5,917

Financial receivables 14 31,722 - - 31,722

Aircraft lease security

deposits

13 4,790 - - 4,790


instruments

24 - - 53 53

Long-term financial

investments

16 - 6,118 - 6,118

Other non-current assets 168 - - 168

Total financial assets 73,289 6,119 53 79,461

Note

Liabilities at fair

value through

profit or loss


instruments

(hedging)

Other financial

liabilities Total


instruments 24 - 4,853

- 4,853

Financial payables 25 - - 38,793 38,793

Finance lease liabilities 28 - - 164,524 164,524

Loans and borrowings 29 68,460 68,460

Liabilities for guarantees

issued 27 - -

1,517 1,517

Total financial liabilities - 4,853 273,294 278,147

36.RISKS CONNECTED WITH FINANCIAL INSTRUMENTS

The Group manages risks related to financial instruments, which include market risk (currency risk,

interest rate risk and aircraft fuel price risk), credit risk, liquidity risk and capital management risk.

Liquidity risk

The Group is exposed to liquidity risk, i.e. the risk that the Group will not be able to meet its financial

obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible,

that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed

financial conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group utilises a detailed budgeting and cash forecasting process to ensure its liquidity is maintained at

appropriate level.

The following are the Group’s financial liabilities as at 31 December 2016 and 31 December 2015 by

contractual maturity (based on the remaining period from the reporting date to the contractual settlement

date). The amounts in the table are contractual undiscounted cash flows (including future interest

payments) as at respective reporting dates:

Average interest rate

31 December 2016

Contractual

rate, p.a.

Effective

rate, p.a.

0–12

months

1–2

years

2–5

years

Over 5

years Total

Loans and borrowings in

foreign currency 3.4% 3.4%

4,584 - - 446 5,030


roubles 11.7% 11.7%

6,085 8,814 3,501 - 18,400

Finance lease liabilities 2.9% 2.9% 19,255 20,998 53,706 43,436 137,395

Financial payables 30,631 - - - 30,631


issued

1,225 - - - 1,225

Total future payments,

including future interest

payments

61,780 29,812 57,207 43,882 192,681

Average interest rate

31 December 2015

Contractual

rate

Effective

rate

0–12

months

1–2

years

2–5

years

Over 5

years Total


foreign currency 5.5% 5.5%

47,456 - - - 47,456


roubles 13.4% 13.4%

5,345 9,393 6,953 - 21,691

Bonds denominated in roubles 8.3% 8.3% 5,206 - - - 5,206

Finance lease liabilities 2.7% 2.8% 23,841 24,235 66,228 70,426 184,730

Financial payables 38,793 - - - 38,793


instruments

4,761 - - - 4,761


issued

2,144 - - - 2,144

Total future payments,

including future interest

payments

127,546 33,628 73,181 70,426 304,781

36. RISKS CONNECTED WITH FINANCIAL INSTRUMENTS (CONTINUED)

Currency risk

The Group is exposed to currency risk in relation to revenue as well as purchases and borrowings that are denominated in a currency other than rouble. The currencies in which these transactions are primarily denominated are Euro and US Dollar. The Groups analyses the exchange rate trends on a regular basis.

The Group uses long-term lease liabilities nominated in US Dollars as hedging instrument for risk of change in US Dollar exchange rate in relation to revenue (Note 28).

The Group’s exposure to foreign currency risk was as follows based on notional amounts of financial instruments:


In millions of Russian Roubles

Note US Dollar Euro

Other currency Total US Dollar Euro

Other currency Total


12 2,293 317 418 3,028 2,167 449 1,793 4,409

Financial receivables 17,915 3,653 3,575 25,143 18,560 4,062 4,502 27,124 Aircraft lease security deposits

2,179 - - 2,179 4,504 - - 4,504

Derivative financial instruments

24 - - - - 53 - - 53

Other assets 83 62 3 148 94 71 3 168

Total assets 22,470 4,032 3,996 30,498 25,378 4,582 6,298 36,258

Financial payables 12,348 5,110 2,558 20,016 13,691 5,419 2,071 21,181 Finance lease liabilities 28 120,254 - - 120,254 164,519 - - 164,519 Short-term loans and borrowings and current portion of long-term loans and borrowings

29

- 4,478 - 4,478 45,792 - - 45,792 Long-term loans and borrowings

29 395 - - 395 - - - -

Derivative financial instruments 24 - - - - - 4,853 - 4,853

Total liabilities 132,997 9,588 2,558 145,143 224,002 10,272 2,071 236,345

Total assets/ (liabilities), net

(110,527) (5,556) 1,438 (114,645) (198,624) (5,690) 4,227 (200,087)

Strengthening or weakening of listed below currencies against rouble as at 31 December 2016 and

31 December 2015, would change profit after tax by the amounts shown below. This analysis assumes that

all other variables, in particular interest rates, remain constant:


Currency risk (continued)


Percent of

change in rate of

currency versus

rouble

Effect on profit

after tax

((increase)/

decrease)

Percent of

change in rate of

currency versus

rouble

Effect on loss after

tax ((increase)/

decrease)

Increase in the rate of currency

versus rouble:

US Dollar 20% 1,556 50% (13,642)

Euro 20% (889) 50% (335)

Other currencies 20% 230 50% 1,691

Decrease in the rate of currency

versus rouble:

US Dollar 20% (1,556) 50% 13,642

Euro 20% 889 50% 335

Other currencies 20% (230) 50% (1,691)

As at 31 December 2016 the increase in the US dollar rate against rouble by 20% would have led to a

reduction in the amount of the Group's equity by RUB 17,684 million. The change of other currencies

would have no material impact on equity. As at 31 December 2015 the increase in the US dollar rate

against rouble by 50% would have led to a reduction in the amount of the Group's equity by RUB 79,450

million. The change of other currencies would have no material impact on equity.

Interest rate risk

The Group is exposed to the effects of fluctuations in the prevailing levels of market interest rates on its

financial results and cash flows. Changes in interest rates impact primarily change in cost of borrowings

(fixed interest rate borrowings) or future cash flows (variable interest rate borrowings). At the time of

raising new borrowings as well as finance lease management uses judgment to decide whether it believes

which (fixed or variable) interest rate would be more favourable to the Group over the expected period

until maturity.

As at 31 December 2016 and 31 December 2015, the interest rate profiles of the Group’s interest-bearing

financial instruments were: Carrying amount

31 December

2016 31 December

2015

Fixed rate financial instruments:

Financial assets 30,127 17,767

Financial liabilities (19,098) (34,266)

Total fixed rate financial instruments 11,029 (16,499)

Variable rate financial instruments:

Total variable rate financial liabilities (123,679) (198,137)

As at 31 December 2016 and 31 December 2015 the Group had loans and finance lease with variable

interest rates. If the variable part of interest rates as at 31 December 2016 and 31 December 2015 were

20bps higher or lower than the actual variable part of interest rates for the year, with all other variables

held constant, financial result and equity would not have changed significantly (2015: would not have

changed significantly).


Aircraft fuel price risk

The results of the Group’s operations are significantly impacted by changes in the price of aircraft fuel. In 2012, 2013 and 2014 the Group entered into agreements with a number of Russian banks to hedge a portion of its fuel costs from potential future price increases.

Given as at 31 December 2016 and 31 December 2015 the deals were matured, change in value of

underlying asset as at the reporting date would not have any significant impact of financial results and

equity of the Group. In case as at 31 December 2016 and 31 December 2015 price for Brent crude oil was

50% higher or lower than its actual price, with all other variables remaining constant (including forecast of

crude oil price), the effect on the Group’s financial result and equity would not be materially different.

Capital management risk

The Group manages its capital to ensure its ability to continue as a going concern while maximizing the return to the Company’s shareholders through the optimization of the Group’s debt to equity ratio.

The Group manages its capital in comparison with rivals in the airline industry on the basis of the following ratios:

net debt to total capital,

total debt to EBITDA,

net debt to EBITDA.

Total debt consists of short-term and long-term loans and borrowings (including the current portion), finance lease liabilities, customs duties payable on imported leased aircraft and defined benefit pension obligation.

Net debt is defined as total debt less cash, cash equivalents and short-term financial investments.

Total capital consists of equity attributable to the Company’s shareholders and net debt.

EBITDA is calculated as operating profit before depreciation, amortization and custom duties expenses.


Capital management risk (continued)

The ratios are as follows:

As at and for the

year ended

31 December 2016

As at and for the

year ended

31 December 2015

Total debt 143,908 233,729

Cash and cash equivalents and short-term financial investments (37,795) (36,610)

Net debt 106,113 197,119

Equity attributable to shareholders of the Company 42,453 (25,523)

Total capital 148,566 171,596

EBITDA 78,004 58,703 Net debt/Total capital 0.7 1.1

Total debt/EBITDA 1.8 4.0

Net debt/EBITDA 1.4 3.4

These ratios are analysed by Group’s management over time without any limitations.

There were no changes in the Group’s approach to capital management in 2016 and 2015.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements in 2016 and 2015, except for minimal share capital according to the legislation.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument

fails to meet its contractual obligations, and arises principally from the Group’s

cash and cash equivalents, financial receivables and investments in securities.

The Group conducts transactions with the following major types of counterparties:

The Group has credit risk associated with travel agents and industry organisations. A significant share of

the Group’s sales is made via travel agencies. Due to the fact that receivables from travel agents are

diversified the overall credit risk related to travel agencies is assessed by management as low.

Receivables from other airlines and agencies are carried out through the IATA clearing house. Regular

settlements ensure that the exposure to credit risk is mitigated to the greatest extent possible.

Management actively monitors its investing performance and in accordance to current policy investing

only in liquid securities with high credit ratings. Management does not expect any counterparty to fail to

meet its obligations.

As at 31 December 2016 the total amount of investments into securities was RUB 3,252 million

(31 December 2015: RUB 6,062 million), major part of financial receivables amounted to

RUB 19,054 million relates to receivables regulated by clearing house (31 December 2015: RUB 15,079

million).


Credit risk (continued)

The maximum exposure to the credit risk net of impairment provision is set out in the table below:

31 December

2016 31 December

2015

Cash and cash equivalents (excluding petty cash) (Note 12) 31,387 30,626 Financial receivables (Note 14) 27,504 31,722 Short-term financial investments (Note 16) 6,319 5,917 Long-term financial investments (Note 16) 3,306 6,118 Aircraft lease security deposits (Note 13) 2,501 4,790 Other non-current assets 148 168

Total financial assets exposed to credit risk 71,165 79,341

Analysis by credit quality of financial receivables is as follows:

31 December

2016

31 December

2015

Past due impaired receivables - less than 45 days overdue 89 110 - 46 days to 90 days overdue 75 1,212 - 91 days to 2 years overdue 7,995 4,895 - more than 2 years overdue 4,183 4,393

Total impaired receivables 12,342 10,610

31 December

2016 31 December

2015

Past due but not impaired - less than 90 days overdue 33 30 - 91 days to 2 years overdue - -

Total past due but not impaired receivables 33 30

Credit risk concentration

As at 31 December 2016 and 31 December 2015 a large portion of the cash and cash equivalents was placed in two banks, which causes the credit risk concentration for the Group (Note 12).

37. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the amount at which a financial instrument can be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The best evidence of the fair value is an active quoted market price of a financial instrument.

The estimated fair values of financial instruments have been determined by the Group using available market information, where it exists, and appropriate valuation methodologies. However, judgement is necessarily required to interpret market data to determine the estimated fair value. Management uses all available market information in estimating the fair value of financial instruments.

Financial instruments carried at fair value.

This category includes only derivative financial instruments disclosed in Note 24.

37. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Financial assets carried at amortised cost.

The fair value of instruments with a floating interest rate is normally equal to their carrying value. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows expected to be received discounted at current interest rates effective on debt capital markets for new instruments with similar credit risk and remaining maturity. Discount rates used depend on the credit risk of the counterparty. Carrying amounts of financial receivables (Note 14), lease security deposits (Note 13) and deposits for more than 90 days (Note 13), other financial assets and loans issued (Note 16) approximate their fair values, which belong to Level 2 in the fair value hierarchy. Cash and cash equivalents (with exception for cash on hand) belong to level 2 and are carried at amortised cost which is approximately equal to their fair value.

Liabilities carried at amortised cost.

The fair value of financial instruments is measured based on the current market quotes, if any. The

estimated fair value of unquoted fixed interest rate instruments with stated maturity was estimated based

on expected cash flows discounted at current interest rates for new instruments with similar credit risk and

remaining maturity. As at 31 December 2016 and 31 December 2015, the fair values of financial payables

(Note 25), finance lease liabilities (Note 28), loans, borrowings and bonds (Note 29) were not materially

different from their carrying amounts. The fair values of financial payables, finance lease liabilities and

loans and borrowings are categorised as Levels 2, while bonds are categorised as Level 1 in the fair value

hierarchy.

38. RELATED PARTY TRANSACTIONS

Parties are generally considered to be related if they are under common control or if one party has the

ability to control the other party or can exercise significant influence or joint control over the other party

in making financial and operational decisions. In considering each possible related party relationship

attention is directed to the economic substance of the relationship, not merely the legal form.

As at 31 December 2016 and 31 December 2015, the outstanding balances with related parties and income

and expense items with related parties for the years ended 31 December 2016 and 31 December 2015 are

disclosed below:

Associates

As at 31 December 2016 and 31 December 2015, the outstanding balances with associates and income and

expense items with associates for the years ended 31 December 2016 and 31 December 2015 are as

follows:

31 December

2016

31 December

2015

Assets

Accounts receivable 25 1

Liabilities

Accounts payable and accrued liabilities 120 111

The amounts outstanding to and from related parties will be settled mainly in cash.

2016 2015

Transactions

Sales to associates 7 25

Purchase from associates 1,564 1,469

Purchases from associates consist primarily of aviation security services.

38. RELATED-PARTY TRANSACTIONS (CONTINUED)

Government-related entities

As at 31 December 2016 and 31 December 2015, the Government of the RF represented by the Federal

Agency for Management of State Property owned 51.17% of the Company. The Group operates in an

economic environment where the entities are directly or indirectly controlled by the Government of the RF

through its government authorities, agencies, associations and other organizations, collectively referred to

as government-related entities.

The Group decided to apply the exemption from disclosure of individually insignificant transactions and

balances with the state and its related parties because the Russian government has control, joint control or

significant influence over such parties.

The Group has transactions with government-related entities, including but not limited to the following

transactions:

banking services,

transactions with derivative financial instruments,

investments in JSC MASH,

finance and operating lease,

guarantees on liabilities,

purchase of aircraft fuel

purchase of air navigation and airport services, and

Government subsidies including those provided for compensating the losses from passenger flights under

two government programmes, i.e. flights to and from European Russia for inhabitants of Kaliningrad

region and Far East.

Outstanding balances of derivative financial instruments and cash at settlement and currency accounts in

government-related banks are as follows:

31 December

2016

31 December

2015

Assets

Cash and cash equivalents 13,048 8,060

Derivative financial instruments - 53


Government-related entities (continued)

The amounts of the Group’s finance lease liabilities are disclosed in Note 28. The share of liabilities to the

government-related entities is approximately 71% for finance lease (31 December 2015: 70%). The share

of the government-related entities in the amount of the future minimum lease payments under non-

cancellable operating leases agreements (note 39) is approximately 39% (31 December 2015: 38%). The

share of interest expenses on finance lease is approximately 86% and 32% for operating lease expenses

(2015: 84% and 28%, respectively).

For the year ended 31 December 2016 the share of the Group’s transactions with government-related

entities was more than 20% of operating costs, and less than 3% of revenue (2015: about 19% and less

than 3%, respectively). These expenses primarily include supplies of fuel by government-related entities,

costs of air navigation and aircraft maintenance services in the government-related airports and also costs

of operating lease for government-related lessors.

As at 31 December 2016 the Group issued guarantees for the amount of RUB 1,225 million to a

government-related entity to secure obligations under tender procedures (31 December 2015: RUB 627

million).

As at 31 December 2016 the government or government-related entities owned non-controlling interest of

particular subsidiaries of the Group amounted to RUB 3,523 million (31 December 2015: RUB 4,623

million).

Transactions with the state also include taxes, levies and customs duties settlements and charges which are

disclosed in Notes 7, 8, 9, 11, 14, 17, 25.

Compensation of key management personnel

The remuneration of key management personnel (the members of the Board of Directors and the

Management Committee as well as key managers of flight and ground personnel who have significant power

and responsibilities on key control and planning decisions of the Group), including salary and bonuses as

well as other compensation, amounted to RUB 1,478 million (2015: RUB 748 million).

These remunerations are mainly represented by short-term payments. Such amounts are stated before

personal income tax but exclude mandatory insurance contributions to non-budgetary funds. According to

Russian legislation, the Group makes contributions to the Russian State pension fund as part of compulsory

social insurance contributions for all its employees, including key management personnel.

Bonus programmes based on the Company’s capitalisation

In 2013, the Group approved bonus programmes for the Group’s key management personnel and members

of the Company’s Board of Directors. These programmes run for three years and are exercised in three

tranches of cash payments. The amounts of payments depend both on the absolute increase in the

Company’s capitalisation and the Company’s capitalisation growth rates against its peers based on the

results of the reporting year. The fair value of the liabilities under the bonus programmes was determined

based on the Company’s capitalisation growth in 2016 and, as at 31 December 2016, were recognised in

accounts payable and accrued liabilities line item.

After the programmes approved in 2013 had expired, in 2016 the Group approved new bonus programmes

for its key management personnel and members of the Company's Board of Directors. These programmes

run for 3.5 years and are to be exercised in four tranches of cash payments.


Bonus programmes based on the Company’s capitalisation (continued)

The amounts of payments depend on the level of increase in the Company's capitalisation, its

capitalisation growth rates against peers, and the MICEX index (in relation to members of the Company's

Board of Directors) or a client satisfaction index (in relation to the Group's key management personnel)

based on the results of each reporting period and the attainment of objectives for the Company's

capitalisation at the termination of the programmes. The fair value of the liabilities under the bonus

programmes as of 31 December 2016 was determined based on the expected payment amount for the

reporting period from 1 January 2016 until 31 December 2016 and the amount of payments deferred until

the end of the programmes.

In 2016, expenses related to the bonus programmes were RUB 1,142 million and were recorded within

staff costs and other financial costs in the Group’s consolidated statement of profit and loss (2015: RUB

205 million). As at 31 December 2016, outstanding liability under these plans was RUB 1,594 million (as

at 31 December 2015 it was RUB 452 million).

Cross shareholding

As at 31 December 2016 and 31 December 2015, Aeroflot-Finance, 100%-owned subsidiary of the Group,

owned 53,716,189 ordinary shares of the Company (Note 32).

39. COMMITMENTS UNDER OPERATING LEASES

Future minimum lease payments under non-cancellable aircraft and other operating lease agreements with

third and related parties (Note 38) are as follows:


On demand or within 1 year 58,191 57,356

Later than 1 year and not later than 5 years 218,479 202,376

Later than 5 years 239,224 219,353

Total operating lease commitments 515,894 479,085

The amounts above represent base rentals payable and exclude maintenance fees payable to the lessor,

based on actual flight hours, and other variable costs.

The aircraft that the Group has operated under operating lease agreements as at 31 December 2016 are

listed in Note 1. The Group received aircraft under operating lease agreements for the term of 1 to 16

years. The agreements are extendable.

The Group entered into a number of agreements with Russian banks under which the banks guarantee the

payment of the Group’s liabilities under existing aircraft lease agreements.

40. CAPITAL COMMITMENTS

As at 31 December 2016, the Group entered into agreements on acquisition of property, plant and

equipment with third parties for the total of RUB 418,671 million (31 December 2015: RUB 866,439

million). These commitments mainly relate to 1 Boeing B777 (31 December 2015: 3), 22 Boeing B787

(31 December 2015: 22), 22 Airbus A350 (31 December 2015: 22) and 33 Airbus A320/321 (31

December 2015: 49) aircraft. The Group plans to use the mentioned aircraft under operating or finance

lease agreements, thus does not expect cash outflow under the corresponding agreements.

41. CONTINGENCIES

Operating Environment of the Group

The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly

sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are

subject to frequent changes and varying interpretations. During 2016 the Russian economy was negatively

impacted by low oil prices, ongoing political tension in the region and continuing international sanctions

against certain Russian companies and individuals, all of which contributed to the country’s economic

recession characterised by a decline in gross domestic product. The financial markets continue to be

volatile and are characterised by frequent significant price movements and increased trading spreads.

Russia’s credit rating was downgraded to below investment grade. This operating environment has a

significant impact on the Group’s operations and financial position. Management is taking necessary

measures to ensure sustainability of the Group’s operations. However, the future effects of the current

economic situation are difficult to predict and management’s current expectations and estimates could

differ from actual results.

The Group continues to monitor the situation and executes set of measures to minimize influence of

possible risks on operating activity of the Group and its financial position.

The Group’s operations are primarily located in the RF. Consequently, the Group is exposed to the risk of

the economic and financial markets of the RF which display characteristics of an emerging market. The

legal and tax frameworks continue development, but are subject to varying interpretations and frequent

changes which together with other legal and fiscal impediments contribute to the challenges faced by

entities operating in the RF. These consolidated financial statements reflect assessment of the Group’s

management of the impact of the Russian business environment on the operations and the financial

position of the Group. The future business situation may differ from management’s current expectations.

Tax contingencies

The taxation system in the RF continues to evolve and is characterised by frequent changes in legislation,

official pronouncements and court decisions, which are sometimes fuzzy and contradictory and subject to

varying interpretation by different tax authorities. Taxes are subject to audit and investigation by a number

of authorities, which have the authority to impose severe fines and penalties charges. A tax year remains

open for review by the tax authorities during the three subsequent calendar years; however, under certain

circumstances a tax year may remain open longer. Recent events within the RF suggest that the tax

authorities are taking a more tough stance in their interpretation and enforcement of tax legislation.

These circumstances may create tax risks in the RF that are substantially more significant than in other countries. The Group’s management believes that it has provided adequately for tax liabilities in these consolidated financial statements based on its interpretations of applicable Russian tax legislation, official pronouncements and court decisions. However, the interpretations of these provisions by the relevant authorities could differ and the effect on these consolidated financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

Since 1 July 2015, the Russian Government has decided to decrease VAT on domestic passenger and luggage carriage by air to 10% for two years. This is aimed at improving the financial and economic position of the airlines providing domestic services.

41. CONTINGENCIES (CONTINUED)

Tax contingencies (continued)

In accordance with amendments to the Russian Tax Code made in 2015, excise duties charged on the aviation fuel obtained by the Group’s airlines are subject to deduction using the following special coefficients: 1.84 for 2016, 2 for 2015.

Since 1 January 2015, the Russian Tax Code has been supplemented with the framework of beneficial ownership to the income paid from the RF (beneficial ownership framework) for the purposes of applying tax benefits under the Double Tax Treaties (DTT). Given the ambiguity of the new rules application procedure and absence of any practice to that effect, it is impossible to reliably assess the potential outcome of any disputes with tax authorities over compliance with the beneficial ownership confirmation requirements, however they may have a significant impact on the Group.

The Russian transfer pricing legislation is to a large extent aligned with the international transfer pricing

principles developed by the Organisation for Economic Cooperation and Development (OECD). This

legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose

additional tax liabilities in respect of controlled transactions (transactions with related parties and some

types of transactions with unrelated parties), provided that the transaction price is not arm’s length.

Management has implemented internal controls to be in compliance with this transfer pricing legislation.

Tax liabilities arising from transactions between companies are determined using actual transaction prices.

It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices

could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be

significant to the financial position and/or the overall operations of the Group.

Changes in tax legislation or its enforcement in relation to such issues as transfer pricing may lead to an

increase in the Group’s effective income tax rate.

In addition to the above matters, as at 31 December 2016 and 31 December 2015 management estimates

that the Group has no possible obligations from exposure to other than remote tax risks. The risks

represent estimates arising from uncertainties in the interpretation of Russian tax legislation and related

requirements for documentation. Management will vigorously defend the Group’s positions and

interpretations that were applied in calculating taxes recognised in these consolidated financial statements,

if these are challenged by the tax authorities.

Insurance

The Group maintains insurance in accordance with the legislation. In addition, the Group insures risks

under various voluntary insurance programs, including management’s liability, Group’s liability and risks

of loss of aircraft under operating and finance lease.

Litigations

During the reporting period the Group was involved (both as a plaintiff and a defendant) in a number of

court proceedings arising in the ordinary course of business. Management believes that there are no

current court proceedings or other claims outstanding which could have a material effect on the results of

operations and financial position of the Group.

42. SUBSEQUENT EVENTS

In January 2017, PJSC Aeroflot has filed lawsuits on bankruptcy of its subsidiaries Orenair and Donavia.

As a result, in February 2017 the Arbitration Courts introduced the monitoring process in regard to the

stated companies, whereby the Group expects their subsequent receivership. The Group is currently

assessing the impact of these facts on its consolidated financial statements.

7.2. Entities in which PJSC Aeroflot Holds Shares or Interest


Full and

abbreviated name Stake Purpose Form

Amount,

RUB

Core operations as

defined in the

Articles of

Association

Revenue in 2016,

RUB thousand

Profit (loss)

under RAS

in 2016,

RUB thousa

nd

Dividend

s

received

in 2015*,

RUB

Joint Stock

Company

Rossiya Airlines,

JSC Rossiya

Airlines

75% (less

1 share)

Consolidate airlines to

establish a strong

national carrier based

on PJSC Aeroflot, by

implementing the best

corporate governance

standards

shares 689,173

Domestic and

international air

carriage of passengers,

baggage, cargo and

mail, and provision of

aviation services,

including services for

passengers and

baggage

73,188,954 904,499 –

Joint Stock

Company

Aurora Airlines,

JSC Aurora Airlines

51.0132


establish a strong





standards

shares 24,293

Domestic and

international

commercial air

carriage of passengers

and cargo, and other

aviation services

16,621,530 317,704 –

Joint Stock

Company

Orenburg Airlines,

JSC Orenair

100


establish a strong





standards

shares 665,503,000

Domestic and

international

commercial flights

6,067,955 (7,715,065) –

Full and


Amount,

RUB

Core operations as

defined in the

Articles of

Association

Revenue in 2016,

RUB thousand

Profit (loss)

under RAS

in 2016,

RUB thousa

nd

Dividend

s

received

in 2015*,

RUB

Joint Stock

Company

DONAVIA,

JSC DONAVIA

100


establish a strong





standards

shares 328,863,260

Domestic and

international

commercial flights

2,143,232 (867,729) –

Limited Liability

Company

Pobeda Airlines,

LLC Pobeda

Airlines

100


establish a strong





standards

interest 1,200,000,000

Domestic and

international

commercial air

carriage of passengers,

baggage, cargo and

mail, in line with the

Air Code and other

civil aviation laws and

regulations of the

Russian Federation,

the Company’s

internal regulations,

and duly issued airline

licences

18,698,512 3,332,022 –

Joint Stock

Company Sherotel,

JSC Sherotel

100

Provide hotel

accommodations for

PJSC Aeroflot’s

crews, premises for

lease, passenger

services in business

lounges, implement

investment projects

shares 882,812,538.6

3

Hotel accommodation

services and services

in luxury lounges at

airports

1 989 482 446 828 –

Limited Liability

Company Aeroflot-

Finance,

LLC Aeroflot–

Finance

99.9999 Implement investment

projects

stake

in share

capital

5,729,228,886 Implementation of

financial projects – 5,158,040 –

Full and


Amount,

RUB

Core operations as

defined in the

Articles of

Association

Revenue in 2016,

RUB thousand

Profit (loss)

under RAS

in 2016,

RUB thousa

nd

Dividend

s

received

in 2015*,

RUB

Limited Liability

Company A-

Technics, LLC A-

Technics

Founded

by

LLC Aerof

lot-Finance

Provide maintenance

and maintain

airworthiness for

Aeroflot Group’s

aircraft

Maintenance and

repair of Russian and

foreign-made aircraft 489 993 -276 340 –

Closed Joint Stock

Company Aeromar,

CJSC Aeromar

51

Provide in-flight

catering services for

PJSC Aeroflot’s

flights

shares 28,050

Production and supply

of food for in-flight

catering, in-flight

shopping service,

aircraft cleaning and

outfitting

15 930 596 873,841 –

Limited Liability

Company

Transnautic

Aero GmbH

49 Implement investment

projects

stake in

share

capital

105,154

Cargo flight sales

agent, the company

went out of business

–

Joint Stock

Company

AeroMASH–

Aviation Security,

JSC AeroMASH–

Aviation Security

45

Provide aviation

security services for

passengers and aircraft

shares 45,000 Aviation security

services at airports 2 972 830 52 021 18 792

Joint Stock

Company

International airport

Sheremetyevo,

JSC MASh


projects shares 2,259,687,350 Airport operations 25 181 634 15 523 780 –

Full and


Amount,

RUB

Core operations as

defined in the

Articles of

Association

Revenue in 2016,

RUB thousand

Profit (loss)

under RAS

in 2016,

RUB thousa

nd

Dividend

s

received

in 2015*,

RUB

Public Joint Stock

Company Transport

Clearing House,

JSC TCH


projects shares 50,000

Flight sales settlement

services 1 747 798 578 731 22 132

Private Vocational

Education

Institution Aeroflot

Aviation School,

Aeroflot Aviation

School

Founded

by

PJSC Aero

flot

Provide professional

training and

professional

development training

for Aeroflot Group’s

employees

Founder’

s

contribut

ion

–

Training services

including those for

flight attendants 366 094 14 663 N/A

* Net of VAT (13%)

7.3. Interested Party Transactions

No.

Counterparty

Subject matter of

the transaction

Price Period Interested parties

Basis of interest

Governing body

that passed the

resolution

1 PJSC Sberbank

(lender)

Suretyship

Agreement

No. 22.5/2016-

0353 dated

21 April 2016

under which

PJSC Aeroflot

undertakes to

OJSC Sberbank to

secure all the

obligations of

Joint-Stock

Company Aurora

Airlines under

Overdraft Loan

Agreement

No. 600160008

dated 21 April

2016

RUB 686,900,00

0

From 21 April

2016 until the

parties have fully

performed their

obligations under

the Loan

Agreement, but not

more than

four years from the

date when the

Suretyship

Agreement is

signed

Vladimir Antonov, member of

PJSC Aeroflot’s Management

Board, is a member of the

Board of Directors of

JSC Aurora Airlines;

Dmitry Saprykin, member of

the Board of Directors, is a

member of the Board of

Directors of JSC Aurora

Airlines

The Company is a person

controlling the legal entity

which is the beneficiary of

the transaction;

Members of the governing

bodies of a party to the

transaction are members of

the governing bodies of the

legal entity which is the

beneficiary of the

transaction

Minutes of Meeting

of the Board of

Directors No. 2 dated

3 September 2015

2 JSC Aurora

Airlines

(borrower)

Suretyship

Agreement

No. 22.5/2016-

0353 dated

21 April 2016

under which

JSC Aurora

Airlines undertakes

to pay to

PJSC Aeroflot the

fee for the

suretyship provided

under Agreement

Fee:

1.21% per annum

Accrued on the

amount of the

actual

outstanding

balance of the

loan

From 21 April

2016 until the

parties have fully

performed their

obligations







the Board of Directors, is a


Directors of JSC Aurora

Airlines



which is a party to the

transaction;

The person holds a

position in the governing

bodies of the legal entity


transaction

Minutes of Meeting

of the Board of


3 September 2015

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

No. 22.5/2016-

0353 dated

21 April 2016

3 JSC Aurora

Airlines (principal)

Agency agreement

for fuel supply

1.5% of the cost

of loaded fuel

1 January 2016 –

31 December 2016


PJSC Aeroflot’s Management




Nikolay Altukhov, member of








transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


20 November 2015

4 JSC Aurora

Airlines (buyer)

Sale and purchase

of the

Elephant Beta de-

icer (factory

number

1206 YV2JHCOA2

6A621241, engine

number

D9123349A2L,

garage No. 8, E-13,

year of

manufacture: 2006,

country of

manufacture:

Denmark)

RUB 43,112,34

4

4 March 2016 –

31 December 2016














transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 13

dated 29 February

2016

5 JSC Aurora

Airlines (airline)

Sale by

PJSC Aeroflot of

cargo and post

transportation on

JSC Aurora

Airlines’ flights in

the HZ5400–

HZ5799 flight

range under the

RUB 53,100,00

0

(commission

fee: 15%)

1 January 2016 –

31 December 2016













transaction;

The person holds a position

in the governing bodies of

the legal entity which is a

party to the transaction

Minutes of Meeting

of the Board of

Directors No. 13

dated 29 February

2016

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

interline agreement JSC Aurora Airlines;

6 JSC Aurora

Airlines

(contractor)

Technical support

for PJSC Aeroflot’s

aircraft

maintenance in

Magadan

Up to

RUB 11,000,00

0

11 July 2016 –

28 March 2021














transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 16

dated 29 April 2016

7 JSC Aurora

Airlines (partner

operator)

Commercial

management by

PJSC Aeroflot of

the load of a

number of

JSC Aurora

Airlines’ flights

(including pricing

and sale of tickets

for these flights) in

the SU5400–

SU5799 flight

range under the

code-sharing

agreement (code

share / blocked

space) based on the

commuter

(regional)

transportation

model.

RUB 16,200,00

0,000

1 November

2015 – 31 October

2016














transaction;

The person holds a




transaction

Minutes of the

Annual General

Meeting of

Shareholders of

PJSC Aeroflot No. 37

dated 22 June 2015

8 JSC Aurora

Airlines (partner

operator)

Commercial

management by

PJSC Aeroflot of

the load of a

number of

RUB 16,000,00

0,000

1 November

2016 – 31 October

2017





JSC Aurora Airlines




transaction;

The person holds a

Minutes of the

Annual General

Meeting of

Shareholders of


No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

JSC Aurora

Airlines’ flights

(including pricing

and sale of tickets


the SU5400–

SU5799 flight

range under the

code-sharing

agreement (code

share / blocked

space) based on the

commuter

(regional)

transportation

model.




transaction

dated 27 June 2016

9 JSC Donavia

(borrower)

Provision of a part

of the loan under

Agreement No. Z1-

2016 dated 1 April

2016

RUB 595,674,85

5.18

13 April 2016 –

21 February 2017

Vadim Zingman, member of




JSC Donavia




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 14

dated 31 March 2016

10 JSC Donavia

(borrower)

Provision of a part

of the loan under

Agreement No. Z1-

2016 dated 1 April

2016

RUB 114,648,99

5.43

25 April 2016 –

21 February 2017





JSC Donavia




transaction;

The person holds a



which is a party to,

beneficiary of,

intermediary or

representative in the

transaction

Minutes of Meeting

of the Board of

Directors No. 14

dated 31 March 2016

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

11 JSC Donavia

(borrower)

Provision of a part

of the loan under

Agreement No. Z1-

2016 dated 1 April

2016

RUB 233,042,92

0.05

04 May 2016 –

21 February 2017





JSC Donavia




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 14

dated 31 March 2016

12 PJSC Sberbank

(lender)

Suretyship

Agreement No. 29-

15/1/627p1 dated

18 February 2016

under which

PJSC Aeroflot

undertakes to

OJSC Sberbank to

secure all the

obligations of

JSC Donavia under

Overdraft Loan

Agreement No. 29-

15/1/627 dated

18 February 2016

RUB 572,500,00

0

18 February 2016 –

28 June 2016





JSC Donavia




the transaction;

The person holds a




the transaction

Minutes of Meeting

of the Board of


3 September 2015

13 JSC Donavia

(borrower)

Suretyship

Agreement dated

18 February 2016

under which

JSC Donavia

undertakes to pay

to PJSC Aeroflot

the fee for the

suretyship provided

under Agreement

No. 29-15/1/627p1

dated 18 February

Fee:

1.1% per annum

Accrued on the

amount of the

actual

outstanding

balance of the

loan


28 June 2016





JSC Donavia




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


3 September 2015

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

2016.

14 JSC Donavia

(principal)

Agency agreement

for fuel supply

1.5% of the cost

of loaded fuel

1 January 2016 –

31 December 2016





JSC Donavia




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


20 November 2015

15 JSC Donavia

(airline)

Sale by

PJSC Aeroflot of

cargo and post

transportation on

JSC Donavia’s

flights in the 5000–

5399 flight range

under the interline

agreement

RUB 9,900,000

(commission

fee: 15%)

1 January 2016 –

31 December 2016





JSC Donavia




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 13

dated 29 February

2016

16 JSC Donavia

(seller)

Property purchase

and sale

RUB 213,430,04

2.35

15 July 2016 –

31 December 2016





JSC Donavia




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 18

dated 26 May 2016

17 JSC Donavia

(transferor)

Agreement on the

transfer of rights

and obligations

under the lease

agreement (for real

estate assets)

RUB 3,316,939.8

8

31 August 2016 –

25 June 2017





JSC Donavia




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 18

dated 26 May 2016

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

18 JSC Orenair

(principal)

Agency agreement

for fuel supply

1.5% of the cost

of loaded fuel

1 January 2016 –

31 December 2016





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


20 November 2015

19 JSC Orenair

(borrower)

Provision of a part

of the loan under

Agreement No. Z5-

2015 dated

29 December 2015

RUB 579,709,77

0.13


8 February 2017





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


26 November 2015

20 JSC Orenair

(borrower)

Provision of a part

of the loan under

Agreement No. Z5-

2015 dated

29 December 2015

RUB 380,967,92

8.43

25 March 2016 –

16 August 2017





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


26 November 2015

21 JSC Orenair

(airline)

Sale by

PJSC Aeroflot of

cargo and post

transportation on

JSC Orenair’s

flights in the 5800–

5913 flight range

under the interline

agreement

RUB 12,300,000

(commission fee:

15%)

1 January 2016 –

31 December 2016





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 13

dated 29 February

2016

22 JSC Orenair Provision of a part RUB 390,496,3 5 April 2016 – Vadim Zingman, member of The Company is a person Minutes of Meeting

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

(borrower) of the loan under

Agreement No. Z6-

2016 dated 4 April

2016

75.48 8 February 2017 PJSC Aeroflot’s Management



JSC Orenair



transaction;

The person holds a




transaction

of the Board of

Directors No. 14

dated 31 March 2016

23 JSC Orenair

(borrower)

Provision of a part

of the loan under

Agreement No. Z6-

2016 dated 4 April

2016

RUB 453,069,10

5.07

19 April 2016 –

8 February 2017





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 14

dated 31 March 2016

24 JSC Orenair

(borrower)

Provision of a part

of the loan under

Agreement No. Z6-

2016 dated 4 April

2016

RUB 132,851,35

6.85

28 April 2016 –

8 February 2017





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 14

dated 31 March 2016

25 JSC Orenair

(borrower)

Provision of a part

of the loan under

Agreement No. Z6-

2016 dated 4 April

2016

RUB 727,432,40

9.56

4 May 2016 –

8 February 2017





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 14

dated 31 March 2016

26 JSC Orenair

(borrower)

Provision of a part

of the loan under

RUB 475,084,95

7.62

4 May 2016 –

8 February 2017





Minutes of Meeting

of the Board of

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

Agreement No. Z6-

2016 dated 4 April

2016



JSC Orenair


transaction;

The person holds a




transaction

Directors No. 14

dated 31 March 2016

27 JSC Orenair

(seller)

Purchase of real

estate from

JSC Orenair

RUB 184,336,74

7.41

2 December 2016 –

1 April 2017





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


25 August 2016

28 JSC Orenair

(seller)

Purchase of a DF-

404 tractor

RUB 673,471.05 2 December 2016 –

1 April 2017





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


25 August 2016

29 JSC Orenair

(seller)

Purchase of a

L2H1N1

freight/passenger

van

RUB 678,300 2 December 2016 –

1 April 2017





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


25 August 2016

30 JSC Orenair

(seller)

Purchase of a

GENIE Z45/25 self

propelled boom lift

RUB 3,766,653.4

5

2 December 2016 –

1 April 2017







Minutes of Meeting

of the Board of


No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution


JSC Orenair

transaction;

The person holds a




transaction

25 August 2016

31 JSC Orenair

(seller)

Purchase of a

HYUNDAI 15BT-

7 electric forklift

truck

RUB 1,720,295.8

5

2 December 2016 –

1 April 2017





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


25 August 2016

32 JSC Orenair

(seller)

Purchase of a

HYUNDAI 30G-

7M wheel-mounted

forklift

RUB 1,147,514.5

5

2 December 2016 –

1 April 2017





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


25 August 2016

33 JSC Orenair

(seller)

Property sale and

purchase

RUB 220,739,40

0.00

9 August 2016 –

31 December 2016





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 18

dated 26 May 2016

34 JSC Orenair

(seller)

Property sale and

purchase

RUB 69,814,911.

60

2 December 2016 –

31 December 2016








transaction;

Minutes of Meeting

of the Board of


25 August 2016

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

JSC Orenair The person holds a




transaction

35 JSC Orenair

(seller)

Property sale and

purchase

RUB 4,626,300 9 August 2016 –

31 December 2016





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 18

dated 26 May 2016

36 JSC Orenair

(seller)

Property sale and

purchase

RUB 1,865,850 9 August 2016 –

31 December 2016





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 18

dated 26 May 2016

37 JSC Orenair

(seller)

Property sale and

purchase

RUB 32,782,050 9 August 2016 –

31 December 2016





JSC Orenair




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 18

dated 26 May 2016

38 LLC Pobeda

Airlines (customer)

Provision of paid

services related to

flight crew

simulator training

on FFS B-737NG

RUB 11,264,280 28 December

2015 –

31 December 2016

The majority of members of


Board are members of the


LLC Pobeda Airlines




transaction;

The person holds a

Materials for relevant

corporate approval

are being prepared

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

flight simulators by

the Customer’s

instructors




transaction

39 LLC Pobeda


Agency agreement

for fuel supply

1.5% of the cost

of loaded fuel

1 January 2016 –

31 December 2016

The majority of members of


Board are members of the


LLC Pobeda Airlines




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


20 November 2015

40 JSC Rossiya


Agency services

related to customs

clearance

RUB 1,350,000 1 April 2016 –

1 April 2017





JSC Rossiya Airlines


PJSC Aeroflot’s Board of

Directors, is the CEO of





transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 17

dated 30 April 2014

41 JSC Rossiya

Airlines (partner)

Commercial

management by

PJSC Aeroflot of

the load of a

number of

JSC Rossiya

Airlines’ flights

(including pricing

and sale of tickets


the SU5950–

SU6999 flight

range under the

code-sharing

RUB 47,000,00

0,000

1 November

2015 – 31 October

2016













transaction;

The person holds a




transaction

Minutes of the

Annual General

Meeting of

Shareholders of


dated 22 June 2015

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

agreement (code

share / blocked

space) based on the

commuter

(regional)

transportation

model

42 PJSC Sberbank

(lender)

Suretyship

Agreement

No. 0162/001/16-P

dated 17 March

2016 under which

PJSC Aeroflot

undertakes to

OJSC Sberbank to

secure all the

obligations of

JSC Rossiya

Airlines under

Overdraft Loan

Agreement

No. 0162/001/16

dated 17 March

2016

RUB 915,900,00

0

From 17 March

2016 until the

parties have fully

performed their

obligations under

the Loan

Agreement, but not

more than

four years from the

date when the

Suretyship

Agreement is

signed

Shamil Kurmashov, member

of PJSC Aeroflot’s

Management Board, is a


Directors of JSC Rossiya

Airlines;





JSC Rossiya Airlines;








the transaction;

The person holds a




the transaction

Minutes of Meeting

of the Board of


3 September 2015

43 JSC Rossiya

Airlines

(borrower)

Suretyship

Agreement dated

17 March 2016

under which

JSC Rossiya

Airlines undertakes

to pay to

PJSC Aeroflot the

fee for the

suretyship provided

under Agreement

No. 0162/001/16-P

dated 17 March

Fee:

1.39% per annum

Accrued on the

amount of the

actual

outstanding

balance of the

loan

From 17 March

2016 until the

parties have fully

and properly

performed their

obligations

Shamil Kurmashov, member




Directors of JSC Rossiya

Airlines;











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


3 September 2015

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

2016 Directors, is the CEO of


44 JSC Rossiya


Agency agreement

for fuel supply

1.5% of the cost

of loaded fuel

1 January 2016 –

31 December 2016













transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


20 November 2015

45 JSC Rossiya

Airlines (airline)

Sale by

PJSC Aeroflot of

post and cargo

transportation on

JSC Rossiya


the FV5950–

FV6999 flight

range under the

interline agreement

RUB 60,000,000 1 January 2016 –

31 December 2016













transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 13

dated 29 February

2016

46 JSC Rossiya

Airlines (airline)

Sale by

PJSC Aeroflot of

cargo and post

transportation on

JSC Rossiya


the FV5950–

FV6999 flight

range under the

interline agreement

RUB 119,000,0

00

(commission

fee: 15%)

(including the

previously

approved

amount of

RUB 60,000,00

0)

1 January 2016 –

31 December 2016













transaction;

The person holds a




transaction

Minutes of Meeting

of PJSC Aeroflot’s

Board of Directors

No. 3 dated

7 October 2016

(amendment to the

transaction with a

price of

RUB 60,000,000

approved by Minutes

of Meeting of

Meeting of

PJSC Aeroflot’s

Board of Directors

No. 13 dated

29 February 2016

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

47 PJSC Sberbank

(lender)

Pledge of goods in

circulation to

secure the

obligations of

JSC Rossiya

Airlines under

Agreement

No. 0162-1-

102616-Z dated

27 May 2016

RUB 459,576,00

0

27 May 2016 –

25 August 2016













the transaction;

The person holds a




the transaction

Minutes of Meeting

of the Board of

Directors No. 14

dated 31 March 2016

48 JSC Rossiya

Airlines

(borrower)

Pledge of goods in

circulation to

secure the

obligations of

JSC Rossiya

Airlines under

Agreement w/n

dated 22 June 2016

RUB 1,052,197.2

7

22 June 2016 –

25 August 2016













transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 14

dated 31 March 2016

49 JSC Rossiya

Airlines (partner)

Commercial

management by

PJSC Aeroflot of

the load of a

number of

JSC Rossiya

Airlines’ flights

(including pricing

and sale of tickets


the SU5950–

SU6999 flight

range under the

code-sharing

agreement (code

share / blocked

space) based on the

commuter

RUB 65,000,00

0,000

1 November

2016 – 31 October

2017













transaction;

The person holds a




transaction

Minutes of the

Annual General

Meeting of

Shareholders of


dated 27 June 2016

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

(regional)

transportation

model

50 CJSC Aeromar

(lessee)

Commercial

premises lease

RUB 184,452.29 From 2 June 2016

for a term of

11 months (with

automatic

extension)





CJSC Aeromar;

Vladimir Alexandrov, member




Directors of CJSC Aeromar




transaction;

The person holds a




transaction


corporate approval

are being prepared

51 CJSC Aeromar

(sublessor)

Commercial

premises sublease

USD 15,125.13

From 1 March

2016 for 11 months

(with automatic

extension)





CJSC Aeromar;









transaction;

The person holds a




transaction


corporate approval

are being prepared

52 CJSC Aeromar

(sublessee)

Commercial

premises sublease

USD 46,788.10 From 1 January

2016 for 11 months

(with automatic

extension)





CJSC Aeromar;









transaction;

The person holds a




transaction


corporate approval

are being prepared

53 CJSC Aeromar

(sublessee)

Reduction of the

area subleased

under the

commercial

USD 11,574.77 From 1 September

2016 for 11 months

(with automatic

extension)








transaction;


corporate approval

are being prepared

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

premises sublease

agreement

CJSC Aeromar;






The person holds a




transaction

54 CJSC Aeromar

(contractor)

Purchase of

services related to

the provision of in-

flight meals,

related goods and

service equipment

during flights

RUB 11,810,00

3,424

1 July 2016 –

30 June 2017





CJSC Aeromar;









transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 17

dated 23 May 2016

55 CJSC Aeromar

(contractor)

Purchase of aircraft

interior cleaning

and equipment

services for

PJSC Aeroflot and

partner airlines

RUB 2,137,803,

872

3 July 2016 –

2 July 2017





CJSC Aeromar;









transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 19

dated 24 June 2016

56 PJSC Sberbank

(lender)

Suretyship

Agreement

No. 2581 dated

22 July 2016 under

which

PJSC Aeroflot

undertakes to

OJSC Sberbank to

secure all the

obligations of

JSC Sherotel under

RUB 114,500,00

0

From 22 July 2016

until the parties

have fully

performed their

obligations under

the Loan

Agreement, but not

more than

four years from the

date when the

Suretyship





JSC Sherotel;





JSC Sherotel




the transaction;

The person holds a




the transaction

Minutes of Meeting

of the Board of


3 September 2015

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

Overdraft Loan

Agreement

No. 2581 dated

22 July 2016

Agreement is

signed

57 JSC Sherotel

(borrower)

Suretyship

Agreement dated

22 July 2016 under

which JSC Sherotel

undertakes to pay

to PJSC Aeroflot

the fee for the

suretyship provided

under Agreement

No. 2581 dated

22 July 2016.

Fee:

1.16% per annum

Accrued on the

amount of the

actual

outstanding

balance of the

loan

From 22 July 2016

until the parties

have fully and

properly performed

their obligations





JSC Sherotel;





JSC Sherotel




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


3 September 2015

58 JSC Sherotel

(contractor)

Services for

passengers in

luxury lounges at

Sheremetyevo and

Pulkovo airports

RUB 900,000,00

0

1 January 2016 –

31 December 2016





JSC Sherotel;





JSC Sherotel




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


20 November 2015

59 JSC Sherotel

(lessee)

Commercial

premises lease

RUB 139,318.62 From 1 August

2016 for 11 months

(with automatic

extension)





Directors of JSC Sherotel;





JSC Sherotel




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


25 August 2016

60 JSC Sherotel

(contractor)

Agreement dated

30 December 2016

RUB 189,391,20

0

1 January 2017 –

31 December 2017





Minutes of Meeting

of the Board of

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

on services related

to the provision of

hotel

accommodation for

PJSC Aeroflot’s

key specialists








JSC Sherotel


transaction;

The person holds a




transaction

Directors No. 13

dated 19 April 2017

61 JSC Sherotel

(contractor)

Agreement dated

30 December 2016

on services related

to the provision of

hotel

accommodation for

PJSC Aeroflot’s

crew

RUB 117,380,51

1.37

1 January 2017 –

31 December 2017










JSC Sherotel




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 13

dated 19 April 2017

62 JSC Sherotel

(contractor)

Agreement dated

30 December 2016

on services related

to the provision of

hotel

accommodation for

foreign pilots-in-

command

RUB 33,879,300.

04

1 January 2017 –

31 December 2017










JSC Sherotel




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 13

dated 19 April 2017

63 Aeroflot Aviation

School (contractor)

Training under

further education

programmes

Framework

agreement (up to

RUB 300.00 milli

on)

21 March 2016 –

31 December 2016

Igor Chalik, member of



governing body of Aeroflot

Aviation School

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 19

dated 24 June 2016

64 Aeroflot Aviation

School (lessee)

Enlargement of the

area leased under

the commercial

RUB 2,158,465.8

8

From 1 May 2016

for a term of

11 months (with

Igor Chalik, member of



The person holds a




corporate approval

are being prepared

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

premises lease

agreement

automatic

extension)

governing body of Aeroflot

Aviation School


transaction

65 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T1-

2016 dated

16 February 2016

RUB 37,996,009.

18

3 March 2016 –

14 February 2019

Vladimir Antonov, Shamil

Kurmashov, Igor Parakhin,

and Nikolay Altukhov,

members of PJSC Aeroflot’s

Management Board, are

members of the Board of

Directors of LLC A-Technics




transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 10

dated 28 January

2016

66 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T1-

2016 dated

16 February 2016

RUB 16,837,344.

80

14 March 2016 –

14 February 2019











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 10

dated 28 January

2016

67 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T1-

2016 dated

16 February 2016

RUB 36,972,479.

78

21 March 2016 –

14 February 2019











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 10

dated 28 January

2016

68 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T1-

2016 dated

16 February 2016

RUB 36,235,831.

64

8 April 2016 –

14 February 2019











transaction;

The person holds a




Minutes of Meeting

of the Board of

Directors No. 10

dated 28 January

2016

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

transaction

69 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T1-

2016 dated

16 February 2016

RUB 32,967,801.

76

15 April 2016 –

14 February 2019











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 10

dated 28 January

2016

70 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T1-

2016 dated

16 February 2016

RUB 27,490,461.

40

22 April2016 –

14 February 2019











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 10

dated 28 January

2016

71 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T1-

2016 dated

16 February 2016

RUB 2,355,805.2

1

29 April 2016 –

14 February 2019











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 10

dated 28 January

2016

72 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T1-

2016 dated

16 February 2016

RUB 41,448,607.

68

10 May 2016 –

14 February 2019











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 10

dated 28 January

2016

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

73 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T1-

2016 dated

16 February 2016

RUB 46,070,555.

91

16 May 2016 –

14 February 2019











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 10

dated 28 January

2016

74 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T2-

2016 dated 13 May

2016

RUB 33,620,419.

17

25 May 2016 –

15 May 2021











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 12

dated 22 February

2016

75 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T2-

2016 dated 13 May

2016

RUB 27,607,144.

96

15 June 2016 –

15 May 2021











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 12

dated 22 February

2016

76 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T2-

2016 dated 13 May

2016

RUB 43,414,577.

71

24 June 2016 –

15 May 2021











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 12

dated 22 February

2016

77 LLC A-Technics Provision of a part RUB 27,526,853. 28 June 2016 – Vladimir Antonov, Shamil The Company is a person Minutes of Meeting

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

(borrower) of the loan under

Agreement No. T2-

2016 dated 13 May

2016

98 15 May 2021 Kurmashov, Igor Parakhin,








transaction;

The person holds a




transaction

of the Board of

Directors No. 12

dated 22 February

2016

78 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T2-

2016 dated 13 May

2016

RUB 141,193,26

3.17

12 July 2016 –

15 May 2021



and Vladimir Alexandrov,








transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 12

dated 22 February

2016

79 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T2-

2016 dated 13 May

2016

RUB 24,264,189.

65

15 July 2016 –

15 May 2021











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 12

dated 22 February

2016

80 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T2-

2016 dated 13 May

2016

RUB 53,097,938.

54

22 July 2016 –

15 May 2021











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 12

dated 22 February

2016

81 LLC A-Technics

(borrower)

Provision of a part

of the loan under

RUB 30,655,696.

47

28 July 2016 –

15 May 2021





Minutes of Meeting

of the Board of

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

Agreement No. T2-

2016 dated 13 May

2016







transaction;

The person holds a




transaction

Directors No. 12

dated 22 February

2016

82 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T2-

2016 dated 13 May

2016

RUB 9,015,036.1

1

14 September

2016 – 15 May

2021











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 12

dated 22 February

2016

83 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T2-

2016 dated 13 May

2016

RUB 28,487,689.

19

14 October 2016 –

15 May 2021











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 12

dated 22 February

2016

84 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T2-

2016 dated 13 May

2016

RUB 20,865,450.

01

14 December

2016 – 15 May

2021











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 12

dated 22 February

2016

85 LLC A-Technics

(borrower)

Provision of a part

of the loan under

Agreement No. T2-

RUB 64,006,740.

13

27 December

2016 – 15 May

2021







Minutes of Meeting

of the Board of

Directors No. 12

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

2016 dated 13 May

2016





transaction;

The person holds a




transaction

dated 22 February

2016

86 LLC A-Technics

(contractor)

Technical support

of aircraft

maintenance

RUB 3,000,000 22 January 2016 –

31 December 2018











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 13

dated 29 February

2016

87 LLC A-Technics

(lessee)

Property lease RUB 13,577,080 30 December

2016 –

30 November 2017











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


25 August 2016

88 LLC A-Technics

(principal)

Agency services

related to customs

clearance

1.5% of

expenses

recorded by

PJSC Aeroflot,

net of

VAT (18%)

12 August 2016 –

31 December 2016











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of

Directors No. 19

dated 24 June 2016

89 LLC A-Technics

(buyer)

Purchase and sale

of aviation and

maintenance assets

RUB 30,000,00

0

25 March 2016 –

31 December 2016

(with automatic

extension)








transaction;

Minutes of Meeting

of the Board of

Directors No. 13

dated 19 April 2016

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution




The person holds a




transaction

90 LLC A-Technics

(contractor)

Aircraft

maintenance

Framework

agreement (up

to

RUB 2,000,000,

000)

29 August 2016 –

30 June 2021











transaction;

The person holds a




transaction

Minutes of Meeting

of the Board of


25 August 2016

91 AlfaStrakhavonie

PLC (insurer)

PJSC Aeroflot’s

directors, officers,

and corporate

liability insurance

Insurance

premium:

USD 99,000

16 July 2016 –

15 July 2017

Members of PJSC Aeroflot’s

Board of Directors

Members of


Directors are the

beneficiaries of the

transaction

Minutes of the

Annual General

Meeting of

Shareholders of


dated 27 June 2016

92 JSC AeroMar-DV

(supplier,

contractor)

Provision of in-

fight meals and

services

RUB 250,372,45

9.75

1 January 2016 –

31 December 2016

PJSC Aeroflot The Company is a person



transaction


corporate approval

are being prepared

93 JSC Sheremetyevo

International

Airport (lessor)

Indexation of lease

rate under the

commercial

premises lease

agreement

USD 4,320.43 1 April 2016 –

30 September 2016


PJSC Aeroflot’s Board of

Directors, is a member of the


JSC Sheremetyevo

International Airport

The person holds a




transaction


corporate approval

are being prepared

94 JSC Sheremetyevo

International

Airport (lessor)

Indexation of lease

rate under the

commercial

premises lease

agreement

USD 114,672.59 1 March 2016 –

30 September 2016





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

95 JSC Sheremetyevo

International

Airport (lessor)

Indexation of lease

rate under the

commercial

premises lease

agreement

USD 2,554.37 1 January 2016 –

31 August 2016





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared

96 JSC Sheremetyevo

International

Airport (lessor)

Extension of the

commercial

premises lease

agreement and

indexation of lease

rate

USD 80,211.07 17 April 2016 –

16 March 2017





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared

97 JSC Sheremetyevo

International

Airport (lessor)

Extension of the

commercial

premises lease

agreement and

indexation of lease

rate

USD 106,990.77 1 July 2016 –

31 May 2017





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared

98 JSC Sheremetyevo

International

Airport (lessor)

Indexation of lease

rate under the

commercial

premises lease

agreement

USD 10,683.90 27 July 2016 –

30 November 2016





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared

99 JSC Sheremetyevo

International

Airport (lessor)

Indexation of lease

rate under the

commercial

premises lease

agreement

USD 141,934 1 June 2016 –

31 October 2016





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared

100 JSC Sheremetyevo

International

Airport (lessor)

Indexation of lease

rate under the

commercial

premises lease

agreement

USD 7,813,319.9

0

1 January 2016 –

31 December 2034





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution


International

Airport (lessor)

Fixing of USD

exchange rate

RUB 89,738,316.

64

1 January 2016 –

31 March 2016





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared


International

Airport (lessor)

Fixing of USD

exchange rate

RUB 89,738,316.

64

1 April 2016 –

30 June 2016





JSC Sheremetyevo


The person holds a




transaction


corporate approval are

being prepared


International

Airport (lessor)

Extension of the

commercial

premises lease

agreement and

indexation of lease

rate

USD 3,211.59 2 April 2016 –

1 March 2017





JSC Sheremetyevo


The person holds a




transaction



being prepared


International

Airport (lessor)

Extension of the

commercial

premises lease

agreement and

indexation of lease

rate

USD 24,278.09 20 March 2016 –

19 February 2017





JSC Sheremetyevo


The person holds a




transaction



being prepared


International

Airport (lessor)

Indexation of lease

rate and fixing of

USD exchange rate

under the

commercial

premises lease

agreement

USD 15,717.06 10 July 2016 –

20 November 2018





JSC Sheremetyevo


The person holds a




transaction



being prepared


International

Airport (lessor)

Indexation of lease

rate and fixing of

USD exchange rate

under the

commercial

premises lease

USD 12,687.08 1 January 2016 –

21 January 2019





JSC Sheremetyevo


The person holds a




transaction



being prepared

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

agreement


International

Airport (lessor)

Indexation of lease

rate and fixing of

USD exchange rate

under the

commercial

premises lease

agreement

USD 18,898.88 1 March 2016 –

2 June 2018





JSC Sheremetyevo


The person holds a




transaction



being prepared


International

Airport (lessor)

Indexation of lease

rate and fixing of

USD exchange rate

under the

commercial

premises lease

agreement

USD 7,598.96 1 January 2016 –

22 December 2018





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared


International

Airport (lessor)

Extension of the

commercial

premises lease

agreement and

indexation of lease

rate

USD 55,388.53 1 June 2016 –

30 April 2017





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared


International

Airport (lessor)

Commercial

premises lease

USD 36,084.27 26 April 2016 –

25 March 2017





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared


International

Airport (lessor)

Extension of the

commercial

premises lease

agreement and

indexation of lease

rate

USD 24,008.75 1 June 2016 –

30 April 2017





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared


International

Airport (lessor)

Change of the

subleased land plot

area and sublease

rate

RUB 1,254,537.3

4

15 January 2016 –

31 December 2050





The person holds a




Minutes of Meeting

of the Board of

Directors No. 13

dated 29 February

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

JSC Sheremetyevo


transaction 2016


International

Airport (lessor)

Commercial

premises lease

RUB 132,301,70

8.56

8 April 2016 –

7 April 2021





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared


International

Airport (lessor)

Fixing of USD

exchange rate

RUB 678,057.08 10 February 2016 –

30 September 2016





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared


International

Airport (lessor)

Fixing of USD

exchange rate

under short-term

lease agreements

– 1 January 2016 –

31 March2016





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared


International

Airport (lessor)

Fixing of USD

exchange rate

under short-term

lease agreements

– 1 April 2016 –

30 June 2016





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared


International

Airport (lessor)

Provision of access

to the airport’s

cable infrastructure

Monthly service

price:

RUB 5,156.60

(incl. VAT)

16 November

2016 –

31 December 2016





JSC Sheremetyevo


The person holds a




transaction


corporate approval

are being prepared

118 Non-profit

partnership

Russian Institute of

Directors

(contractor)

Services related to

monitoring of the

corporate

governance

practice at

RUB 1,000,000,

excl.

VAT (18%)

From 21 March

2016 for 12 months

Igor Belikov, Chairman of

PJSC Aeroflot’s Revision

Committee, is the Head of the

Russian Institute of Directors

The person entitled to give

binding instructions to the

company holds a position

in the governing bodies of

the legal entity which is a

Minutes of Meeting

of the Board of

Directors No. 16

dated 29 April 2016

No.

Counterparty

Subject matter of

the transaction


Basis of interest

Governing body

that passed the

resolution

PJSC Aeroflot and

information

support

party to the transaction

119 JSC Donavia

(major tax payer 2),

Federal Tax

Service of Russia

Agreement dated

21 July 2016 on

establishing the

pricing procedure

and applying

pricing methods in

a Controlled Code-

Sharing

Transaction for

taxation purposes

– 1 January 2015 –

31 December 2015





JSC Donavia




transaction;

The person holds a




transaction

Not subject to

corporate approval

120 JSC Rossiya

Airlines (major tax

payer 2), Federal

Tax Service of

Russia

Agreement dated

14 September 2016

on establishing the

pricing procedure

and applying

pricing methods in

a Controlled Code-

Sharing

Transaction for

taxation purposes

– 1 January 2015 –

31 December 2015













transaction;

The person holds a




transaction

Not subject to

corporate approval

121

JSC Aurora

Airlines (major tax

payer 2), Federal

Tax Service of

Russia

Agreement dated

14 September 2016

on establishing the

pricing procedure

and applying

pricing methods in

a Controlled Code-

Sharing

Transaction for

taxation purposes

– 1 January 2015 –

31 December 2015














transaction;

The person holds a




transaction

Not subject to

corporate approval

7.4. Execution of Presidential and Governmental Instructions

No. Document type, date and

number

Summary Execution status

1 2 3 4

1 Ensuring the transparency of financial and business activities

(Federal Law No. 273-FZ On Countering Corruption dated 25 December 2008, Decree of the President of the Russian Federation No. 309 On Measures to Implement

Certain Provisions of the Federal Law On Countering Corruption dated 2 April 2013, Decree of the President of the Russian Federation No. 460 On Approval of the

Form of Statement to Inform on Income, Expenses, Property and Property-Related Obligations and Amendments to Certain Acts of the President of the Russian

Federation dated 23 June 2014, Decree of the President of the Russian Federation No. 147 On National Anti-Corruption Plan for 2016–2017 dated 1 April 2016)

1.1 Decree of the President of the

Russian Federation No. 147 On

the National Anti-Corruption

Plan for 2016–2017 dated

1 April 2016

Clause 2 of the Decree.

Amend anti-corruption plans so as to

achieve actual results in corruption

prevention and the mitigation and/or

remediation of corruption offences

and to establish control over the

execution of initiatives stipulated by

such plans by 15 May 2016.

Clause 4 of the Decree.

Report on the execution of clause 2 of

the Decree by 20 May 2016.

Clause 5 of the Plan.

Continue to form the negative attitude

of employees to corruption.


Improve the efficiency of anti-

corruption initiatives in entities.


Make provision to consider the state

of anti-corruption efforts at the

meetings (sessions) of relevant panels

and take specific actions to improve

such efforts.


a) conduct professional development

training for employees who are in

charge of countering corruption at

state-owned enterprises (companies)

in line with educational programmes

Execution is in progress.

A roadmap establishing processes for risk management and internal control aimed at corruption

prevention and countering at PJSC Aeroflot was approved by PJSC Aeroflot’s Board of

Directors on 28 April 2016.

To implement the roadmap:

according to Order No. 143 dated 6 May 2016, PJSC Aeroflot introduced the role of Deputy

Director of the Economic Security Department performing the duties of Compliance Manager at

the Company, developed and approved plans of business units for the development/update of

operating documents in terms of organising a risk management and internal control system aimed

at corruption prevention and countering;

on 5 October 2016, the Company approved the programme for the development, implementation

and ensuring efficiency of initiatives aimed at corruption prevention and countering at

PJSC Aeroflot, which includes anti-corruption actions implemented by PJSC Aeroflot on an

ongoing basis.

From August to September 2016, the Internal Audit Department conducted the first audit

(assessment) of the performance of the Company’s risk management and internal controls aimed

at corruption prevention and countering as prescribed in clause 5.3 of the Guidelines. The audit

helped develop and implement initiatives for further improvement of risk management and

internal controls.

Pursuant to sub-clause a, clause 17 of the National Anti-Corruption Plan for 2016–2017, in

November 2016 employees of the Economic Security Department completed the following

professional development training courses carried out by Private Education Institution of

Additional Professional Education Rosatom Institute for Global Nuclear Safety and Security:

Anti-Corruption Efforts in State-Owned Enterprises (Companies) and Compliance of Employees

at State-Owned Enterprises (Companies) with the Restrictions, Bans and Liabilities Established

to Counter Corruption. Training of PJSC Aeroflot’s employees in corruption prevention and

countering is scheduled for 2017.

In 2015–2016, PJSC Aeroflot developed and adopted a number of executive documents and

internal regulations aimed at corruption prevention and countering, and updated the current


number


1 2 3 4

approved by the Presidential

Administration of the Russian

Federation;

b) monitor the implementation of anti-

corruption initiatives in subsidiaries.

regulations as follows:

developed and executed JSC Aeroflot’s Anti-Corruption Plan for 2015 approved by Order No. 54

dated 11 February 2015;

developed Aeroflot Group’s Anti-Corruption Policy approved by PJSC Aeroflot’s Board of

Directors on 21 December 2015;

developed the Regulations on the Hotline for Confidential Reports to the Board of Directors

(Audit Committee of the Board of Directors) approved by PJSC Aeroflot’s Board of Directors on

21 December 2015;

updated PJSC Aeroflot’s Corporate Conduct Code approved by PJSC Aeroflot’s Board of

Directors on 28 January 2016;

developed the procedure for notifying management of attempts to engage employees in

corruption approved by Order No. 218 dated 2 July 2015;

developed and approved by Order No. 236 dated 17 July 2015 the list of positions held by

employees which may be filled temporary at PJSC Aeroflot in line with employment contracts

and are subject to bans, restrictions and liabilities set forth by the Federal Law On Countering

Corruption and other federal laws;

developed the procedure for notifying the employee of any personal interest which leads of may

lead to conflict of interest approved by Order No. 250 dated 31 July 2015;

developed the procedure for notification by PJSC Aeroflot’s employees of receipt of gifts in

connection with hospitality events, business trips and other official events, in which they

participate by virtue of their official position or duties, and for handing over, valuation and

buyout of gifts and crediting proceeds from the sale (buyout) approved by Order No. 78 dated

17 March 2016;

established a dedicated commission to accept and evaluate gifts received by PJSC Aeroflot’s

employees; the members of the commission were approved by Order No. 146 dated 12 May

2016;

developed a standard anti-corruption clause incorporated in contracts and agreements to be made

with PJSC Aeroflot’s counterparties; the clause was approved by Directive of Deputy CEO for

Legal and Property Issues No. 229/U dated 18 October 2016.

To include the provisions aimed at corruption prevention and countering, PJSC Aeroflot

amended the following regulations:

Regulations on Internal Audit at Aeroflot Group approved by PJSC Aeroflot’s Board of

Directors on 1 October 2015;

Regulations on Aeroflot Group’s Risk Management System approved by PJSC Aeroflot’s Board

of Directors on 26 November 2015;

Aeroflot’s Regulations on the Procurement of Goods, Works and Services approved by

PJSC Aeroflot’s Board of Directors on 29 April 2016;

1.2 Instruction of Russian Prime

Minister Dmitry Medvedev

No. DM-P17-2666 dated 5 May

2016

(our reference number: 3512,

date: 6 May 2016)

Ensure the implementation of the

National Anti-Corruption Plan for

2016–2017 approved by Decree of the

President of the Russian Federation

No. 147 dated 1 April 2016 and

submit appropriate proposals or draft

reports:

under clauses 2 and 4 of the Decree:

as regards the amendment of anti-

corruption plans

by 15 May 2016;

as regards the submission of reports

on implementing initiatives stipulated

by anti-corruption plans

each quarter starting from 1 October

2016;

under clause 5 and sub-clause b,

clause 6 of the National Plan

by 1 November 2016 and by

1 November 2017;

under paragraph 8 of the National Plan

by 1 July 2016;

under paragraph 15 of the National

Plan

by 1 September 2016;

under paragraph 17 of the National

Plan

by 1 June 2016 and by 1 April 2017.

1.3 Instruction of the Federal

Agency for State Property

Management No. OD-02/13028

On Preparing the Roadmap

Develop and submit for approval by the

Board of Directors the roadmap

establishing processes for risk

management and internal control aimed


number


1 2 3 4

Establishing Processes for Risk

Management and Internal

Control Aimed at Corruption

Prevention and Countering

Subject to the Guidelines on

Risk Management and Internal

Control Aimed at Corruption

Prevention and Countering in

Joint-Stock Companies Partially

Owned by the Russian

Federation approved by Order of

the Federal Agency for State

Property Management No. 80

dated 2 March 2016, dated

4 April 2016.


date: 16 March 2016)

at corruption prevention and countering

by 1 May 2016.

Key initiatives taken to establish

processes for risk management and

internal control aimed at corruption

prevention and countering and to

update/develop and approve the

Company’s regulations shall be

completed by 1 October 2016.

Regulations on Raising and Using Charity Funds approved by PJSC Aeroflot’s Board of

Directors on 28 January 2016;

Regulations on Raising and Using Funds for Sponsorship Support approved by PJSC Aeroflot’s

Board of Directors on 28 January 2016;

Regulations on the Economic Security Department approved on 2 August 2016;

Company’s Standard STO DOU 07 Documentation Support. Procedure for Preparation,

Conclusion, Amendment, Execution and Termination of PJSC Aeroflot’s Agreements approved

by Order No. 422 dated 8 December 2015.

In addition, provisions requiring compliance with executive documents and internal regulations

aimed at corruption prevention and countering are included in the regulations on business units

and in the job descriptions of employees of PJSC Aeroflot.

The above regulations of PJSC Aeroflot establish, inter alia, the following key pillars, rules and

requirements aimed at corruption prevention and countering:

PJSC Aeroflot fosters a culture of zero tolerance to corruption in its any forms and

manifestations including when interacting with business partners, representatives of authorities,

political parties, and other parties;

any PJSC Aeroflot’s employee, irrespective of a position he/she holds, must notify

PJSC Aeroflot’s CEO in writing on any attempts to engage him/her in corruption;

PJSC Aeroflot’s employees must not accept any gifts, personal gifts of money, tickets for

entertainment or sports events, paid services for leisure, etc. in the execution of their duties;

if a conflict of interest arises or may arise, PJSC Aeroflot’s employee must notify his/her

immediate supervisor of such situation to find together an optimum solution without harming the

interest of either party;

PJSC Aeroflot’s employees strictly adhere to the applicable anti-corruption laws.

As part of the current efforts aimed at corruption prevention and countering, PJSC Aeroflot

implements the following initiatives:

the Company’s intranet website hosts and updates the Anti-Corruption Policy section dedicated

to corruption countering;

PJSC Aeroflot’s employees are trained to comply with PJSC Aeroflot’s Corporate Conduct

Code;

all communications coming from Aeroflot Group’s employees, customers, business partners and

other parties through the Hotline for Confidential Reports to the Board of Directors (Audit

Committee of the Board of Directors) are considered;

PJSC Aeroflot’s regulations and their drafts are examined for corruption potential to eliminate

such potential using the methods approved by Resolution of the Russian Government No. 96 On

Examination of Laws and Regulations and Their Drafts for Corruption Potential dated

26 February 2010;

1.4 Instruction of the Government

Office of the Russian Federation

No. P17-42687 dated 25 August

2015


date: 29 August 2016)

Report to the Government of the

Russian Federation on additional

initiatives taken to improve anti-

corruption efforts in entities subject to

Information on Initiatives to Improve

the Performance of Anti-Corruption

Efforts Taken by Entities Founded to

Deliver the Objectives Set for the

Government of the Russian Federation

which was developed in line with

clause 8 of the National Anti-

Corruption Plan for 2016–2017, by

1 July 2017.


number


1 2 3 4

PJSC Aeroflot implements the process of a business identifying and verifying the identity of its

business partners, competitors, and customers;

PJSC Aeroflot collects full information from its counterparties about the ownership structure,

executive bodies and beneficiaries (including ultimate beneficiaries) of counterparties and

submits the information to the competent government authorities;

the standard anti-corruption clause is incorporated in contracts and agreements to be made with

PJSC Aeroflot’s counterparties;

PJSC Aeroflot examines draft contracts and agreements with Russian and foreign counterparties;

the Company oversees the application of legal sanctions for non-compliance with the bans,

restrictions and requirements set forth to counter corruption;

the Company regularly controls accounts, availability and accuracy of primary accounting

records;

PJSC Aeroflot audits the financial and business operations of its business units, branch and

representative offices, and subsidiaries;

PJSC Aeroflot interacts with law enforcement authorities and other government authorities to

ensure corruption countering across the Company.

Information about the execution of instructions was sent to the Government Office of the Russian

Federation and the Ministry of Transport of the Russian Federation within prescribed timelines.

1.5 Article 92 of Federal Law

No. 208-FZ On Joint-Stock

Companies dated 26 December

1995.

Chapter VIII of Decree of the

Federal Financial Market

Service of Russia No. 11-46/pz-

n On Approval of the

Regulations on Information

Disclosure by Securities Issuers

dated 4 October 2011.

Decree of the Ministry of

Economic Development of the

Russian Federation No. 208 On

Approval of Information

Disclosure by State-Owned

Joint-Stock Companies and by

State (Municipal) Unitary

Enterprises dated 11 May 2011

Disclose information to the extent and

in the manner specified by the federal

executive authority for the securities

market.

Joint-stock companies included in the

projected privatisation plan are obliged

to disclose information.


Regulations on information exchange through the interdepartmental portal for state property

management were approved by the Board of Directors on 4 April 2012 (Minutes No. 11).

Reports on shareholder and investor relations are submitted to the Board of Directors on a

quarterly basis.

The company fully complies with the requirements to disclose information set out in Russian

laws. In particular, all information is disclosed on the webpage and in the news feed of

PJSC Aeroflot.

Procedure for submission and disclosure of information on material facts about the Company and

the Company’s insider information was approved by Order No. 80 dated 5 March 2015.


number


1 2 3 4

1.6 Paragraph 7, clause 2 of minutes

of a meeting held at the office of

First Deputy Prime Minister of

the Russian Federation

Igor Shuvalov No. ISH-P13-98pr

dated 3 October 2013

Publish resolutions of boards of

directors that are not treated as

commercially sensitive information.

The Instruction is executed in line with applicable Russian laws regulating information

disclosure.

The minutes of the Board of Directors are posted in the Company’s account on the

interdepartmental portal for state property management.



No. P17-3337 dated 27 January

2016



On submission of information on

personal income, expenses, property

and property-related obligations, and

spouse’s and minor children’s income,

expenses, property and property-related

obligations for 2015 by 10 January

2016

Information was submitted within prescribed timelines.

2 On Peculiarities of Participation of Small and Medium-Sized Enterprises in the Procurement of Goods, Works and Services by Certain Types of Legal Entities

(Decree of the President of the Russian Federation No. 287 On Measures to Further Develop Small and Medium-Sized Businesses dated 5 June 2015, Resolution of

the Government of the Russian Federation No. 1352 dated 11 December 2014)

2.1 Decree of the Government of the

Russian Federation No. 2258-r

dated 6 October 2015,

Resolution of the Government of

the Russian Federation No. 1169


On assessment of draft plans for

procurement of goods, works, services;

draft plans for procurement of

innovative and hi-tech products,

pharmaceutical products; draft

amendments to these plans, prior to

approval, for their compliance with

Russian laws providing for SMEs

participation in procurement and the

requirements of JSC Russian Small and

Medium Business Corporation

(JSC RSMB Corporation)


PJSC Aeroflot’s draft procurement plan for purchases of goods, works and services in 2016

No. 2150141859 was published in the unified information system on 30 December 2015 (notice

No. P2150141859001). According to findings of JSC RSMB Corporation No. OZS-31/2015

dated 30 December 2015, the plan complies with Russian laws.

All amendments to the plan were also published in the unified information system in due time

and their compliance with Russian laws was approved by JSC RSMB Corporation.

3 On procurement

3.1

Paragraph 2 of the List of

Instructions issued by the

Government of the Russian

Federation No. DM-P9-8413

dated 12 December 2015 on

procurement regulation and the

development of relevant

Instructions:

1) Develop and adopt procurement

regulations for purchases of goods,

works and services by 30 April 2016.

Procurement regulations shall specify

limit prices for listed goods, works and

services and/or requirements for their

The list of certain goods, works and services which shall comply with the requirements set out

for their usability and other characteristics was approved by CEO’s Order No. 296 dated

23 August 2016.


number


1 2 3 4

procurement regulations for

purchases of goods, works and

services

Directives of the Government of


No. 2793p-P13 dated 19 April

2016 (our reference number:

3773, date: 17 May 2016)

quantity, usability and other

characteristics. The regulations shall

focus on meeting the needs of

customers without fostering purchases

of goods, works and services with

undesirable properties;

2) publish purchase regulations on

websites of joint-stock companies on

the Internet by 30 April 2016;

3) starting from 1 May 2016, ensure

mandatory application of procurement

regulations when planning business

activities;

4) starting from 2017, conduct annual

monitoring (on a year-on-year basis) of

procurement performance in joint-stock

companies, including adherence to the

requirements of the approved

procurement plan and relevant

regulations for purchases of goods,

works and services for the needs of

joint-stock companies, as well as

fitness of the goods, works and services

purchased by joint-stock companies for

purposes of their business defined in

the articles of association;

5) annually adjust (update)

procurement regulations for purchases

of goods, works and services for the

needs of joint-stock companies.

Implement these requirements across

subsidiaries and affiliates.

The list was published on PJSC Aeroflot’s website on the Internet (Documents subsection, Sales

and Procurement section)


Execution is scheduled from 2017.

Execution is scheduled for 2017.

3.2 Directives of the Government of


No. 6558p-P13 On Amendments

to the Company’s Procurement

Policy for Purchases of

Instructions:

amend the procurement policy to give

priority to purchases of innovative

building materials made in Russia;

amend the procurement policy to

The matter was considered at the meeting of PJSC Aeroflot’s Board of Directors on 17 October

2016.


number


1 2 3 4

Innovative Building Materials

dated 5 September 2016


date: 12 September 2016)

provide an opportunity to enter long-

term contracts with Russian

manufacturers of building materials for

supply of innovative building materials

with guaranteed supply volumes in the

future and with the manufacturers that

have duly entered special investment

agreements to launch production of

these products;

implement the provisions of theses

directives across subsidiaries of joint-

stock companies.



No. 7704p-P13 On Expanding

the Use of Factoring when

Executing Agreements for the

Supply of Goods (Agreements

for Works, Service Agreements)



date: 17 October 2016)

Amend the Company’s purchase

regulations to establish procedures for

sale of receivables (factoring) when

executing agreements (for works or

services) made between the Company

and small and medium-sized businesses

based on purchases made using

methods specified in the procurement

regulations excluding tenders as

defined in Russian civil laws.


The matter was considered at the meeting of PJSC Aeroflot’s Board of Directors on 27 October

2016.

PJSC Aeroflot’s Management Board was instructed to develop and submit draft amendments to

the Regulations on the Procurement of Goods, Works and Services to the Board of Directors.



No. 1659p-P13 dated 15 March

2016



Approve the procedure for accounting

of investment projects that shall set out

rules for compiling, maintaining and

amending the list of investment

projects subject to the Rules for

Selecting Investment Projects to be

Included in the Investment Register

and for Maintenance of such

Investment Register which were

approved by Resolution of the

Government of the Russian Federation

No. 1516 dated 30 December 2015.

Execution is completed.

The matter was considered at the meeting of the Board of Directors on 31 March 2016.

PJSC Aeroflot’s Investment Programme does not include any capital expenditure projects that

may be included in the investment register according to specified criteria as prescribed by

Resolution of the Government of the Russian Federation No. 1516 dated 30 December 2015.

Information was sent to the Ministry of Economic Development of the Russian Federation

(our reference number of the outgoing document: 04-541, date: 11 May 2016).

4 On long-term planning

4.1

List of Instructions of the

President of the Russian

Instructions:

develop and approve the long-term

Instruction has been executed.

Aeroflot Group’s Development Strategy 2025 (Long-Term Development Programme) was


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Federation No. Pr-3086 dated

27 December 2013

Instruction of First Deputy Prime

Minister of the Russian

Federation Igor Shuvalov

No. 4955p-P13 dated 17 July

2014

development programme (LTDP);

audit the implementation of the LTDP

and approve a relevant audit standard;

amend the regulations on the

remuneration of the sole executive

body.

approved by the Board of Directors on 2 December 2014 (Minutes No. 8);

The audit standard and the terms of reference for auditing the implementation of

Aeroflot Group’s LTDP were developed and approved by the Board of Directors on 29 January

2015 (Minutes No. 10).

The report on the implementation of Aeroflot Group’s Long-Term Development Programme and

achievement of approved key performance indicators for 2015 was approved by the Board of

Directors on 28 April 2016.

The Company conducted the audit of the implementation of the Long-Term Development

Programme for 2015 and the Board of Directors considered the report on 28 April 2016.

5 On developing (updating) innovative development programmes

(Procedure for updating (developing) innovative development programmes of state-owned companies in 2015–2016 was approved by Prime Minister of the Russian

Federation Dmitry Medvedev (Instruction No. DM-P36-7563 dated 7 November 2015), guidelines on adjusting innovative development programmes were approved

by Deputy Prime Minister of the Russian Federation Arkady Dvorkovich (Instruction No. AD-P36-621 dated 9 February 2016)

5.1 Minutes of the Meeting of the

Presidium of the Presidential

Council of the Russian

Federation on Economic

Modernisation and Innovative

Development of Russia No. 2

dated 17 April 2015 (sub-

clause a), clause 2, section II)


date: 14 May 2015)

On the need to update (develop) and

approve innovative development

programmes subject to the Guidelines

(Appendix 1 to the Minutes)


The Board of Directors approved the Regulations on Procedures for Development and

Implementation of the Innovative Development Programme on 26 November 2015.

Aeroflot Group developed Innovative Development Programme 2025, obtained its approval from

federal executive authorities, the Interdepartmental Committee for Technological Development

at the Presidium of the Presidential Council of the Russian Federation on Economic

Modernisation and Innovative Development of Russia as specified in the Regulations. The Board

of Directors approved the Programme on 25 August 2016.

The report on the implementation of PJSC Aeroflot’s Innovative Development Programme in

2015 was approved by the Board of Directors on 29 April 2016 and submitted to federal

executive bodies in line with the Regulations.

On 8 August 2016, the Board of Directors made a decision to set a weight of 10% for the

integrated KPI reflecting innovative performance in 2016.

Key performance indicators for PJSC Aeroflot’s employees for 2016 were updated (Order

No. 439 dated 23 December 2016).

5.2 Directives of First Deputy Prime




2016



Instructions:

approve the innovative development

programme developed (updated) in line

with the guidelines approved by

Instruction No. DM-P36-7563 and the

Regulations approved by Instruction

No. DM-P36-7563;

annually report on the implementation

of innovative development

programmes to federal executive

bodies in line with the Regulations.




starting from 2016, include the

integrated key performance indicator

(integrated KPI) reflecting innovation


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2016



performance in the list of key

performance indicators within long-

term development programmes and in

the list of key performance indicators

for the senior management, and take

this integrated KPI into account when

calculating the amount of incentive

remuneration for the Company’s

management including the Company’s

sole executive body.

5.4 Instruction of Deputy Prime


Federation Arkady Dvorkovich

No. AD-P13-4521 dated 29 July

2016



Directive of Deputy Prime



No. 9650p-P13 dated

16 December 2016


date: 27 December 2016)

establish a minimum weight of 10% for

the integrated KPI reflecting

PJSC Aeroflot’s innovation

performance in 2016, as defined by

Directives of the Government of the

Russian Federation No. 1472p-P13

dated 3 March 2016.

6 On improving the performance of stated-owned companies

(List of Instructions of the President of the Russian Federation No. Pr-3013 dated 27 December 2014, Instructions of the Government of the Russian Federation

No. ISH-P13-1818 dated 23 April 2015 and No. ISH-P13-4148 dated 24 June 2015)

6.1 The Instruction of the Ministry

of Economic Development of the

Russian Federation dated

15 January 2016


date: 18 January 2016)

On supervising the execution of the

Instruction of the President of the

Russian Federation by the Control

Directorate of the President of the

Russian Federation and on submitting

information about execution by

20 January 2016.


Information was submitted on 20 January 2016.




Instructions:

1. approve the sponsorship and charity

budget and the regulations on raising


Charitable donations are included in the budget.


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2015

(our reference number: 96/KI,


and using funds for sponsorship

support and charity within ten days

after approval of the guidelines on

developing the regulations on raising

and using funds for sponsorship

support and charity by the Ministry of

Economic Development of the Russian

Federation.

2. amend the content of the Company’s

annual report to add information about

the areas and amounts of sponsorship

support and about charitable donations

provided by the Company, the

Company’s subsidiaries and affiliates

in the reporting period (starting from

the reporting for corporate year 2015–

2016).

3. on a quarterly basis, submit reports

of the Company, the Company’s

subsidiaries and affiliated on using the

funds for sponsorship support through

the interdepartmental portal for state

property management on the Internet

(not later than on the 15th day of the

first month following the reporting

quarter, starting from the reporting for

Q4 2015).

The Regulations on Raising and Using Charity Funds and Regulations on Raising and Using

Funds for Sponsorship Support were approved by the Board of Directors on 28 January 2016.





Federation No. AD-P36-4292

dated 20 July 2016


date: 25 July 2016)

boards of directors shall approve the

plans stipulating consideration of the

following matters at the meetings of

the boards of directors (after

preliminary consideration by the

personnel and remuneration

committee and the investment


These matters were included in the action plan of the Board of Directors for July 2016–

June 2017 and are considered [based on the results of the reporting period].


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committee, starting from the next

reporting period in 2016): quarterly reporting on the

implementation of the LTDP and

achievement of KPIs;

assessment of expected KPIs, analysis

of reasons for difference between

actual and target KPIs;

adoption of a remedial plan in case of

significant difference between actual

and target KPIs;

approval of the amount of quarterly and

annual remuneration based on KPI

achievement

by 31 August 2016.




No. 2007p-P13 dated 6 April

2015


date: 7 April 2015)

Include in the annual report the

following information:

1. availability of the joint-stock

company’s development strategy;


company’s long-term development

programme;

3. year-on-year changes in the

development strategy and LTDP;


company’s other (including investment,

innovation, etc.) programmes focused

on the implementation of the

development strategy and LTDP;


company’s approved programme for

disposal of non-core assets;

6. availability of the auditor’s opinion

about the implementation of the joint-

stock company’s LTDP, date and

number of the opinion, the auditor’s

key findings;


JSC Aeroflot’s Annual Report for 2015 was prepared taken into account the directives that were

subject to execution, adopted by the Board of Directors on 28 April 2016 (Minutes No. 15) and

approved by the General Meeting of Shareholders on 27 June 2016.


number


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company’s approved KPI framework;

8. summary of the joint-stock

company’s risks and risk management

activities;

9. description of principles and

approaches to the risk management and

internal control system, information

about internal audit functions.

II. Approve the annual report provided

that it has been prepared based on

audited financial statements for the

reporting and preceding years.

III. The annual report shall include

information about major internal

regulations that are used for the

preparation of the current annual report

including key internal regulations

governing internal audit functions and

the matters related to the operations of

the risk management and internal

control system (RMICS).

7 On reduction of operating expenses

(Clause 5 of List of Instructions of the President of the Russian Federation No. Pr-1474 dated 05 July 2013, sub-clause 5, clause 1 of List of Instructions of the

President of the Russian Federation No. Pr-2821 dated 5 December 2014; clause 5 of Instruction of the President of the Russian Federation No. DM-P13-9024 dated

8 December 2014)





2016


date: 15 July 2016)

On making decisions providing for the

following:

development (update) by companies

and their subsidiaries (if any), within

one month, of a set of measures (list of

measures) as part of the long-term

development programme aimed at

achieving the KPI of reducing

operating expenses (costs) by at least

10% (percent) in 2016 taking into

account the need to implement the

Execution is completed:

Aeroflot Group updated its programme for operating expenses reduction in 2016 which was

approved by the Management Board on 17 October 2016.

The report on the implementation of the set of measures to reduce operating expenses is

submitted for the approval by the Board of Directors and submitted to the industry federal

executive authority (Rosimushchestvo) on a quarterly basis.


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initiatives specified in the Directives of

the Government of the Russian

Federation No. 2303-p-P13 dated

16 April 2015;

consideration of management reports

on the implementation of the set of

measures (list of measures) to reduce

operating expenses (costs) at meetings

of the boards of directors (supervisory

boards) on a quarterly basis;

submission of companies’ reports on

the implementation of the set of

measures (list of measures) to reduce

operating expenses (costs) considered

and approved by the board of directors

(supervisory boards) to industry federal

executive authorities on quarterly basis.

8 On disposal of non-core assets





2016


date: 18 July 2016)

Guidelines on identification and

disposal of non-core assets

approved by Instruction of the

Government of the Russian

Federation No. ISH-P13-4065

dated 7 July 2016 (the

Guidelines)


date: 26 July 2016)

Instructions:

develop and update the joint-stock

company’s programme for disposal of

non-core assets (the programme) in line

with the Guidelines by 19 August

2016;

develop the joint-stock company’s

register of non-core assets comprising

all the joint-stock company’s identified

non-core assets as specified by the

Guidelines by 19 August 2016;

prior to approval by the board of

directors (supervisory board), submit

the draft programme (amendments to

the programme) and the draft register

of non-core assets to the Federal

Agency for State Property Management

by 22 August 2016;

approve the programme (amendments


The updated Programme for Disposal of Non-Core Assets of PJSC Aeroflot, the Register of

Non-Core Assets of PJSC Aeroflot (Appendix 1 to the Programme), the Action Plan for Disposal

of Non-Core Assets (Appendix 2 to the Programme) were approved by the Board of Directors on

17 October 2016.

PJSC Aeroflot’s subsidiaries carry out stock-taking of the assets to check their role in the running

of the business in line with the Guidelines. These actions are scheduled for completion in

Q1 2017.

Information on non-core assets disposal is published regularly through the interdepartmental

portal for state property management.


number


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to the programme) and the register of

non-core assets by 15 September 2016;

approve the annual plan for the

implementation of the programme for

disposal of the joint-stock company’s

non-core assets with its details broken

down by quarter and publish the plan

on the interdepartmental portal for state

property management;

consider the joint-stock company’s

reports on the implementation of the

programmes at the meetings of the

board of directors (supervisory board)

on a quarterly basis and publish the

relevant materials signed by the joint-

stock company’s authorized person on

the interdepartmental portal for state

property management;

timely publish all the necessary well-

developed information on disposal of

non-core assets as specified by the

Federal Agency for State Property

Management on the interdepartmental

portal for state property management;

implement the provisions of theses

directives across subsidiaries of joint-

stock companies.

9 On managing intellectual property rights

(Instruction of First Deputy Prime Minister of the Russian Federation Igor Shuvalov No. ISH-P8-800 dated 4 February 2014)

9.1 Recommendations of the Federal

Agency for State Property

Management on intellectual

property rights (IPR)

management in entities dated

13 March 2014

Develop and approve the basic

regulations on IPR management and

the action plan to implement the

regulations taking into account

recommendations of the Federal

Agency for State Property Management

and the company’s innovative


The regulations on IPR management (RI-GD-224) was approved by Order No. 263 dated 29 July

2016.


number


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development programme.

10 On purchasing Russian-made competitive software

(List of Instructions of the President of the Russian Federation following the meeting of the Presidium of the State Council of the Russian Federation No. Pr-2654GS

dated 25 November 2015, Instruction of Deputy Prime Minister of the Russian Federation No. AD-P9-69 dated 14 January 2016)




2016


date: 25 July 2016)

Instructions:

1. Amend the regulations on the joint-

stock company’s procurement

processes so as to ensure the following:

1.1 Procurement requirements and

other local regulations, which are

subject to approval when making any

purchases of the computer and database

software available, irrespective of a

type of agreement, on physical media

and/or in electronic form through

communications channels and of the

right to use the software, including

temporary use, shall provide for

submission of bids offering only such

software which is included in the

unified register of Russian computer

and database software that was created

in line with Article 12.1 of Federal Law No. 149-FZ On Information, Information Technology and Information Protection (the register)

dated 27 July 2006, except in the

following cases:

a) the register does not include data on

software which belongs to the same

class of software as the software

offered for purchase;

b) the software, which is included in

the register and belongs to the same

class of software as the software

offered for purchase, is uncompetitive


The requirements were included in PJSC Aeroflot’s Regulations on Procurement of Goods,

Works and Services (RI-GD-148E) approved by the Board of Directors on 17 October 2016.


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(its functions, specifications and/or

performance characteristics do not

meet the requirements set out by a

customer for the software offered for

purchase).

1.2. If a purchase is subject to the

above exceptions, publish information

on each such purchase with a rationale

explaining inability to comply with

restrictions imposed on foreign-made

software on the joint-stock company’s

website in a dedicated procurement

section within seven calendar days

after publication of information on

procurement on the joint-stock

company’s website or dedicated

websites on the Internet used by the

joint-stock company for procurement

(the bidding platforms).

2. Implement the above approach

across subsidiaries, which directly

and/or indirectly controlled by the

joint-stock company by more than 50%

in total. 11 On ensuring priority funding for the social and economic development of the Russian Far East

11.1 Instruction of Russian Prime


No. DM-P16-6658 dated

30 September 2015


date: 2 October 2015)

On executing the List of Instructions of

the President of the Russian Federation

Vladimir Putin (the List) following the

Eastern Economic Forum:

under sub-clause c), clause 1 of the List

“c) expand the list of Far Eastern

investment projects”:

a) as regards the selection of

investment projects, execute by

18 January 2016;

under sub-clause g), the third paragraph

of the List “ensure priority funding for


Information on expanding the list of Far Eastern investment projects was sent to the Ministry of

Finance of the Russian Federation and the Ministry for the Development of the Russian Far East

(our reference number of the outgoing document: GD-1407, date: 19 October 2015).


number


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the social and economic development

of the Russian Far East for

development institutions and state-

owned companies and their investment

projects”:

amend development plans and

investment programmes of entities so

as to add dedicated sections (dedicated

measures) to them.

Information on ensuring priority funding for the social and economic development of the Russian

Far East was submitted to the Ministry for the Development of the Russian Far East (our

reference number of the outgoing document: 407-469, date: 25 December 2015).

On PJSC Aeroflot’s commitment to supporting the government-sponsored programme of

maintaining airline passenger service between the Far East and European Russia and to the

programmes of local flights within the Far Eastern Federal District (our reference number of an

outgoing document: 407-52, date: 26 February 2016).

Aeroflot Group’s Long-Term Development Programme for 2016–2021 was added with a

dedicated section on Ensuring Priority Funding for the Social and Economic Development of the

Russian Far East and amendments were approved by the Board of Directors on 24 November

2016.


All aircraft supplied under prior years’ agreements signed between PJSC Aeroflot and Sberbank

Leasing, VEB-LEASING and VTB Leasing to improve transport accessibility were phased in.



No. 4531p-P13 dated 28 June

2016


date: 7 July 2016)

Instructions:

amend development plans including

long-term development programmes,

strategies and investment programmes

of the company (the strategic

documents) so as to add to them

dedicated sections (dedicated

measures) ensuring priority funding

(development of such measures, if

necessary) for the social and economic

development of the Russian Far East;

align strategic documents with state

programmes of the Russian Federation

(in line with the appended list).

11.3 List of Instructions of the

President of the Russian

Federation following the

meeting of the President of the

Russian Federation

Vladimir Putin with the

members of the Government of

the Russian Federation No. Pr-

1658 dated 10 August 2016



Instruction of Russian Prime


No. DM-P16-5208 dated

2. The Government of the Russian

Federation, in conjunction with

PJSC Aeroflot, Sberbank of Russia,

VTB Bank, Rossiya Airlines and

Vnesheconombank, shall phase in

long-haul aircraft supplied under prior

years’ agreements to improve transport

accessibility constituent entities of the

Far Eastern Federal District

by 1 December 2016.


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31 August 2016



12 On creating a barrier-free environment for disabled people

(Federal Law No. 419-FZ On Amendments to Certain Laws of the Russian Federation Aimed at Social Protection of Disabled People Following Ratification of the

Convention on the Rights of Persons with Disabilities dated 1 December 2014, Resolution of the Government of the Russian Federation No. 599 On Procedures and

Timelines for Development of Measures to Improve Indicators Reflecting Accessibility of Facilities and Services for Disabled People in Specified Areas of Activity by

Federal Executive Authorities, Executive Authorities of Constituent Entities of the Russian Federation and Local Authorities dated 17 September 2015, Resolution of

the Government of the Russian Federation No. 1297 On Approval of the Russian State Accessible Environment Programme 2010–2020 dated 1 December 2015,

Decree of the Ministry of Transport of the Russian Federation No. 24 On Approval of the Procedure for Provision of Services for Disabled People in Airports and

Aircraft dated 15 February 2016)

12.1 Instruction of the Ministry of

Labour and Social Protection

No. 13-6/10/V-2014 dated

28 March 2016


date: 9 July 2015)

Adopt decisions providing for the

following:

definition of corporate standards (rules)

ensuring accessibility of the entity’s

facilities and services for disabled

people;

certification of facilities and services

and subsequent approval of plans for

step-by-step bringing their accessibility

in line with applicable laws;

training (briefings) of relevant

employees in ensuring accessibility of

the entity’s facilities and services for

disabled people;

annual (starting from 2017) allocation

of funds from the entity’s budget and

provision of other material resources to

fulfil the above obligations.

Submit information on adopted

decisions by 1 August 2016.


Deputy CEO for Customer Service coordinates the implementation of the Company’s

management decisions aimed at compliance with laws.

Based on the Procedure for Provision of Services for Disabled People in Airports and Aircraft

approved by Decree of the Ministry of Transport of the Russian Federation No. 24 dated

15 February 2016 and Federal Law No. 419-FZ dated 1 December 2014, PJSC Aeroflot

approved the revised version of its Standard of Services for Disabled Passengers, updated

internal regulations of business units governing the provision of services for disabled passengers

in line with the Company’s Standard.

The Company checked its operations and infrastructure for compliance with applicable laws and

other regulations of the Russian Federation adopted following ratification of the Convention on

the Rights of Persons with Disabilities, approved the forward-looking Action Plan for Ensuring

Accessibility of PJSC Aeroflot’s Services for Disabled People (the Action Plan).

In line with the Action Plan, PJSC Aeroflot:

stopped phasing in of facilities, equipment and vehicles which are not fully adapted for use by

disabled people from 1 July 2016;

entered an agreement to inspect PJSC Aeroflot’s own sales offices and develop recommendations

on improving their accessibility for disabled people in line with Article 15 of Federal Law

No. 181-FZ dated 24 November 1995;

carried out an assessment the aircraft fleet’s accessibility for disabled passengers;

completed the internal audit of compliance with the Company’s Standard of Services for

Disabled Passengers.

All flight-related passenger services of PJSC Aeroflot are also available for disabled passengers.

To avoid discrimination on the grounds of disability, services designed for such passengers are

provided only upon their consent or demand:

12.2 Instruction of the Ministry of

Labour and Social Protection of

the Russian Federation No. 113-

6/10/V-5159 dated 26 July 2016,

Minutes of the Meeting led by

Develop roadmaps to improve

accessibility of facilities and services

for disabled people using the

recommendations developed by the

Ministry of Labour and Social


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the Minister of Labour and

Social Protection of the Russian

Federation Maxim Topilin

No. 1/13/23b dated 15 July 2016



Protection of the Russian Federation by

30 December 2016.

Inform the Ministry of Labour and

Social Protection of the Russian

Federation on the execution of the

recorded resolution by 30 December

2016.

Sales offices, the Contact Centre available by phone and the Company’s website offer the

possibility to order services simultaneously with the purchase of tickets. PJSC Aeroflot is taking

efforts to redesign all sections of the website for use by web surfers with sight disabilities in

conjunction with Lab.Ag, a digital company with a strong track record in making websites

accessible for visually impaired people. The service is available if the computer of a disabled

person has special software. The content of the Passengers with Disabilities webpage was

updated and the page is available after two clicks upon entering the website;

When reserving airline tickets, passengers may order transportation of wheelchairs or another

mobility aids, request stretchers to carry them and an escort to guide them through airports;

a wheelchair of a disabled person can be transported free of charge (on its own initiative,

PJSC Aeroflot offers a possibility to transport an additional wheelchair free of charge);

information about escort service ordered by the passenger to guide him/her from check-in to a

seat in a passenger cabin is communicated to the airport’s handling company;

the Company offers self service check-in (via the website, through the mobile application, at the

airport’s self-service check-in kiosks);

disabled passengers may choose seats in the passenger cabin subject to the availability of

preferred seating arrangement at the time of check-in (except for seats by emergency exits);

disabled may use their own manual wheelchairs before boarding and after leaving an aircraft at a

destination airport;

passengers with sight disabilities are offered information brochures in Russian and English

translated into Braille onboard all the Company’s aircraft to be aware of in-flight services and

flight safety instructions;

the Company’s employees, who perform passenger service duties on board aircraft, completed

training to practice communication and interaction skills, in accordance with the characteristics

of different types of disability. To develop guidance materials, PJSC Aeroflot took into account

lessons learned from transportation of disabled passengers during 2014 Winter Paralympics,

consulted with the Perspektiva Regional Disability Non-Governmental Organisation and disabled

passengers, the Company’s frequent flyers.

The forward-looking Action Plan outlines the airline’s objectives aimed at improvement of

accessibility targets and includes the following initiatives:

upgrade sales offices to ensure accessibility for customers with all forms of disability;

equip the entire aircraft fleet with onboard wheelchairs by the end of 2017;

starting from 2018, upgrade modular lavatory systems for B 737 to provide enough space to

carry a stretcher with a passenger;

complete redesign of all sections of the website (including its mobile version) for use by

passengers with sight disabilities;

optimise website functionality for ordering of all services immediately when booking a flight;

12.3 Minutes of the Meeting led by

the Deputy Minister of Transport

of the Russian Federation

Alexey Tsydenov No. ATS-109

dated 9 August 2016



Recommend business entities

providing transport services to execute

the following by 1 December 2016:

1. Confer functions on one of the

deputy chief officers of the entity

(company) and one of the business

units in relation to the development and

implementation of internal

management decisions to comply with

applicable laws requiring accessibility

of transport infrastructure facilities,

vehicles and the entity’s/company’s

transport services for disabled people.

2. Adopt internal regulations to

establish procedures for ensuring

accessibility of transport infrastructure

facilities, vehicles and transport

services for disabled people.

3. Arrange for training and retraining

(professional development) of

employees (instructors) at entities

(companies) by educational institutions

for transport across the professional

development programmes developed

by the Industry Resource Training and

Methodology Centre of Transport

Accessibility for Disabled Persons at

the Institute of International Transport

Communications of Moscow State


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University of Railway Engineering

(MIIT).

4. Issue the entity’s/company’s

executive document implementing

initiatives to stop, starting from 1 June

2016, phasing in of facilities,

equipment and vehicles (upon

construction, overhaul, upgrade,

purchase) which are not fully adapted

for use by disabled people in line with

Rules SP-59.13330.2012.

5. Develop and approve corporate

plans for step-by-step improvement of

indicators reflecting accessibility for

disabled people in relation of existing

facilities used to provide services for

disabled people, as well as for

simultaneous creation of suitably

adjusted conditions (until overhaul or

upgrade are completed) for them to

provide services in line with the rule of

Part 4, Article 15 of Federal Law

No. 181-FZ On Social Protection of

Disabled People in the Russian

Federation dated 24 November 1995.

launch a web chat service to communicate in real time with hearing impaired persons when they

book flights and order services;

starting from January 2017, incorporate into the in-flight entertainment programme movies with

special subtitles for hearing impaired passengers and movies with audio descriptions for visually

impaired passengers (two movies in Russian and two movies in English).

The Company’s budget provides financing for all targets.

Voluntary certification, selection of a voluntary certification system included in the unified

register and subsequent publication of results on the Company’s website and their media

coverage are subject to consideration after the delivery of targets set out in the forward-looking

Action Plan. A certification body for voluntary certification shall be selected on a tender basis in

line with Federal Law No. 223-FZ On Procurement of Goods, Works and Services by Certain

Legal Entities dated 18 July 2011.

Information on execution of the instructions was submitted to the Ministry of Labour and Social

Protection and the Ministry of Transport of the Russian Federation.

The practice of creating an accessible environment for disabled persons in PJSC Aeroflot was

approved by Minutes of the Meeting led by the Deputy Minister of Transport of the Russian

Federation Alexey Tsydenov No. ATS-109 dated 9 August 2016; information of PJSC Aeroflot

was published on the website of the Ministry of Transport of the Russian Federation in the

Accessible Environment for Disabled Persons subsection as best practice to share positive

experience and cover efficient performance.

13 On implementing occupational standards in PJSC Aeroflot




2016


date: 25 July 2016)

Implement occupational standards in

joint-stock companies subject to

Federal Law No. 122-FZ On

Amendments to the Labour Code of the

Russian Federation dated 2 May 2015

and Articles 11 and 73 of the Federal

Law On Education in the Russian

Federation through the approval and

implementation of relevant plans, and

make provision for considering the

performance of the implementation of


The matter was considered at the meeting of the Board of Directors on 25 August 2016.

The Management Board was instructed to arrange for the implementation of standards and

inform the Board of Directors on performance at least each half year.

The action plan to implement occupational standards in PJSC Aeroflot was approved by the

Management Board on 9 December 2016.

To prepare reports and inform the Board of Directors, PJSC Aeroflot established a dedicated task

force to implement occupational standards (Order No. 434 dated 22 December 2016).

The Board of Directors took note of the reports on the implementation of occupational standards

in PJSC Aeroflot on 23 December 2016.


number


1 2 3 4

occupational standards when assessing

and rewarding joint-stock companies’

HR management.

Request to convene meetings of boards

of directors (supervisory boards) of

joint-stock companies at least each half

year and include the implementation of

occupational standards in joint-stock

companies in agendas.

14 Special instructions of the Government of the Russian Federation



No. P9-1310 dated 15 January

2016


date: 18 January 2016)

I hereby request to consider and submit

a unified stance of PJSC Aeroflot’s

federal executive authorities on an

investment project proposed by

Mukharbek Aushev to establish a

company for maintenance and repair of

aircraft and aircraft components

(Technic ONE) in a port special

economic zone in the Ulyanovsk

Region.

Execution is completed:

The answer was submitted to the Ministry of Transport of the Russian Federation

(our reference number of the outgoing document: 01-79, date: 20 January 2016).


The answer was submitted to the Ministry of Transport of the Russian Federation

(our reference number of the outgoing document: GD-761, date: 20 June 2016).




No. AD-P9-3134 dated 27 May

2016


date: 30 May 2016)

Carry out a detailed assessment of the

investment project to establish a

company for maintenance and repair of

aircraft proposed by Technic ONE in

terms of its efficiency and report on

insights

by 1 July 2016.

14.3 Instruction of First Deputy Prime



No. ISH-P9-2000 dated 8 April

2016


date: 12 April 2016)

Consider entering an agreement for use

of Vnukovo airport between Airport

Vnukovo and PJSC Aeroflot’s

subsidiaries and submit proposals by

20 April 2016.


Proposals were submitted to the Ministry of Transport of the Russian Federation

(our reference number of the outgoing document: GD-443, date: 20 April 2016).




I hereby request to submit, in

conjunction with PJSC Aeroflot,

coordinated proposals for the strategy


Proposals were submitted to the Ministry of Transport of the Russian Federation

(our reference number of the outgoing document: GD-535, date: 6 May 2016).


number


1 2 3 4

No. AD-P9-2231 dated 14 April

2016


date: 20 April 2016)

of the united carrier Rossiya as part of

PJSC Aeroflot’s long-term programme

ensuring robust growth of Pulkovo

airport and Russian regional airports.

A task force led by the Deputy Minister of Transport of the Russian Federation Valery Okulov

works on the Instruction.

14.5 Instruction of the President of


Vladimir Putin No. Pr-1692

dated 25 August 2016 in

response to a request by the

Rostov Region Governor

Instruction of Rosaviatsia

No. AS 1.01-3053 dated

31 August 2016 (our reference

number: 6614, date: 1 September

2016)

The Ministry of Transport of the

Russian Federation

I hereby request to consider and

support the creation of conditions for

successful operation of the airport.

Report on execution

by 25 March 2016.

Instruct PJSC Aeroflot to establish a

full-fledged branch of the Company on

the premises of a new airport complex

in which the branch shall base at least

ten aircraft and restore the previously

operated route network for flights from

Rostov-on-Don.


The Instruction is executed by a joint task force made up of the representatives from

PJSC Aeroflot and the Government of the Rostov Region.

14.6 Minutes of the Meeting held by

Deputy Prime Minister of the

Russian Federation

Arkady Dvorkovich No. AD-P9-

65pr dated 29 April 2016


date: 20 May 2016)

3. Considering the held discussion, the

Federal Antimonopoly Service of the

Russian Federation, Ministry of

Transport of the Russian Federation,

Ministry of Economic Development of

the Russian Federation, in conjunction

with PJSC Aeroflot and Airports of

Regions Management Company, shall

pass a balanced decision on tariffs to

ensure operation of Nizhny Novgorod

International Airport including

performance of its loan obligations.

Report on the results

by 29 June 2016.

4. Recommend PJSC Aeroflot and

Airports of Regions Management

Company to examine proposals for

changes in the network of the airport in

PJSC Aeroflot’s stance was submitted to the Federal Antimonopoly Service of the Russian

Federation

(our reference number of the outgoing document: 402-237, date: 30 May 2016).


PJSC Aeroflot’s proposals were submitted to Airports of Regions Management Company

(our reference number of the outgoing document: GD-762, date: 20 June 2016).


number


1 2 3 4

Nizhny Novgorod to increase the

number of passengers flying directly to

destinations (without connections in

airports of Ukraine International

Airlines).

5. Recommend PJSC Aeroflot to

submit to the Ministry of Transport of

the Russian Federation the following

data for 2015–2016 broken down by

month:

the actual efficient cost for flights of

Aeroflot Group to/from the airport in

Nizhny Novgorod;

data on transfer traffic to/from the

airport in Nizhny Novgorod via

Sheremetyevo airport with key routes

and the average efficient cost of direct

flights to final destinations

by 25 May 2016.


Data are submitted to the Ministry of Transport of the Russian Federation on a monthly basis.

7.5. COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

No. Principles of corporate governance Criteria for assessing compliance with the principle of corporate governance

Status of

compliance

with the

principle of

corporate

governance

Explanations for

deviations from

criteria for assessing

compliance with the

principle of corporate

governance

1.1. The company should ensure fair and equal treatment of all its shareholders in the course of exercise by them of their right to participate in management of the company

1.1.1. The company should create for its shareholders

the best possible conditions for participation in

its general meetings, developing informed

positions on items on the agenda of the general

meeting, coordinating their actions, and give

them opportunities to express their opinions on

the matters under consideration.

1. The internal document of the company governing proceedings at the general

meetings, approved by the general meeting of shareholders, is publicly available.

2. The company provides an easy way to communicate with the company, such as a

“hotline”, e-mail or an online forum, allowing shareholders to express their opinions

and raise questions relating to the agenda in preparing for a general meeting. These

actions were taken by the company before each general meeting held during the

reporting period.

Observed

1.1.2. The procedure for giving notice of a general

meeting and providing materials for it should

enable the shareholders to prepare properly for

participation in the meeting.

1. A notice of a general shareholders meeting is posted (published) on the website no

later than 30 days before the date of the general meeting.

2. The notice of a meeting states the venue of the meeting and documents required for

admission to the premises.

3. The shareholders were provided with access to information about persons who

proposed items for the agenda and nominated candidates to the board of directors and

the audit commission of the company.

Observed

1.1.3. During the preparation for and holding of the

general meeting, the shareholders should be able

to freely and timely obtain information about the

meeting and its materials, to pose questions to

the executive bodies and members of the board

of directors and communicate with each other.

1. In the reporting period, the shareholders had the opportunity to ask questions to

members of the executive bodies and the board of directors before and during the

annual general meeting.

2. Positions of the board of directors (including dissenting opinions recorded in the

minutes) on each item on the agenda of general meetings held during the reporting

period were set out in the materials for the general shareholders meeting.

3. The company provided access to the list of persons entitled to participate in a general

meeting to the shareholders who have this right starting from the date when the

company received it in the case of all general meetings held during the reporting

period.

Observed

1.1.4. There should be no unjustified difficulties

preventing shareholders from exercising their

right to demand that a general meeting be

convened, nominate candidates to the governing

bodies and submit proposals on its agenda.

1. In the reporting period, shareholders were able to propose items to be included in the

agenda of the annual general meeting during a period of at least 60 days from the end

of the respective calendar year,

2. In the reporting period, the company did not refuse to include proposals on the

agenda or proposed candidates to the company’s bodies due to typos and other

insignificant flaws in shareholder proposals.

Observed

Shareholders in 2016,

will provide for a

longer period (up to 80

days).

1.1.5. Each shareholder should be able to freely

exercise his/her right to vote in a straightforward

and convenient way.

An internal document (internal policy) of the company contains provisions pursuant to

which each participant of the general meeting may request a copy of the ballot filled

out thereby, certified by the counting commission, until the end of the meeting.

Observed

1.1.6. Procedures for holding a general meeting set by

the company should provide equal opportunity

to all persons present at the meeting to express

their opinions and ask questions that might be

on interest to them.

1. A sufficient time was provided for reports on the agenda and its discussion at all

general shareholders meetings held in person (joint presence of shareholders) during

the reporting period.

2. Candidates to the company’s governing and controlling bodies were available to

answer questions from shareholders at the meeting at which their candidatures were put

to the vote.

3. When making decisions related to the preparation and holding of general

shareholders meetings during the reporting period, the board of directors considered the

use of telecommunications facilities to provide the shareholders with remote access to

their general meetings.

Observed

1.2. Shareholders should be given equal and fair opportunities to participate in the profits of the company by means of receiving dividends.

1.2.1. The company should develop and put in place a

transparent and clear mechanism for

determining the amount of dividends and their

payment.

1. The company has developed a dividend policy which has been approved by the

board of directors and disclosed.

2. If the company’s dividend policy uses indicators from financial statements to

determine the dividend amount, the respective provisions of the dividend policy take

into account consolidated financial statements indicators.

Observed

1.2.2. The company should not make a decision on the

payment of dividends, if such decision, without

formally violating limits set by law, is

unjustified from the economic point of view and

might lead to false assumptions about the

company’s activities.

The dividend policy of the company clearly indicates financial/economic circumstances

in which the company should not pay dividends.

Observed

1.2.3. The company should not allow the deterioration

of the dividend rights of its existing

shareholders.

In the reporting period, the company did not take any action leading to the deterioration

of dividend rights of its existing shareholders.

Observed

1.2.4. The company should strive to rule out any ways

through which its shareholders can obtain any

profit (gain) at the expense of the company other

than dividends and liquidation value.

In order to rule out any ways through which shareholders can obtain any profit (gain) at

the expense of the company other than dividends and liquidation value, internal

documents of the company establish control mechanisms ensuring that any persons

affiliated (associated) with its major shareholders (individuals who have the right to

dispose of the votes attached to voting shares) are identified in a timely manner as well

as the procedure for approval of transactions therewith in instances where such

transactions are not formally recognized under the law as interested party transactions.

Partially

observed

Actually observed, but

not formally codified

in internal documents.

1.3. The corporate governance system and practices should ensure equal terms and conditions for all shareholders owning shares of the same class (category), including

minority and foreign shareholders, as well their equal treatment by the company.

1.3.1. The company should create conditions which

would enable its governing bodies and

controlling persons to treat each shareholder

fairly, in particular, which would rule out the

possibility of any abuse of minority shareholders

by major shareholders.

During the reporting period, procedures for managing potential conflicts of interest of

major shareholders were efficient and the board or directors paid due attention to the

conflicts between shareholders, if any.

Observed

1.3.2. The company should not perform any acts

which will or might result in artificial

redistribution of corporate control.

There are no quasi-treasury shares or they were not voted during the reporting period. Not observed In accordance with the

regulations on the

procedure for

exercising rights

attached to quasi-

treasury shares of

PJSC Aeroflot

approved by the Board

of Directors on 28

January 2016, the


PJSC Aeroflot, which

consists of

representatives of

majority and minority

shareholders and

foreign investors,

provides control over

the exercise of rights

attached to quasi-

treasury shares.

1.4. Shareholders should be provided with reliable and effective means of recording their rights in shares as well as with the opportunity to freely dispose of their shares in a

non-onerous manner.

1.4.1. Shareholders should be provided with reliable

and effective means of recording their rights in

shares as well as with the opportunity to freely

dispose of their shares in a non-onerous manner.

The quality and reliability of the work carried out by the company’s registrar in

keeping the register of securities owners meet the needs of the company and its

shareholders.

Observed

2.1. The board of directors should be in charge of strategic management of the company, determine major principles of and approaches to creation of a risk management and

internal control system, monitor the activity of the company’s executive bodies, and carry out other key functions.

2.1.1. The board of directors should be responsible for

decisions to appoint and remove executive

bodies, including in connection with their failure

to properly perform their duties. The board of

directors should also carry out supervision to

ensure that the company’s executive bodies act

in accordance with the approved development

strategy and main business goals of the

company.

1. The board of directors has the powers set forth in the charter to appoint and remove

members of executive bodies and determine the terms and conditions of contracts with

them.

2. The board of directors reviewed the report(s) of the sole executive body and

members of the collegial executive body on the implementation of the company’s

strategy.

Observed

2.1.2. The board of directors should establish basic

long-term targets of the company’s activity,

evaluate and approve its key performance

indicators and principal business goals, as well

as evaluate and approve its strategy and business

plans in respect of its principal areas of

operations.

Items discussed at the board of directors during the reporting period included the

progress in the implementation and updating of the strategy, approval of the company’s

financial and business plan (budget), as well as criteria and indicators (including

intermediate indicators) of implementation of the strategy and business plans of the

company.

Observed

2.1.3. The board of directors should determine the

principles of and approaches to creation of a risk

management and internal control system in the

company.

1. The board of directors determined the principles of and approaches to creation of a

risk management and internal control system in the company.

2. The board of directors evaluated the company’s risk management and internal

control system during the reporting period.

Observed


company’s policy on remuneration and/or

reimbursement (compensation) of expenses for

members of the board of directors and executive

bodies and other key managers of the company.

1. The company has developed and implemented a policy on remuneration and/or

reimbursement (compensation) of expenses for members of the board of directors and

executive bodies and other key managers of the company, which was approved by the

board of directors.

2. Matters related to this policy were considered at the board of directors meetings held

during the reporting period.

Observed

2.1.5. The board of directors should play a key role in

prevention, detection and resolution of internal

conflicts between the company’s bodies,

shareholders and employees.

1. The board of directors plays a key role in prevention, detection and resolution of

internal conflicts.

2. The company has established a system designed to identify transactions involving a

conflict of interest and a system of measures aimed at resolving such conflicts.

Observed


procuring that the company is transparent,

discloses information in full and in due time,

and provides its shareholders with unhindered

access to its documents.

1. The board of directors approved the regulations on information policy.

2. The company designated persons responsible for implementation of the information

policy.

Observed

2.1.7. The board of directors should monitor the

company’s corporate governance practices and

play a key role in its material corporate events.

The board of directors reviewed the company’s corporate governance practices during


Observed

2.2. The board of directors should be accountable to the company’s shareholders.

2.2.1. Information about the board of directors’ work

should be disclosed and provided to the

shareholders.

1. The annual report of the company for the reporting period includes information on

attendance of meetings of the board of directors and committees by individual

directors.

2. The annual report contains information on principal results of evaluation of the work

of the board of directors which was performed during the reporting period.

Partially observ

ed

Information on

attendance of meetings

of the Board of

Directors and its

committees is provided

in the Annual Report

for the reporting

period.

No assessment of the

Board of Directors’

performance was run

in the reporting period

2.2.2. The chairman of the board of directors must be

available to communicate with the company’s

shareholders.

The company employs a transparent procedure enabling its shareholders to pose

questions to the chairman of the board of directors and express their positions on them.

Observed

2.3. The board of directors should be an effective and professional governing body, which is able to exercise objective independent judgments and make decisions in the best

interests of the company and its shareholders.

2.3.1. Only persons with impeccable business and

personal reputation as well as knowledge, skills

and experience necessary to make decisions that

fall within the competence of the board of

directors and are required for the effective

performance of its functions should be elected to

the board of directors.

1. The procedure for evaluating the performance of the board of directors adopted in

the company includes, but is not limited to, an assessment of the professional

qualifications of the board members.

2. In the reporting period, the board of directors (or its nominating committee)

evaluated candidates to the board of directors to determine whether they have the

necessary experience, knowledge and business reputation, whether there was any

conflict of interest, etc.

Observed

2.3.2. Members of the company’s board of directors

should be elected through a transparent

procedure enabling the shareholders to obtain

information about candidates sufficient for them

to get an idea of their personal and professional

qualities.

In the case of each general shareholders meeting with an agenda including the election

of the board of directors held during the reporting period, the company presented to the

shareholders biographical details of all candidates to the board of directors, the results

of evaluation of the candidates by the board of directors (or its nominating committee),

information on whether the candidates meet the independence criteria in accordance

with recommendations 102 - 107 of the Code, and the written consent of the candidates

to be elected to the board of directors.

Observed

2.3.3. The composition of the board of directors

should be balanced, in particular, in terms of

qualifications, experience, knowledge and

business skills of its members. The board of

directors should enjoy the confidence of the

shareholders.

As part of the procedure for evaluating the work of the board of directors during the

reporting period, the board of directors reviewed its own needs in terms of professional

qualifications, experience and business skills.

Observed

2.3.4. The membership of the board of directors

should enable the board to organise its activities

in a most efficient way, in particular, to form

committees of the board of directors, as well to

enable substantial minority shareholders of the

company to elect a candidate to the board of

directors for whom they would vote.

As part of the procedure for evaluating the work of the board of directors during the

reporting period, the board of directors considered whether the number of members of

the board of directors met the needs of the company and the interests of its

shareholders.

Observed

2.4. The board of directors should include a sufficient number of independent directors.

2.4.1. An independent director should be a person who

has sufficient professional skills, experience and

independence to have his/her own position, is

able to make objective and bona fide judgments,

free from the influence of the executive bodies,

any individual group of shareholders or other

stakeholders. It should be noted that, under

normal circumstances, a candidate (or an elected

member of the board of directors) may not be

deemed to be independent, if he/she is

associated with the company, its substantial

shareholder, material counterparty, competitor,

or the government.

During the reporting period, all independent members of the board of directors met all

the criteria of independence set out in recommendations 102-107 of the Code or were

determined to be independent by decision of the board of directors.

Observed

2.4.2. Candidates to the board of directors should be

evaluated to determine whether they meet the

criteria of independence, with a review to

determine whether or not independent board

members meet the independence criteria

conducted on a regular basis. When carrying out

such evaluation, substance shall take precedence

over form.

1. During the reporting period, the board of directors (or its nominating committee)

formed an opinion on the independence of each candidate to the board of directors and

submitted the relevant report to the shareholders.

2. The board of directors (or its nominating committee) reviewed the independence of

the current board members specified as independent directors in the company’s annual

report at least once during the reporting period.

3. The company has developed procedures determining which actions a board member

is required to undertake in the event that he/she ceases to be independent, including an

obligation to notify the board of directors to this effect in a timely manner.

Observed

2.4.3. Independent directors should account for at least

one-third of all directors elected to the board of

directors.

Independent directors account for at least one- third of the total number of the board

members.

Observed

2.4.4. Independent directors should play a key role in

preventing internal conflicts in the company and

its performance of material corporate actions.

Independent directors (who have no conflict of interest) carry out a preliminary

evaluation of the company’s material corporate actions that could involve conflicts of

interest and the results of this evaluation are presented to the board of directors.

Observed Materials corporate

actions are considered by

the Audit Committee of

the Board of Directors

prior to their execution. A

majority of the

Committee members are

independent directors.

2.5. The chairman of the board of directors should help it carry out the functions assigned to the board in a most efficient manner.

2.5.1. The chairman of the board of directors should be

an independent director or the senior

independent director among the company’s

independent directors should be identified who

would coordinate work of the independent

directors and liaise with the chairman of the

board of directors.

1. The chairman of the board of directors is an independent director or the senior

independent director among the independent directors is identified.

2. The role, rights and duties of the chairman of the board of directors (and, if

applicable, the senior independent director) are properly defined in the company’s

internal documents.

Not observed Given the balanced

composition of the Board

of Directors, the quality

of preliminary

consideration of matters

submitted to the board of

directors (including at the

level of committees with

the participation of

independent directors)

and high activity of

independent directors, it

appears that this

recommendation does not

need to be implemented.

2.5.2. The chairman of the board of directors should

ensure that the board meetings are held in a

constructive atmosphere and that any items on

the meeting agenda are discussed freely. The

chairman should also monitor fulfilment of

decisions made by the board of directors.

The performance of the chairman of the board of directors was evaluated as part of the

procedure for evaluating the performance of the board of directors in the reporting period.

Observed

2.5.3. The chairman of the board of directors should

take the necessary measures to provide the

board members in a timely manner with

information required to make decision on

issues on the agenda.

The duty of the chairman of the board of directors to take measures to ensure that

materials relating to the agenda of the board meeting are provided to the board members

in a timely manner is set forth in the company’s internal documents.

Observed

2.6. Members of the board of directors should act in good faith and reasonably in the best interests of the company and its shareholders, being sufficiently informed, with due

care and diligence.

2.6.1. Board members should make decisions

considering all available information, with no

conflict of interest, treating all shareholders

equally, and in the context of normal business

risks.

1. The company’s internal documents establish that a member of the board of directors

shall notify the board of directors if he/she has a conflict of interest relating to any item

on the agenda of the meeting of the board of directors or its committee before discussion

of such item is commenced.

2. The company’s internal documents provide that a board member shall abstain from

voting on any issues in respect of which he/she has a conflict of interest.

3. The company has established a procedure enabling board members to receive, at the

expense of the company, professional advice on issues within their competence.

Observed

2.6.2. Rights and duties of board members should be

clearly stated and documented in the

company’s internal documents.

The company has adopted and published an internal document that clearly defines the

rights and duties of board members.

Observed

2.6.3. Board members should have sufficient time to

perform their duties.

1. Individual attendance of meetings of the board of directors and committee and the

time devoted to preparation for meetings was taken into account as part of the

procedure for evaluating the board of directors in the reporting period.

2. In accordance with the company’s internal documents, board members are required

to notify the board of directors of their intention to take a position in governing bodies

of other entities (other than entities controlled by or affiliated with the company), as

well as of such appointment.

Partially obse

rved

No assessment of the

Board of Directors’

performance was run in


However, individual

attendance of meetings of

the Board of Directors is

factored in remunerations

of members of the Board

of Directors.

The recommendation is

otherwise observed.

2.6.4. All board members should have equal

opportunity to access the company’s documents

and information. Newly elected board members

should be provided with sufficient information

about the company and the work of its board of

directors as soon as practicable.

1. In accordance with the company’s internal documents, board members have the right

to access the company’s documents and make inquiries concerning the company and

entities under its control, and the executive bodies of the company are required to

provide such information and documents.

2. The company has a formalised introductory course programme for newly elected

board members.

Observed

2.7. Meetings of the board of directors, preparation for them, and participation of board members therein should ensure efficient work of the board.

2.7.1. Meetings of the board of directors should be

held as needed, having regard to the scope of the

company’s activities and the goals set by the

company for a specific period.

The board of directors held at least six meetings during the reporting year. Observed

2.7.2. The company’s internal documents should

establish a procedure for preparing for and

holding board meetings that enables the board

members to prepare properly for such meetings.

The company has approved an internal document establishing the procedure for

preparing for and holding board meetings which, inter alia, provides that a notice of a

meeting shall be given, as a rule, at least 5 days before the date of the meeting.

Observed

2.7.3. The form of a meeting of the board of directors

should be determined with due regard to the

importance of the issues on the agenda. The

most important issues should be decided at

meetings held in person.

The company’s charter or internal documents provide that the most important issues

(according to the list provided in recommendation 168 of the Code) shall be decided at

meetings held in person.

Observed

2.7.4. Decisions on the most important issues relating

to the company’s activities should be made at a

meeting of the board by a qualified majority

vote or by a majority vote of all elected board

members.

The company’s charter provides that decisions on the most important issues outlined in

recommendation 170 of the Code shall be made at a meeting of the board by a qualified

majority of at least three-fourths or a majority of all elected board members.

Observed

2.8. The board of directors should form committees for preliminary consideration of the most important issues relating to the company’s activities.

2.8.1. An audit committee comprised of independent

directors should be formed for preliminary

consideration of matters related to control over

the company’s financial and economic activities.

1. The board of directors has formed an audit committee composed entirely of


2. The company’s internal documents define the tasks of the audit committee,

including, but not limited to, those set out in recommendation 172 of the Code.

3. At least one member of the audit committee who is an independent director has

experience and knowledge of preparing, analysing, assessing and auditing accounting

(financial) statements.

4. Meetings of the audit committee were held at least once per quarter during the

reporting period.

Partially

observed

The Chairman of the

Audit Committee is an

independent director. A

majority of the

Committee members are


The recommendations

are otherwise observed.

2.8.2. A remuneration committee consisting of

independent directors and chaired by an

independent director other than the chairman of

the board of director should be formed for

preliminary consideration of matters related to

the development of efficient and transparent

remuneration practices.

1. The board of directors has formed a remuneration committee composed entirely of


2. The chairman of the remuneration committee is an independent director other than

the chairman of the board of directors.

3. The company’s internal documents define the tasks of the remuneration committee,

including, but not limited to, those set out in recommendation 180 of the Code.

Partially

observed

PJSC Aeroflot set up its

Personnel and

Remuneration

Committee, primarily

comprised of


The recommendations

are otherwise observed.

2.8.3. A nominating (appointments, human resources)

committee with a majority of its members being

independent directors should be formed for

preliminary consideration of matters relating to

human resources planning (succession

planning), professional composition and

efficiency of the board of directors.

1. The board of directors has formed a nominating committee with a majority of its

members being independent directors (or its functions specified in recommendation

186 of the Code are delegated to another committee).

2. The company’s internal documents define the tasks of the nominating committee (or

a relevant committee with combined functions), including, but not limited to, those set

out in recommendation 186 of the Code.

Observed

2.8.4. Taking into account the company’s scope of

activities and related risk level, the board of

directors should make sure that the composition

of its committees is fully aligned to the

company’s goals. Additional committees

(strategy committee, corporate governance

committee, ethics committee, risk management

committee, budget committee, health, safety and

environment committee, etc.) should be either

set up or not deemed necessary.

In the reporting period, the company’s board of directors reviewed the composition of

its committees for alignment with the tasks of the board and the company’s

goals. Additional committees have either been set up or not deemed necessary.

Observed

2.8.5. The composition of the committees should be

determined in such a way that it would allow a

comprehensive discussion of issues being

considered on a preliminary basis with due

regard for differing opinions.

1. The committees of the board of directors are headed by independent directors.

2. Internal documents (policies) of the company include provisions whereby persons

who are not members of the audit committee, the nominating committee and the

remuneration committee may attend their meetings only at the invitation of their

chairmen.

Observed

2.8.7. Chairmen of the committees should inform the

board of directors and its chairman of the work

of their committees on a regular basis.

During the reporting period, chairmen of the committees reported on the work of their

committees to the board of directors on a regular basis.

Observed

2.9. The board of directors should ensure that the quality of its work and that of its committees and members is assessed.

2.9.1. Assessment of the quality of the board’s work

should be aimed at defining how efficiently the

board of directors, its committees and members

work and whether their work meets the

requirements of company development,

revitalizing the work of the board and

identifying areas where it might be improved.

1. Self-assessment or external evaluation of the board’s work conducted in the

reporting period included evaluation of the work of the committees, individual

members of the board and the board of directors as a whole.

2. The results of self-assessment or external evaluation of the board of directors

conducted during the reporting period were discussed at a meeting of the board of

directors held in person.

Not observed Relevant practice is to be

introduced.

2.9.2. The work of the board of directors, its

committees and board members should be

assessed on a regular basis, at least once a

year. A third-party organisation (consultant)

should be retained to carry out an independent

assessment of the quality of the board’s work at

least once every three years.

The company retained a third-party organisation (consultant) to carry out an

independent assessment of the quality of the board’s work at least once during the past

three financial years.

Not observed Relevant practice is to be

introduced.

3.1. The company’s corporate secretary should be responsible for efficient day-day relations with its shareholders, coordination of the company’s actions to protect the rights

and interests of its shareholders, and supporting the work of its board of directors.

3.1.1. The corporate secretary should have knowledge,

experience, and qualifications sufficient for

performance of his/her duties, as well as an

impeccable reputation and should enjoy the trust

of the shareholders.

1. The company has adopted and disclosed an internal document - regulations on the

corporate secretary.

2. The company’s website and annual report provide biographical details of the

corporate secretary with the same level of detail as for members of the board of

directors and executive managers of the company.

Observed

3.1.2. The corporate secretary should be sufficiently

independent of the company’s executive bodies

and have the powers and resources required to

perform his/her tasks.

The board of directors approves the appointment/removal of and additional

remuneration payable to the corporate secretary.

Observed

4.1. The level of remuneration paid by the company should be sufficient to attract, motivate and retain persons with the necessary skills and qualifications. The remuneration

of members of the board of directors, the executive bodies and other key managers of the company should be paid in accordance with the remuneration policy adopted in

the company.

4.1.1. The level of remuneration paid by the company

to members of the board of directors, executive

bodies and other key manager should be

sufficient to motivate them to work efficiently

and enable the company to attract and retain

knowledgeable and skilled specialists. The

company should avoid setting the level of

remuneration any higher than necessary, or

creating an unjustifiably wide gap between the

levels of remuneration paid to the above persons

and other employees of the company.

The company has adopted an internal document(s) - the remuneration policy (policies)

for members of the board of directors, executive bodies and other key manager, which

clearly define(s) approaches to remuneration for these persons.

Observed

4.1.2. The company’s remuneration policy should be

developed by the remuneration committee and

approved by the board of directors. The board of

directors, with the support of its remuneration

committee, should monitor introduction and

implementation of the remuneration policy in

the company and if necessary review and amend

the same.

During the reporting period, the remuneration committee reviewed the remuneration

policy (policies) and its implementation practices and, where necessary, made

appropriate recommendations to the board of directors.

Observed

4.1.3. The company’s remuneration policy should contain

transparent mechanisms to determine the amount of

remuneration for members of the board of directors, the

executive bodies and other key managers of the company, as

well as to regulate all types of payments, benefits and

privileges provided to the above persons.

The company’s remuneration policy (policies) contains (contain)

transparent mechanisms to determine the amount of remuneration for

members of the board of directors, the executive bodies and other key

managers of the company, as well as to regulate all types of payments,

benefits and privileges provided to the above persons.

Observed

4.1.4. The company should develop a policy on reimbursement

(compensation) of expenses containing a list of

reimbursable expenses and specifying service levels to

which members of the board of directors, the executive

bodies and other key managers of the company may be

entitled. Such policy can form part of the company’s

remuneration policy.

The remuneration policy (policies) or other internal documents of the

company establishes (establish) the rules for reimbursing expenses to

members of the board of directors, executive bodies and other key

managers of the company.

Observed

4.2. The system of remuneration for board members should ensure that the financial interests of the directors are aligned with the long-term financial interests of

shareholders.

4.2.1. The company should pay a fixed annual fee to members of


The company should not pay a fee for attending individual

meetings of the board of directors or its committees.

The company should not use any form of short-term

incentives or additional financial incentives for members of


A fixed annual fee was the only form of monetary remuneration of the

board members for their work on the board during the reporting period.

Observed In addition to the fixed

remuneration

component, members of

the Company’s Board of

Directors are also paid a

variable remuneration

component, calculated

based on

PJSC Aeroflot’s

capitalization values,

also matching long-term

interests of

PJSC Aeroflot’s

shareholders.

4.2.2. Long-term ownership of shares in the company should

contribute most to aligning financial interests of board

members with the long-term interests of

shareholders. However, the company should not make the

right to dispose of shares dependent on the achievement of

certain performance indicators, and board members should

not take part in option programmes.

If the company’s remuneration policy (policies) being its internal

document(s) provides (provide) for allotment of company shares to

members of the board of directors, clear rules regarding ownership of

shares by board members, aimed at promoting long-term ownership of such

shares are established and disclosed.

Observed

4.2.3. The company should not provide any additional

payment or compensation in the event of early

dismissal of board members in connection with

a change of control over the company or other

circumstances.

The company does not provide any additional payment or compensation in the event of

early dismissal of board members in connection with a change of control over the

company or other circumstances.

Observed

4.3. The system of remuneration for members of the executive bodies and other key managers of the company should provide that their remuneration is dependent on the

company’s performance results and their personal contributions to the achievement thereof.

4.3.1. Remuneration for members of the executive

bodies and other key managers of the company

should be set so as to ensure a reasonable and

justified ratio between its fixed and variable

portions that is dependent on the company’s

performance results and their personal

(individual) contributions to the end result.

1. During the reporting period, the amount of variable portion of remuneration for

members of the executive bodies and other key managers of the company was

determined using annual performance indicators approved by the board of directors.

2. During the latest evaluation of the remuneration system for members of the

executive bodies and other key managers of the company, the board of directors (the

remuneration committee) made sure that the company used an effective ratio between

the fixed and variable portions of remuneration.

3. The company has in place a procedure ensuring that any bonuses wrongfully

obtained by members of executive bodies and other key managers are repaid to the

company.

Observed

4.3.2. The company should introduce a long-term

incentive programme for members of the

executive bodies and other key managers of the

company involving its shares (or options or

other derivative financial instruments, the

underlying asset for which are the company’s

shares).

1. The Company has introduced a long-term incentive programme for members of the

executive bodies and other key managers of the company involving the company’s

shares (financial instruments based on the company’s shares).

2. The long-term incentive programme for members of the executive bodies and other

key managers of the company provides that the right to dispose of shares and other

financial instruments used in the programme shall arise no earlier than three years from

the date when such shares were provided. In addition, the right to dispose of the same is

made conditional on the achievement by the company of certain performance

indicators.

Observed

4.3.3. The amount of severance pay (golden parachute)

payable by the company to members of

executive bodies or other key managers in the

event of early termination at the initiative of the

company, provided that there have been no bad

faith actions on their part, should not exceed

twice the value of the fixed portion of the annual

remuneration.

The amount of severance pay (golden parachute) paid by the company during the

reporting period in the event of early termination of members of executive bodies or

other key managers at the initiative of the company, provided that there have been not

bad faith action on their part, did not exceed twice the value of the fixed portion of the

annual remuneration.

Observed

5.1. The Company should create an efficient risk management and internal control system designed to provide reasonable assurance that the company’s goals will be achieved.


principles of and approaches to organising the

risk management and internal control system in

the company.

The functions of various management bodies and divisions of the company within the

risk management and internal control system are clearly defined in the company’s

internal documents/ relevant policy approved by the board of directors.

Observed

5.1.2. The company’s executive bodies should ensure

the establishment and continuing operation of an

efficient risk management and internal control

system in the company.

The company’s executive bodies ensured the distribution of functions and authority in

risk management and internal control between managers (heads) of divisions and

departments accountable to them.

Observed

5.1.3. The company’s risk management and internal

control system should give an objective, fair and

clear view of the current state and future

prospects of the company and ensure integrity

and transparency of its accounts and reports, and

reasonableness and acceptability of risks being

assumed by the company.

1. The company has approved an anti- corruption policy.

2. The company has organised an easy way to inform the board of directors or its audit

committee of any breaches of legislation, internal procedures and the ethics code of the

company.

Observed

5.1.4 The board of directors should take the necessary

measures to ensure that the existing risk

management and internal control system of the

company is consistent with the principles and

approaches to its organisation defined by the

board of directors and that it operates efficiently.

During the reporting period, the board of directors or its audit committee evaluated the

efficiency of the risk management and internal control system of the company.

Information about the main results of this evaluation is included in the company’s

annual report.

Observed

5.2. The company should organise internal audits for regular independent evaluation of the reliability and efficiency of its risk management and internal control system and

corporate governance practices.

5.2.1. The company should create a separate structural

division or retain an independent third-party

organisation to carry out internal audits.

The internal audit division should have separate

lines of functional and administrative

reporting. Functionally, the internal audit

division should report to the board of directors.

1. To carry out internal audits, the company has created a separate structural division,

which functionally reports to the board of directors or its audit committee, or retained

an independent third-party organisation with the same line of reporting.

Observed

5.2.2. The internal audit division should evaluate the

efficiency of the internal control system, the risk

management system and the corporate

governance system.

The company should apply generally accepted

standards of internal auditing.

1. The efficiency of the internal control and risk management system was evaluated as

part of internal audit conducted during the reporting period.

2. The company applies generally accepted approaches to internal control and risk

management.

Observed

6.1. The company and its activities should be transparent to its shareholders, investors, and other stakeholders.

6.1.1. The company should develop and implement an

information policy ensuring the efficient

exchange of information by the company, its

shareholders, investors, and other stakeholders.

1. The board of directors has approved the company's information policy, which was

developed by taking into account recommendations of the Code.

2. The board of directors (or one of its committees) considered matters related to the

company’s compliance with its information policy at least once during the reporting

period.

Observed

6.1.2. The company should disclose information on its

corporate governance system and practices,

including detailed information on compliance

with the principles and recommendations of the

Code.

1. The company discloses information on its corporate governance system and the

general principles of corporate governance applied in the company, in particular, on the

company’s web-site.

2. The company discloses information on the composition of its executive bodies and

board of directors, independence of the board members and their membership in

committees of the board of directors (as defined in the Code).

3. If there is a person that controls the company, the company publishes a

memorandum setting out the plans of the controlling person in respect of corporate

governance in the company.

Observed

6.2. The company should disclose full, up-to-date and reliable information about the company in good time to enable its shareholders and investors to make informed

decisions.

6.2.1. The company should disclose information in

accordance with the principles of regularity,

consistency and timeliness, as well as

accessibility, reliability, completeness and

comparability.

1. The company’s information policy defines approaches and criteria for identifying

information that may have a significant impact on the valuation of the company and the

value of its securities and on procedures ensuring the timely disclosure of such

information.

2. If the company’s securities are traded on foreign organised markets, disclosure of

material information in the Russian Federation and in such markets is synchronous and

equivalent during the year.

3. If foreign shareholders hold a substantial number of company shares, disclosures

during the reporting year were made not only in Russian, but also in one of the most

common foreign languages.

Observed

6.2.2. The company should avoid using a formalistic

approach to information disclosure and disclose

material information about its activities even if

disclosure of such information is not required by

legislation.

1. During the reporting period, the company disclosed the annual and semi-annual

financial statements prepared under IFRS. The annual report of the company for the

reporting period included the annual financial statements prepared under IFRS,

together with the auditor’s report.

2. The company discloses full information on the company’s capital structure in the

annual report and on the company’s website in accordance with recommendation 290

of the Code.

Observed

6.2.3. The annual report, as one of the most important

tools of information exchange with shareholders

and other stakeholders, should contain

information making it possible to assess the

company’s performance results for the year.

1. The company’s annual report contains information on the key aspects of the its

operating activities and financial results.

2. The company’s annual report contains information about the environmental and

social aspects of the company’s activities.

Observed

6.3. The company should provide information and documents requested by its shareholders in accordance with the principle of equal and unhindered accessibility.

6.3.1. The company should provide information and

documents requested by its shareholders in

accordance with the principle of equal and

unhindered accessibility.

The company’s information policy provides a non-burdensome procedure for giving its

shareholders access to information, including information about legal entities

controlled by the company, at the request of shareholders.

Observed

6.3.2. When providing information to its shareholders,

the company should maintain a reasonable

balance between the interests of individual

shareholders and its own interests, mindful of its

interest in keeping important business

information that may have a material impact on

its competitiveness confidential.

1. During the reporting period, the company did not refuse shareholder requests for

information or such refusals were justified.

2. In cases determined by the company’s information policy, shareholders are notified

of the confidential nature of information and assume an obligation to keep it

confidential.

Observed

7.1. Any actions that will or may materially affect the company’s share capital structure and its financial position and, accordingly, the position of its shareholders (“material

corporate actions”) should be taken on fair terms ensuring that the rights and interests of the shareholders as well as other stakeholders are observed.

7.1.1. Material corporate actions are deemed to include

reorganisation of the company, acquisition of 30

or more percent of its voting shares (takeover),

making major transactions by the company,

increasing or reducing its share capital, listing

and delisting of its shares, as well as other

actions which might result in material changes

in the rights of shareholders or infringements of

their interests. The company’s charter should

contain a list of (criteria for identifying)

transactions or other actions that constitute

material corporate actions and provide that

decisions on such actions shall fall within the

competence of the board of directors.

1. The company’s charter contains a list of transactions or other actions that constitute

material corporate actions and the criteria for identifying them. Decisions on material

corporate actions fall within the competence of the board of directors. In cases where

the law expressly places these corporate actions within the competence of the general

shareholders meeting, the board of directors provides appropriate recommendations to

the shareholders.

2. According to the company’s charter, material corporate actions include

reorganisation of the company, acquisition of 30 or more percent of its voting shares

(takeover), making major transactions by the company, increasing or reducing its share

capital, and listing and delisting of its shares.

Observed


passing resolutions or making recommendations

relating to material corporate actions, relying on

opinions of the company’s independent

directors.

The company has in place a procedure whereby independent directors can

communicate their opinions on material corporate actions before their approval.

Observed

7.1.3. When taking material corporate actions which

would affect rights and legitimate interests of

shareholders, equal terms and conditions should

be ensured for all shareholders; if statutory

mechanisms designed to protect shareholder

rights prove insufficient, additional measures

should be taken to protect the rights and

legitimate interests of the company’s

shareholders. In such instances, the company

should not only seek to comply with the formal

requirements of law, but should also the guided

by the principles of corporate governance set out

in the Code.

1. Taking into account specific features of the company’s operations, its charter sets

lower criteria for recognizing the company’s transactions as material corporate actions

than the minimum criteria set by law.

2. During the reporting period, all material corporate actions passed an approval

process before their execution.

Observed

7.2. The company should have in place a procedure for taking material corporate actions that enables its shareholders to receive full information about such actions in due

time and influence them, and that also guarantees that the shareholder rights are observed and duly protected in the course of taking such actions.

7.2.1 Information about material corporate actions

should be disclosed together with explanations

concerning reasons for, conditions and

consequences of such actions.

During the reporting period, the company disclosed information about its material

corporate actions in due time and in detail, including the reasons for and the timing of

such actions.

Observed

7.2.2 Rules and procedures in relation to material

corporate actions taken by the company should

be set out in its internal documents.

1. The company’s internal documents provide a procedure for retaining an independent

appraiser to value assets being disposed of or acquired under a major transaction or an

interested party transaction.

2. The company’s internal documents provide a procedure for retaining an independent

appraiser to estimate the acquisition and redemption value of company shares.

3. The company’s internal documents provide for an expanded list of grounds on which

members of the board of directors and other persons referred to in respective laws are

deemed to be interested parties in transactions of the company.

Partially

observed

No internal documents

are in place; however,

relevant procedures are

put into practice.

7.6. INFORMATION ABOUT THE PROGRAMME FOR DISPOSAL

OF NON-CORE ASSETS

The non-core assets owned by PJSC Aeroflot include property and property rights, which are

outside its flight services, but may be closely related to the development of Aeroflot’s end

product. The Programme for Non-Core Assets Disposal of PJSC Aeroflot (version No. 6) was

approved by PJSC Aeroflot’s Board of Directors on 17 October 2016 (Minutes No. 3). The

Programme provides for disposal of nine non-core assets (shares, stakes in the share capital of

business entities, real estate). PJSC Aeroflot’s Board of Directors resolved to retain three assets

and to exclude another three assets from the Non-Core Asset Register following their

reclassification as core assets. The Programme also contains criteria for classification of assets as

non-core, the non-core asset register, information on encumbrances, book and market value,

approach to selecting assets for disposal, as well as disposal methods, procedures and timescales.

The Company’s approach to technological (non-core) assets that have a significant impact on the

core business of PJSC Aeroflot:

compare benefits from these assets (discounts, reduction in prices and rates,

improvement of PJSC Aeroflot’s product quality) with the cost of ownership;

monitor the effectiveness of corporate control.

Assets are sold if ownership is found to be ineffective and the corporate control – insufficient.

Technological assets that have a low impact on the core business of PJSC Aeroflot are evaluated

in terms of the cost of, and the need for, ownership, based on non-production criteria

(achievement of non-commercial objectives, type of business, goodwill, etc.). These assets are

disposed of if the effect of ownership is insignificant.

Real estate assets are analysed to determine their highest and best use for the airline’s operational

and commercial activities.

Details on disposal of PJSC Aeroflot’s non-core assets under the Programme for Non-Core Asset

Disposal in 2016 are shown in the tables below.

Disposal of PJSC Aeroflot’s non-core assets in 2016

N

o. Asset

Inventory

number

Asset balance sheet

item containing the

asset as at the

reporting date prior

its disposal

Accounting items

(analytics included)

containing asset

disposal income and

expense

Book value of

the asset,

RUB thousan

d

Actual cost of

disposal,

RUB thousand

Actual cost of

disposal vs book

value,

RUB thousand

Reason for

discrepancies

1

Joint-stock company

with limited liability

ALT Reiseburo A/S

(N/A) 1,150 1,150 452.92 9,209.00 8,756.08

Market value (cost

of disposal) of the

asset is higher than

its book value

TOTAL 452.92 9,209.00 8,756.08

2016 contracts to purchase/sell securities/interest in non-core entities

Initiatives to increase/decrease the

stake in the share capital of

subsidiaries and affiliates

Change in the stake in the share capital

of subsidiaries and affiliates (amount

of decrease (-) / increase (+), %)

Reference to the resolution that introduced

the change Benefit

Joint-stock company with limited

liability ALT Reiseburo A/S –100

The Programme for Non-Core Assets Disposal

of PJSC Aeroflot approved by PJSC Aeroflot’s

Board of Directors on 28 May 2015; the

Resolution of PJSC Aeroflot’s Board of

Directors dated 26 November 2015

According to independent assessment, the

stake was sold for RUB 9.209 million, i.e.

above its market value (RUB 8.756 million)

7.7. ENERGY CONSUMPTION BY AEROFLOT GROUP AIRLINES

IN 2016

Aeroflot

Description

Actual consumption

in physical terms in RUB’000 (net of

VAT)

Jet fuel, total, tonne 2,365,190 71,841,801

Heat energy*, Gcal 41,006 61,175

Electric power*, kWh 29,700,180 108,992

Vehicle fuel, total, litre 5,197,268 171,813

Aviation lubricants oil, litre 257,567 174,731

* Excluding representative offices and branches.

Rossiya

Description

Actual consumption


VAT)

Jet fuel, total, tonne 527,089 16,673,649

Heat energy, Gcal 9,420 16,615

Electric power, kWh 5,284,186 26,313

Vehicle fuel, total, litre 242,001 7,284


Pobeda*

Description

Actual consumption


VAT)


Vehicle fuel, total, litre 6,322 244

* Heat and electricity consumption is not metered by the Company since it operates from leased office

premises.

Aurora

Description

Actual consumption


VAT)


Heat energy, Gcal 6,228 11,438

Electric power, kWh 2,059,635 10,704

Vehicle fuel, total, litre 428,000 15,732


7.8. AEROFLOT GROUP OPERATING DATA

Aeroflot airline

Indicator 2012 2013 2014 2015 2016

Passenger traffic, thousand PAX 17,656.1 20,902.4 23,610.0 26.111.7 28,977.9

International Routes 10,707.2 12,294.5 12,468.2 13,445.4 14,873.7

Domestic Routes 6,948,9 8,607.9 11,141.8 12,666.3 14,104.2

Passenger turnover, million RPK 50,532.5 60,226.3 67,121.7 74,115.9 82,693.3


Domestic Routes 15,578.6 19,611.9 24,445.2 27,341.5 29,354.3

Available seat-kilometres, million

ASK 64,880.0 76,444.8 85,822.1 93,471.1

101,757.

9


Domestic Routes 19,294.5 24,052.4 29,615.2 33,262.0 34,370.9


International Routes 76.7 77.5 75.9 77.7 79.2

Domestic Routes 80.7 81.5 82.5 82.2 85.4

Cargo and mail carried, thousand

tonnes 193.9 176.5 145.3 135.1 175.5

International Routes 147,7 118.0 81.5 74.6 96.1

Domestic Routes 46,2 58.5 63.8 60.5 79,4

Revenue tonne-kilometres, million

TKM 5,669.2 6,339.9 6,722.7 7,291.0 8,253.1


Domestic Routes 1,614.8 2,033.0 2,485.9 2,719.9 2,988.5

Available tonne-kilometres, million

TKM 8,881.1 9,848.7 10,660.0 11,706.1 12,694.6


Domestic Routes 2,425.6 3,027.6 3,676.9 4,157.5 4,282.6

Revenue load factor, % 63.8 64.4 63.1 62.3 65.0


Domestic Routes 66.6 67.1 67.6 65.4 69.8

Revenue flights 149,590 167,071 183,645 206,228 218,734

International Routes 89,506 98,084 97,668 104,336 110,149

Domestic Routes 60,084 68,987 85,977 101,892 108,585

Flight hours, hours 460,734 509,058 554,659 594,863 639,524

Rossiya airline

Indicator 2012 2013 2014 2015 2016

Passenger traffic, thousand PAX 4,208.9 4,590.1 5,191.8 4,751.6 8,099,5

International Routes 2,130.2 2,113.5 1,914.7 1,459.5 2,430,2

Domestic Routes 2,078.7 2,476.6 3,277.1 3,292.1 5,669,3

Passenger turnover, million RPK 8,760.9 9,186.3 10,147.4 8,695.0 18,719,6


Domestic Routes 3,022.5 3,606.9 5,280.2 5,241.2 11,161,7

Available seat-kilometres, million

ASK 11,304.7 12,031.9 13,414.3 11,483.8 22,921,2


Domestic Routes 4,180.8 4,867.6 6,762.2 6,877.5 14,158,1



Domestic Routes 72.3 74.1 78.1 76.2 78.8

Cargo and mail carried,

thousand tonnes 9.9 10.2 9.6 8.9 21.4


Domestic Routes 7.8 8.0 8.1 7.4 20.1

Revenue tonne-kilometres,

million TKM 810.3 848.0 934.1 802.4 1,775.6


Domestic Routes 288.1 339.5 491.9 487.4 1,092.0

Available tonne-kilometres,

million TKM 1,239.0 1,325.3 1,478.8 1,267.0 2,657.2


Domestic Routes 452.9 537.2 752.2 766.6 1,703.2



Domestic Routes 63.6 63.2 65.4 63.6 64.1

Revenue flights 43,636 46,416 50,975 45,761 62,534


Domestic Routes 26,594 28,944 33,020 31,989 45,284


Rossiya airline (proforma)

2015 2016

Passenger traffic, thousand PAX 9,066.9 8,800.3

International Routes 2,342.1 2,627.1

Domestic Routes 6,724.7 6,173.2

Passenger turnover, million RPK 16,982.1 20,482.3



Available seat-kilometres, million ASK 22,913.9 25,245.4



Passenger load factor, % 74.1 81.1

International Routes 76.1 86.5

Domestic Routes 73.1 77.7

Cargo and mail carried, thousand tonnes 14.6 22.7



Revenue tonne-kilometres, million TKM 1,558.3 1,936.2



Available tonne-kilometres, million TKM 2,478.5 2,917.0

International Routes 826.2 1,097.2


Revenue load factor, % 62.9 66.4



Revenue flights 82,106 68,590

International Routes 20,778 18,511

Domestic Routes 61,328 50,079

Flight hours, hours 190,446 178,969

Note: consolidated data for Rossiya, Donavia and Orenair airlines

Pobeda airline

Indicator 2014 2015 2016

Passenger traffic, thousand PAX 107.4 3,0897 4,285.9

International Routes - 6.2 473.6

Domestic Routes 107.4 3,083.5 3,812.3

Passenger turnover, million RPK 134.0 4,668.4 6,712.9

International Routes - 12.3 1,050.5

Domestic Routes 134.0 4,656.1 5,662.4

Available seat-kilometres, million ASK 171.8 5,746.3 7,605.5

International Routes - 17.8 1,334.0

Domestic Routes 171.8 5,728.5 6,271.5

Passenger load factor, % 78.0 81.2 88.3


Domestic Routes 78.0 81.3 90.3

Cargo and mail carried, thousand tonnes 0.5 0.3 0.3

International Routes - - -


Revenue tonne-kilometres, million TKM 12.6 420.7 604.6



Available tonne-kilometres, million TKM 17.6 601.0 800.3



Revenue load factor, % 71.6 70.0 75.6



Revenue flights 735.0 20,057 25,668

International Routes - 48.0 3,208

Domestic Routes 735.0 20,009 22,460

Flight hours, hours 1,476 41 016 53,892

Aurora airline

Indicator 2012 2013 2014 2015 2016

Passenger traffic, thousand

PAX 1,427.5 1,403.6 1,055.2 1,124.8 1,376.2

International Routes 321.4 303.9 213,0 234.7 314.4

Domestic Routes 1,106.1 1,099.7 842,2 890.1 1,061.8

Passenger turnover, million

RPK 3,384.9 2,875.8 1,753.1 1,869.7 2,221.8


Domestic Routes 2,774.0 2,324.6 1,419.7 1,499.1 1,731.7


million ASK 5,075.3 4,173.6 2,337.9 2,609.8 3,045.2

International Routes 1,000.0 948.3 485.6 647.7 721.1

Domestic Routes 4,075.3 3,225.3 1,852.3 1,962.1 2,324.1



Domestic Routes 68.1 72.1 76.6 76.4 74.5

Cargo and mail carried,

thousand tonnes 12.4 10.4 6.2 6.2 7.2


Domestic Routes 9.6 9.3 5.7 5.8 6.8

Revenue tonne-kilometres,

million TKM 339.7 283.0 170.0 180.3 213.8


Domestic Routes 279.4 231.4 139.2 146.3 169.0

Available tonne-kilometres,

million TKM 557.3 465.0 252.9 287.3 335.1


Domestic Routes 449.2 361.4 199.4 211.9 250.7



Domestic Routes 62.2 64.0 69.8 69.1 67.4

Revenue flights 16,415 16,176 12,801 15,441 18,861


Domestic Routes 12,143 11,920 9,949 11,824 14,829


7.9. GLOSSARY

Aviation terminology

Low-Cost Carrier (LCC) – an airline that offers lower fares than traditional airlines,

reflecting limited service provision, while also charging additional fees for on-board and

airport services.

Routes – domestic routes, international routes.

Code Sharing – agreement on joint commercial operation of a flight by two or more

airlines, one of which acts as the operator (operates the flight in addition to selling tickets),

while the others act as marketing partners (selling tickets only).

Network Carrier – an airline that, unlike low-cost carriers, offers a wide variety of services

through one or more hubs with connecting flights.

Maintenance, Repair, and Overhaul (MRO) – Technical maintenance, ongoing repairs,

and major renovations to aircraft.

TCH – Transport Clearing House.

Hub – a hub airport is a central connection point for many different flights: passengers and

goods are transported from their departure point to a hub, from which they are carried to

their final destination on another plane with other passengers and goods from other parts of

the world.

BSP/ARC (Billing and Settlement Plan / Airline Reporting Corporation) – settlement

systems between agents and airlines, organised by IATA, that facilitate and simplify air

transportation sales on neutral forms (not owned by any airline) thereby offering airlines the

opportunity to expand their market presence, minimise financial risks and reduce expenses

incurred through the maintenance of sales systems. ARC is an analogous system operated in

the United States.

IATA (International Air Transportation Association) – IATA, founded in 1945, is the

prime vehicle for inter-airline cooperation in promoting safe, reliable, secure, and

economical air services – for the benefit of the world’s consumers.

ICAO (International Civil Aviation Organization) – an international civil aviation body

established following the signing of the Chicago Convention on International Civil Aviation

in 1944. It is a specialized UN agency responsible for developing international standards,

recommended practices and regulations regarding the technical, economic, and legal aspects

of international civil aviation.

IOSA (International Operational Safety Audit) – The IATA IOSA program is an

internationally recognized and accepted evaluation system designed to assess a company’s:

organization and operational management, flight operations, engineering and technical

maintenance of aircraft, ground service for aircraft, the operational control systems

including maintenance management and flight scheduling, on-board service, aviation safety,

and provisions for transporting cargo and hazardous cargo.

ISO – The International Organization for Standardization.

Operational terminology

Passenger traffic (PAX) – the number of passengers carried by an airline:

• Direct PAX – passengers flying directly between their origin and destination.

• Transit PAX – passengers flying with a stop-over in a hub airport on their way from

origin to destination.

Passenger-Kilometres/Tonne-Kilometres – metrics used in the aviation industry to

measure operating performance:

• Available Seat-Kilometres (ASK) – a measure of an airline’s carrying capacity offered

for the market, derived from multiplying the available seats on any given aircraft by the

number of kilometres flown on a given flight. ASK is measured in seat-kilometres;

• Revenue Passenger-Kilometres (RPK) – a measure of available capacity actually used,

calculated by multiplying the number of paying passengers on any given flight by the

distance travelled. RPK is measured in passenger-kilometres;

• Available Tonne-Kilometres (ATK) – a measure of an airline’s total capacity (both

passenger and cargo), calculated by multiplying the capacity in number of tonnes available

for the transportation of passengers and cargo by the distance flown. ATK is measured in

tonne-kilometres;

• Revenue Tonne-Kilometres (TKМ) – a measure of an airline’s cargo and passenger

carriage capacity utilisation, calculated by multiplying of tonne of freight (passengers,

calculated at 90 Kg per passenger) by the distance flown. RTK is measured in tonne-

kilometres.

Passenger Load Factor (PLF) – a measure for an airline’s capacity utilisation, defined as

the ratio between RPK and ASK.

Revenue Load Factor – the ratio between the number of tonne kilometres and the available

tonne kilometres.

Origin and Departure points (O&D) – locations between which passengers are

transported. This term is used in measuring

the quantitative indicators of various markets, as defined by arrival and departure points,

irrespective of whether direct or transit traffic is involved.

Financial terminology

Unit revenue and cost – key performance measures in the aviation industry, defined as

revenue or cost for ASK or RPK:

• Yield – the ratio between passenger revenue and revenue passenger-kilometres;

• Revenue per Available Seat-Kilometre (RASK) – the ratio between revenue (either

passenger revenue or total revenue) and available seat-kilometres;

• Cost per Available Seat-Kilometre (CASK) – the ratio between operating expenses

and available seat-kilometres.

Total Shareholder Return (TSR) – measures the return on investment for shareholders,

taking into account the share price appreciation and dividends paid.

EBITDA – earnings before interest, taxes, depreciation, and amortization. Aeroflot includes

customs duties in this indicator.

EBITDAR – earnings before interest, taxes, depreciation, amortization, and operating lease

expenses (rent costs). Aeroflot includes customs duties in this indicator.

7.10. CONTACT INFORMATION

Full name: Public Joint Stock Company “Aeroflot – Russian Airlines”

Abbreviated name: PJSC Aeroflot

Certificate of registration in the Unified State Register of Legal Entities:

issued by the Moscow Department of the Russian Ministry of Taxes and Levies on 2 August 2002,

No. 1027700092661

Taxpayer Identification Number: 7712040126

Location: 10 Arbat Str., Moscow, Russian Federation

Postal address: 10 Arbat Str., Moscow, 119002, Russian Federation

For Russian retail shareholders:

Corporate Governance Department

Tel./fax: +7 (495) 258-0684

E-mail: [email protected]

For investors:

Investor Relations

Tel./fax: +7 (495) 258-06-86, (499) 500-69-63/fax


Press Service:

Tel.: +7 (499) 500-7387, (495) 752-9071

Fax: +7 (495) 753-8639


Registrar:

SC “Independent Registrar Company”

Building 5Б, 18, Stromynka Street, Moscow, 107076

Tel. +7 (495) 926-8160

Fax: +7 (495) 926-8178


Sheremetyevo Branch of the Registrar:

Location: Aeroflot Aviation Personnel Training Department,

Building 6, Terminal B, Sheremetyevo Airport, Khimki,

Moscow Region

Tel./fax: +7 (495) 578-3680

Opening hours for share operations:

Monday-Thursday: 9:30 to 16:00, break from 13:00 to 13:30;

Friday: 9:30 to 14:30, without break




AEROFLOT GROUP ANNUAL REPORT...

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